Setting my financial goals... baby steps towards financial independence

I have had people asking me, how come I think of retirement planning when I just graduated from university? Most college graduates are working hard at repaying their study loan in the short term.

I must say I am one of the luckier ones. My parents had nil CPF balances (used it to pay for the HDB housing mortgage loan as our flat was bought at the property peak and hence loan amount was very high), so my loan was paid off in cash in full. (To be honest, it was tough on my parents.)

However, for young people like us, time is on our side! Whether you are 25 or 30 or 35 now, there is a good thirty years to retirement at 62, the official retirement age. Using the Rule of 72, generating a 6% annual return means your investment amount doubles in 12 years!

How did I start planning for retirement?

Initially, I started setting aside some money each month, around $400, and plonked them into mutual funds. The funds made money at first, and I continue putting money into these equity funds month after month (in a time of rising prices). However, the recent credit crunch has made me lose a substantial 10% of my investments as of now (it was down over 15% at one point). This is another good thing about starting early: you have the time and patience to ride out business cycles! So I have not sold any of my funds, as I believe it will appreciate in the medium term of 3-5 years. Nonetheless, it made me reassess my net worth and I have since placed a smaller percentage of my net worth in mutual funds (also known as unit trusts), choosing to invest directly in the stock market instead.

So how do I keep track of my retirement plans now?

The first important thing, I believe, is to set a retirement goal. I decided early on that I want to earn my first million dollars by the age of 35 - that would ten years from now, and this is my long-term goal. To monitor my progress towards this large goal, I have set many shorter term goals in between. The hallmark moment came when I first reached a net worth level of S$100,000. That was the first time my net worth crossed the sixth-digit mark, and is a significant milestone in my financial planning management, given that I earn less than half that amount in annual income (not to mention that interim capital losses delayed this special moment).

The following are my net worth targets based on conservative annual returns, i.e. 5% annual returns instead of 6%. Thus, the age that I will reach my S$1 million goal is around 38 years old.

Jun 2008: $120,000
(unfortunately, I am not near this level yet. This is because I made some personal choices, and decided to spend a rather substantial amount on current travels.)

December 2008: $135,000
(Hopefully, with discipline, I should be able to reach this level or near it towards the end of the year.)



To be honest, by then, S$1 million would not mean much, since inflation has been running high lately and probably most of us lower- to middle-income earners are already millionaires by then! However, that point is definitely memorable as it marks a significant step towards financial independence. Using S$1 million capital as base, one could easily double it to S$2 million in 12 years using a reasonable 6% return, and this means this same S$1 million turns to S$2 million when I turn 50 years (38 + 12), notwithstanding that I continue to save up and invest during these twelve years. This should result in financial independence earlier on in my life, so I could choose to work in areas I am interested in, including unpaid jobs.

The Dreams of Financial Independence

I believe my dreams are what motivate me to defer current consumption in favor of future consumption. I want to be financially free, to be able to travel the world and befriend friends from all over the world, learning and understanding customs and appreciating differences in culture. Most of all, I would like to spend my last years in rural areas, leading a simple lifestyle with a slower pace of life, and teaching children during my spare time.

Each of us have dreams, and we should dare to dream. Because only when we dream, then we are able to make dreams happen!

So continue to check back this blog regularly as I make updates on my financial position, and my journey towards financial independence. Importantly, I hope it motivates you to save harder or gives you a pat on the back if you have done well in terms of net worth growth! Join me as I struggle between difficult consumption and investment choices, as I am sure we all do. And let's all work hard towards achieving our dreams!~

Great Singapore Sale 2008

The Great Singapore Sale starts today!

For every Singaporean, it certainly marks a season of shopping with great deals! This year's sale is especially inviting, since retail sales have been slowing down and retailers are introducing deep discounts in an attempt to boost mid-year sales.

Before you head out to the malls, remember to check the newspapers and the website for cut-out or print-out coupons. It takes up only a while of your time, yet this small act can save you a lot of money!

The official website, for example, has a coupon website. Some savings include:
- Get $10 off with every $100 spent at Watson's
- 50% off Leonard Drake Facial or Health Spa treatment

Also, look out for credit card partnerships to reap more rewards! For example, Millenia Walk has StanChart as its credit card partner, Suntec City has ABN Amro, while FrasersCenterpoint Malls encourage you to use UOB cards. The GSS is sponsored by Mastercard, so it pays to use cards with the Mastercard logo as well if there are promotions in-store.

Honestly, I'm getting confused with the myriad of promotions out there - all I know is, always double check for any discounts or rewards before purchase! Remember, the small cents do count! And happy shopping!~

The Road to Financial Freedom

The other night, I was talking to a friend, W, over the phone... and I was inspired by the amount of savings she manages to accumulate each month.

