"An additional $560k gone..." -- Calculating the dollar losses to investments and business

When I first started this blog years ago, it was meant to chronicle my journey, to be accountable to myself for my financial decisions.

Gradually, I have people telling me they learned from my blog. That kept me motivated, until I got busier and busier, and reduced the frequency of writing drastically, to the point I have almost not written much.

And... I'm glad that I have posted more in the earlier days. It's like I'm reading on my past self, how much more disciplined and stingy and scroogy I was than now.

So this blog post serves as chronicle for my future self to read and re-read again.

Instead of a blog post with a positive tone, this would take on a more negative tone.


More stock losses (~$29k)
I like to talk more about my losses in stocks, than gains. For me, it serves as a reminder of my stupidity, lapse of discipline, and how much more I have to think and learn. For others, it serves as a warning that the stock market is not here to feed you or give in to you, but a double edged sword that can slit your throat any moment.

Losing at Noble Group
After my past estimation that the estimated capital gain was near $0, more losses were chalked up. First, Noble. That was an additional ~$8k in losses. I have to admit, it was more of a gamble to buy. I cannot remember the price I got it now, but I remember having a minor profit after buying.

Subsequently, the management decided on a 10-for-1 consolidation, before the share price drop to its pre-consolidation price. In one fell swoop, this caused the share price to drop 90%. Failed gamble. Entirely my fault. I thought I did my homework, but obviously I do not know enough.

The busy past few months... and some lessons I learned

Past few months were crazy. First up was the HDB renovation. For a 5-room flat, I managed to finish the complete the renovation within a budget of $40k inclusive of furnishings. Guess I was pretty lucky to chance upon IKEA's sale and save a few hundred dollars on furniture. A 55" TV, LED lighting, built-in wardrobe, big dining table. My $40k isn't used up yet I guess, didn't really count, but there are still some portions of the house which need building, but it's pretty much done. :) And typing this blog post as I sit in my study room, of which furnishings come entirely from IKEA.

Next was my wedding in the early part of June. Photoshoots, actual day videos and bridal packages set me back nearly $27k. Ouch. But overall, it was pretty manageable in terms of finances. This excludes all the misc, i.e. lunch buffet at church, wedding banquet, etc. But if I include everything in, $60k was probably the costs. Still less than the $100k incurred by the couple on newspaper who went into debt just to get married.

While the government is encouraging couples to marry younger, I realised that at 30, with our combined finances, house renovations and wedding was pretty comfortable on the financial side. No stress and no need for any sacrifice for things we wanted. Certainly no need for any debt. The next big expenditure would probably be kids.


Next up for the month of July, I conducted olympiad trainings for 4 different schools. That was pretty crazy for the month because this is on top of my usual tuition workload. I also involved myself in a startup on indoor positioning systems. Basically, in the near future, you might probably see the fruits of our labour involving you somehow in some parts of your daily life :)

Finally, I have been studying more about businesses past few months, watching shows like Millionaire Intern on BBC Knowledge. What I see is that many businesses struggle because there was minimal sales. Even though their products or services may be very very good, as long as the sales are dismal, the business will not grow or may eventually go obsolete. The goal of marketing is to generate leads, and eventually conversion of leads to purchasers.

And in show Millionaire Intern, it seems that everything boils down to knowing marketing well. Personally, I have been studying more on copywriting, as well as experimenting different forms of marketing, on FB, Google, etc. I now have an idea of why some of the previous experiments failed, and probably will be adding my fix to it. Many many things learned, which boils down to even more application. Till then...

Path to Financial Freedom -- Create your exit plans

I'm referring to  the following blog post link
http://www.cpf.gov.sg/imsavvy/blog_post.asp?postid=943438268-310-6846058964
and perhaps others with a similar mindset.

In the post, the author lists 5 steps to financial freedom:
Step 1 – Boost your Active Income
Step 2 – Get Rid of Unnecessary Debt
Step 3 – Save More
Step 4 – Reduce Spending and Live Within Your Means
Step 5 – Invest For Passive Income

I do not know anything about the background of the author, but interestingly, to get out of the rat race, his mentality and suggestion, like many, is actually to get into the rat race and be the best rat among all.

