Desmond Ng

“Inflation is a rise in the general level of prices over time. It may also refer to a rise in the prices of a specific set of goods or services.”

Inflation affects your purchasing power and your long-term financial goals. If you underestimate the amount that you need to set aside to save or invest in order to achieve your desired standard of living upon retirement.

For eg.

In 20 years, $10,000 would be reduced to $6,676 at 2% inflation rate - 33% Loss

In 20 years, $10,000 would be reduced to $3,585 at 5% inflation rate - 64% Loss

Hence, we need to start countering Inflation now!

Here are the 8 ways…

1. Cut Down spending, live within your means

LV, Gucci, Prada, Coach etc… time to tone down a bit of these luxurious expenses.

2. Try to save 20% of your pay or more

This is especially useful for people that just started their careers as you have less liabilities. This disciplined savings will help you in building your long term investments.

3. Do not be overly conservative

Invest your money instead of leaving all of it in saving deposits or fixed deposits.

4. Don’t rely solely on guaranteed products

Bonds and guaranteed products will only provide a marginal protection against inflation over the long term.

5. Save regularly via an investment platform

The earlier you start, the quicker it will grow to in the later years. Start saving regularly into an investment savings plan. This will help your savings to work harder for you and prevent timing of the market.

6. Take on sensible level of investment risk

Include defensive and growth assets in your portfolio depending on your financial goals & time horizon.

7. Understand the power of compounding

Apply the rule of 72. To work out how long it will take for your investment to double in value, divide 72 by the percentage return. With a return of 9% would mean you need 8 years to double your money.

8. Limit exposure to depreciating assets

Assets like Car that depreciates in value should be limited.

*taken with reference from TheSundayTimes 

THE 60 Percent Solution (continued from previous post)

This budgeting plan was created by a person called Richard Jenkins after realizing that his household finances worked best when his family’s so-called “committed expenses” were kept to a manageable level. After some experimentation, he decided that level was 60% or less of his gross pay.

Committed expenses include:

1. Basic Food, Clothing, Transportation

2. All Household expenses

3. Insurance premiums

4. All taxes, income tax, road tax etc.

5. Charitably contributions

6. All Bills, including phone bills, tv bills, electricity bills

Remaing 40% should be divided so that 10 percent go to each of the following:

1. Retirement Savings

2. Emergency fund Savings

3. Short term savings for irregular expenses like Vacations, New Gadgets, Gifts, Mahjong

4. “Fun Money” to be spent any way you want.

The very important or initial stage of financial planning is actually being in control.

Many people fail in this stage as they tend to overspend or basically have no idea where their money disappeared to.

There is two kinds of budgeting system that has been used and proven to be effective. It is the 60% solution & the 50/30/20 plan.

Which one is more suitable for you?

If you:

• Typically get through the month without running out of cash
• Only occasionally get surprised by a big bill
• Usually don’t carry credit card debt
• Feel like you’re doing okay financially but would like to do better

… then you should adopt the 60% solution!

However, if you:

• Live paycheck to paycheck
• Often run out of money before you run out of month
• Constantly get surprised by big bills
• Have credit card or other high-rate debt
• Have no idea where your money goes

… then you need the 50/30/20 plan!

Basically, what this plans can give you are a systematic allocation of your income so that you are aware of your spendings, efficiently using them, ready for tight situations and lastly let you be in control of your money.

It will take quite awhile to write out the plans, so I will write about each plan in my next 2 posts. Stay tuned for it!

Many people spend their money without control.

Most of them think:

“Why start saving now? I’m still young.”

“Life is short. I should enjoy while I can.”

“It’s not I don’t want to save… but I’m not earning enough”

It is true. I mean your reasons are valid. But is there really nothing that can be done about it?

Why start saving now? I can share this with you because many people have asked me this before. This is also the reason why I’m working so hard now. The reason is simple: Compounded Savings. Think about it, if you were to get married 10 years from now, is it easier to start saving 10 years before or 5 years before? An in case you are not aware of compounding interest… the $10k you earn you earn earlier can grow to a very substantial amount if you invest it correctly… compared to someone that invest $20k 8 years later, may still not have a higher value then you.

It is true that life is sudden. You never know what can happen the next day. I always tell my clients to live life to their fullest but not to the extent of overspending. Setting aside money for rainy days is a responsibility, your responsibility. What if nothing happens to you and you spent everything when your child needs an education and you can’t provide for him/her? What if something happens and you do not have the money to pay away your liabilities, causing an extra burden to your loved ones?

