moneybanter - Insights

moneybanter - Insights http://www.moneybanter.com.sg/blog.php This is a discussion forum on financial and money topics. en Wed, 10 Mar 2010 14:25:42 GMT 60 http://www.moneybanter.com.sg/images/misc/logo_mb.gif moneybanter - Insights http://www.moneybanter.com.sg/blog.php Teaching workers to be money savvy http://www.moneybanter.com.sg/blog.php?b=52 Tue, 19 May 2009 09:37:01 GMT This article was first published in the Straits Times Recruit on 19 May 2009. Offering financial advice as an employee benefit is important in... This article was first published in the Straits Times Recruit on 19 May 2009.

Offering financial advice as an employee benefit is important in good times and bad.

While the Jobs Credit Scheme is likely to reduce the number of retrenchments expected, downsizing will, unfortunately, still be unavoidable for some companies in tough times.

Job cuts are rarely good for a company’s image. They are also nerve-wracking for departing employees and demoralising for “surviving” staff.

To turn a difficult time into a positive experience, risk and trauma for both organisation and the individual need to be minimised. Taking the right action can help prevent your organisation’s brand from being tarnished. Doing just a bit more can position your company as an employer of choice – a great advantage in the war for talent, especially when the economy recovers.

To help retrenched workers transit to the next stage in their career, many organisations engage outplacement firms, which provide affected employees with services such as interview skills, resume writing and in some cases, one-on-one career coaching.

They also help employees to deal with the emotional stress that retrenchment may bring about.

exiting employees

However, the biggest source of stress that comes with retrenchments – money issues – is often overlooked. With their income tap turned off, a huge worry for many affected people is how to prevent their cash flow from running dry.

While outplacement services are important and extremely beneficial, good financial counsel from the outset will allow your people to focus whole-heartedly on their job search without any nagging money worries at their back of their minds.

Employers have the opportunity to enhance their transition programmes with targeted and relevant financial advice, provided in a timely manner. That advice should be specific to the money issues that are related to the employer’s own remuneration package.

This allows the exiting employee to address critical financial issues, such as how to make the most of his severance package, managing cash flow to meet living expenses, restructuring debts and tax liabilities. He will also need to close the gap caused by the loss of company benefits such as health plans and life insurance coverage.

For mature workers who are made redundant, this may be an opportunity to take an early retirement package, start a business or even go back to school. Quality financial advice at this critical juncture can help them determine if they can afford that next stage in their lives and career.

Having a financial plan that addresses a person’s long-term goals will assist him in gaining the confidence and drive to work towards that next leg in his life journey.

A small effort to review remuneration benefits for departing employees prior to their exit will provide a highly relevant and timely benefit and supports best practice “duty of care”.

survivors

The “survivors” of downsizing exercises should also not be overlooked. Not only will they be feeling demoralised and left to shoulder their ex-colleagues’ work, they will feel uncertain about their own careers and insecure about their financial future.

In a survey of 270 organisations, The Aberdeen Group found that the top strategic action for these companies to weather the storm in 2009 was to increase employment engagement. According to the report, “elements like layoffs, decreased bonuses, and cutting other incentives tend to affect morale and satisfaction. When morale is affected, the risk of turnover – especially of key talent – increases”.

The report states: “Engaging employees during difficult times helps them see the big picture and aligns them with the long-term organisational objectives that aim to increase efficiency and productivity. In addition, maintaining strong employee engagement ensures that critical talent is retained and aligned with long-term goals.”

There should be a strong focus on survivors’ personal development and strategic alignment to business goals, to engage employees during these challenging times. Taking it a step further – removing their financial stress – can have far-reaching benefits, providing employers with a high-value, low-cost way to embed key talent to the organisation.

Firstly, in a climate of reduced bonuses and incentives, this is a cost-effective benefit that is likely to be valued by employees.

A recent study on Singaporeans’ understanding of financial planning commissioned by ipac, an international financial advice and investment group, revealed that more than 70 per cent of the 310 respondents felt that employers should provide financial advice as an employee benefit.

The majority saying that “financial planning advice is as important as other employee benefits” and that this “shows that the employer cares for the employee’s well-being”.

Secondly, the same ipac study showed that more than 90 per cent of the respondents said that financial stress had a negative impact on productivity at work.

Thirdly, by helping employees achieve not just their business goals but also their personal and financial goals – companies demonstrate their commitment to employees’ long-term work-life success, a smart way to engage key talent more effectively.

going the extra mile

Restructuring and downsizing is never pleasant for all parties involved. A well-planned exercise and going the extra mile can provide your exiting employee with a more positive transition, reassure the “survivors” and demonstrate responsibility and accountability to the market.

~ This article is contributed by Cheok Mei-ing, head of corporate consulting services, ipac financial planning Singapore private limited, which is licensed with the MAS, Financial Adviser’s Licence No FA100003-3.

For more information, please send your questions and comments to financial.planning@ipac.com.sg

In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any person. Before making an investment decision, you should speak to a financial adviser to consider whether this information is appropriate to your needs, objectives and circumstances. ]]> ipac singapore http://www.moneybanter.com.sg/blog.php?b=52 Seeing through the hocus bogus http://www.moneybanter.com.sg/blog.php?b=51 Wed, 13 May 2009 09:44:45 GMT This article was first published in the April 2009 issue of Smart Investor magazine. The global financial crisis uncovered Bernard Madoff and R.... This article was first published in the April 2009 issue of Smart Investor magazine.

The global financial crisis uncovered Bernard Madoff and R. Allen Stanford for fraudulent financial operations – highlighting the possibility of other scam opportunists who will try to take advantage of desperate investors during this bleak period. With portfolios down, increasing worries of layoffs, job security and consumer debt from various loans, the financial crisis has indeed compounded events – leaving some out there in a position where they would be willing to try anything to recover their money.

In good times, get rich quick schemes sound great, but in bad times they can sound even better especially to someone who is feeling the pain and apprehension of not knowing when the markets will recover. Scammers work off other people’s vulnerabilities, emotions and greed. At times, it is our very own fear about losing money that can work against us and allow us to fall prey to perceived solutions that seem to offer a way out.

When combined, greed and fear can cloud judgement and result in drastic, negative decisions. With every promise of higher returns comes higher risks, but the thought of fulfilling our desires with the rewards can blindside us.

No matter how attractive an investment package seems when presented to you, it is always best to educate yourself on what you are getting into. Ask the right questions: What will happen to your money in a worst-case scenario? Can you afford for that worst-case scenario to happen? What is your goal in getting this product and does it match your risk tolerance? Would this investment cover the four fundamentals of a balanced portfolio – quality, value, diversity and time?

Your investment strategy should be for the long-term and fit in with your objectives and goals.

