A good way to keep track of your expense

I can't remember what was my New year resolution last year, and as the New year had started, I thought I will try to have one. I try not to be too ambitious here, if there are too many resolutions, it might be hard to keep to it. I am sure many people have already made their new year resolution, but I am not sure how many of these resolutions are about improving one's financial health.

I am going to start with a basic one, which is to keep track of my household expense. I still remembered I used to have an army mate who will record daily without fail, how much he spent into the good old blue colour small notebook. Over the years, I tried many times starting to keep track of my expense. It didnt last more than 6 months as it was too cumbersome to maintain. I guess it will definitely help if it is convenient and easily accessible to record these expenses, it will have to be a smartphone application then.

I started using this money app, 'money journal',  at the start of the year, which is supported on IOS. It is a simple money budgeting app and really easy to use. It has the typical functions of allowing one to key in income, budget for the month and expense. The feature that I like most is the ability to export the file to google docs. This is really a useful feature as it allows one to do more creative calculation or graphs on excel.

I do understand the benefits of keeping track of one's expense, then you know where the money was being spent on and one can then take appropriate action to reduce any unnecessary spending. What about you, recommendations are welcome. :)

A savvy saver in his thirties

I was having lunch with a friend last week and we were talking about how difficult it is now to find value stock when STI is near to all time high and US market has been breaking new high. Both of us agree that this is probably not the good time to be aggressive. He shared that recently he has become more conservative, and increasing his cash holding so that he will be able to tap on in the near future when better opportunities present themselves. 

Source: UOB

Just recently, he went to UOB, a local Singapore bank, and placed $100K of fixed deposit(FD) with them. The conversation stopped here and I also stopped eating literally, He is in his late-thirties and he has managed to save more than $100K, I think this is a commendable achievement. He noticed the surprised look on my face, and I then asked how did he manage to do it. 

You can save $400,000 before 40

Whenever I ask around, how much do you need to be able to be able to slow down in work pace and that you can choose how to live your life and not rushing to work everyday, the answer is always $1 million. I dont know why but it seems that $1 million is the magic number. I mean how many of us, the working class can accumulate $1 million through savings. 

The writing is on the wall - Degree and Jobs

By having a degree now, does it still guarantee you a good paying job and gainfully employed till you are retired. If this is your thinking, then you have not been in touch with the local news or you were overwhelmed by the news about Alibaba taking a stake in Singpost. This is very real, it had already happened since the Financial crisis.

NOT to do before 35 years old

Following my previous posts of 35 and broke, I thought I will share what are the NOT to do things financially before 35. These are some of things which some of the people around me had committed, and spend years making it right again. By staying away from these, one should be fine at 35 and after.

So what are the things we should avoid?

Big Items - One's graduation is a joyous occasion, when one enters the workforce and the ability to make money and finally not dependent on allowance from parents. Some chose to celebrate this occasion with expensive Europe or Japan tour. Some of my classmates did that when we graduated, the idea being that it will be difficult to take 1 month of leave next time when one started working. I mean as long as the cost of the tour does not get you into too much of debt, why not, after all, one had studied all his life and it's not too reasonable to want to take a break. However, by not having a budget and discipline, one will find that he/she will get into huge debt even before he/she starts work. What if you cant find a job after the trip.

Small Items - Yes, everything adds up end of the day. If you stand in the middle of the Raffles place, do you noticed that every other people holds a cup of expensive coffee as they walk to their office.  By not having that $3 cup of coffee every morning, one would save about $60 a month and $720 a year. Another one  would be taking taxi going to work or home, especially after a tiring day. Most of us think that it's ok, it's just 4 or 5 taxi trips a week, does not matter much. Again, the  cost from the 4 or 5 taxi trips add up to quite an amount end of the day. If your objectives is too save very hard for the first 10 years of your working life, this is something that you can cut back on. 

Getting married - Most Singaporeans will get a house before they get married, and with 2 big items, most of our savings will be depleted badly. For the first time in your life, you never feel so empty before, I mean your bank account. Do you really need that expensive condominium or can you start with a simple HDB and then upgrade later when you build up your finances again. Most of my friends did just that and most are doing well financially. Do you really need that lavish wedding dinner or we can have a simple and yet presentable one. By making the right choice based on one's financial status, your financial standing should still be in Green even after getting married and your home.

