Sunday, January 24, 2016

How many weeks in a year? (And why some people get 13th month bonuses)

Well, a simple question that many people have is how many weeks are there in a year. The simple answer is there are 52 weeks in a year.

Of course, we are not trying to be exact here since we know 52 multiplied by 7 only gives you 364 days instead of 365 days.

But is there a way to remember that there are 52 weeks quickly? Well, let me teach you a way that I remember this fact.

See, in the past, people were paid daily or weekly wages and so their monthly salary was based on 4 weeks. However, being paid in this manner means you only get paid for 48 weeks of work in one year. That means you have been shortchanged by one entire month of work (or 4 weeks of work) where you are not paid. And that is where the 13th month bonus kicks in. Of course, many companies do not give out such bonuses anymore but this idea is still prevalent in places like the civil service.

So through this little nugget, you can see that a quick way to remember is that 48 weeks plus the 13th month (4 weeks) equals to 52 weeks.

So there you have it. If anyone ever asks you again how many weeks are there in a year, you can work out the answer to 52 weeks!

Saturday, January 2, 2016

Goodbye 2015, Hello 2016!

So 2015 has come and gone in almost a blink of an eye. And right now, 2016 is already upon us even as I am writing this post in a comfy cafe sipping on my ice-cold coffee and reflecting on what 2015 has meant to me.

2015 was probably a year of both ups and downs. There are definitely many things to be thankful about. Some of these include good health, advancement in career (and pay), seeing new places, enjoying new experiences, and having a great family (nevermind the occasional quarrels and fights). Indeed, I consider myself blessed. And I am still learning the art of contentment even though it still eludes me from time to time. So 2015 has really been a lot more positives than there has been negatives.

Investment-wise, 2015 probably has not been that good. A couple of my investments are losing money still and this is probably where I ought to spend more time and reflect to learn from my various mistakes. One of these mistakes is probably the blind pursuit of yield in some of my investments and that has proved detrimental since the risk was priced in but all I saw was the high yield. The lesson learnt is not to chase yield blindly especially when picking dividend stocks.

Nevertheless, despite my mediocre stock-picking skills and woeful market timing, I have seen my household networth surpass the $1 million mark. Of course this does not put me anywhere the high networth category since that is still way short of the USD$1 million in investible assets. But I know that goal should be achievable (God-willing).

Some thoughts on this is that my networth is largely tied to property so that is something to be mindful of. Also, most of this is probably not due to my efforts. Besides being a good saver and having a relatively okay salary, the rest probably boils down to being born in the correct family, having opportunities that jumped at me, etc. In fact, after much consideration (and as tempted as I am), I don't think there is any practical advice that I can offer anyone to assure them of reaching this milestone the way I did.

The negatives of 2015 probably boils down again to career decisions that need to be made and what awaits me for the future. I don't think I can say that I jump out of bed each day looking forward to the day. There are some changes that I yearn for in life (e.g. more free time and space, traveling, new experiences, etc) and I know these issues will probably need some confronting in the near future especially since I foresee a busy year ahead at work.

2016 is probably going to be a challenging year ahead. Probably not financially but emotionally. But I trust that God will see me through it.

Tuesday, December 22, 2015

Car Insurance Money Saving Tips

If you drive a car, you will need car insurance or motor insurance. While there are many insurance companies out there, you will be amazed at the different quotes that each insurer will actually give you. Recently, I went to get some quotations to renew my insurance for my car and was surprised that the quotes given varied from $1200 to $1600. I spoke briefly to a general insurer and found out why these quotes vary. Here are some tips on how you can save on your car insurance.

Shop Around For the Cheapest Car Insurance

Each insurer will give different quotes due to different claims experience. Another reason why there are different quotes is also likely due to the fact that these companies have certain "quotas" on the number of vehicles of a certain model that they are willing to insure. For example, Insurance Company A might decide that the risk it can take for insuring Toyota cars is only maximum 1000 cars this year. As such, they might give high quotes especially when their quota is filled so as to price themselves out of the competition. So do shop around and get as many quotes as you can. You will be surprised at the different prices.

Increase Your Excess

Another method to reduce your car insurance is to actually increase your excess (simply put as the amount that you will have to pay first during an accident before you can claim any money from the insurance company). I learnt this trick from an insurance agent some time back. The intial quote I got then was around $1400 based on a $500 excess. By increasing my excess to $2000, I was able to get a quote that was cheaper. Of course, the reason why I was willing to take the extra risk was because I wasn't accident prone and I also had the means to pay the $2000 excess. Weighing the probability, I figured that the increase in excess was something that I could afford to risk.

Buy the Correct Car

Yes. You guessed it. Certain car brands/models are more expensive to insure than others. Generally, Toyotas will be cheaper to insure than a Honda or a Mitsubishi. This is due to the claims experience. Cars that are popular amongst younger male drivers tend to have a higher accident rate and thus will have a worst claims experience. Insurers will thus charge a higher cost for certain models and brands of car. If you want cheap car insurance, go for Toyota and Nissan. They are among the cheapest. Avoid Honda and Mitsubishi. If you are driving a sports car...Good Luck!