Stephen Greenspan, psychologist at the University of Connecticut, and who lost some of his savings to Bernard Madoff, wrote an essay discussing why intelligent investors still continue to be swindled, even though investment is an area wherein people are the most skeptical. Using his own situation as a case study, he boiled it down to four factors: situation, cognition, personality and emotion.

Many of the people who were attracted to Madoff’s offer were taken in by the exclusivity of this “club” of investors. To throw off their suspicions, he promised them modest returns to make it sound more plausible. What was most worrying was that these where intelligent, well-educated people who were looking for a secure source of retirement funds and believed this was a good, safe opportunity.

avoiding investment scams

What can you do when tempted by an offer that is vague but provides high returns? Here are some things to remember:

~ If it sounds too good to be true, it probably is. On reading the Madoff Ponzi scheme, something out of the ordinary was that the continual reported performance was always good. A lawful investment professional would not promise sure bets. There are no legitimate get-rich-quick schemes; if there were, we all would be investing in them. Ponzi schemes unravel when investors pull out their money.

~ Be wary of anyone who compels or presses you to make an immediate investment decision or suggests leaving the financial decision making “to the experts”. While it is understandable to feel intimidated or confused by complex financial jargon, on your part, you need to ask lots of questions and insist that the salesperson explain the investment until you understand it. The nature of the risks involved can vary widely and you should totally appreciate this before undertaking any type of investment. Protect yourself by educating yourself.

~ The personality of the scammer is often a major factor, especially in the case of a Ponzi scheme on Madoff's scale. Scams are generally run by people who are extremely polite with good handle on etiquette to get on your good side and to give the illusion of personal integrity. They also rely on your good manners to keep you from cutting them off. Do not let your good manners end up in financial loss; when the investment sounds risky or filled with uncertainties, stop the conversation and walk away. Do not let fear and greed dim your good judgment.

~ If your financial agent defers or delays your plans to withdraw your money, you may have uncovered a scam or a fraudster. If you are not investing in a fixed-term security, like a bond, you should be entitled to receive your funds within a few days. Insist on regular written reports and look for signs of excessive or unauthorised trading of your account. Also you should be advised on proper disclosure on exit clauses, surrender charges and sales commissions. Constant vigilance will help against fraudulent investments.

~ Ask if the company has its reported performance numbers independently audited, who audits them, and whether these figures comply with the regulatory board’s standards. Ask to see the investment management operation’s infrastructure for trading and administration.

~ Be cautious of offshore investments. While some are legitimate, there are many others which have different regulation, and it is far more difficult to locate and recover your money overseas should something go wrong. Any financial agent who is not registered with the Monetary Authority of Singapore (MAS), makes it extremely difficult and costly to seek retribution.

~ Diversification is a safe way to limit your exposure to scams. Limit the amount you invest in any particular asset and exposure to unnecessary risks as diversification can protect you if an investment turns out to be fraudulent. Risk in the market cannot be avoided, but you should not be taking on more risk than you can stomach.

Our emotions of greed and fear can be very powerful, and we can sometimes talk ourselves into believing that a touted product or scheme is “safe” because we may be blinded by the promised returns. If possible, always make it a point to talk to your trusted adviser to bounce it off him or her for an objective opinion.

how to find someone you can trust?

As humans, we decide based on emotion and once we trust someone, stop questioning further and place our complete trust in others. In this climate where trust in financial institutions has been so severely eroded, it is only understandable for people to ask: Who can I trust with my money? How do I know I can trust this person with managing my money?

Find out if your adviser is licensed with the MAS and check for recognised qualifications like CFP (Certified Financial Planner). Check out the scope of the company’s services – whether the planner and company have the skill, knowledge and resources to manage all aspects of your finances: investment, tax planning, retirement planning, estate planning and risk management. Find out whether they provide a comprehensive, written financial plan that gives you a snapshot of your current position and outlines your objectives. This also shows your adviser is making recommendations based on a thorough understanding of your current situation and goals.

Also remember that at the end of the day, having your fundamentals in place is critical. Your adviser's strategy should not be so complicated that it cannot be explained to you or how your portfolio is affected. If you are hiring a professional to manage your wealth, you should be comfortable enough to call with questions or request clarifications.

~ This article is contributed by Brian Goh, Senior Vice President and a Licensed Financial Adviser Representative with ipac financial planning Singapore private limited, which is licensed with the MAS, Financial Adviser’s Licence No FA100003-3.

For more information, please email financial.planning@ipac.com.sg

In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any person. Before making an investment decision, you should speak to a financial adviser to consider whether this information is appropriate to your needs, objectives and circumstances. ]]> ipac singapore http://www.moneybanter.com.sg/blog.php?b=51 Don’t Monkey Around With the Lack of Insurance http://www.moneybanter.com.sg/blog.php?b=48 Sun, 12 Apr 2009 03:35:44 GMT There was a case of a 26-year-old undergraduate who met a car accident after a pair of monkeys leapt in front of his vehicle (“Undergrad suffers... There was a case of a 26-year-old undergraduate who met a car accident after a pair of monkeys leapt in front of his vehicle (“Undergrad suffers brain injury after monkeys cause crash”, Sunday Times, 1 Oct 2006)

According to the newspaper report, his brain injury exceeded $40,000 in hospitalization expenses. His secretary mother will have to pay for all his medical expenses because he was uninsured. His own father died 14 years ago due to a heart attack.

Although I do not know the family personally, my sympathy goes out for the family. We are witnessing possibility another family being devastated by life unfairness. Moreover, the family who could have averted a financial crisis due to life unfortunate events. While it is impossible to avoid all problems in life, the story of the mother who has to be burden with more then $40,000 (and possibility further escalating cost) is entirely unfortunate by itself because such financial crisis could easily be avoided by a risk transfer through a legal contract.

Many people are unaware that for a 26-year old, a mere $242 of annual premium (of which $131 can be paid by Medisave) in medical insurance can pay a large chunk of the hospital bill. By my estimate, a $37,000 can be paid out by the insurer for a hospital bill of $40,000. This represents 92.5% of payout. The cost of insurance? An average of $20 per month. How much does a mobile phone subscription bill cost? Mine ranges from $20 to $35 per month. How about yours? You can see how inexpensive such insurance can be for such young age.

Of course there are other insurance that provide coverage that a hospital & surgical plan cannot pay. In any case, if insurance is so important, why are people not getting themselves insured? Here are some reasons:

1. Ignorance. Ignorance is not wrong because everyone is born ignorant. But the cause of prolonged ignorance lies in a person’s lack of desire to take control of one’s finances.

2. Uninsurable. Those born with congenital problems may not insurable. Then there are people who procrastinated for too long only to find themselves eventually uninsurable due to medical problems developed later in life. High cholesterol, high blood pressure and diabetes are some of the urban illnesses that insurers hate to see. In fact, I have so many clients who want to buy as much insurance as they would like but they are not insurable due to pre-existing conditions. The irony is that those who are young and healthy are not interested in insuring themselves thinking that they will be perpetually healthy.

