Financial Freedom: April 2010

Remove Commissions for Financial Planners

I read with interest the news in Channel News Asia regarding Australia coming up with certain regulations to do away with the commission based model of compensation for financial planners.

This is indeed something interesting that Singapore should consider exploring.

In today's financial planning industry, Singaporeans are limited to the banks, insurance companies and independent financial advisory (IFAs) firms. While a new breed of financial planners are still emerging that charge clients based on a fee based model, the public as a whole seem unprepared to pay for financial advice.

As such, a large majority of financial planners are still paid based on commissions. They are considered financial planners but they have sales targets and objectives to meet. In fact, insurance companies recognise their "best" financial planners as those who are able to achieve the most sales for the company. Just look through those advertisements in newspapers featuring the top financial planners and you will notice that they are called : "TOP PRODUCING FINANCIAL PLANNERS" , etc.

This basically means that these are the people in the industry who managed to make the most money for the company and themselves, not for their clients!

I have nothing against financial planners being paid a commission. The issue I have is the potential conflict of interests that arises when it comes to recommendations to the clients. Because a financial planners is compensated based on commissions, his or her judgement could be skewed to favor products that pay higher commissions. Sometimes, it could even mean recommending products to clients that are unsuitable based on their risk profile. This is worrying.

Considering that most Singaporeans are not saving enough for retirement, any bad financial planning advice will only be more detrimental to their overall financial health.

Singaporeans ought to debate more openly about this issue and demand for more professional financial planners to serve its entire population. It is time that Singaporeans as a whole consider the option of moving the financial planning industry towards one which pays its financial planners based on a fee. This is similar to seeing a doctor or a lawyer. When one needs professional and independent advice, it is best that the professional you are seeking advice from does not have to struggle with conflicts of interests.

There are limits to what regulation can do. If the market is not ready for fee-based financial planners, no amount of regulation by MAS will help. Singaporeans need to ask themselves whether they are willing to pay a fee to meet up with a professional financial planner.

Let's do away with commissions for financial planners. Let's move towards a fee-based model of compensation for all financial planners. What do you think?

Cheapest Term Insurance in Singapore?

Some years back, I purchased a term insurance under the SAF Group Term Life for me and my wife. The consideration back then was affordability.

Just for information, term insurance has the following features:

1. Cheap in premiums compared to whole life policies and investment linked plans (ILPs)
2. High Coverage.
3. Pay and Throw Away. You don't get any returns from it. It is a pure protection plan.
4. Provides coverage only for a term (usually up to age 70) compared to 99 yrs for whole life and ILPs.

Aviva SAF Group Term Life

I have not really done any comparisons but I am pretty sure that this must be one of the cheapest term insurance.

For my case, I pay $51.72 per month for $100,000 coverage for death, total permanent disability, critical illness and personal accident for both me and my wife.

In addition, I just got a letter 2 days ago that says a rebate has been given. This rebate is worth around $106 and will be credited back into my bank account. This rebate is calculated annually and is based on the actual claims experience of the insurance company for the group policy.

So with the rebate factored in, the term insurance only costs me $250 per pax per year for $100,000 coverage. That is really cheap and works out to be around $20 per month for each person.

Do you know of any cheaper term insurance than the SAF Aviva Group Insurance?

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For those who are interested, do check out the following interesting articles

Articles on retirement, savings, financial planning and investing:

Real Estate Investment Trusts (REITs)

Commodities/Gold/Silver

Insurance

Popular Reads

The Road to Financial Freedom:

How Many Pratas Can You Eat?

Just the other day, the family was out eating some prata.

The wife actually had some words of wisdom to impart to me.

Wife: " I like eating prata."

Me: "Me too."

Wife: "What I like about prata is that both the rich and the poor can enjoy it."

Me: "Oh...okay.."

Wife: "Yes. Even if you drive a big car or you are poor, you still can afford prata."

Me: "That is true. And there is only so much prata we can eat."

How true it is indeed!

Roti prata is really cheap Indian food in Singapore. And whether you are rich or poor, you can enjoy this food. But at the end of the day, there is only so much prata that you can eat in one seating. So what if you have lots of money? You can't possibly eat a lot more prata than the person sitting next to you.