Are you earning enough? If you aren’t, it is very simple. Find another source of income.  Or relook into your cash flow… what are the things that you can save on? Are there areas where you can cut down on expenses? Things that aren’t such a NEED but a WANT? For example, smoking less, buying lesser branded goods etc.

You may think that $100 per month is nothing. $1200/year is insignificant.

Think again. Compounded over 10 years, you will be amaze what it can become 30 years down the road. Every little bit counts. Rome was not built in a day either. Better late then never…

I am sure everyone is familiar with the term MDRT aka Million Dollar Round Table.

MDRT is actually a recognition of insurance salespeople and financial advisers who are hard-working and did well. The requirements increases every year and after qualifying for 10 years, you will be given the Lifetime membership to MDRT.

For example, the requirement was a commission earning of S$75,700 in 2006. *There is quite a misconception that MDRT means achieving a million dollar, which is not true, the “Million” is just a term”

This year it is around USD$81,8000.

Court of the Table is the level 2 of this prestigious awards. In 2008, the requirement is USD$245,000

Top of the Table is the HIGHEST recognition. In 2008, the requirement is USD$490,800.

You must be thinking:  “WOW!” Both CoT and ToT is quite an income to get!

Initially, I also felt quite amazed by the income. Most people are happy with a $10k/mth income and getting $30-50k/mth would be delightful.

Of course, in exception of CEOs and Business Owners etc.

However, my friend showed me a website that seriously made my jaws dropped.

That is s.eriously.com

These people are Internet Marketers. They work from home, in their casual wear, flexible timing and they earn $300k/mth. After all the speeches by MDRT, CoT, ToT touching stories, there are normal people out there that are earning their annual income Monthly.

I have a number of friends that have already started Internet Marketing and after a series of hardwork, they are achieving quite a comfortable income! Calvin Woon, who started 2-3 years ago, drew a 5-figure paycheck last month! Ivan Ong, who started only for a year, is also drawing a 4-digit income now…

This passive income generator which hardly requires any start up capital is great for many retirees and young entrepreneurs. Online Businesses are now getting more popular and the internet allows penetrating a global market!

If you think that earning an income online is a myth, think again…

“My adviser said that a term insurance policy expires at the end of the term and after that, I will not have any more life insurance coverage. She said it is better to take a whole life policy as it provides coverage for your whole life…”

This question was posted to the ex-CEO of NTUC income, Mr Tan Kin Lian. You can read more about insurance at his blog at http://www.tankinlian.blogspot.com/.

This was his reply:

REPLY
Most people need life insurance to cover the loss of earnings in the event of premature death. They need the life insurance policy coverage only during their working life. The policy pays a benefit to replace the lost income and take care of the family needs when the children are still young.

When a person retires from work, there is no need for life insurance, as there is no lost earnings to be covered.

If you take up a term insurance policy, you pay a premium of about one-tenth of a whole life policy. This allows you to take a larger sum assured and protect your family more adequately. You need life insurance up to age 65 only.

You will find that a decreasing term insurance to be suitable for your needs. The sum assured starts at a high amount and decreases each year over the term. The premium is less than half of a level term insurance policy. You only need to pay about 5% of the premium for a comparable whole life policy.

Although the sum assured decreases each year, it is adequate for the family as the children have grown one year older, and need to be financially supported for a shorter period. The family would have accumulated one more year of savings with each passing year.

For example, a male at age 30 who takes a whole life policy to cover $300,000 has to pay a monthly premium of $500. This person can take a 20 year term insurance policy covering the same amount for a monthly premim of only $50. For a decreasing term insurance policy, the premium is about $25 a month.

If he takes a 30 year term insurance policy, the premium will be about $100 (for level term) and $50 (for decreasing term). They are much lower than the premium for a whole life policy.

There is another policy, called the family income policy, that pays the benefit as a monthly sum (say $3,000 a month) for the remainder of the term.

Reply by a Reader to this post:

One reason why the agent wants you to buy a whole life, high commission for her. Having an insurance for whole life is not a good reason. Likelihood of you not requiring at 65 is great.
AGENTS WHO SELL WHOLE LIFE HAVE ONE THING IN MIND, THAT IS HIGH COMMISSION AND THEY NEVER HAVE YOU IN MIND or THEY ARE JUST NOT QUALIFIED TO CONDUCT INSURANCE PLANNING.

Desmond says:

If you are still unsure about whether Whole Life or Term, read a more balanced opinion from me here.

“A financial adviser is a professional who renders investment advice and financial planning services to individuals and businesses. Ideally, the financial adviser helps the client maximize their net worth while minimizing risk by using proper asset allocation.”

