SG Young Investment crosses 1 Million

Yes its official. SG Young Investment has crossed one Million page views just this morning. I hope all of you enjoyed reading my blog as much as I had enjoyed writing for the past one year or so. 

I have learnt a lot through writing on this blog as most of the time I have to research the stuffs that I write. Researching and writing on personal finance topics such as housing, wedding and CPF made me understand these issues more clearly. To say the truth, I had no prior knowledge on the CPF earlier this year. I did not understand what it means to pledge your house for CPF or even know that I can transfer my monies from CPF OA to SA to earn higher interest. I also did not know what is the CPF life. It was only after gathering all the available information and reading the materials from CPF website repeatedly for many times before I understood the whole thing. I'm glad I wrote on the topic of CPF which gave me an understanding of how it plays a part for our retirement. 

There are many exciting things ahead. All these will be announced in due time. Yes, I'm planning some great stuffs for everyone which hopefully can be finalised by the end of this year. I've met a few number of people in my blogging journey and certainly there will be more chance to meet other people along the way. However, I can't meet everyone and will only meet if there's a need to. I've received hundreds of emails and really enjoyed interacting with all of you. Keep it coming. Most of you are quite encouraging and have been rather kind to me. I deeply appreciate it! 

I know there are a lot of students who're reading my blog and even young couples who read my blog. Maybe there could be a gathering for all of you to meet and support one another someday in the future. It is good to start planning your finances at a young age but even if you're not too young, the best time to start is now. If you still have at least 10 years before you retire, it's not too late. 

Nevertheless, we're fast approaching November soon and then it's just 2 months to the end of 2014. What are some goals you've set at the beginning of this year but have not fulfilled yet? There's still time to review it and act on it. 

I shall end this short post here. Cheers to a Million! It's Friday soon. Have a great weekend!

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Related Posts:

1. 100,000 page views!

2. 1 year of blogging and it continues....

Why extreme savings is more powerful than investing

Very often, I receive a lot of emails from readers on how they should start investing. Somewhere and somehow, I suppose many of them heard that investing is important or investing can actually be an answer to a better life. This kind of question on how should I start investing was a question I asked myself a few years back. It was because I asked myself this question that gave me a clearer understanding of what investing is really about.

The myth of investment returns

Investing early is important as your money gets compounded over time. However, investing too early without sufficient capital will only yield a little return. Let's say you have a $5000 savings that you want to invest. If you're lucky enough to get a 10% return every year for the next 5 years, your capital will only grow to $8052.55. This is not going to make you rich in any way even if you had invested it for 20 years. Mind you we're talking about 10% return on investment here. On the other hand if you focused on saving money say $1000 per month, your money grows at an astonishing $12,000 per year. Invest this savings at a 8% return and you would have accumulated $100,000 in just 6 years. If you started saving this $1000 per month at the age of 24 and invest consistently, you would be worth a million dollars by the time you're 50.

Let's review the numbers again. $1000 saved every month and invested at a 8% return will make you a millionaire by age 50 if you start at age 24. At 8% return, it takes only 9 years for your money to double (72÷8). This is the rule of 72.

There will be people who will tell you that you can turn $1000 into $10000 in just a few weeks or even days trading Forex, Options, Futures etc. To me, that's just not realistic at all. From $1000 to $10000 is a crazy 1000% return. If you do not have enough money, quit thinking of using that little money you have and think that you can make a lot of money with it. It's just too much risk and you can lose everything and even more if you're trading using those leveraged products.

Let's face it. Investment returns depends on the market. You cannot and don't have the power to demand any returns from the market. If you're lucky, you get more than 10%. Not so lucky you get 5%. If you're unlucky, you get less than 2% or worse still you lose your hard earned money. Throughout history, the average returns for the average person is about 5-8%. Dreaming of a 20% return every year for the next 20 years is almost impossible. The reality is, investment returns are not as high as we thought it would be. On the other hand, savings is completely predictable and can be controlled by us. You decide where you spend that money on, you can try to earn more money. There's a certain level of control there.


Savings before investment

Your savings play a vital role in your accumulation of wealth. Retiring a millionaire is not a dream if we plan it correctly. Save $1000 per month at 8% return will give you 1 million dollars in 27 years. Save only $200 and you would require a 18% return to achieve the same 1 million dollars. It is very hard to achieve 18% return on investment for a long period of time.

If you manage to bump up your savings to $2000 per month and invest it at the same 8% return, then you would be able to achieve a million dollars in 20 years. This means if you start at the age of 25, you would become a millionaire by the age of 45. Savings is important. Investing is also important. Savings is the basic foundation in financial planning. Get the foundation right and your financial future is on the right track. Start saving first while you look at ways to increaseyour income. Focusing on only increasing your income is just one sided. Go for both increasing your income and start a savings plan at the same time.