This is a lesson about contentment. Be contented with what you have. At the end of the day, there is only so much food you can eat and there are only so much clothes you can wear. All the money in the world can buy you more food, but how much food can one possibly eat?

As if to prove a point, the wife managed to gulp down 4 plain pratas whereas I only managed to finish 2.

Whose Dream Is It?

I just read an article on the Straits Times by Grace Chua titled "Whose dream is it anyway?"

It is interesting to note that many points she raised resonates with what I feel about the unspoken Singapore Dream.

It is unspoken because deep down inside, most young working adults still desire the 5Cs that was popularised about a decade ago even though nobody really talks about it. Most people just hide behind a mask and give the one-liner that goes: "Oh, money isn't important to me." But deep down inside, I guess we have all been subconsciously programmed to gun for the 5Cs.

It is difficult to unlearn things that we have been taught since young. Learning new things is never difficult but unlearning is a whole new level. Try unlearning to ride a bike!

When we start work, we inevitably hear comparisons of who has been promoted, who just bought a new car, house or who and who is now working in some big MNC with a lucrative pay package. Even when we return home, the comparisons do not stop. We hear of relatives who are doing well, we hear of the recent purchases of so-and-so...

All these affects most people subconsciously. And at the end of the day, many Singaporeans end up desiring wealth or riches or the 5Cs. The Singapore Dream. Not really our own dream but rather a dream that has been "forced" upon us.

Suddenly, it seems that if we do not attain the 5Cs, we have failed in life. How wrong can we be...

I think a lot has been mentioned about the 5Cs already so I will not delve into it further.

When I first started this blog, it seemed like my focus was on being financially free. When I say financially free, I don't mean being rich or anything. I just meant being able to live a life where I know all my expenses can be taken care of even if I do not work. I do not aspire to have the 5Cs. Why do I need a country club membership when I don't golf or swim?

Some people once asked if I am obsessed about being financially free everyday....Ermm....the answer is NO.

The reason why it seems I am so obsessed with it is because this blog is about financial freedom so my topics must be about personal finance =)

Believe me, I would rather be writing about something more interesting like my travels and stuff. But because this blog is about personal finance, I need to feed my readers a daily dosage of personal finance information. If I could make an analogy, I am like the journalist writing on the Invest section of the Sunday Times. Is the journalist crazy and obsessed about investments? Maybe, maybe not. For all you know, the journalist could be bored stiff of writing and talking about investments. But it is a job so he/she has no choice but to write about investments.

So when you meet me (if you do ever meet me), please talk about more normal stuff with me. I am not some crazy person who is obsessed with becoming rich. I enjoy playing my new ukelele much more than I enjoy writing about personal finance (well, at least for now). I am a normal person with normal dreams just like everyone else.

Back to the 5Cs...

The question that I would like to ask is this: "Are you still pursuing some dream that involves the 5Cs or are you trying to live your own dream first?"

P.S. My CPF IMSavvy profile is already up. Do check it out at the website.

New Hobbies

I realised that I had not have much time to pursue various hobbies.

So this month, I bought a ukelele and started teaching myself how to play the instrument. I also bought a kite and have been unsuccessful at flying it so far.

The ukelele costs only around $50 and it was a pretty good buy. It has kept me pretty occupied these days that is why I hardly had time to focus on posting new articles at the blog! Call this addiction =)

Anyway, I share with you this lovely piece of music

How Much to Save?

What percentage of your income should you be saving?

I was reading Tan Kin Lian's book on financial planning where he advocates saving a total of 50% of your income (inclusive of CPF savings). That works out to be around 15% to 35% of one's take home pay depending on your income bracket with the rest of the savings coming from your contribution to CPF.

This is interesting because most advice that you get nowadays is that one should save 10% of your take home pay. Personally, I feel that TKL is correct. Saving 15% to 35% of your take home pay in addition to your CPF savings should put you in good stead for your retirement planning.

Too often, people think that just by saving 10% of their savings or by just relying on CPF savings, they will have enough for retirement. That simply cannot be the case. If you only have a working period of 40 years in your life (age 25 to 65), saving 10% of your income will add up to only 4 years worth of salary.

How can that be possibly be enough for retirement with the long life expectancy in Singapore?