Investments - Do not make stupid mistakes by getting into unregulated investments schemes which promises returns of 20% or even 30%, remember the gold scam, etc. Come on, even Warren Buffet's return is not that fantastic, and being an educated person, we should be able to question how this is achievable.

Related posts : Broke at 35 years old

What is your investment strategy for 2014?

While I was surfing(usual routine) for information to reinforce my financial knowledge, I came across a video about this value investor, Joel Greenblatt. Apart from being an investor, he is  also an adjunct professor at the Columbia University Graduate School of Business. He devised a system which he had faithfully used and as a result, a book that he has also written - 'The Little Book that Beats the Market'. To most of the people, his system was known as the 'magic formula'. So what is this 'magic formula'.

The 'magic formula' is a simple set of system, which I like, as most of the readers know that I like to keep it simple.  To most of the folks who read or watch about him, most would have known of the 2 criteria, which helps one to select good companies at bargain price. However, there is also the 3rd most important criteria which he mentioned repeatedly in the video above, Patience. And, yes, most of the retail investors wanted to make a quick profit from the market and most of the time, they are more excited with counters where lots of other people are talking about.

If you want to know more about him, there are lots of information and videos in the internet, so I will not share more here. What I want to share is now I have another selection strategy which is simple to execute and a proven track record. 

Below is what I will be using in 2014 and longer if it make sense. In the funnel, you have the selection criteria from Walter Schloss and Joel Greenblatt. The funnel basically provides the guide to what to buy, and the TA tells you when to buy and cut loss.

Greenblatt's formula; source: oldschoolvalue.com

Remember a lot of the experts tell us these;
1. Buy and keep long term
2. Buy low and sell high
3. Dont time the market, always be in the market

But these people never share the how, and this strategy, though boring, addresses the above and keep your risk lower than most people around you.

Financial tasks to do before year end

In less than 2 months, we will come to a closure for 2013. There are couple of financial tasks I thought one should try and do before the year ends.

Investment checkup. Review your stock investment and understand on those investment decisions that have not performed well or in a loss, what were the reasons. Was it due to insufficient understanding of the FA, was it due to timing, etc. Only when you understand your weakness and learn from others their strength continuously, then you can keep future losses to the minimal.

Portfolio realignment. For those who has embarked on the permanent portfolio(PP), it is probably time to rebalance your portfolio. There have been many surprises in the last 2 years where market such as Europe has gone up at least 30% despite the fact that they were having so much issues. Dow Jones have also keep hitting new highs. This also reminds us not to invest based on news but to adhere to the strict mechanics of the PP.

SRS. Isn't it cool to be a Singaporean. Apart from the America 401(k) tax saving scheme, in this region, we are probably the only country that have the similar scheme. Since the government has provided that channel, we should make full use of it. On surfing the web, I found these links which may be useful to you if you are interested.

1.  ecitizen.gov.sg - this portal has got all the information that you need for SRS, from who is eligible, what is the max amount, which are the banks, what can you do with SRS, etc.
2. ocbc.com - Just to highlight here, I am not OCBC employee, neither am I promoting anything here. I just like the SRS page which is very graphical and easy for laymen to understand. And besides, you get $30 Robinson vouchers, as part of their promotion now. I mean why not, free things is always nice :).

Charities. The fact that we are talking about the above means that we have done well in life, then shouldn't we give something back to the society especially to the less fortunate ones. With online portal, it is much easier to donate now, one can even charge to credit card.

Financial roadmap(III)

In this post, let's look at the typical financial preparation one can adopt for the 40s. At this phase, hopefully one has become wiser financially by learning from other people's mistake and try not to make the same mistake. For some of us, we were fortunate to experience the Asia financial crisis, high interest rate, dot com bubble, 911 incident, SARs and the last financial meltdown happened from the US. 'Fortunate' because there will be very few of us(the lucky ones) who would have the GUTS to have taken advantage of those situation and attain financial freedom thereafter. One small note which I was shocked when I spoke with my colleagues, the younger ones(below 30), they thought that the low interest rates is a norm. And this is probably the reason why we have cyclic downturn as people forget.