W receives salary of around $2,300, and is able to put aside $1,200 in her online savings account each month. That is an impressive savings rate of >50%! And since she gives a monthly allowance to her parents of roughly $600, that essentially means she gets by with only $600 each month!

Let's do the sums. Assuming W starts off with a net worth of $20,000. The forced savings of $1,200 will increase her net worth to $34,400 at the end of one year (ignore compounding for now, since interest rates in Singapore continue to be very low). If, a year later, her salary increases by $500 and she is able to put aside $1,500 in forced savings. Two years later, her net worth increases to $52,400. These calculations did not include bonuses, so assuming bonuses of $10,000 for each year - her net worth at the end of two years increases to $72,400!

To make a comparison, assume another friend, K, earns $3,400 a month, and spends $2,800. She justifies the extra spending as she has to be on par with her colleagues in terms of dressing, and dines out frequently with her friends. After taxes, she manages to save $500 a month. A 15% savings rate is a decent amount, especially for fresh college graduates just starting out. Starting with the same net worth of $20,000, she ends up with $26,000 at the end of one year. A year later, her salary increases by $800 and thus she increases her savings to $1,000 a month. At the end of two years, her net worth increases to $38,000. Her bonuses amount to $30,000 over two years, of which she saved $20,000. Her net worth at the end of two years becomes $58,000.

Earnings (Annual)
K $ 70,800
W 47,600 (48.7% less)

Net Worth
End of Year 1
K $ 36,000
W 44,400
End of Year 2
K $58,000
W 72,400

This may be a simplistic example, but it teaches us an important lesson in financial planning - that net worth is determined not by how much you earn, but by how much you spend! K earns on average 50% more than W each month, but her net worth is 25% less than W's! Extrapolating this trend, it's not hard to figure out who ends up richer. Since both of them live in the same city and are subject to similar costs of living, differences in net worth is a result of differences in consumption and saving habits. And it's all the more inspiring because this is a real-life example so you know it can be done!

So, instead of thinking negatively and complaining about how little you earn from your job, change your thoughts to positive ones! You now know that you can use your cents to build up future riches!

Here is a useful formula to follow: Expenses = Income - Savings.
W makes a conscious effort to spend only what is left after saving up a specified portion of her income. K uses Savings = Income - Expenses, and while the formulae are equivalent, she spends first and saves up whatever is left. This typically leads to overspending, because people tend to spend when they see positive balances in their accounts!

Make it a habit to save from today, or else you'll make it a habit to spend! Which would you prefer? :)

My Credit Card Rating System

Well it's no secret that banks and credit card companies have been supplying me with plenty of plastic over the years. A typical look at my wallet shows at least 8 cards from 3-5 different banks - the rest would remain in my drawer.

A common (and valid!) question I usually get is "Hey, how do you know which card to use?" or "Don't you get confused? I only use one card." or even "You are not maximizing the use of reward points since you can't accumulate them in one card."

Indeed, confusion ruled in the initial days. I started off applying for one card each from two banks, enough for my use. Then with the advent of roadshows and telemarketing (I am skeptical when they tell me my mobile number and other details are confidential) and free gifts, I started signing up for more cards. Sometimes, it happens when the telemarketers are nice and friendly, and I thought it doesn't hurt me to help them anyway. It gets easier to apply for subsequent cards from the same banks as they already have your information plus, more importantly, your credit payment history.

It is important to manage your credit card expenditure and bills, or your finances in general. More cards do, in some ways, encourage you to spend more. My spending has increased with more cards (not my income though :( ) but thankfully, it is under control. I will leave this topic to another post since I want to address another issue here: namely, which card to use?

I will attempt to articulate my thought process here although I am not sure if it is clear for all. I applied for supplementary cards for my mother and she is confused with me telling her which cards to use.

There are only two general rules to follow:

Rule No 1. If there are ongoing promotions, use the card that qualifies for the promotion. If many cards are eligible, follow Rule no. 2.

For example, if a store advertises a 10%-storewide sale for holders of CB-credit cards, use CB-issued credit cards. This is a no-brainer. Similarly, when dining out, ask if there are dining privileges - if credit cards from XX bank offers 15% off total bill, dish out your XX-credit card from your wallet. If you stick to using only one credit card, then too bad - yes, you accumulate points (good for you!) but at a miserable rate of 0.5%, while I get 15% off a total bill of say $100. That is $15 vs. your point-equivalent of $0.50. You choose.