So throw the idea away that saving 10% of your take home pay is enough. You ought to aim much higher just to be sure.

Breaking the Psychological Barrier

I have related this story to many people before.

Most people have a psychological barrier when it comes to saving. If they have been saving 10% of their income, they find it hard to increase the absolute amount they are saving even as their income increases.

This is because with a rise in income, their expenditure also goes up. So if they have been saving $300 per month since they first started work, it is not uncommon to find that they will STILL be saving only $300 per month even when their income has already doubled or even tripled.

Some people are savers and some people are spenders. So I guess the savers have developed better money spending habits over time. The way to go about saving more is to practice paying yourself first. Make sure that you save a portion of your money before you even spend it. And do make sure that the amount you are saving is minimally 10% of your income.

If you could heed TKL's advice, a savings of 50% (inclusive of CPF contributions) of your income will be a good start.

COE Relief of Up to $8000

While I was travelling by Alexander Road which is littered with car showrooms, I passed by this advertisement put up at one of the showrooms which proudly read:

"COE Relief of Up to $8000"

That was pretty funny and I was kind of amused at the efforts the sales and marketing team must have come up with to attract customers back into the showrooms.

With the increasing COE prices, a "relief" for the customers reminded me of the various reliefs that one can file for during income tax declaration. It also reminded me of the GST credits (GST Offset Package) and stuff that the government gives out as a temporary relief for the increase in GST.

So it is really a bit amusing to see a car showroom offer reliefs for COE. I was just laughing to myself when I came across another advertisement from Volvo. I didn't really get to catch the exact words but it read something like this:

"With the 7 seater Volvo, you can have more Tiger babies."

Okay, the advertisement did not sound so crude but it was something to that tune.

How funny is that! Car dealers coming up with such creative advertisements to get people to buy cars. They are offering reliefs and now even helping Singapore to boost its birthrate!

Those two adverts really made my day. =)

Great Book - The Forever Portfolio

I spent the weekend reading a book that I borrowed from the library. It was titled : "The Forever Portfolio" by James Altucher.

I don't really like to write book reviews but this book really got me blown away as it was easy to read and it also contained lots of gems from a person who truly knows what he is talking about.

In fact, I finished reading the entire book in just 2 days!

The Forever Portfolio basically focuses on 2 simple questions to determine the stocks that one should hold in his or her portfolio:

1. What are the tidal wavelike demographic forces taking shape around the world that we can surf on top of?

2. What companies are best positioned to take advantage of these long-term trends?

The book gives lots of tips on which stocks to look out for and also simple advice on how to "piggyback" on various investment gurus.

While it is written in a US context, I believe that most people will find a gem or two in this book.

That being said, I thoroughly enjoyed reading this book and now have a much better understanding of various US businesses and certain stocks that I might want to purchase in the future. I wish I could share more but let me just do some of my own research first...

Profile for IM$avvy

Hi people,

I have been working on crafting my profile for the IM$avvy webpage. I was thinking between revealing myself versus remaining anonymous and decided to go for the latter.

Do give me your comments on what you think:

Financial Freedom

FF is in his late twenties and believes in the need for people to be informed and educated about personal finance so that they can make better financial decisions. He writes to keep himself updated with the latest developments as well as to inform, educate and entertain the public. He hopes that through his writings on personal finance, people will be able to learn from his experiences and mistakes. He writes frequently at his own blog about his journey towards financial freedom and encourages readers to embark on their own financial journey. Blogging serves as a platform for him to express his thoughts as well as to engage the online community to share their experiences with one another.

Personal Finance in the 21st Century

Just before I was going to sleep last night, I was just brainstorming on certain ideas that I could further develop in the future for my postings. After all, there are those "desert" days when I have lots of topics that I would like to write about but when I start writing them down, I realise that I do not have much "meat" to add to make it a worthwhile posting.

I was just thinking about the concept of personal finance and how it is different in the 21st century compared to the previous centuries.

I personally feel that the concept of personal finance has changed over the hundred of years.

In the past, people had a shorter life expectancy, had close family support and most probably did not have the concept of retirement. These three factors alone were perhaps the reason why most people perhaps only practiced basic money management concepts like saving. Let me expound on the three factors a little more.