Many times, people who already have an adviser shuns other planners because he or she feels that there is no need for another adviser in their lives. This is true to the extent that IF & only IF your adviser is currently serving you well and thinking with your best interests. A professional adviser is one who helps you with proper planning and “Be Good but not Nice”. He should be highlighting key areas in your life that needs to be looked at and help you get a better long term return compared to other normal investment vehicles.

It is NOT, in any means, someone that comes to sell you something useful and disappears like a magician. Which means, you may have your friend or relative serving you but they are only helping you minimally because they are salesmen, not advisers.

So what should you look for in a Financial Adviser?

1. Nothing comes for nothing:

There is such thing as free advice. However, remember that if you use the services of an adviser, at some stage they must have some hope of getting paid or of selling you something that pays them a commission. A professional adviser will keep you updated and service you as long as you welcome him to. A salesmen adviser will try for a few months and give up on you.

2. Look for an upfront declaration:

A competent honest adviser will make it clear how they are paid and happily tell you in detail how this happens. Somewhere, somehow, people need to be paid. If it is not clear to you how your adviser is paid, keep on asking. You must understand how they are paid, so you can understand their bias. If the adviser tries to hide costs involve, get rid of him. How can you trust your money with someone that isn’t proud of what he should be paid for? Hiding the costs means that he feels that he doesn’t deserve your money.

3. Plan for your first meeting:

At your first meeting, or over the phone, get straight to the point about your position and what you want. Professional advisers who are successful have good technical skills, but they also have strong people skills. Advice is a personal business and few advisers will be willing to offend people by saying early in a meeting that you are just not the sort of client they want to look after, so it really is up to you to be able to succinctly say, ‘Hey, this is my situation, am I the sort of client you service?’

4. Build a relationship:

The best advisers want to give you ongoing advice and will charge you an annual fee for this. It is important to have an ongoing relationship with your adviser. You want someone who will understand your needs and help you solve your investment problems now and in the future. You don’t want someone who sells you a product, takes the commission and then forgets you. Be very cautious about an adviser who only earns a commission when you buy something. They will only wish to see you on an ongoing basis if you want to buy something or they can sell you something. Frankly, if the ‘advice’ is always free and the adviser only makes money when you buy product, it is very hard to see how you are ever going to get unbiased advice.

5. Be sure they are working for you:

A good adviser should be giving you quality advice that suits your needs - not using you to help fund his or her personal deals. One of the great traps in financial advice is buying deals from the adviser when the adviser is personally involved in the deals. A professional adviser needs to keep a critical eye on your investments. This means that they should not be personally involved. If they have lots of their money tied up in the deal, this may sound like a good thing to you, but it may also cause the adviser to become too emotionally tied to the investment, leading to poor decisions on your behalf.

6. Know what you have got and know what you want:

Don’t expect a professional adviser to waste valuable time trying to work out things that really you only know. Approaching an adviser in a logical, prepared fashion will pay big dividends. The biggest obstacle to finding a professional adviser is not being clear about what you want. So, before you find an adviser, sit down with a pencil and piece of paper somewhere quiet and pour a glass of wine if it helps. Write down all of your assets and liabilities, your income and spending habits. Think about your aspirations for your career, relationships, any dependents and estate planning. List your insurance and your long-term goals. Consider when you want to stop work, how much income you would like to have.

After reading through this, take 5 minutes and think “Is my current adviser like this?”. Weighing the fact that I invested $???? with him, I should be ranked ? in his list, am I getting the right amount of attention? Understand that the higher the amount of assets you have invested with him, the quality of service definitely rises.

Hence, keep looking around for better advisers if your current one doesn’t satisfy you. There are a lot of salesmen advisers out there, but there are also advisers that are honest and acts in your best interest. So STOP SHUNNING them! You never know when you have just chased off a great adviser.

You have heard about this thing called “Singapore Budget 2008″ everywhere, on the news, on tvmobile, on the internet… it’s basically spreading very rapidly in Singapore.

But as we know how busy and hardworking Singaporeans are, most people don’t have the time to look at it in detail. DESPITE www.cpf.gov.sg being just a click away, reading the whole chunk may still take up quite a portion of your time. So let me have the honour of summarizing for you:

#1 Life Bonus

For people that has at least $40,000 in their CPF Minimum Sum. Those with lesser has to opt in.

L-Bonus for those aged 55 and older in 2013

#2 CPF-Top up Tax Relief

Top up your own CPF, Spouse, Sibling, Parents CPF account allows you to claim Tax Relief too.

#3 CPF-Top up Medisave Tax Relief

Top up your Medisave to claim Income Tax Relief ever year.

#4 SRS

Start Up a SRS account to reduce your tax every year.

#5 Removal of Estate Duty

Estate Duty Tax is now officially removed.

