Financial Matters & Tips #Ep 4 - The True Story of an Asset Rich but Cash Poor Elderly

Straits Times recently reported the plight of an elderly woman who lived in a $4 million condominium but relied on bank loans to get by provides a stark cautionary tale on the consequence of being asset-rich but cash-poor.

When she died in early 2023, her relatives found that she had only $3,700 in her savings account and had chalked up an overdraft loan of over $200,000 secured on her home.

This always led me to wonder how we can keep a good balance between being asset rich and cash rich at the same time.

It is definitely not easy as everyone of us have our daily needs and expenses to tend too, with some having young children and elderly parents to support as well.

It is not never an easy journey to prepare for retirement as it always seems like the last thing on our mind. As such, many people underestimate their needs in old age because they fail to prepare for major unexpected expenses that may strike unexpectedly.

So how do we avoid being in the same plight as the cash poor elderly?

Here are some of the ways that we can do to prepare ourselves for a comforting retirement whilst enjoying our life at the same time:

1) Save hard when you are still young (20s, 30s and 40s) as we will not work forever.

2) Get your finances in order and cut down any unnecessary spending.

3) Work on a side-hustle or acquire additional skills apart from your full-time job.

5) Understand how much you need for retirement and work towards that goal.

6) Invest in broad-based ETF.

7) Focus to reach full retirement sum in your CPF.

6) Build up a portfolio that generate enough passive income to cover your monthly expenses.

7) Top up your SRS funds to reduce tax for higher income earner whilst investing through a number of ways.

The goal isn't to get rich. Rather, the goal is to have enough money to lead the life we want and enjoy our retirement without any worries to pay next month bills and expenses.

Regards,
SG Cashflow Investor

Financial Matters & Tips #Ep 3 - Saving Up Freedom

Saving Up Freedom

Here's a test question: how much would you have to earn per year in order to feel that additional income would no longer have any effective impact on your perceived wellbeing? Write down the figure before reading on. 

Research offers clear answers: If you are living in poverty, money plays a major role. Financial difficulties are sheer misery. If you are living on a moderate income per year, money plays a more moderate role. Above a certain threshold of household income, the effect of additional income shrinks to nil - and remains there even if you reach the million-dollar mark. 

It's not all surprising. Imagine the life of a billionaire from sun-up to sundown, moment by moment. Even rich people need to brush their teeth. They sleep badly sometimes. They feel like crap, argue with their families, fear age and death. 

In a well-known study from 1978, researchers analyzed the life satisfaction of lottery winners. The result? A few months after their big win, the brand-new millionaires were no happier in any significant sense than before.

One famous economist in the past measured the life satisfaction of his country citizens in 1946 against that in 1970. Although living standards nearly doubled during this period (had fridge, car, washing machine and hot water), life satisfaction had remained fairly stable. 

The economist found similar results in the eighteen other countries whose data he compared. In other words, people were no happier with their lives in 1970 than immediately after the war. Material progress was not reflected in increased life satisfaction. This shows that once basic needs have been met, incremental financial gain contributes nothing to happiness.  

Why then do we keen yearning to be millionaires - in the face of all scholarly consensus? The main reason is that wealth is relative, not absolute.

Imagine you manage to buy a Mercedes after years of saving, and your friend drive up beside you with a Lamborghini. What happens? Your blood pressure rises and life satisfaction drops - even though you are still living very well. 

Money is relative. Not just in comparison to others, but in comparison to your past. If you earned $50,000 per year during the first half of your career and today you earn $75,000, you'll be happier than if you first earned $75,000 and now earn just $60,000. This is despite the fact that, averaging the figures, you come out better off overall in the second scenario.

Simply put, your level of wealth - above the poverty line - is primarily a matter of interpretation. But this is good news; it means it's up to you whether money makes you happy or not.

There are a few rules of thumb for dealing with money. The first has been termed by some linguistically adventurous individuals freedom money, in reference to the last two words ever presumably - you will yell at your boss before storming out of the office.