In today's developed countries, most people can expect to live way past the age of 70 or 80. Very often, they will no longer be physically fit to carry out any form of employment and thus need to save up to make sure they have enough to survive on when they are no longer working. This was different in the past where people just worked their entire lives (probably because they owned their own business too).

In addition, they no longer live with their children as some even migrate to other countries to live. In the past, families used to stay pretty much together and one could rely on your immediate family members to take care of you once you are old.

The concept of retirement must also be a pretty new concept as people used to work all the way till their death beds. They simply did not have the concept of retirement!

So with these changes, comes the need for people to understand personal finance. When we live longer lives, expect not to receive financial support from our children and expect to enjoy our retirement lives, we will need to actively plan our finances to ensure that we secure a good financial future for ourselves.

The questions we need to ask ourselves are these:

How long do we expect to live?

Do we expect to be financially independent or will we be reliant on our children or family members during our retirement?

Do we even expect to retire by a certain age?

If we know the answers to the questions above, we are better prepared to face the future.

Money Saving Tips

A little while back, I wrote an article on 1001 ways to save money. I thought that I could expound on some of the common money saving tips proposed by various experts and see how it can actually work out in the Singapore context.

One of these money saving tips that you commonly hear is this:

Shop at outlet stores. You can find a lot of nice, even brand names, clothes for a fraction of the price.

Outlet Stores in Singapore

In the first place, I don't really know where to find outlet stores in Singapore. I am not much of a shopper so I would really appreciate if everyone can share the best outlet stores in Singapore to get stuff like clothes and shoes.

Outlet Stores in Malaysia

Over at Malaysia, I frequently come across Factory Outlet stores and also the Reject Shop. These shops often carry certain branded shirts at really a fraction of the price. And that is in Ringgit also! Tell me about a good deal.

The shopping mall just opposite the new immigration complex is where you can find a Factory Outlet store and a Reject Shop. If one does not mind making the trip across the causeway, you can find pretty good deals there.

Out of My Comfort Zone

Today, I did something which I never imagined I would actually do in my entire life.

There are alot of things that I have been doing lately which I never thought I would have done but this single step really brings me out of my comfort zone.

For the longest time, blogging has always been something which I have done anonymously. I have never met any of my readers or met up with any of those from the online community.

Today, I took the first step and met someone from CPF regarding the possibility of me contributing as a guest blogger at IM$avvy. It was a scary thought for me as this was the first time I was actually meeting someone regarding my blog.

The feeling was actually like me going for a job interview except that the interviewer had lots of personal information about me!

Most of you will know that I feel that this blog is certainly not like a masterpiece. I would actually be embarrassed to showcase it to anyone. Afterall, my writing has at best been incoherent and at its worst, totally incomprehensible. I don't spend much time editing my work so it is really not amazing that I feel inadequate.

Yet, I came across this quote recently that really inspired me to step out of my comfort zone and to embrace myself for who I really am. I share with all of you this quote:

Our deepest fear is not that we are inadequate.

Our deepest fear is that we are powerful beyond measure.

It is our light not our darkness that most frightens us.

We ask ourselves, who am I to be brilliant, gorgeous,
talented and fabulous?

Actually, who are you not to be?

You are a child of God.

Your playing small does not serve the world.

There's nothing enlightened about shrinking so that other

people won't feel insecure around you.

We were born to make manifest the glory of
God that is within us.

It's not just in some of us; it's in everyone.

And as we let our own light shine,
we unconsciously give other people
permission to do the same.

As we are liberated from our own fear,
Our presence automatically liberates others.

—Marianne Williamson

Well, I am glad that I actually took this step out of my comfort zone.

Jim Rogers on Saving

I came across some gems when flipping the Sunday Times.

"Everybody should save, especially early in their careers when they need to have reserves. My first wife wanted to buy a sofa but I told her not to do so because if we put that money for the sofa into investments, we could eventually buy 10 sofas." - Jim Rogers, investor

Good piece of advice about savings from Jim Rogers.

The problem with many people is that once they start working, they suddenly find this urge to spend their money on things that they have never been able to buy before. What they do is go out for some retail therapy. And instead of saving money first, they end up spending lots of money.