#6 Income Tax Rebate

Income tax rebate of 20% for all resident taxpayers for Year of Assessment 2008. The rebate will be capped at $2,000. Having this cap allows the government to target the rebate at those below the top income brackets.

#7 Growth Dividends

The government is giving money to everyone! Depending on your Age, Income and Type of House you live in, you will be rewarded from a range of $100 to $600! This will be paid out separately in two installments of April & October.

Ok continuing from where we left off…

At this moment, if you are still not convinced about investing globally. You must read this on to see my argument.

Firstly, according to Behavorial Finance Study:

Investor Experience:

[Monthly]-Frequent Sharp Movements [Annual]-Smoother Ride

Investor Emotion:

[Monthly]-Fear Dominates [Annual]-Rationality Prevails

Investor Equity Allocation:

[Monthly]-41% [Annual]-70%

So the solution to this is Diversification.

Diversifying reduces fluctuation in your returns and allows you to sleep much more peacefully, however it definitely depends on your financial goal and time horizon. Although it may not be easy to find a decent financial adviser to plan your investment portfolio as there are many “Salesman” disguised as a financial adviser, you still need a professional financial adviser to help you in this area.

For example, the asset allocation for a 3 year goal and 30 year goal would be very different, similarly a retirement goal and lifestyle goal would be different too. I wouldn’t put 100% equity into a 3 year goal.

I understand that many of you have the worry that the US Sub prime mortgage issue may last longer then expected or that the US may enter into a recession.

Frankly Speaking, I would love to share the research I have on hand with you here, however, it would just be a wall of text without the beautiful charts that I can help use to explain to you. So if you are interested in knowing more, e-mail me or call me.

Previously, I wrote a post on the fact that you don’t NEED $1million to retire. If you haven’t read it, click here.

However, if you WANT it… I broke down how much you need to save every month here!

In fact, this post is inspired by Yahoo! Finance.

The road to $1 million starts early, but if you’re a late bloomer, help is at hand. The information below shows how much you need to save each month to accumulate $500,000, $1 million or $2 million by age 65, along with strategies for achieving that goal. At age 25, you’re starting from scratch. At ages 35, 45 and 55, we assume you already have money in savings, on which you’re earning 8% annually.

AGE 25

You’ve saved: $0
To reach $500,000, what you need to save per month: $143
To reach $1 million, what you need to save per month: $286
To reach $2 million, what you need to save per month: $573

AGE 35

You’ve saved: $0
To reach $500,000, what you need to save per month: $335
To reach $1 million, what you need to save per month: $671
To reach $2 million, what you need to save per month: $1,342
You’ve saved: $25,000
To reach $500,000, what you need to save per month: $152
To reach $1 million, what you need to save per month: $488
To reach $2 million, what you need to save per month: $1,159

AGE 45

You’ve saved: $0
To reach $500,000, what you need to save per month: $849
To reach $1 million, what you need to save per month: $1,698
To reach $2 million, what you need to save per month: $3,395

You’ve saved: $25,000
To reach $500,000, what you need to save per month: $640
To reach $1 million, what you need to save per month: $1,489
To reach $2 million, what you need to save per month: $3,186

You’ve saved: $50,000
To reach $500,000, what you need to save per month: $431
To reach $1 million, what you need to save per month: $1,280
To reach $2 million, what you need to save per month: $2,977

You’ve saved: $100,000
To reach $500,000, what you need to save per month: $12
To reach $1 million, what you need to save per month: $861
To reach $2 million, what you need to save per month: $2,559

AGE 55

You’ve saved: $0
To reach $500,000, what you need to save per month: $2,733
To reach $1 million, what you need to save per month: $5,466
To reach $1 million, what you need to save per month: $10,932

You’ve saved: $25,000
To reach $500,000, what you need to save per month: $2,430
To reach $1 million, what you need to save per month: $5,163
To reach $2 million, what you need to save per month: $10,629

You’ve saved: $50,000
To reach $500,000, what you need to save per month: $2,126
To reach $1 million, what you need to save per month: $4,859
To reach $2 million, what you need to save per month: $10,326

You’ve saved: $100,000
To reach $500,000, what you need to save per month: $1,520
To reach $1 million, what you need to save per month: $4,253
To reach $2 million, what you need to save per month: $9,719

You’ve saved: $200,000
To reach $500,000, what you need to save per month: $306
To reach $1 million, what you need to save per month: $3,040
To reach $2 million, what you need to save per month: $8,506

So Look at your current retirement planning. Are you saving enough? For me personally, I do want a million. Even if I do not need that much, I think it is quite a fulfillment.