Read Related Postings:
Home Insurance
Top 10 Money Saving Tips
My Saving and Spending List
Drinking and Eating Your Way to Financial Freedom

Monday, December 21, 2015

Funeral Insurance 101

It just came to my realisation that certain countries do sell insurance to cover the cost of one's funeral expenses. This is usually a standalone insurance that offers a payout to tide the family through the funeral expenses which usually adds up to tens of thousands of dollars.

Some features of funeral insurance that I have seen includes:

  1. Flexible coverage amounts
  2. Fixed premiums with no increase in age
  3. Guaranteed coverage with no medical examination for people of a certain age range
  4. Fast payouts in 24 hours
  5. Payouts that are at least more than or equal to the premiums paid
  6. Professional grief counselling
  7. Discounts that are applicable if it is a family plan

Of course, the above stated features  are just a sample of what is available in the market. So one will have to conduct the necessary due diligence to find the best funeral insurance that suits one's purposes.

In countries like Singapore, such insurance is also almost non-existent though it will be interesting to see whether there is a market for such a product.

I think this insurance is really niche but still fills a necessary gap since it will provide loved ones with almost immediate spare cash for funeral expenses when the need arises.

Sunday, December 20, 2015

#2 Protect What You Cannot Afford to Lose

This is the #2 posting of a 10 part series about the Road to Financial Freedom. In the last posting, we discussed that the greatest mistake in one's journey towards financial freedom is the lack of planning. In this post, we will see that protection or insurance also plays an important part in our road to financial freedom.

Why insurance? Because life can throw unexpected events at us that might cause a huge dent in our bank accounts. Imagine the medical cost of staying in the intesive care unit for 1 month. Or just imagine having to pay the costs for cancer treatment. As much as we will like to think that our bank accounts would have sufficient money to pay for these unexpected events, it is unlikely so as these bills can sometimes run up to 5 digits or 6 digits!

So the most important thing one can do is to set aside a small portion of their income (hopefully much less than 20%) to buy some insurance that will give protection for death, disability, critical illness, personal accident and hospitalisation bills. This will ensure that should anything unexpected occur in the future, the huge costs will not affect whatever good work you have done so far in your road to financial freedom. Essentially, we insure ourselves for risks or costs that we cannot afford to lose.

So yes, savings and investment are the "sexy" things that people like to talk about when it comes to financial planning and the road to financial independence or freedom. But before we start saving and invest, it might be worthwhile to relook at our protection portfolio and ensure that we are adequately covered before we make the next step to achieving our financial goals.

Moneytalk also has an article on why we should buy insurance. Click here to view it

The Road to Financial Freedom (Read the rest of the postings here)
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint

Saturday, December 19, 2015

#1 The Greatest Mistake

Update Dec 2015: Just reposting some old blog posts that some might find useful

I have decided to write the next 10 postings about the Road to Financial Freedom.

Today's #1 posting is about THE GREATEST MISTAKE one can make in their journey towards financial freedom.

I believe that the greatest mistake on the road to financial freedom is the failure to plan. As the saying goes : " If you fail to plan, you plan to fail". Likewise in your journey to financial freedom, if you have no plan, you will most probably fail.

Too many people want to achieve financial freedom or just simply want to be rich or filthy rich. The problem is that they have no idea about what their financial goals are and whether they will ever reach it. As Stephen Covey will put it: Begin with the end in mind.

Before we begin our road to financial freedom, we need a goal to work towards. We basically need a financial plan that will show us :
(1) Where we want to be in the future financially (the end goal)
(2) Where we are currently (our current reality/situation)
(3) How are we going to get to our goal (the game plan)

The journey to financial freedom thus has to begin with a plan. And this financial freedom plan can only be crafted if you know where you want to be in the FUTURE, where you are NOW financially, and how you intend to work towards achieving your goals in the PRESENT moment.

For example:

I know that my financial freedom goal is to achieve a passive income of $2800 per month by the year 2022 (FUTURE). NOW, I am achieving slightly above $200 per month in passive income.
Since now is the year 2009, I have set the goal of achieving $400 per month in passive income by the end of this year. How I set out to achieve this goal is to reduce my expenditure and increase my sources of passive income. (This is what this Financial Freedom Blog is about afterall - to track my goal of attaining a passive income of $2800 per month)

Remember, a journey of a thousand miles begins with a single the correct direction. Make sure you know what direction you want to head in first before saving and investing your money. Always have a plan in mind. This plan can change along the way but you must always stick to your plan and review it constantly.

Read the Entire Series:
1. The Greatest Mistake
2. Protect What You Cannot Afford to Lose
3. Spend Less Than You Earn
4. Spend Less Or Earn More
5. Buy Assets Not Liabilities
6. Read and Learn More
7. The Magic of Part Time
8. Health Equals Wealth
9. It's A Marathon, Not A Sprint
10. Congrats! You Have Achieved it.