Savings. At this phase, most of us would have reached the peak of our career, income would have also risen over the years. However, you might not be able to save more due to growing family and other commitments such as car and new property, at least still try and save 10% of your income. Continue the saving plan for the kids education, this can also be in the form of Index ETF investment.

Investment. Your index ETF portfolio should have grown to a sizeable amount at this phase, continue investing and rebalancing. This is a mechanical way of buying low and selling high. For the adventurous ones, you might have also started your stock portfolio in your late 30s.
Continue your SRS contribution to take advantage of tax savings.

Retirement planning. One should also start planning for retirement financially. For this part of the equation, it is important to watch your debts and live below your means. With the investment strategy from the above, one should be on the comfortable start to retirement planning. Watching debts is critical as most of the time it is this that slows this part down.

Unfortunate events. In life nothing is certain. In this phase, we will be vulnerable in our job as companies restructure or move out of Singapore to a cheaper location, or that we are deem too expensive and can be replace by cheaper resource. If that ever happens, and this is the reason why in part I and II, the earlier you have started savings and investing, the more prepared you will be and lesser stress when it happens. I have seen colleagues shed tears when it happened to them, cause they have a young family or have just committed to a new property/car. My grandma always tell us when we were young to always be prepared for rainy days, it will come some day.

Continuous learning. Apart from learning skills for your job, it is also important to take up new ones such as investments, blogging, expanding networking, etc. This is not so much of helping you to get promoted in your job but rather for you to exit the corporate world if needed.

Related posts:

1. financial roadmap(I)

2. financial roadmap(II)

Financial roadmap(II)

In financial roadmap(I), we looked at the typical financial situation for the 20s to 30. Here, let's look at the 30s to 40. In this phase, there are many exciting life events that will happen here, such as first job promotion, getting married, and in Singaporean mindset, this follows with the commitment to a residential property(actually, this one normally come first before marriage :)), maybe starting a family, then follow by excuse to buy car, etc.  As you can see, the life events here requires huge chunk of financial commitment as well. 

Savings. Remember in my previous post, a lot of the focus was on savings and aggressively building up the fund. Here is the reason why, because there are so much expenses at this phase. Now, if you apply, rule 72 for a 6% to 7% return, your $54,000 would have grown to close to $80k. This amount comes in handy for your wedding, honeymoon, or HDB renovation.

Continue to save, if you can't do 30%, at least 20% of your income and also continue your ETF investment as well. For those who have kids, it is also time to start planning and saving for their education as well. 

The action that we take in each of the phase, actually determines how easy or difficult financially your next phase of life going to be.

Debts. Due to these life events, the temptation to over-commit and over spent here will be even stronger. A lot of times, our financial outlay is bigger here for weddings, honeymoon, housing renovations, car, etc. I am not saying that we shouldn't pamper ourselves with these once in a lifetime events, but do constantly remind yourself that you have a budget to follow.
Becareful with credit cards, it can be a useful tool if you use it wisely, otherwise, credit card debts will cause a major setback to you financial goals. Think about it, does it make sense to pay 24% card interest when you are only getting 7% from your investment returns.

Insurance. Most of us would have started our family here. As you are the breadwinner, do ensure that you have enough coverage in the event if the worst happens. Do remember to also include medical shield plans for your kids. As to whether, you should or should not buy life insurance for your kids, this has been a hot debate for 2 different group of people for a long time. One group feels that since they don't bring any earnings to the household, then there is no need to insure them for life. The other group will argued that since they are young and free from sickness, it is better to insure them for life and premium is typically lower. I don't have an opinion on this as long as your kids are insured for medical.

Most of us forget our aged parents, in their time, medishield was probably non-existence, so do remember to insure them. The recent medishield life is a good initiative from the government to include all Singaporeans. 

Tax. In the late 30s, for some of the folks whose income may have grown a fair bit, do consider topping up the CPF of your loved ones to enjoy up to $7000 tax relief. Another scheme, Supplementary Retirement Scheme(SRS), also allows you to save on your tax as well. For more information, do refer to CPF and IRAS website.