"Saving is something you should do to satisfy your liquidity needs. However, the main purpose of saving beyond your immediate liquidity needs is to generate higher returns for your future consumption." David Lee, managing director of Ferrell Asset Management.

Something for all of us to think about.

Best Financial Advice Ever

We all have had friends or family give us some personal finance or investment advice.

While mulling over it yesterday, I was wondering which was the best financial advice I ever received in my life. I realised that the few important or best advice that I got were either from books, family, friends or even people who posted in forums.

Today, I will share with you TWO of the BEST financial advice I ever got.

#1 - Pay Yourself First

I can't really remember where I got this advice from. I believe it is from some book or maybe some forum. It took me quite a while to understand this golden piece of advice and I have been practicing this ever since I finally understood what it means.

To pay yourself first means to take your paycheck and then literally PAY YOURSELF FIRST.

You take out a portion of your income and save it or invest it first. Different people implement this differently so you might like to find out the ways you can go about doing it.

The idea is actually really simple and basically creates the discipline to SAVE FIRST before you even spend a single cent on food or clothing or anything else.

To date, this is the best financial advice I received because I used to pay myself LAST. That means that I basically saved or invested whatever money was leftover for that month. This resulted in months where I had little or no savings at all.

#2 - Don't Contra

This was advice given to me by many people which I failed to heed. To contra stocks means to buy and sell stocks without having to put up any money.

The lure of being able to buy stocks when they are low and selling them when they are high within 3 trading days seems so attractive. Afterall, you don't even have to use any real cash and it seems like one is able to make money without the need to even put up any money.

The problem with Contra is that time is against you. One only has 3 trading days to hope that the price of the stock will go up. If it goes down, you are forced to sell the stock for a lower price and thus incur a loss.

My view nowadays is that one should not contra at all, even if he or she has the money to buy the stock. It does not make logical sense to hold a stock just for 3 days to sell it off later.

Conclusion

Pay yourself first and don't contra. This are two of the best advice I have ever received. I have received many other sorts of advice but these two will always stay with me.

What is the best financial advice you have ever received?

Good Food for Good Dating?

The title of this post seems wrong but I could not come up with a better one.

Basically, the wife and I were discussing over Tim Sum at Crystal Jade today whether it was necessary for a couple (or more correctly, the guy) to splurge on expensive restaurants while dating. (Because we are both poor folks, our idea of expensive restaurants are actually just about any place that is more costly than a fast food outlet.)

She said that it wasn't necessary.

I said it was.

I gave her examples of the times when I dated her and brought her to restaurants to eat. That I argued was confirmation that good food and ambience is critical for a dating couple to progress towards marriage.

She countered and mentioned that we also spent quite a lot of time eating hawker food and fast food.

However, I reasoned with her that during our dating period, we often went to the nicer places (e.g. fast food over hawker center) because of the ambience. The air-con, cleaner toilets, nice music , etc was more conducive for romance to develop.

I also argued that it would be extremely difficult for a couple to be in the mood for love if they are hot and sweaty at the hawker centre. That is unless the guy is very charming of course =). Since I did not have that charm, I had to resort to such "underhand" methods to "win" her heart over.

The wife did not rebut my argument which makes me think that I am correct.

But is it true?

If a guy brings a girl to a hawker centre instead of a restaurant for their first date is there a lower chance of success?

Does that mean that a guy has no choice but to spend more money when he is dating?

Cash Over Valuation (COV) for HDB

Having bought a HDB flat directly from HDB itself, I never had to grapple with the issue of cash over valuation or what is commonly called COV.

If a flat is valued at $300,000 and the owner asks for a COV of $50,000 , the buyers literally have to fork out an extra $50K. This could potentially dry up the savings for a young couple who are thinking of getting their own place. I wonder whether any couple has put off marriage because of the high costs involved in setting up their own homes.

If it were me, the maximum COV that I will be willing to pay will not be more than 5% of the valuation of the flat. A 5% error in valuation is what I can accept as a logical explanation for the owner's refusal to sell. But to have to increase the valuation by 10% or 20% of the valued price seems a bit ridiculous to me. Either the valuation is wrong or the owner is really not keen on selling. Or am I mistaken?

What do you think? What is the maximum COV that you will be willing to pay for a HDB flat?

Financial Freedom