3. The desire to self-insure. This desire to self-insure is more peculiar to the young and healthy individuals. I have never come across any person who is near retirement age and wants to self-insure. Most retirees are unwilling to use their retirement nest egg to self-insure. Yet, these retirees could be uninsurable due to medical problems that have developed over the years. For those who are young, the issue is not whether do they have the desire to self-insure. The issue is that young people are not capable of self-insuring because they have no assets to pay for any medical bills.

4. Wrong priority. People spend a fortunate purchasing their house, spend a great deal of time in their career, pay a hefty price for the best enrichment classes for their children and yet fail to see that a serious illness or injury will tear down all they have built over the years. In fact, should anything happens to a sole breadwinner, it could cause financial bankruptcy to their dependents. As I understand, Singapore does not officially practice a social welfare system.

5. Assuming good coverage by paying high premium. I know of someone who is an average wage earner paying $1000 in monthly insurance premium and yet is underinsured. The truth is that he had purchased inappropriate insurance. The older folks often say that insurance might not pay when you need it. Yes, this is correct when a person had bought the wrong insurance for the wrong purpose.

6. Over reliance on companies’ group employee benefit insurance. Such a insurance is provided for employees as staff benefits. This kind of insurance is good only when you remain in the group. When you leave the group such as resignation or retirement, you are not covered. Also, you may not be insurable after you leave the group. Moreover, group insurance relies on the renewability of the group’s master contract with the insurer. In other words, the group insurance is not guaranteed renewable.

7. Taking for granted that all medical insurance is the same. It is untrue that all medical insurance is the same. Many people are insured with the CPF’s medishield insurance. This insurance is severely inadequate with major sub-limits. For those who had opted for better private-integrated plans, not all are the same. Some are worst then others. Do not assume what you have is good.

8. Engaging an adviser with vested interest. Good insurance plans such as medical insurance, term insurance, etc attracts very low commissions. If your financial adviser primarily earns through commissions or is required to achieve a sales quota, you are not likely going to get an appropriate coverage.

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This article was first posted on 1 Nov 2006 with minor updates to the figures. The article was originally posted on this blog HERE ]]> wilfredling http://www.moneybanter.com.sg/blog.php?b=48 Don’t be deceived by the “hold to maturity” http://www.moneybanter.com.sg/blog.php?b=47 Sun, 12 Apr 2009 03:11:18 GMT There has been a number of structured products that which have lost significant amount in value. Some of these structured products were sold by... There has been a number of structured products that which have lost significant amount in value. Some of these structured products were sold by banks, some by fund houses and others by insurers as single premium ILPs. There are also some sold by FA representatives as introducers. Many of these investors are seeking for advice on what to do. One of the most common advice is this: The product is meant to hold to maturity, therefore the price will go up to $1 when it mature. Really? Without going in depth into the exact details of the product, I don’t think it will ever go up to $1.

Considered a structured note that is now having NAV of $0.20. The par value is $1. If the maturity period is 4 years from now, what is the return required to grow it to $1? It will require 49.53% per annum! Is there such investment in the world that can give such a guaranteed return? If this is true, it is possible for a buyer to buy at this price and earn a risk free return of 49.53% pa! Wa… I also want to buy. Now, I know many people will say that most of these structured products are closed ended fund. So it is not possible to buy the fund. No worries, there are many desperate sellers who wants to exit the fund if the NAV is slightly better. Therefore, a buyer can find a willing seller and pay slightly more than the NAV to the seller (so that the seller is willing to sell). Is this legal? Of course it is legal. It will be legal if it is under contract law.

For a contract between two parties, there must be an offer and there must be an acceptance. Moreover, there must be consideration (money exchange). So if there are two parties – the buyer offers to buy at NAV+10% (example) to the seller and the seller accepts, the contract is sealed when the buyer pays the seller the agreed payment. When the product matures, the seller is contractually obligated to pay the buyer whatever the maturity value of the product. So here we have a mechanism for the buyer to buy at the most attractive investment product in the world! For single premium ILP, it is much easier. No need to setup a contract. The seller just need to do an absolute assignment of the policy via his insurer to the buyer. The buyer just need to pay the seller the agreed amount. Upon maturity of the ILP, the proceeds will automatically go to the new owner.

So now, those who thinks that the NAV will go up from $0.20 will go up to $1 has a way to enjoy this super return! So what are people waiting for? People are not stupid, nobody is doing this because the structured product’s value is the fair value. There is no fantastic opportunity here. If it is guaranteed that the maturity value is $1, than the price currently is merely a present value of the maturity value. The discount rate to be use is the risk-free rate which is currently 0.99% per annum (based on 01 Apr 2013 maturing SGS bonds). Therefore the NAV should be = $1/(1+0.99%)^4 = $0.96. I use SGS bonds as the discount rate because if the “guarantee” is absolute certain that the product will mature at $1, than the discount rate based on the risk free SGS is suitable. It can be seen that the $0.20 is far from $0.96.

The next time a financial adviser tells you to wait for your 20 cents structured product to mature at $1 within the next few years, tell him that you will sell the product to him at a 10% premium. That financial adviser will run away from you and never contact you again.

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This blog entry was first posted on 7 April 2009 on this blog HERE ]]> wilfredling http://www.moneybanter.com.sg/blog.php?b=47 Your unit trusts is underperforming the market http://www.moneybanter.com.sg/blog.php?b=46 Sun, 12 Apr 2009 03:03:36 GMT It is not true that active managed unit trusts are able to outperform its index funds counterpart. The reasons are: 1. It has to do with the law... It is not true that active managed unit trusts are able to outperform its index funds counterpart. The reasons are:

1. It has to do with the law of arithmetic as put fore by Professor William F. Sharpe, the noble prize winner for Economics.

