Savings – Page 2 – CFP, representing Financial Alliance

How are you accumulating for retirement?

In the course of my work, the one question I love asking clients will be their outlook towards retirement accumulation. Recently, I’ve started to classify the attitudes of my clients in their late 20s/early 30s.

(1) The Lifelong worker: Individuals who are not too concerned about the future because they believe/want to work for as long as they can.

(2) The Live Light: Those who prefer to reduce liabilities as soon as they can to reduce financial commitment, thus allowing them to ‘semi-retire’ earlier. These are usually the ones who like to clear off their mortgages and pay up for their insurance. And as soon as they are free from liabilities, they will save aggressively for their retirement. Investment volatility? No problem – because they have no liabilities.

(3) The Early Savers: Those who prefer to save aggressively when they are young, so that they can semi-retire early with multiple sources of passive income. These are the ones who kickstart their annuities early and plan more longitudinally. They don’t mind having loans as long as their total income can cover the repayments. They do not mind investment volatility either because they have the luxury of time.

(4) Retirement? Money isn’t a problem. I am building my empire!

There’s really no right or wrong approach to retirement planning but the important thing is to know and to plan according to your preferences. After all, different strokes for different folks and what matters is that we all get there.

Do you belong to one of the above too?

If you have been thinking about your retirement (or if you have not done it at all), feel free to try out this calculator here: https://northstar.efc.sg/link/consultant/yvonnelim/retirement

Otherwise, just drop me a note. I promise it’ll be a fun discussion!

Inflation

We’ve all heard this story before, where coffee used to cost 90 cents, now it’s $1.20. That is a whopping 33% increase! However, no one becomes a millionaire by being thrifty with coffee, so why should we be bothered by inflation?

Inflation is the sustained increase of prices in goods and services arising from 2 main causes:

1) Cost-push inflation
An example of such would be, an increase in the price of fuel causing your Grab ride to be more expensive.

2) Demand-pull inflation
An increase in demand for a particular product causes an opportunistic increase in the raw material and skilled labour required to produce it.

As Singapore depends on our neighbouring countries to provide us with what we need, we are susceptible to the ebb and flow of external markets. The Consumer Price Index (CPI) in Singapore has shown us:

– As of 23rd December 2021, inflation was at 3.8% year on year, the highest in 8 years
– Electricity costs have increased by 10.7% in December 2021
– Electricity costs have further increased by 17.2% in January 2021 (just check your bill)
– As of 23rd February 2022, inflation increased further 2.4% year on year, the highest in 9 years.

This will likely be further exacerbated by the current Russian-Ukraine situation.

So what can we do?

1) Create Multiple Income Streams

Some would call it a side hustle, or a side gig. It is not enough to depend solely on 1 income source, even Warren Buffett seconds this. “Never depend on a single source of income” – Warren Buffett“. This provides us a certain degree of protection if the main source of income diminishes.

2) Start investing

The 2nd half of Warren Buffett’s quote reminds us that we can never start investing too early to have a second income source. And as we all know, time in the market trumps timing the market. Having a long time horizon is probably the best way to ensure that you are able to ride through volatility and have an average rate of return that trumps the long term inflation rate.

3) Every dollar counts

Reassess your savings accounts, CPF, SRS accounts, Fixed Deposits, insurance policies. Sometimes, all we have to do is to reallocate our resources into the right place. While doing this, it is also important to take into account government policies and your entitlements to maximise your return (and this can be totally risk free).

Like to review your overall financial health? Drop me a WhatsApp for an introductory call on my advisory services.

interest rate is.. what?!

We all know that interest rates have been dropping, dropping and… dropping.

the good news? homeowners are now paying a much lower rate than before, with rates going as low as 0.9%p.a. So if you have not refinanced your home loan, you really should do it as soon as you can.

The bad news? saving rates on our deposits have also fallen to a new low. Even the bank accounts that were supposed to provide a ‘superior’ rate had also fallen. This is despite many consumers having committed to the bank’s requirements previously. This is also the reason why I am often against the idea of committing to an insurance/investment plan at the bank, just for a higher saving account rate.

So what do we do?

Recently, one of our partners (an insurer) launched a 3-years guaranteed participating saving plan (basically, this means policy does not participate in the insurer’s return so you will not get more than the guaranteed rate). The 3-year plan offers 1.8%p.a return at maturity. The plan was snapped up quickly.

In fact, within hours.

Fortunately, there are other insurers who are progressively launching similar short tenure products. However, the rates are lower, between 1.48%-1.6%p.a. So for those who are keen on such solutions, it is really important to keep in the know because these days, they are always gone before you know it. (For context, the rates for such short term plans are usually between 1.2-2.3%p.a, depending on the interest rate environment.)

Are such solutions suitable for you?

Personally, I do not hold any of such short term saving plans because
(1) I either need the money within 3 years – think emergency cash /liquidity needs or
(2) I do not need the money until 20-30 years from now, and which in this case, I would rather invest or save into a longer term saving plan that gives a higher return.

So who should get this?