Fair enough, especially if we start with a near zero networth. I started the same way.

But... is the road to financial freedom so direct? I used to think it was, but gradually, as you might have seen from some of my older posts, I start to have the following thoughts:
1) What's the point of attaining financial freedom at a ripe old age? Use it for medical? (Read: 1 million dollars... so what?)
2) Is there any point being a millionaire scrooge?  (Read: Millionaire Scrooge?)
3) We all have different definitions of money... and hence financial freedom (Read: Financial Relativity)


In my opinion, the 5 steps by the author is a very sound retirement plan. One can retire comfortably provided one follows the plan with good discipline.

The harsh truth: This is, to me, a newer and more modern rat race, thinly veiled and disguised as a path to financial freedom.

Why I don't like saving plans

By saving plans, I refer to the plans sold mostly by insurance agents. These are plans that takes a fixed amount every month, and as seen from it's name, save it for you in a special savings account whose interest rate is higher than the bank's interest rate. In return, you are given some form of extremely basic insurance in the event of death, and you are allowed to withdraw a small amount monthly if you need it via vouchers sent to you. One example is NTUC Revosave.

However, there's a catch. The maturity date is 25~35 years later, with perhaps a 1~3% annual rate compounded over the 25~35 years.

To me, the main reason why people buy saving plans are because
(i) Super Duper Conservative
(ii) Financial Ignorance

What fresh grads should or should not do?

I read with interest the following from the CPF IMSAVVY blog on what Fresh Grads and Young People should and should not do:


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In view of the above, the following is what the young person should do:

1. Save up a war chest of at least 6 months to two years (depending on the stability of the job) of cash.

2. Get the basic insurance because you don’t have money to pay your medical bills for yourself if you are sick.

The following are things that a young people should NOT do (which unfortunately almost all my clients did it all):

Financial Relativity

As I progress further along my journey, I begin to understand the concept of financial relativity. In a nutshell, financial relativity is how much we think or feel is a large sum of money relative to our mindset. $10,000 to a billionaire is probably equal to about $100 to a millionaire, which is probably equal to $1 to a thousandaire.

So... how much is a large sum? Is $100 large? I remember feeling that it was a huge sum when I was serving the army with a monthly allowance of $500+. $100 could make a significant difference in my assets for months, or so I thought. But now, I would spend it on meals with my girlfriend quite frequently as it is no longer very large to me. It is fairly insignificant to my assets, and feels perfectly normal to me.

Are you entrapped in the Market Box?

Personally, I think that I was ensnared by the evils of the market when I first dabbled in it.You know are trapped in the market box when you are constantly anxious about your purchase... would it fall? Would it rise fast? Would the company fail?

You know you are trapped when you need to keep looking at the stock price every few minutes.

You know you are trapped when your life just revolves around it, neglecting your work (if u trade part time) or other things in life in the process.

Term Insurance

I signed up for a term insurance recently from Great Eastern covering me for SGD$200K upon death, and covering hospitalisation for critical illnesses. The cost to me is $564 annually as I pay per year. It's about what I can afford right now without seriously slowing my journey towards financial freedom. I'm a believer of buy term invest the rest.

A quick summary of my protection, not that I have a lot:

1) CPF 40k insurance
2) Great Eastern HealthShield (for Hospitalisation only)
3) Great Eastern Smart Living Term Insurance
4) Company Group Insurance

Millionaire Scrooge?

This thought came to me as I was eating at Pepper Lunch with my girlfriend. A dinner at Pepper Lunch costs around $22.80, compared to about max $10 for a simple rice with meat and vege plus drinks from the drinks store at a coffee shop. For that Pepper Lunch meal, I could have eaten 2 dinners at the coffee shop!

In the quest towards financial freedom, there are times where we consider whether we should spend on this... or spend on that... In short, putting it in nice terms, we are considering whether the thing we want to buy is a need or a want. We think, we ponder, and we calculate to see if buying it would delay our quest towards financial freedom. But are we going to do that forever just to reach or maintain that magical millionaire status? Would we want to be a millionaire scrooge?