2. High brokerage cost

3. Bid-ask spread of the underlying securities due to high turnover and

4. Impact cost

My personal estimate of the total expense ratio ranges from 2.50% per annum to 9.20% per annum. My estimate includes published expense ratio plus hidden expenses legally not required to be declared. It is also a fallacy that just because Emerging Market is inefficient that means active managed unit trusts can do better than its index funds. For more information on this, read this article first published by Q Magazine:

Get better returns from your existing funds

Why is that most IFAs and FAs only recommends unit trusts? Why they don’t mention anything about ETFs (which is a security traded on the stock exchange tracking the relevant market index)? It is because the former earns commissions through sales charge and/or wrap fees. Recommending ETFs earn no upfront sales charge and cannot put any wrap fee on it. There are only three firms in Singapore that recommends ETFs because their fee structures are not limited to commissions. ]]> wilfredling http://www.moneybanter.com.sg/blog.php?b=46 <![CDATA[Dave Ramsey's Total Money Makeover - Book Review by Panzer]]> http://www.moneybanter.com.sg/blog.php?b=45 Wed, 18 Feb 2009 06:03:39 GMT Panzer’s penchant for performing book reviews surfaces again as I embark on my next series reviewing Dave Ramsey’s “Total Money Makeover... Panzer’s penchant for performing book reviews surfaces again as I embark on my next series reviewing Dave Ramsey’s “Total Money Makeover” that took me a weekend to read but many more sessions to digest each of his 7 Baby Steps. This 7 parter will be less intense that the previous “Are You Ready for Retirement” series as Dave’s 7 steps are more intuitive and require lesser number crunching and running through of CPF rules. :-)

I had heard of Dave Ramsey many times because many personal finance blogs make reference to the concept of “debt snowball” that is popularised by Dave Ramsey. I had heard of that term many times but never really understood it until I picked up a copy of “Total Money Makeover” through our excellent public library system.

Who is Dave Ramsey
He a best-selling author, radio host and someone who was a millionnaire before his 30s and he became bankrupt before discovering the knack for counselling people in dire financial straits. Like any popular figure, he also has his share of criticisms as you can see in this wikipedia article.

“Total Money Makeover” is one of his popular books and is the subject of our discussion.

Debt is BAD, BAD, BAD!

Make no qualms about it, Dave Ramsey is an interesting writer because his writing voice is informal and feels like he’s talking to you through the book. He peppers the books with side notes on “Dave’s Rants” or “Myths” that he dispels about debt and money. His approach to your total money makeover of a typical debt-ridden family or individual is to get with the program to become Arnold Swarzendollar. I kid you not…

His approach to getting yourself and your family’s finances back into shape is to follow the 7 Baby Steps:

1. Save $1,000 cash as starter emergency fund
2. Start the debt snowball
3. Finish the emergency fund
4. Invest 15% of your income in retirement
5. Save for college
6. Pay off your home mortgage
7. Build wealth

Baby Step #1 - Emergency Fund

When I visit many financial portals such as SgFunds or HWZ’s Money forum, many newbies like to ask how to start investing. The advice that tends to come first is to build up your emergency fund. This is also what Dave Ramsey advocates that we should set up our emergency fund at 3-6 months of your income (or living expenses). The average American in his book earns USD 40,000 a year, so 3 months is about $10,000. But the $1,000 is a pyschologically more achievable target for many who are so in debt that even saving a few dollars after paying the bills seem impossible.

The reason why you should have an emergency fund is because, “duh”, emergencies DO HAPPEN in real life and you need to have a buffer so that you won’t rack up NEW DEBT or dip into INVESTMENTS when it strikes. It is pretty common-sense and yet very true. Most investment books advocate that you should have some cash as part of your portfolio for that bit of liquidity.

For those who are just starting out your investments capital. Do start an emergency fund first. I personally also keep a emergency fund that varies from 3-6 mths of my income to buffer for unforseen expenses. It also allows me not to cash out my investment in stocks and shares should I need urgent cash for a major outlay that is unplanned.

An emergency fund looks easy but is not for those who are used to living BEYOND your means at TO THE LIMIT of your means. I count myself fortunate to have parents who were rather frugal and their frugal habits rubbed off onto me as I grew older and started working and earning an income.

To set up your emergency fund is to live within your means to build up the savings.

Delaying gratification is increasingly one of the great challenges to our consumer culture.

Be well and prosper.

========
Panzer is a 30-something accountant who finally grasped the concept of financial freedom at the ripe old age of 32. Ever since, he has been travelling on his journey towards financial freedom and documenting his adventures through his blog .

His first self-published book, “Panzer’s Guide to Financial Freedom: It’s Your Money and It’s Your Life“, was launched in November 2008 sharing his thoughts on his journey towards financial freedom. ]]> panzer http://www.moneybanter.com.sg/blog.php?b=45 <![CDATA[Your Money or Your Life: Panzer's Book Review]]> http://www.moneybanter.com.sg/blog.php?b=44 Wed, 18 Feb 2009 04:28:41 GMT *Transforming Your Relationship with Money and Achieving Personal Independence* I had heard of this book many times through surfing the net for... Transforming Your Relationship with Money and Achieving Personal Independence

I had heard of this book many times through surfing the net for personal finance websites and blogs and finally decided to order this instead of borrowing it from the public library on a whim. What a decision it was… :-)

Unlike most personal finance books that provide tactical ways for you to be better at managing your money, “Your Money or Your Life” takes a similar and yet different tack. Fundamentally, why this book is different from other books is that underneath the 9 step technique, the ethos of the authors is alignment to your values, your personality and yourself. It is not about right or wrong but about examing your life through the various exercises aimed at making you aware of what is your relationship with money.

The book’s blurb says that it shows you how to:

* get out of debt and develop savings
* resolve inner conflicts between values and lifestyle
* reorder material priorities and live well for less
* slow down the work-and-spend treadmill
* make values-based decisions about your spending
* discover the power and perfection of “enoughness” - and know how much is enough for you

Bullet points one seems to be close to the standard books that talk about personal finance. However, the second and third bullet points are areas less explored by other books, which connects with me as those are areas I have been exploring even without having read the book and resonates strongly.

Making a Living vs Making a Dying

The first chapter of the book sets the stage but asking us tough questions on why we deem subsisting in the rat-race as making a living when in reality it could be seen more as making a dying. We get caught up in the endless work-earn-spend-work cycle that defines most of our adult lives without thinking about whether there is more to life than this.

I have been exploring financial freedom with this blog since early 2007 and learning to manage my own finances since the early 2000. I realise that through trial and error, mistakes and tuition fees, I have managed to get slightly ahead of the curve but am still caught in the rat-race though as a less frantic pace as I have very little debt and has built up a decent amount of personal net worth.

The book echoes many of my own feelings towards life in general and I remember a period of time when I was involved in toastmastering activities that gave me so much fulfilment even though I was not paid a cent to help coach others in public speaking.

“Your Money or Your Life” shares with us how consumerism and materialism has made us reliant on buying “stuff” in our lives to make us happy. However, there is a limit on how much happiness we can get from “stuff” instead of relationships and connecting with people. The law of diminishing utility or “fulfilment curve” referred to by Joe Dominguez and Vicki Robin afflicts everyone of us no matter what the income level.

Chapter 1 engages us to firstly, establish all our lifetime income earned till today and to create a balance sheet of our net worth. This allows us to see how much money we have earned in our lifetime and what we have to show for it.

This sets the stage for the other 8 steps in transforming our relationship with money and achieving financial independence.