Emergency fund. At some point in this phase, you might also want to start an emergency fund which  can last for 9 to 12 months. One of such use is when you got layoff and not able to get employed immediately.

Charity. Don't forget about helping the less fortunate.

Related post: Financial roadmap(I)

Financial roadmap(I)

I am sure most of us when we looked back at our financial journey, we wished that when we first started there is some form of a do's and don't list to guide us. Most of us learned the hard way, either by lots of reading and attending seminars(which you are not sure if they even practice what they teach) or by trial and error through making investments mistakes. And some of these mistakes can be costly. Fortunately, there are few blogs(here and overseas) which are worth reading and thanks to the effort that they have put into the writing. Hope this one will help as a guide to the start of your financial journey as well.

For the 20s to 30 - This is where most of us would have just started working. 

Savings, savings and savings. This is the phase where one needs to save and save hard. Unfortunately, to grow money, you need to have first pot of money first. And there is no way other than saving. It is important to start early as most professionals preached, otherwise, your later part of life will be harder.

Most of the fresh graduates starts with around $3000, and if you are able to save 30% of the salary which is $900, in 5 years time, you will have accumulated $54,000. At the age of 26, you will be able to start your investment using this pot of money, part of it into ETFs and the rest as opportunity fund when the next crash(like in 2008) happens. There are other blogs which talked about the merits of investing into a permanent portfolio using ETFs, which I will not repeat here.

Debts, debts, and debts. During this phase, and in fact at every stage of life, there will be financial temptations. Is it necessary for that expensive trip to Europe or US, do we need a new mobile phone or a car, must we own an expensive condo in the city fringe. Whatever it is, keep debt low, remember leverage can go both ways.

Insurance. While you are still healthy, remember to upgrade your medical plan such as the shield plan. Keep it simple by just getting a life insurance since your parents might depend on you now. There has been alot of debates on ILP, personally, I would avoid as mine is still under water even after 12 years. And if you are investing using ETFs, then, there is no need for ILP.

In the next post, I will talk about 'for the 30s to 40'.

How do you handle a recession

Last night, I was catching up on the short documentary show 'Recession Heros' which I had missed the last couple of weeks. Fortunately, thanks to technology and XINMSN, you can actually watch it online, which is cool. After watching, it sets me thinking, are we ready for one?

Dow Jones and S&P 500 have not been able to hit new high and have been in  consolidating phase recently. It can go either way in coming months. Due to the recent correction, all regional indexes have also been down by more than 20%, and if it stays down with no signs of reversal, then the market might actually be in Bear zone. Thailand was also the first country in this region to have gone into recession since the major financial meltdown. Currencies have been behaving abnormally, most of the regional currencies(such as ringgit, baht, rupiah, rupees) have weakened alot against the USD.

With recessions, many jobs will be lost and how do you prepare for one if it comes. Actually the sad part is that most of us are not prepared for one until it hits us.

Honesty. Be honest about your layoff. Tell your closed ones, spouse, families including your children. By telling them, at least, you do not have to face the pressure of why not going to work after your layoff.

Severance package. For the lucky ones, if you have a severance package, do not spent it on an expensive vacation or buying an expensive gadget for yourself. Plan and use it carefully cause you do not know when the next job will come.

Budgeting. Discuss with your spouse on the family expense. Cut back on spending, determine what is need and what is want. The toughest part about this is telling your kids to cut back, no more eating in restaurants, visit to ice-cream cafe, buying of toys, etc.

Insurance. Ensure that your family(including your elderly parents) and yourself is covered with a comprehensive medishield plan. When one is down on luck, alot of other unfortunate things can come along. With medical covered, at least you dont have to worry about huge medical expense.

Reduce your debts. If it's so unfortunate that it is a prolong one, then look into cutting your debts, such as credit cards, property, car, etc.

Invest. Ideally, one should already have an investment portfolio before this happens. But most of us would not have one. If you manage to find the next job before finishing off your severance package, then you should make good use of the amount for investment in preparation for your next job lost. Yes, economics and jobs are very mobile now, and what you do now is to prepare you for your next job lost, sadly.

Hopefully my readers will not have to refer to this post during your work journey..