Basically, money refers to the savings that would allow you to quit your job at a moment's notice without ending up in dire financial straits. One year's salary, let's say, money is freedom.

More important even than material independence is that money allows you to see and think objectively. 

One: So, if you haven't saved up your money yet, keep your fixed costs low. The lower your out goings, the quicker you'll reach your goal. In any case, it's a nice feeling to have money without spending much of it. 

Two: don't react to minor fluctuations in your income or assets. Has the value of your stock portfolio risen or dropped by one percent today? Don't let it worry you. Basically, don't think so much about money. It won't multiply more quickly the more often you think about it. 

Three: don't compare yourself with the wealthy. It will make you unhappy. If you must, compare yourself with those who have less than you do - but it's better not to compare yourself with anyone at all.

Four: even if you are filthy rich, live modestly. Wealth makes people jealous. Anyone who has enough cash can buy a luxury yacht - there's no skill to that. If you are a millionaire or billionaire, it's more impressive not to buy one, to live modestly.

Essentially, once you have left the poverty line behind you and saved up a financial safety net, money is not among the factors that contribute to a good life. So work on those other factors instead of hoarding money. 

Genuine success, as we'll see in our lifetime is anything but financial.

Regards,

SG Cashflow Investor

Financial Matters & Tips #Ep 2 - How to think about Money

I was reading this book titled "How to think about Money" by Jonathan Clements which I bought recently.

This book highlighted a few interesting points and offers different perspective about Money and Investing which I find particularly true. It is very refreshing and allow readers to make smarter financial choices and squeeze more happiness out of your cash.

Here are the final thoughts from the Author:

There are all kinds of explanations for why we are so poor at handling our finances. We can blame our hardwired instincts, conventional wisdom, relentless corporate marketing and the financial industry's greed. But while I can understand why people go astray, my sympathy is in shorter supply. In the end, nobody stick a gun to our head and forces us to spend too much or buy overpriced investment products.

We all still have a choice - and we should be especially careful with our financial decisions, because the stakes are so high. Make the wrong choices, and our lives could be dogged by financial worries. Make the right choices, and we could have the financial freedom to lead the life we want.

These are the 12 suggestions for getting the most out of your money:

1) We favour possessions for their lasting value, but often we get greater happiness when we spend our money on experiences. Forget the new car. Instead, travel across Europe and other Continents.

2) We should use our pounds, Euros or dollars to create special time with family and friends. Take the kids to a sports event and your spouse to a theatre. Have dinner with friends. Book a trip to see the grandchildren.

3) We should design a life for ourselves where we can spend our days doing what we love. To that end, we should save every penny and dollar we can early in our adult life, so we quickly buy ourselves some financial freedom. In our 40s to 50s, we might use that freedom to switch into a career that's perhaps less lucrative, but which we may find more fulfilling.

4) We should worry less about dying early in retirement, and more about living longer than we ever imagined. Faced with that risk, most of us should delay our pension or CPF to get a larger monthly cheque, and also consider buying immediate annuities that pay lifetime income (we have CPF Life).

5) Our investment time horizon is measured not in months and years, but in decades and decades. We should strive to look beyond market's short-term turmoil and instead aim to collect the staggering gains that can accrue to those who globally diversified stock portfolios for 30 or even 50 years. Indeed, while a long bear market can impoverish retirees who don't have enough in bonds and cash investments, it can be a great gift to young adults who are good savers, because it offers the chance to buy stocks at bargain prices.

6) We should hold down our fixed monthly costs, such as the sum we devote to mortgage or rent, cars, utilities, groceries and insurance premiums. Those low fixed costs will give us more financial breathing room, which can ease our sense of financial stress, leave us with more money for discretionary 'fun' spending - and allow us to save voraciously.