Key takeaways

The main takeaway from Chapter 1 is that the authors feel that materialism and consumerism is the root to many of our money problems. In order to re-order our relationship with money, we start by looking at the past (how much we have earned in our lifetime) and examine the present (how much net worth do we have).

This is the starting point for many personal finance books as well, to take stock of your net worth. I have already been tracking my net worth so I didn’t have to do much for this exercise but I worked on the lifetime income and was astonished with the figures. I compared this to my net worth today and realised that I was quite frugal in my earlier working years which helped to contribute to where I am now.

I don’t claim all the credit because really, it was my parents’ frugality that rubbed off onto me in my adult life.

Watch out for Part 2, as I will be releasing parts of my book review and my thoughts as I complete each section of the 9 step plan in “Your Money or Your Life”.

Be well and prosper.

==========
Panzer is a 30-something accountant who finally grasped the concept of financial freedom at the ripe old age of 32. Ever since, he has been travelling on his journey towards financial freedom and documenting his adventures through his blog Five Cents Ten Cents.

His first self-published book, “Panzer’s Guide to Financial Freedom: It’s Your Money and It’s Your Life“, was launched in November 2008 sharing his thoughts on his journey towards financial freedom. ]]> panzer http://www.moneybanter.com.sg/blog.php?b=44 Financial Freedom: Money is Not Everything http://www.moneybanter.com.sg/blog.php?b=43 Wed, 18 Feb 2009 04:25:39 GMT As I traverse along this journey towards my goals in financial freedom, I’ve come to some realisations that challenge my entire view of what it means... As I traverse along this journey towards my goals in financial freedom, I’ve come to some realisations that challenge my entire view of what it means to be financially free.

In the beginning, I thought what everything was thinking. To be financially free means to be able to buy anything and everything without worrying about money. The more I started to understand and apply the principles of living within my means, saving and investing, growing and protecting my means, the more I realised that to achieve financial freedom, I need to understand that money is not everything!

Why money is not everything

The paradox of financial freedom is that so long as you cannot have control over your impulse to spend and use up your finances unwisely, no level of earned or passive income will be enough because your human wants are unlimited relative to the resources available.

This is why we keep hearing stories of very rich people who still become bankrupt even when they were worth millions. Mike Tyson, once a top boxing champion spent away all his millions. If you cannot exercise control and understand how your life energy in the form of money is going, then it will be very difficult for you to ever truly achieve financial freedom.

The key to financial freedom is wanting what you need

Financial freedom becomes more of a reality when we see that the key is keeping our wants manageable while fulfilling our needs. The basic human needs are simple. Food, shelter, safety. If you are healthy and can work and have some education, this is generally not a problem. The more basic you keep your needs, the easier it is for your to achieve financial freedom by saving and investing a capital sum sufficient to generate passive income that covers your living expenses.

Many things in life cannot be guaranteed by money. We can buy good healthcare but we cannot buy guaranteed good health. We can buy time with our friends but we cannot buy genuine friendships. We can trade money for time but we cannot take back the time lost if it is not spent on family and true friends.

The more I grow my investments and suffer the occasional delay due to life’s changes such as birth of my daughter and the financial crisis hitting my equity portfolio, the more I realise money is indeed not everything. Money is important, make no mistake about that. It pays for the home, utilities, food, medical costs and transport. But it cannot replace internal happiness generated from having a loving family, committed friends and connected life.

I’ve recently gotten onto facebook and realise it is a great tool for connecting with others we have met in our lives. The older I get, the more I realise these connections start to be more important because we tend not to make many new friends as we age. So keeping existing friends and acquaintances becomes more important because ultimately, we are social creatures that need that social interaction to feel alive and part of the tribe of people.

What has been your insights in financial freedom

Share with Panzer what you’ve learnt in your life that helps or hinders you towards financial freedom.

Be well and prosper.

======
Panzer is a 30-something accountant who finally grasped the concept of financial freedom at the ripe old age of 32. Ever since, he has been travelling on his journey towards financial freedom and documenting his adventures through his blog Five Cents Ten Cents.

His first self-published book, “Panzer’s Guide to Financial Freedom: It’s Your Money and It’s Your Life“, was launched in November 2008 sharing his thoughts on his journey towards financial freedom. ]]> panzer http://www.moneybanter.com.sg/blog.php?b=43 Budgeting for Baby http://www.moneybanter.com.sg/blog.php?b=42 Wed, 18 Feb 2009 04:21:58 GMT Children are a scarce commodity in Singapore. With our total fertility rate at 1.29, families are becoming smaller and children are getting fewer. ... Children are a scarce commodity in Singapore. With our total fertility rate at 1.29, families are becoming smaller and children are getting fewer.

The impact of this is that each child who is conceived becomes the jewel of the crown, the apple of the family’s eye and the precious one who will inherit all when he or she comes of age.

A baby born is a mouth to be feed for the next 20 years or so. Since the birth of my daughter, I’ve come to realise how much it costs to feed, clothe and provide for her. I thought it would be interesting to share with you how much it can cost you if you are thinking of family planning as well as financial planning.

This series will cover three phases of the birth of a baby into the family:

1. Pregnancy stage (1st 9 months)
2. Birth and the first month
3. The first year

I’m currently coming to the end of the 1st year and it has been a challenging ride going through the ups and downs as well as the cash outflows (with some inflows courtesy of MCYS) related to my daughter’s birth.

Pregnancy Stage (1st 9 Months)

This is where after the “magic” happens as the celebrities on MTV’s Cribs programs like to talk about when showing off their bedrooms, the expenses start to come in with the first visit to the gynaecologist to confirm the pregnancy. :)

Choice of Gynae

The first major cost is the monthly checkups. Depending on your choice, the fees can vary between private hospitals and restructured hospitals. My own experience has been to budget $80-120 per visit. This may vary depending on your own gynae’s charges for professional consultation and medicine prescribed.

Maternity Ward and Hospital Related Charges

There are two components to this: ward charges and delivery fees. My own daughter was born in Mt. Alvernia hospital and they offer 2-3 day maternity packages that vary in price depending on the room. The ward charges range from as low as $1,106 for 4 bedder for normal delivery (without epidural) up to $4,166 for 3 days stay in family suite for Caesarean with epidural.

These are only the ward charges. You still have to pay for the delivery charges which includes the use of the delivery room and facilities charged by the hospital plus your own gynae’s fees plus anaestheticist’s fees. Another thing to note is that while your baby is in the hospital, you are expected to get a pediatrician to visit your baby each day. Per visit costs $100 so budget this as well. You can use medisave subject to some caps.

For comparison, my wife gave birth via caesarean with epidural and all in, it costs almost $10k because she stayed for 5 days and we had the single room. This was even though it was a normal delivery with no complications for my daughter.

Be sure to check your final bill because we noted double charging for one item in our bill due to a surgical consumable ordered by my wife’s gynae and issued by the hospital. It is chargeable to your final bill so scrutinise and take your time. Ask if you’re not sure what specific items are for.