The Power of Leverage

Introduction

I recently thought of a "sad" fact. Suppose I keep to current lifestyle and succeed in increasing my networth by an average of $100k per year from both savings and investments, I would still need 10 years to reach $1 mil, or 30 years to reach $3 mil! While the millionaire goal is achievable, the speed is slow. That's the motivation for me to write this article, which took me quite a few hours!

So, how is it possible that there are people who managed to achieve the multi-millionaire status while young when they are not the the soccer players in EPL, the basketball slam dunkers in NBA or any of the hot celebrities?

The answer is leverage.

4 ways to cut expenses

To achieve financial freedom, increasing income and cutting expenses must go hand in hand. There's no need to be a scrooge to cut expenses though. Below are 4 methods which we could employ to reduce our expenditures immediately.


1) Pay Yourself First

Many people like to spend first, talk later. The first thing they do with their monthly income is to spend before saving. Both committed and impulse expenditures come before everything else. Only what remains at the end of the month is saved. Usually, budgeted expenses don't work if expenses are placed before everything. Something else might just cropped up to cause you to spend whatever remaining you have, be it necessary or impulse expenditure.

The Pay-Yourself-First habit should be adopted. Take a fixed amount out of your income every month and put it into an investment or savings account.... then spend whatever is left. In other words, save before spending. As in the book "The Richest Man in Babylon", you won't feel much difference if you set aside a mere 10% of your income every month. Your life wouldn't be much different.

But doing this manually requires discipline! What if you don't have much discipline?

The easiest way to solve this problem is to make such savings automatic. The following could be done:

i) Get the bank to automatically transfer 10% of income into a savings account where it is not easily accessible.
ii) Buy an ILP/savings plan through your insurance agent and pay monthly through Giro.

Note: In Singapore, there's an option of buying the STI index through Philips Securities Share Builders Plan (SBP). This plan takes a fixed sum of money from your bank every month, and plough it into the index etf immediately. It's a form of dollar cost averaging.


However, if you have any debts, it would be wiser to take 10% of income to pay off part of the debt first, then the next 10% to savings/investment account. Finally, you can choose to spend the remaining 80% or save part of it as well. This is also a 'teaching' from "The Richest Man in Babylon".



2) Take charge of your expenses!

List down your expenses and study them. Try to identify where expenses can be cut. What may seem like a necessary expense could actually be cut at times; necessity is subjective sometimes.

You could be surprised that by doing so, you could eliminate expenses that over the long ter, will save you millions. Expenses that could be cut are

i) Impulse expenses, stuffs that we buy on impulse for instant gratification, after which would not make much difference to our lives
ii) Unnecessary expenses, i.e. buying things we do not really need, but buying just because it looks cheap.

With the power of compounding, the few extra hundred dollars you could save a month from reducing expenses will have a amazing impact on your future wealth. A $300 monthly savings would accumulate into >$300k in 30 years, assuming an average of around 7% p.a. The more you save, the more the power of compounding would work for you.

Try this out on an excel sheet to witness first-hand how powerful compounding such a small monthly could be.



3) Procrastinate in buying stuff

Before buying anything, always consider the opportunity costs. Do you think the stuff you are buying is absolutely necessary (subjective)? Would you regret getting it?

Consider your income as well. How long would you take to earn back the money you would spend on this stuff? Procrastinating here helps.



4) Buy discounts

We could save an additional 5% to 20% if we buy certain things only when there's a discount, or by buying in bulk, hence enjoying a mini economies of scale. Source for discounts if you can.

Example: I bought my protein powders recently with a nice discount to the selling price. I have managed to source for a consistent 8% discount after I discovered that one of my friends was the distributor of the products.

Another example: My mum buy clothes only after Christmas, after Chinese New Year and during the Great Singapore Sale since there are many discounts. She buys with a 6 months to 1 year horizon... Her new clothes (and mine as well) for the Chinese New Year has already been bought quite a long time ago, and stored neatly in the cupboard.

Note: The Chinese wear new clothes during Chinese New Year.



So, we have 4 simple ways here in which expenses could be reduced immediately. Although I mentioned procrastination in buying stuffs, do not procrastinate in cutting your expenses! Start now. It will only materialise if you take action immediately.