7) Good savings habits don't come naturally, so we need to make socking away money as painless as possible. That means signing up for payroll contribution to our employer's retirement plan and setting up automatic investment plans, where money is pulled from our bank account each month and invested directly into the funds we choose. It also means adopting easy-to-follow financial rules, such as always adding $100 to the monthly mortgage payment and always saving financial windfalls, including tax refunds or bonus and income from a second job.

8) The harder we try to beat the market, the more likely we are to fail, thanks to the hefty investment costs we incur. To avoid that fate, we should stop trying to outsmart other investors and instead embrace humility - in the guise of a globally diversified portfolio of low-cost index funds.

9) We should never forget that stocks have fundamental value. For a diversified stock portfolio, that fundamental value will change much more slowly than market prices. To keep ourselves grounded, we should focus on the dividends and earnings we buy with every dollar invested, we should have a handle on the market's likely long-run return, and we should think like shoppers, viewing market declines with the same enthusiasm that we view a sale at the local department store.

10) Chronologically, retirement might be our life's final financial goal, but we should put it first. Retirement is the most expensive of our goals, and hence we need to save and collect investment gains for many decades to amass enough money. Retirement is also distinctly different from other goals, like buying a home or paying our children's education. What's different? Retirement won't be optional for most of us and we can't expect to pay for it out of our pay cheque, because at the point we won't have one.

11) We should take a broad view of our finances - and the unifying notion should be the income from our human capital, or the lack thereof. The pay cheques that we collect over our lifetime are like a bond that generates 40 years of fairly steady income (assuming not being retrenched). The income stream can diversify a portfolio that's heavily invested in stocks, provide the savings we need to set aside for retirement, and allow us to take on debt early in our adult life and then repay it by the time we retire. We also need to protect our human capital, be ensuring we have adequate health coverage, and sufficient disability and life insurance.

12) The goal isn't to get rich. Rather, the goal is to have enough money to lead the life we want. We shouldn't put that at risk by incurring excessive investment costs, straying too far from a global index strategy and failing to buy insurance against major financial risks.

None of this is especially complicated or clever. But putting these ideas into practice takes thought and effort. We need to ignore our instincts, rein in our emotions, take a deep breath and focus relentlessly on what's best for us - for our happiness and our financial freedom over a lifetime that might span nine decades.

Sounds like a lot of work? It's nothing compared to the potential reward. With a sense of mission and the simple steps outlined above, it is amazing how much wealth we can amass - and how much happier our financial life can be.

Regards,

SG Cashflow Investor

Financial Matters & Tips #Ep 1 - Rich Dad Poor Dad (Cashflow Quadrant)

I recalled when I was young, one of the first financial book that I read was Rich Dad, Poor Dad by Robert Kiyosaki. 

He mentioned about how the rich earn their money through businesses and real estate, while the poor focus on their jobs and save money. And of course, the rich always get richer and the poor always get poorer. Hence is life fair to the poor? It never was.

Subsequently, he came out with another book titled "The Cashflow Quadrant" and I didn't complete reading the book as I couldn't totally apprehend what it was trying to say entirely at that age of mine. However there was this cashflow quadrant which caught my eye and I find it very interesting:

Basically this is a Cashflow Quadrant where each and every of us are being break down into one of the four categories based on their financial intelligence. Some of them could belong to two categories but no one could possibly be in all four categories. The trick is to move from an Employee (E) to Self Employed (S) and to Business Owner (B) and eventually Investor (I).

The left quadrant are the guys that are earning active income constantly using their own time, effort and energy whilst the right quadrant focuses on earning passive income from your businesses or investments. The question is how do you actually move on to different sectors from E, S, B, I and with B and I being the most valued categories.

However I have slightly different perspective when it comes to Cashflow Quadrant. Robert Kiyosaki focuses on how the people from the left column could successfully move to the right column to achieve success. In this current age and time, I believe we could actually be able to take part or be in four categories at any one time but this involves master prioritization of tasks, expert time management and hard work.