Miscellaneous Expenses

Some wives will experience cravings for certain foods during pregnancy. If you are paying for your wife’s cravings, then you have to factor in the costs as well as maternity wear etc. We’ll discuss the baby stuff in part 2 of the series.

Money Saving Tips

If you are not fussy, accepting 2nd hand maternity clothes makes sense because your wife will only wear them for during the pregnancy so it may not be cost-effective to buy a large maternity wardrobe. Shopping around for gynaes by comparing prices through speaking with friends and colleagues may help. Choosing the right maternity package is also important factor.

Essentially, choose within your means and you should be fine.

How much did you or your spouse spend on maternity and ward charges?

Share with Panzer in the comments section.

Be well and prosper.

============
Panzer is a 30-something accountant who finally grasped the concept of financial freedom at the ripe old age of 32. Ever since, he has been travelling on his journey towards financial freedom and documenting his adventures through his blog Five Cents Ten Cents.

His first self-published book, “Panzer’s Guide to Financial Freedom: It’s Your Money and It’s Your Life“, was launched in November 2008 sharing his thoughts on his journey towards financial freedom. ]]> panzer http://www.moneybanter.com.sg/blog.php?b=42 Guide to Financial Freedom http://www.moneybanter.com.sg/blog.php?b=41 Wed, 18 Feb 2009 04:16:46 GMT I’ve just written my first book, “ Panzer’s Guide to Financial Freedom: It’s Your Money and It’s Your Life ” and will be offering it free for... I’ve just written my first book, “ Panzer’s Guide to Financial Freedom: It’s Your Money and It’s Your Life ” and will be offering it free for distribution. I will not charge for personal consumption but please contact me if you wish to use it for commercial purposes.

Here’s an excerpt from the book:

===========

1.3.2. Saving = don’t keep up with Lims, Muthus and Alis

Many of the stuff we find in our homes are basically trophies in the quest for us to go one-up against our neighbours. Your neighbour has a 29” Sharp Aquos, you get a 32” Sony Bravia. Your wife’s colleague gets a Coach handbag from her husband, your wife nags you to get a Prada for her birthday. Your cousin’s son goes to Pat’s schoolhouse for pre-school lessons, you feel compelled to part with thousands of dollars a month to send your darling daughter to Eaton House.

Where does all this keeping up appearances end up? In the path away from financial freedom. Looking good but ending up in negative net worth territory is not the way towards being financially free.

1.3.3. Investing is not about Oil-Pods and Sunshine Empire

We have heard the saying, “A fool and his gold are soon parted.” Guess what? We are all fools, but differ in the degree of being foolish. My apologies if you felt insulted by what I just wrote. What I’m saying here is that investment is a risky business. It is about knowing our own foolish tendencies to believe investments that are “too good to be true” because greed and fear that override our commonsense.

When investing, we all want something safe that is capital protected and yet earns us unlimited upside returns. Capital protection and yet 10-20% returns.

“Wait long long…” is another phrase you’ll hear if you are seeking such quick gains and profits. You risk falling for scams such as Oil-Pods or Sunshine Empire type of “investment” schemes.

Make no mistake. Investing is risky. You can potentially lose 100% of your investments if you do not understand what you are investing. Recent investors who staring at potential losses of all their monies and in some cases life savings of $250,000 put in their monies into Lehman Minibonds, High Notes, Pinnacle notes and the like not knowing that such structured products are very risky and not capital protected at all.

Success in investing doesn’t correlate with I.Q. once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

- Warren Buffet

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To receive your complimentary copy of “Panzer’s Guide”, please email me at rod.loh [at] gmail.com

Be well and prosper! ]]> panzer http://www.moneybanter.com.sg/blog.php?b=41 The Budget http://www.moneybanter.com.sg/blog.php?b=40 Wed, 11 Feb 2009 05:05:19 GMT *12% credit wage reimbursement* Since employers can already cut wages, cut the work week and ask workers to take “no pay” leave, to what extent... 12% credit wage reimbursement

Since employers can already cut wages, cut the work week and ask workers to take “no pay” leave, to what extent will the 12% job credit wage reimbursement up to the first $2,500 of wages for workers who contribute to CPF, help to reduce job losses?

For example, a 20% pay cut, I work day less a week, and some “no pay” leave, may effectively already cut wages by more than 50%.

So, how much more impact will the 12% have?

For employers who, in any case do not intend to retrench, the 12% is like a bonus – so, no impact on the retrenchment decision. For those in financial difficulties, retrenching means saving 100% versus just saving 12% by keeping the worker.

On the Channel NewsAsia Budget interview on 22 January, Mdm Halimah Yacob asked why the 12% reimbursement was quarterly and not monthly? The reply was that it would be an incentive for employers to keep the worker for at least 3 months.

If the employer has cash-flow problems, actually reimbursing him monthly may help to save workers, as some may have no choice but to retrench immediately, because they can’t wait 3 months.

Passing the rebates

Landlords have been asked to pass on the property tax rebates to their tenants. Since some landlords may be reeling from the downturn, to what extent will savings be passed on to tenants?

Taxi operators have also been asked to pass on the road tax rebates to taxi drivers.

Similarly, to what extent will this be done?

Banks

Since the announcement of the SME loans package in November, all media reports have said that it has generally been not very successful.

It thus remains to be seen, how successful the new Special Risk-Sharing Initiative will be?Conceptually, the problem may be that banks may still primarily assess loans based on the merits of the borrower. Even with the Government sharing 75% or 80% of the loss, a poor lending decision still means a loss to the bank.

As to calls for the Government to lend directly, the reason given was that the Government did not have the expertise.

Can’t the Government hire the expertise required?

HDB Flats

Increasing the Additional Housing Grant by $10,000 to $40,000, and the income ceiling to $5,000, for first-timers to purchase HDB flats, may result in even more people buying flats that they may have difficulty paying – with forecasts of job losses of as much as 300,000.

Perhaps a better measure may be to reduce the price of HDB flats which have gone up a great deal over the last few years, under the HDB’s market subsidy pricing policy.

Isn’t now a good time for this policy to be reviewed?

15% rental rebate

HDB, JTC, SLA and NEA will give a 15% rental rebate to tenants. Over the last year or two, I believe that rents generally went up much more than 15%. Government agency landlords should be asked to immediately review and try to reduce rentals in the light of the rapidly declining economic situation.

Otherwise, most may just give the 15% rental rebate.

Financial assistance for the poor

According to the Department of Statistics’ Key Household Income Trends 2008 report, the average per capita household income of the bottom decile of employed households was only $340.

If we use the generally accepted cut-off poverty line of $450 per capita monthly (which I understand is generally used by Community Development Councils (CDCs) and NTUC for giving financial assistance), then I estimate that about 100,000 household may need financial assistance.