Friday, December 18, 2015

Two Ideas That Will Change Your View About Investing Forever

One day, when I was taking a shower (now readers know where all my inspiration comes from!!), I reflected on my years of working, investing, conversations with friends/family/colleague and tried to distill what were the two most important ideas or messages that I should tell anyone who was getting started on investing/retirement planning/personal finance.

You see, in Asia or in Singapore, personal finance is still pretty much a taboo topic.  It isn't the best lunch conversation topic (unless one is talking about the latest stock picks and how who and who made a million bucks from some investment).  But people in general tend not to reveal their own investments, savings, etc, etc. Money is almost like a taboo topic that is not discussed.

I have heard and read about so many ideas but I think these are the two most revolutionary ideas that will perhaps change the perception or philosophy of investors:

Idea #1 - Investing is for Income

I don't really recall when this idea struck me or came into my head.  It might have been a book I read or when I was just thinking about retirement planning in general.  But the key idea to investing is not to "earn a million dollars" or to "buy a big house", etc.  Well, those are the material things that people want and I guess it is easier for people to relate to some kind of physical possession or numerical value to determine that they have reached financial freedom.  However, this is probably misguided.

For most people, becoming a millionaire seems to be the ultimate goal.  However, if you dig deeper and ask them why they want to be a millionaire, it is probably due to the pre-conceived idea that with a million dollars, they no longer have to work and can retire in peace.  That probably explains why many people buy the lottery. The idea of having a big house is also related to the very simplistic idea that "if I own a big house, I must be rich, just like people on TV/movies.  If that is the case, I no longer need to work".  While these physical possessions gives many people a financial goal to strive for, at the end of the day, if you drill down deeper, you know that reaching these arbitrarily set goals probably does not put one in a better stead to achieve financial freedom.

At the end of the day, it boils down to cashflow.  Give a big spender a million dollars and let him retire at age 30.  It is possible that the million dollars can be spent even before his lifetime and he will have to return to work.  And that probably explains why many lottery ticket winners end up becoming bankrupt or broke again.  So the idea is cashflow.  And the idea is that all that you are investing for is not for a big house or for a million dollars, but it is for the sole purpose of income.  It is the common Chinese saying : " qian sheng qian" or "using money to grow more money".

When one invests, the million dollar goal (or two million dollar goal) is actually so that you can start drawing down on that sum of money during your retirement years.  That is how most financial planners will actually work out how much you need for your retirement.  They take the age you intend to retire, and the expected life expectancy, and calculate your monthly expenditure to indicate what is the $X dollar value that you need in retirement funds.  But so many people forget that the $X dollar value is meant to provide them with income when they stop working and stop drawing an income.

So at the end of the day, all investing is for the sake of income.  Nothing more and nothing less.  That is the sole goal of investing.  You are basically trying to build up a stockpile of cash that you can tap upon when you are not drawing any money.  If you have $10million dollars invested in an instrument that gives you a 10% per annum yield, you will have $1million in income to spend every year.  That is as simple as it gets.  If you put that $10million in a bank with 0% interest, what you draw down on that bank account every month is basically income while the original value of your bank account just gets depleted month after month.

This idea is "revolutionary" because not many people I know of think or speak of investing in that sort of way.  They always speak of investing as some sort of arbitrary goal or just about making more money from the stock market.  If you realise that investing is about income, you will realise that building up that income is just one side of the story.  What you as an individual will also need to manage is your monthly expenditure so that it does not exceed your monthly income.  And isn't that all there is to personal finance.  No wonder we hear the frequent maxim: "Spend less than you earn".  Because even when you retire, you also need to spend less that you get in income.

Once this idea is firmly implanted in your head, it will then help you better strategise how you want to go about building up that income stream for your retirement years.  For some people, it could be just a bank account.  For others, it might be bonds or dividend yielding stocks/REITs or businesses or even rental income from property.

Here is where the 2nd idea then comes in a little much easier....

Idea #2 - If You Intend to Work for the Rest of Your Life, You Don't Really Need to Invest

I know that this idea will probably draw a lot of flak from some readers who will still think that it is important to invest.  What I am alluding to is the hypothetical situation of a person who has no intention to retire and whose life expectancy is say at age 80.  Effectively, a financial planner who does his calculation will realise that there is no investment product he can offer this person especially if the person is willing to live within his means.

If one is able to work till death and still draw an income, then you literally will not have the need to set up a retirement fund.  However, there is of course all the unexpected events that life can throw at us.  Illness, retrenchment, disabilities, etc, etc can all potentially strike us even if we intend to work for life.  So at the end of the day, one will still need to prepare for such unforeseen scenarios either through investing/savings/insurance.

I don't intend to retire, but I still invest.  And the reason I invest is just in case there comes a day when I am forced to retire.

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