I do highly recommend such plans to the pre-retirees (if they have maxed out other better saving options) or to those who have saved a lump sum for a near term use (such as renovation/education funding needs at a 3 year mark). If not, it will be better to explore other options because 1.8%p.a is really just barely beating inflation 😦

Cheers

Ladies, we gotta get going

Most of us know (or expect) that there are gender-driven differences when it comes to personal financial management. However, a recent conversation and research got me to rethink about the accuracy of these beliefs/generalizations.

Take for example the below stats, some of these differences are obvious but some others are not.

On Investing:
The average _____ investor keeps most of their portfolio in cash and cash equivalents

On retirement:
______ have more retirement shortfall than ______

On Saving:
_____ more inclined to save a greater percentage of salary than _____

On Spending:
Affluent _______ in Singapore spend more on themselves than affluent _____.

_________ spend more in more categories of spending than _________ (including online purchases)

(Answers: Female, Females/Males, Males/Females, Males/Females, Males/Females)

A couple of surprising answers, right? Who would have thought men can spend AND save more and are more prepared for retirement than women?

Some time ago, a friend asked me during a financial planning session “are women or men more prepared in planning for their retirement?” Almost instantly, I said “women” – because I have always seen females to be the more prudent planners and hence, believed them to be more adequately prepared. However, prudent planning does not necessarily mean more prepared and I think it is important that females get this and know the reasons behind it.

Life expectancy. Women simply have to plan for more. On average, the life expectancy for women is 4-5 years longer than men and this means women need ~ 20-25% more in retirement fund. To make things a little more complicated, one’s nest egg can often be diminished by the spouse who passes on first if money were spent on healthcare.
Wage. Women earn lesser (generally speaking). In the 2014 Labour Force Statistics, women earn lesser than men in all occupational categories except clerical and support. And this is why men can save a higher portion of their income but still have enough/more to spend. Compounded over time, the impact of the income gap is great.
Habit. Women invest more conservatively- not just in terms of their risk appetite but in terms of the portion of their savings that they invest (even though they are the better investor by virtue of their long term view and in not being excessively aggressive). In addition, women often start investing only at a later part of their lives, losing out on the benefits of compounding effect.

With the above being said, women are definitely not doomed for a poor retirement life. We just have to work a little harder, a little faster, a little more so as to get to where we wan to be. Here are 3 ways to get started:

Review family insurance polices – to ensure that an ill family member would not result in you depleting your nest egg
Start saving nowing. Ascertain that you save a substantial portion (20-30%) of your income for the long term. not for your handbag, or travel. For yourself.
With point #2, ensure that at least half goes to investing.

as the saying goes, the best time to plant a tree was 20 years ago. The next best time is now. So ladies, we gotta get going.

_________________

References: 1 2 3 4 5 6 7

Teaching your kids to save!

More than once, I have had clients telling me that I should conduct seminars for young kids to teach them the concepts of saving and investing. Some parents are concerned because their children seem not to have any concept of money or understand that money can be a limited resource too. And because we live in a very different era (we are MUCH luckier than the older generation who went through the tough times), many of us also no longer preach that thriftiness is a virtue. That is the reason why we often hear kids ask “Why can’t I have it?” “But she has it too” “I want to eat at restaurant” or “I want to go to disneyland”

Most adults know why they say no – because we don’t want to spoil our kids (though we often do), because we know it would be a waste of money to buy our kid the 53rd Mickey Mouse plushie and because we know that the money could be better spent elsewhere. But while we know all these, we rarely explain to our kids why, nor do we explain to our kids the virtue of thriftiness.

And I believe that is the core reason why kids do not have a good grasp on the concept of money. Simply, because we do not tell them why and because we do not allow them the environment to practise. So here are three practices to look into implementing for your kid 😉

#1 Make it relative, and let them choose (educating them on the value of things)

The next time your kid wants to buy a new plushie, relate the cost of the plushie to their favourite snack instead.
For example: “If you do not buy that plushie, you can use the same amount of money to buy 15 sundaes over the next 3 months. Do you want the plushie, or the 15 sundaes?”. Make it clear that if they were to buy the plushie, they would have to live without ice cream for the next 3 months – of course, it would be a torturous 3 months of crying and screaming but live through that and it will gradually get better. This works because they place more value on the ice cream sundae than the money in your pocket. Sundaes matter to them. And if they were to choose the ice cream, remind them every single time that they are enjoying the sundae because they chose not to buy that plushie.

Point to note 1: Kids are smart these days, they know that you can afford to give them both the plushie and sundaes – so it is useless (and likely a lie) to tell them that you do not have money. Hence, simply let them know that you are only going to spend $X on them and that they have to choose how they want to spend it. If they already have the habit of getting their way all the time, then this method would be tough but all the better over time.

Point to note 2: It is ok to oblige to your child’s wishes from time to time. This will teach them to accept both the ‘Yes’ and ‘No’ of life. Sometimes they have to choose, sometimes they can have it all.

Continue reading Teaching your kids to save!