If the promotion applies to all Visa-cardholders for example, you suddenly realise that any of your five Visa cards qualify. When in doubt, use Rule no. 2.

2. Use the card that ranks the highest in your credit card rating system.

This applies when there is no particular promotion and you are free to choose which card to use. I know your immediate question is - "What are you talking about? I don't have a credit card rating system!" No worries, I will show you mine and you can modify it for your own use.

I use a quantitative measure, i.e. I will not use a card because of its prestige or exclusivity (only for the ladies, or only for the rich), because it is a fair measure. Plus, where I am now, prestige does not count. It's not as if I'm in any tai-tai social circle anyway! I have chosen to use Cash and Cold Storage shopping vouchers as the benchmark. Cash, because cash is king. Thus I use the card which offers me the most cash rebates because I can use cash to buy a.n.y.t.h.i.n.g. since it is a medium of exchange. And why Cold Storage? Because prices are rising, and groceries are necessities. Yes I can make a comparison using Takashimaya Shopping Centre shopping vouchers, but anything I purchase there is not a need. And if groceries are necessities, you ask me, why not NTUC? Simple, because Cold Storage vouchers are accepted widely! Just name it - Cold Storage supermarket, Shop and Save, 7-11 (buy your parking coupons, your bread, etc.), Guardian, Photo Finish, etc. I usually pass these vouchers to my mom when I receive them :)

Okay, so how does my ranking system work? Cash should be clear enough. For Cold Storage vouchers, I visit the individual banks' websites or flip through the booklets they send me with the updated conversion rates. These rates do change as often as the weather! So it pays to do a little bit of research every now and then.

For a sample calculation, let us use hypothetical figures:

Bank A gives 1 point for every $5 spent. For 700 points, it allows you to redeem $20 Cold Storage vouchers.

Bank B gives 1 point for $1 spent. For 3000 points, it gives you a $10 Cold Storage voucher.

Bank C gives 1 point for every $1 spent. For 3500 points, it gives you $20 worth of Cold Storage vouchers.

My rating system tells me I should use Card C, Card A then Card B in this order. If I do not exceed my credit limit and there are no specific promotions (Rule no 1), I will only use Card C to 'maximize' my reward points and receive my Cold Storage voucher sooner.

How did I get this rating result?
Card A's exchange rate is: $20 per 700*5=$3500 of spending, or 20/3500 = 0.57%
Card B's exchange rate is: $10 per $3000, or 0.33%
Card C's exchange rate is: 0.57%, same as Card A.
I prefer Card C to Card A because I assume Card A rounds down the rewards points (it may not be the case), i.e. for $6 spent, you only receive 1 point and a spending of $19 entitles you to 3 points. Over the long term, you receive 4 points for every $25 spent while its Card C provides you with 5 points equivalent (25/5) so Card C provides a better deal in this instance.

Now lest you think that this is complicated, you only have to do this rating once and revise it ocassionally. Let me use my real life example to show you how easy this really is.

Disclaimer: This is for illustration purposes and does not constitute a recommendation to use any particular bank's card! This is not a sponsored post, just a desire to share some tips and my practices with fellow consumers. Follow this example at your own risk - results differ due to differences in spending habits, consumption patterns and spending levels. There is also Vnothing inherently wrong in using only one card to meet all consumption needs, or boycotting the use of credit cards. Pay your credit card bills in full to enjoy the privileges of credit cards usage.

This is an illustration of Rule no 2 (I may use other cards more often in order to follow Rule no 1):

1) UOB One Card
In using this, I applied my rule of Cash is king. This is also a relatively new card so it shows that I am using updated information to revise my rankings.

How this works? Spend $300 ($800) each month for three consecutive months or a total of $900 ($2400) each quarter and receive cash rebates of $30 ($80) for the quarter.

Effective rate: 30/900 = 3.33% cash rebate

Tips: It is close to impossible to keep track of your exact expenditure each month. I usually spend ~$400 each month, over the minimum required of $300. Still it is an impressive 30/1200 = 2.5% rebate! I do not make it a point to hit the $80 cash rebate because there are months when I spend around $500, even though my aggregate bills exceed $1000 usually (recall Rule no 1). The downside is I have to consciously ensure that the minimum of $300 is met else I forfeit the entire cash rebate for the quarter (I have not met this month's minimum yet!).

2) StanChart's Visa Platinum Access Card
I applied for this card only after the telemarketer's persistence.

How it works? It converts every purchase of $100 into 24 equal monthly installments at 5% interest rate and 6% administration fee. I hardly purchase individual items above $100 so this installment scheme is not attractive to me, as such I sign for purchases under $100 using this card and receive double the reward points.