Will you rather choose to have SGD500k cash sitting in your bank with no income coming through for the rest of your life or would you choose to be secured with multiple cashflow of example SGD10k coming to you each and every month for the rest of your life? I will choose the latter.

Therefore, my financial aim is to build multiple streams of positive cashflow coming to my bank account each and every month. Of course some of it you need to use your time and effort to exchange and maybe some with lesser effort until passive income take over.

For me, I will be trying to build positive cashflow from all categories at any one point of time. That is how my name of SG Cashflow Investor came from, which is primarily the cornerstone of my strategy.

Employee (Active Income):

This is your full time job where you earn your main active income. At the start of any person's working cycle, this would be the main source of income. The income which is being earned from the employment should be saved, retained as much as possible and transfer to investment.

The key risk is being stuck in a monotonous job where there are no job progression. Many office workers dread the coming of every week Monday where the usual routine of travelling in packed public transport rushing to work place to clock 8 to 10 hours of work and then back home. There are risk of having horrible bosses and political colleagues to work with, and you have to constantly prove your worth in order to survive in the competitive corporate world.

In addition, there is also increasing risk of retrenchment especially for PMETs in their 40s and above in this current volatile economy. At the point of writing, I just received news that one of my childhood friend whom is in his mid-40s was out of job since March this year and he has nothing to do at home beside looking for job? As such, you should always prepare a back-up plan while you are still employed to minimize any risk of job/income loss in times of crisis.

Self-Employed (Active Income):

Self-employed means you could own your business such as insurance agent or property agent being full-time or part-time.

There are also many side hustles which you could do during your free time and hopefully one day it could generate revenues to replace your main income. Blogging is one of the hustles which I'm working on. Other examples you could do is setting up online websites and advertising, selling of items online or developing other interests or hobbies you might have and where it could convert to some small sidelines.

Self-employed sits on a slightly higher-tier than being an employee as you are your own boss, you manage your own time and income depending on the Clients you serve. There will not be any risk of retrenchment however you need to be disciplined enough to continuously find and develop new business and sales to maintain or increase your income. The only set back is you still have to work to continue receive your income and once you stopped working, the income stop as well.

Business Owner (Passive Income): 

Business owner is the most difficult to achieve for majority of us here in this category. Being a business owner involves large amount of money and risk, and there is always an element of risk and uncertainty as all businesses are not guaranteed for profits. Do you have $100k or $200k to start a business from scratch? Do you have time and expertise for that? Are you willing to risk it to succeed? Do we have enough capital to endure the period?

Indeed there are so many uncertainties where the business could fail however we do witness some great businesses breaking even within the first 6 months or less than a year, and subsequently the company is making profit for the Business Owner months after months. This can be a great source of back-up plan and you do not have to be physically there once the business is up and running by a team. Examples are investing in a franchise business or some other small businesses with a couple of friends or partners.

Investor (Passive Income): 

Investor where you focus on investing your extra money for dividends and passive income. We are now at the right time to invest in great stocks and reits where 20 years ago all these were not available. Being a reit hub in Singapore offers opportunity to investors like us to invest in different real estate and to be rewarded with dividend yields ranging from 4% to 9% on an annual basis.

At the beginning, you will not see much returns but you have to be patient and persevere to build your portfolio day by day with dividends as reinvestment until one day, your passive income coupled with capital gains will surpass your expenses or even replace your employment income.

Of course, the aim is to invest as much as you can building a million worth of portfolio so you can achieve FIRE. One of the few bloggers that inspire me is Dividend Warrior and AK71 with their portfolio and I do inspire to build a similar one like them.

The rewards could be very enriching on a long term basis and you don't have to spend any of your time and energy in maintaining the portfolio except for some re-alignment or management once a while.

As such, one of my most favourite quote for investing is by Charlie Munger (the right-hand man for Warren Buffet):



In conclusion, I would say Cash is King but healthy positive Cashflow is King of King.

Regards,
SG Cashflow Investor