If we add “unemployed households” and “retiree households” that may be finding it hard to make ends meet, how many households in total need financial assistance?

MP Dr Lily Neo asked this question in Parliament, and suggested the figure of 100,000.

If despite the doubling of the GST credits and S & CC rebate for those households that still fall below the $450 poverty line and have run out of resources, I would like to suggest that they could perhaps be given the assurance that they would get financial assistance which will bring them up to the $450 benchmark.

Note: This article was originally published by Leong Sze Hian on The Online Citizen. ]]> szehian http://www.moneybanter.com.sg/blog.php?b=40 MediShield - Why Burden the Elderly Further? http://www.moneybanter.com.sg/blog.php?b=39 Wed, 11 Feb 2009 04:57:50 GMT In the Channel NewsAsia report, “MediShield premiums to go up from December 1”, and the Ministry of Health’s press release on 27 April, the... In the Channel NewsAsia report, “MediShield premiums to go up from December 1”, and the Ministry of Health’s press release on 27 April, the government is increasing MediShield premiums from 1 December.

The hike will be by as much as $480 a year for older Singaporeans.

Whilst the deductible stays the same for those under age 80, at $1,500 for Class B2 and $1,000 for Class C, it will be raised to S$3,000 for Class B2 and S$2,000 for Class C for those aged 80 to 85. This is an increase of 100 per cent for those 80 to 85 years old.

Why is the government raising the Medishield premiums by $480 and the deductible for these older and elderly Singaporeans?

As it is likely that those Singaporeans in this age group may have more frequent and larger medical bills, why are we increasing their financial burden?

At that advanced age, it may also be more likely that their retirement financial resources may have diminished, and thus the financial strain may generally be more acute for these octogenarians.

What’s the point of topping-up the Medisave account of those age 81 and above by an extra $100 to $550, which was only announced a week before the revelation that the MediShield deductible will be increased by up to $1,500 and premiums by up to $480 a year? The increase of $1,500 is 173 per cent more than their one-time Medisave top-up!

Those who are aged 80 may be left in a bind, because they don’t qualify for the higher Medisave top-up, but are affected by the higher deductible (deductible is based on policy year as of age next birthday), and they are also not eligible for the raised annual Medisave withdrawal limit from $800 to $1,150.

Perhaps the government should be reminded that Healthcare inflation continues to be one of the main concerns for Singaporeans and that general inflation in Singapore hit a 27-year-high of 7.5 per cent just last month, in April.

Also, the government revealed in February a budget surplus of $6.45 billion. So, why add a further burden to our elderly Singaporeans?

Who will be footing the bill for the IRs?

I also refer to media reports about the $5.25 billion credit facility for the Marina Bay Sands Integrated Resort. (”$5.25b credit facility for Marina Bay Sands“, Straits Times, Feb 29)

In this connection, the funding of the other IR is a record for Genting and one of the largest syndicated credit deals in Singapore’s banking history (”Genting secures $4.2b loans for S’pore casino“, Straits Times Feb 11).

Against widespread disapproval of having two casinos in Singapore, and their possible social ills, one of the most compelling reasons cited for allowing them was that it would bring in a huge amount of foreign investments.

The Straits Times report said:
"DBS Bank, Overseas-Chinese Banking Corp, HSBC, Royal Bank of Scotland, and Sumitomo Mitsui Banking are the lead arrangers, underwriters and bookrunners for the loans, Genting said."

How much of the total of $9.2 billion financing for the two Integrated Resorts (IRs), syndicated by financial institutions in Singapore, will end up as money from Singaporeans, Singapore companies, Singapore financial institutions, and government-linked companies (GLCs)?

Was this issue ever discussed or made known to the public, during the “casino” debate, on the merits of the IRs?

Could this money have been put to better use in alternative strategies for Singapore’s economic development?

Aren’t the risks much higher, when so much of the investment funding comes from Singapore, which itself is contrary to what we were told – that investments for the two IRs would be from foreign investors?

In this connection, in the case of the recent international casinos’ investments in Macau, how much of the funding was syndicated by banks in Macau or China?

Note: This article was originally published by Leong Sze Hian on The Online Citizen. ]]> szehian http://www.moneybanter.com.sg/blog.php?b=39 CPF Life - Does it Really Address Retirement Needs? http://www.moneybanter.com.sg/blog.php?b=38 Wed, 11 Feb 2009 04:44:54 GMT I refer to the article “Income that stretches a lifetime, under new scheme” (BT, Feb 13 08). Under the old CPF system, a minimum sum (MS) of $... I refer to the article “Income that stretches a lifetime, under new scheme” (BT, Feb 13 08).

Under the old CPF system, a minimum sum (MS) of $ 67,000 at age 55, at the old guaranteed interest rate of 4 per cent, can provide a monthly payout of $ 600, from age 65 to 85.

Under the proposed Lifelong Income scheme (LI), the extra 1 per cent interest on the average yield of the 10 year government bond plus 1 per cent, if assumed to average 5 per cent, will provide a monthly payout of about $610 (male) or $570 (female) for as long as one lives.

Using the same 5 per cent under the old scheme can provide $720 a month, for 20 years – which is more than the $610 or $570 one would get from the new LI scheme.

In this connection, I would like to suggest that the Committee’s report comparing the old system and the new one, be also additionally done at 5 per cent for both systems, as it may not be an apple-to-apple comparison, to use 4 per cent for the old system against the new one at 5 per cent.

So, is it better to get $ 720 for 20 years, or $ 610 (male) or $570 (female) for life ?

Well, I think the answer depends on the median CPF Minimum Sum (MS) that CPF members have at age 55.

Since most CPF members nearing retirement (age 55) have an average of $66,000 in their accounts, according to the article “CPF balance of older members up to $66k but still can’t meet needs” (ST, Jun 30), is the average of $ 66,000 for the combined total of all CPF accounts, i.e. the Ordinary, Special and Medisave accounts ?

If this is the case, I estimate the median balance of the OA and SA total, to be about $ 20,000 plus, because only about 4 in 10 active CPF members were able to set aside the current prevailing MS of $ 99,600, either in cash or by pledging property.

With increasing HDB flat prices, more of the OA may be used up for housing, and the extra 1 per cent interest may not be enough to grow CPF account balances to $67,000 for about 60 per cent of active CPF members, by 2013.

I would like to ask how was the 60 per cent of members having $67,000 estimate derived, as a median balance (50 per cent of members) of about $ 20,000 for those age 50 now (assuming the median balance of those age 50 now is not substantially more than those who are 55 now), plus the extra 1 per cent for the next 5 years to 2013, cannot possibly grow to $ 67,000 for 60 per cent of members.

