#3 Spend Less Than You Earn

This is post #3 on the topic of the Road to Financial Freedom. It deals with spending less than you earn.

If you have missed out on the earlier postings you can view them here:

#1 The Greatest Mistake - If we fail to plan, we plan to fail. Always begin with the end in mind

#2 Protect What You Cannot Afford to lose - The importance of insurance

SPENDING LESS THAN YOU EARN

This is basically a common sense approach to financial freedom but to many people out there, it just seems that this concept is too basic. Huh? You mean that is it...spend less than I earn...bleah..give me something harder or more sophisticated.

Yet the truth lies that many people are actually spending way above what they earn. Some people are simply spending ALL the money they earn! The problem with spending too much money or all that you earn is this: You will have no money left for savings.

Yes, it is as simple as that. Before swiping your credit card again, think whether you can truly afford it if you were just paying for the item using cash alone.

Another principle that I like to use is to pay yourself first. Always set aside the money that you will like to save first before spending the rest. Never ever spend your money and save the rest!

Chance to Win $200,000?

I received an official looking letter that states that I am one of a few remaining Singaporeans who stands a chance to win $200,000 in a Sweepstake grand prize draw. It says that I will be receiving some important documents in the next few days which I should return by a certain deadline to qualify for the draw.

Anyone received anything similar. It seem's to come from Reader's Digest though there is no official logo and stuff. Is it a scam?

A Millionaire at Age 26

I heard a story from a friend who told me that one of his friends is already a millionaire at the young age of 26. How did he do it?

Basically, I was told that he invested close to $200,000 into a single Hong Kong penny stock and that stock rose by more than 10 times. That was it, just pure guts....and now he is a millionaire!

According to my friend, he is still working his full time job and is basically enjoying life right now as he does not need to worry about money for retirement and stuff already.

So I guess you can say that this guy has already found his financial freedom.

25% Cash Machine

I have been reading this book by Bryan Perry called the 25% Cash Machine.

Basically, this book advocates an investing method called double digit income investing to provide a portfolio that gives both income and capital gains of up to 25%. I enjoyed reading the book except for the fact that some of the stocks recommended in the book are already meeting with some financial difficulties due to the global financial crisis.

In it, the portfolio of stocks to build a 25% cash machine portfolio includes stocks like:

Canadian Royalty TrustsBusiness Development Companies
REITs

I really like the idea of creating a portfolio of 25 stocks that will not only give you income from dividends but also capital gains. Some of the stocks in my current portfolio are also purchased for this reason. They are:

1. ST Engineering
2. First REIT
3. Ascott REIT
4. Suntec REIT
5. PenWest Energy Trust (a Canadian Royalty Trust) - provides me with a monthly distribution.

Hope to find another 20 quality stocks to build my own 25% cash machine portfolio. Perhaps I should call it the Financial Freedom Portfolio =)


See Related Articles:
1. 3 Key Lessons from Rich Dad Poor Dad
2. David Bach - Automatic Millionaire
3. Donald Trump
4. Financial Freedom (Goal 2022)
5. Determine Your Financial Freedom Number

My HDB Flat is Worth Half A Million?

In Singapore, the government provides affordable housing through the Housing Development Board (HDB) which provides flats for people at very cheap rates. I bought my flat from HDB brand new and it cost me slightly over $300,000 for a 90 square metre or 968 sq foot flat. That works out to be around $325 per square foot which is quite alright for Singapore flats.

Yes.. I know that I should never count my HDB flat as an asset since I am essentially living in it.

But just for interest sake, I checked out the HDB website and realised that flats around my area were selling for over half a million!

There were not a lot of transactions but I guess that it should provide a rough gauge of how much my flat is worth now. It's a pity that I am not able to refinance it to unlock some of the cash value in my HDB flat. Otherwise, I would be really rich in cash.

Oh well, guess I will just have to wait for another few more years before I can start hunting for a 2nd property to either live in or rent out..

Income for July 09

The breakdown of my income for July 09

1. Salary = $0
2. Capital gains from shares/rights = $93 + $2300
3. Dividends from PenWest Energy Trust = $11
4. Google Adsense 1st payment = $150.
5. Baby bonus = $750

Total income for the month of July 09 = $3354

Hope that my income for August 09 will be much better.

Financial Freedom Update

I love those Q&A articles that are always featured on the Straits Times. So...I have decided to do my very own Q&A down here:

Q: What are your money habits?

I try my best to save first before I spend. Once my monthly salary comes in, I will usually set aside 10 to 15% into another bank account as part of my savings. Other than that, I buy stocks every once in 2 to 3 months. I am much more a saver than a spender. I only spend on things that are necessary.

Q: What financial planning have you done for yourself?

I have a long term view for my investments. My wife and I have set aside cash amounting to close to $100,000. The rest of my money is mainly invested into equities with a small portion in commodities unit trust. Equities are mainly into Singapore stocks while we have some exposure to Canadian Royalty Trusts and US stocks though that makes up only 10% of our equity portfolio.

My Singapore stock portfolio was structured firstly for capital gains and later on in the years, I have started to focus more on dividend yields. Around 40% of my portfolio is currently into REITs or dividend yielding stocks. Some of my stock holdings including Pac Andes, Kingboard, China Aviation Oil, First REIT, Ascott REIT and Suntec REIT.

Q: What about insurance planning?

I am covered for about $600,000 for death/disability and $400,000 in critical illness. My wife is covered for $300,000 in both life insurance and critical illness. We are both covered under hospitalisation plans. We are looking to increase the coverage for my wife to $500,000 and for myself to $1 million.

I use a mixture of term insurance, whole life, and ILPs for insurance coverage. The surrender value of my whole life plan is currently at $15,000 while my ILP's surrender value is around $34,000

Q: How did you get interested in investing?

My dad .

Q: Your best investment to date?

My flat. Bought it for $300,000. It should be valued at around $450,000 today.

Q: Your worst investment to date?

Bought into Unifood during its high of close to $0.50. Lost around $8,000

Q: Any other investments?

Education and reading of books. Investing time into my family too.

Q: Moneywise, what are your growing up years like?

I was taught to save money for a rainy day. Both parents were really frugal though they were quite willing to spend on things like holidays.

Q: Your home is ...?

A HDB flat

Q: Your car is ....?

A 1.6 litre car