Effective Rate: $20 voucher / (700 points / 2 * $5/point) = 1.14%

3) HSBC Visa/Mastercard Gold

Effective Rate: $20 voucher / (3500 points * $1/point) = 0.57%

Tips: This effective rate is similar to my StanChart platinum cards but I prefer HSBC simply because it provides unlimited supplementary cards for life. Thus both my mom and dad have supplementary cards and my dad uses his card to pay for his petroleum, thereby allowing me to accumulate the points across all three cards.


See how easy this Rating System is? All I do is use the One Card for my first $300-$400 of purchases, subsequently use StanChart's card for any subsequent purchases under $100 and HSBC for the rest. UOB cards used to rank high on my list (I spent a five digit sum in the past year across my various UOB cards) but it fell lower on my ranking system as it changed the terms of its reward system and accordingly, I spent less on my UOB cards.

There you go - I hope you found this post useful for your credit card needs. everyone's smart enough for finance! Now 15 credit cards under your belt does not seem so scary anymore! Grin.

Now this is what I call street-smart. Oh, and did I mention I simply adore credit cards? =)

Note: Rewards information correct at time of writing. The banks have every right to amend their rewards at any point in time. For accuracy, please refer to the bank's website or latest brochures.

ABN Amro Switch Platinum Card

I recently applied for the ABN Amro Switch Platinum Card, and I was told by the telemarketer it comes with a ABN Amro Platinum Card as well. With a belt of over 10 cards under my name, I was hesitant. But here's what made me agree to the switch (apologies for the pun ;p):

* No annual fees ever!
Now this is an explicit statement saying that they are not going to charge any annual fees! So there is no need to call their customer service hotline seeking fee waivers, and no worries about minimum spending to qualify for the fee waivers!

I think this is a smart move - how many of us pay the annual dues? Traditionally it has been a source of revenue stream for credit card companies, but in recent years it has dwindled in importance. Of my 15 cards (I think... I lost count), I have never paid for the fee subscription, as I took advantage of the x-year fee waivers. There was once I was asked to pay the annual fees, and I cancelled the card. No loss, really, the banks just keep presenting me with cards! It definitely pays to have a good credit history :)

* No cash advance fee
This is attractive for those who obtains emergency cash advances from ATMs, whether locally or overseas. The cash advance fee ranges from an upfront 2-4% usually. However, do note that although there are no upfront fees, the bank does charge interest on the cash amount withdrawn at the prevailing rates! So use it as an emergency back-up line.

* 18% p.a. interest
There are some months when cash is tight - and we are only able to pay off the minimum payment. So a lower interest rate, vis-a-vis competitors' rates of 24% p.a. helps, since interest is calculated on a daily basis.

My advice is, try to spend within your means - spend only what you can afford. And attempt to pay off your credit card bills in full. Credit card companies and banks still love you for this - if you spend enough (like I do!), they still want your business! The business model has changed such that the bulk of revenues come from retailers (credit card companies charge an average of 2-3% to retailers for offering their services).

Still, for the ocassional months when cash flow becomes tight, it helps to be able to pay lower interest.

* 3 times more rewards points
You also get 3 times more reward points for your spend within the first 30 days of card issuance. It's temporary but still it's better than nothing. It goes to show how competitive this retail bit of business is and banks are becoming more creative at luring customers at all expense!

* Waiver of admin fees for cab rides
For those of us who take cab rides often, you will know that for payment by credit cards, the cab companies charge an additional 10% on top of the cab fare. ABN Amro partnered with Comfort, City Cab and Yellow Top (i.e. the biggest cab companies locally) to waive the 10% admin fee and GST for payments using an ABN Amro credit card. Now when there is a huge jam and the cab fare turns out higher than expected, there's no need to worry about not having enough cash in your wallet!

I know this feature appeals to auditors especially. Due to the nature of their work, extensive travel is needed. And cab fares, like other out-of-pocket expenditure are paid first while it takes at least a month for the accounting firms to reimburse their staff. So by using ABN Amro credit cards, they are able to get on to cabs and get the reimbursement on time to pay their credit card bills! Not to mention ABN Amro offers a priority booking hotline as well - comes in handy on rainy days when hotlines are swarmed with bookings!

Overall rating: Average
This rating is based on a self-made rating system using Cold Storage vouchers. The conversion rate is S$80 Cold Storage vouchers for 3200 points (an average spending of ~S$16,000), or approx. 0.5%. The rate compares well with other banks but other banks provide voucher denominations of $10 and $20, so you get to exchange for vouchers sooner. Alternatively, you may choose to use S$50 + 1200 points (~spending of $6,000) to redeem the vouchers.