If the median balance is only $ 20,000, then it may be better to get $ 215 a month for 20 years, instead of $ 182 (male) or $176 (female) for life, because such a low amount may not be enough for lower-income retirees who may have little or no other assets to liquidate for income in retirement.
So, I think it may be unlikely that the lower-income will opt-in to the LI.

LI may not be enough to provide for retirement

As to the announcement in conjunction with the LI, that life expectancy for a male and female born in 2006, is 78 and 82.8 respectively, I believe some Singaporeans may be interested to know the life expectancy for those who are age 50 now. After all, it is this group that will be the first cohort to go into the LI, and not those born in 2006.

I would like to suggest that the actuarial projections be made public to facilitate feedback and review.

By excluding the projected 25 per cent who have less than $40,000 in their MS at age 55, the revised LI now, may not address the problem for which it was intended in the first place – which is to provide for those who may not have enough in retirement.

Are there any countries in the world, which have national pension schemes that excludes the bottom 25 per cent of the population?

Uncertainty of interest rates needs to be addressed

I also refer to the article “Most S’poreans expected to opt for payout at 80” (BT, Feb 14), and media reports about the big push to get people on board the new CPF scheme - the target being workers over 50, those with little CPF savings and the self-employed.

In order to encourage more Singaporeans to opt-in to the National Lifelong Income Scheme (LI), I would like to suggest that one aspect of uncertainty in the scheme, be addressed.

The uncertainty that may deter some people, is that the Committee’s LI reported in the media, assumes a 5 per cent interest rate on the first $ 60,000 of the Retirement Account (RA) and 4 per cent on the amount above $ 60,000.

For example, if the average interest rate in the future is 4 per cent, in the default Refund 80 plan, using the $ 67,000 RA example given, the monthly payout of $ 610 will run out at age 78, after 13 years and 3 months.

What this may mean is that there will be no money in the retirees’s RA component, and the monthly payout will only resume at age 80, from the LI Refund Premium (RP) component.

This uncertainty is the result of pegging the RA interest rate to the average yield of 10-year Government Bonds plus 2 per cent for the first $ 60,000 of the RA, and plus 1 per cent for the amount above $ 60,000.

This uncertainty is perhaps heightened in perception, because the floor rate on the RA after 1 January 2010 is 2.5 per cent, and the guarantee of 4 per cent under the old CPF system, is only good for 2 years until 31 December 2009.

To help persuade more people to join the LI, why not guarantee a rate of 4.6 per cent (using the $ 67,000 RA example), so as to assure CPF members, that there will never be a gap between their RA payout running out, and the commencement of the LI at age 80 ?

Alternatively, the guarantee could be given that if one’s RA runs out before the LI starting age, the Government will continue the monthly payout.

If there are surplus funds in the CPF member’s RA when the LI starts at say age 80, because actual CPF returns are higher than projected, how will these surplus funds be returned to members ?

Guidelines on Selecting Options

I would also like to suggest that some guidelines to be given on how to select the 12 options available.

For example, the difference in the refund to beneficiaries, between the Refund 65 and Refund 90 option, if a female dies just before reaching 65 is $ 38,765. This is 58 per cent more had she selected Refund 90 ($ 105,765 refund), instead of Refund 65 ($ 67,000 refund).
So, maybe someone whose health is not very good, should not choose Refund 65.

Finally, since about 25 per cent of active CPF members have less than $40,000 , and 40 per cent have less than $67,000, at age 55, it means that only 25 per cent will get more than $364 (male)/$340 (female), and 60 percent more than $610 (male)/$570 (female), for the life annuity payout starting at age 65.

After adjusting for inflation at 2 per cent per annum, $610/$570 is equivalent to only $453/$424, $372/$349, and $305/$285, at age 65, 75, and 85, respectively, in today’s value.

Note: This article was originally published by Leong Sze Hian on The Online Citizen. ]]> szehian http://www.moneybanter.com.sg/blog.php?b=38 3 Important Financial Statements for Investors http://www.moneybanter.com.sg/blog.php?b=20 Sun, 18 Jan 2009 09:59:00 GMT There are 3 important financial statements to the fundamental investors. They are: 1. Income Statement 2. Balance Sheet 3. Cash Flow Statement... There are 3 important financial statements to the fundamental investors. They are:

Income Statement
Balance Sheet
Cash Flow Statement

Here are the brief descriptions of the components of the 3 financial statements. Each component contains several sub-components themselves.

Revenue - Amount of money earned by the company.

Expenses - Cost of running the company and business.

Profits - Difference between revenue and expenses

Current assets - Assets that the company can use up or liquidate within the year of assessment. Non-current assets are the opposite.

Current liabilities - Debts that the company needs to return within the year of assessment. Non-current liabilities are debts that the company takes more than the current assessment year to pay back.

Equity - Difference between total assets and total liabilities.

Paid in capital - The amount of money raised during the company’s Initial Public Offering.
Retained earnings - Cumulative profits earned by the company after subtraction of dividends payouts.

Cash flow from operation - Cash generated from company’s core business.

Cash flow from investment - Cash spent on capital investment or other activities in investment vehicles.

Cash flow from financing - Record of activities involved in debts, loans and dividends. ]]> alvinchow http://www.moneybanter.com.sg/blog.php?b=20 The Importance of Having Two Bank Accounts http://www.moneybanter.com.sg/blog.php?b=19 Fri, 16 Jan 2009 08:05:34 GMT I don’t know about you. But I do have 2 bank accounts. One is known as an “operating account” where my salary gets paid into as well as all my... I don’t know about you. But I do have 2 bank accounts.

One is known as an “operating account” where my salary gets paid into as well as all my expenditures are taken from. Here is the list of transactions are made with this account:

Income:

Salary

Expenditure:

Bills payment
Loan installment
Insurance premium
Cash withdrawal
Share payment
Petrol costs
Donations

The other account is truly a “savings account” where I divert a portion of my salary to this account almost immediately when my salary is paid. I keep the ATM card out of reach so that I do not touch the money inside this account. I do not have checks or other withdrawing facilities tied to this account. No bill payment or insurance premium are made from it. It is important to make the account as inaccessible as possible so that your money is “safe”. I will only use the money for emergency situations.

This is what you should do:

Set up a new savings account with minimum banking facilities

Divert a portion of your salary into this account the moment you get paid
Leave the ATM card at home or leave it with your spouse (without him/her knowing your password of course!)
Once you have saved sufficient emergency fund, continue to put money into this account
Invest when you have thousands of dollars more than your emergency fund level
Repeatedly save and invest
Understanding the purpose alone is insufficient, you need to take action. Open an account today and tell us that you have done so.

For those who has an additional account already, save now and tell us you have done so.

I will give you a pat on your back. Trust me, you will feel good about yourself. ]]> alvinchow http://www.moneybanter.com.sg/blog.php?b=19