P.S: Found out about a site ShopBack that gives you coupon codes and offers, on top of cashback. This allows you to save more when you shop. You can find merchants like Taobao, Aliexpress, Lazada and more on ShopBack.  You can even find groceries deals and offers too, with merchants like RedMart. (Updated in Jan 2016)


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Related Posts:
1. Save 75% of your income to retire in 7 years
2. Why it is hard for most Singaporeans to retire early?

Weekend Video: Shark Tank

It's the weekend again. I'm here to share with you a series of episodes which I've been watching the past few weeks. It's called shark tank. I know the name sounds funny and why am i recommending some sharks video to you? However, the video has nothing to do with real sharks. The series is actually all about 5 investors who're looking for opportunities to invest in some companies. These companies will come one by one and pitch their business to the investors. The investors will then evaluate the business, value it to see whether its worth the risk and see whether there's any potential in the business. Its interesting to see how these rich investors, who already own successful businesses themselves, evaluate their investment decisions.

There are quite a lot of things we can learn from the videos as small investors ourselves. It was quite addictive that I finished watching the whole of season 1.

Watch season's 1 episode 1 here:

What students should save for?

This is another guest post from Young, who recently shared his story and his experience on investing on a previous blog post in my blog. In this post, he talks about the life of young people and what should they save for?

Credit: ringling.libguides.com

"Many times, I would find myself hearing schoolmates saying, “eh bro, can belanjal or not?” What this translates to is, “hey bro, could you give me a treat?”

One would find it common for students to be hanging out at cafés like Starbucks and such. We also find students filling up jobs along the lines of doing some special events or waiting tables in restaurants.

In fact, i've observed that taking up part time jobs for students has turned into something very common. Why is this so?

It is also common to see students especially teenagers having the latest gadgets (for guys) and designer brands (for girls).

It appears that after some eavesdropping and chit chat, a huge number of students take up part time jobs to fund their wants.

Of course, this conclusion/deduction is merely my own and definitely does not apply to all.

So is it wrong to take a part time job for the sake of buying such items? Of course not. In fact, it is commendable that teens take up a job.

However, if one spends their salary frivolously and takes up the job simply for the sake of spending; then I do not think it a good idea.

Long story short, the point of this short article is to induce the idea of working to invest rather than working to indulge.

By having the intention to invest at a younger age, this induces the notion of planning for the future to a certain extent.

What might this be beneficial for one may ask? It can be used to offset a certain amount of tuition fees, food and travelling expenses etc."

SGYI's thoughts: 

I'm glad to be able to hear from a young person on how his friends are living their lives. It is common for young people to spend on "wants" especially on the latest gadgets and following the latest fashion trends. I was once like that too. Spending the money i earned from a part time job just to buy a $300 plus dollars 3.2 mega pixels camera phone which was the new thing back then. 

Thinking back, all those expenditure were of no meaning at all. Where was the phone that I bought during my younger days? Its not trendy any more so I changed another phone. It did not make any difference in my life for spending on that latest phone. 

Spending money is ok but spend on something that is meaningful such as a gift for your loved ones or a trip with your family. These are the ones that will make a difference in your life. However, we still need savings and also investment to grow our wealth. It all about achieving that balance. Don't spend too much and don't save too much. Haver a financial plan for your future. 

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You do not need to budget to save money

The traditional way of saving money is through budgeting. Every month, you list down your expenses and make a budget for it. Its like how you budget for a company's event if you've ever organised one before. Your company gives you $1000 and you can only spend within this amount. So you start by listing down $100 for food, $200 for gifts, $200 for event venue etc. It works well for company events but however, it doesn't seem to work well for our personal lives. Why does it not work?

Let's say you get a $3000 salary every month. You tell yourself that you need to save 10% (which is $300) and spend the rest. So effectively, you have $2700 to spend. But somehow, at the end of the month, you realise that the $3000 is gone. What happened to the $300 which you wanted to save? It happens all the time and you may have gave up saving. But don't give up just yet. There's a solution to it.


The solution - Pay yourself first

You've probably heard the term pay yourself first before. But what does it really mean and how does it help you to save? Pay yourself first means putting aside a percentage of your salary for savings even before you start spending. It works in a way that you seem to have received a lower salary.

Think about it. When you had a $2000 salary, you were living fine with that $2000. When your salary increased to $3000, you should be able to save that extra $1000 if you maintained the same lifestyle. But, more often than not, our lifestyle spending goes up as fast as our salary increases. Now, we don't have to save $1000 completely of the increase in pay. We can just save lets say $300. So if you pay yourself first $300 before you start spending, it'll be like getting a $2700 salary. Still not too bad considering its $700 more than your previous salary of $2000.


How to pay yourself first without much hassle?


Paying yourself first is easy. With technology advancement, we can make the process completely automatic and without hassle. The process is simple. Open another bank account and set up an automatic transfer to be deducted at a specific date every month. If you have an internet banking account, you can set it up right away within a few minutes. For POSB and DBS account holders, you just have to go to fund transfer and then go to set up standing instruction to set up an automatic fund transfer. You can transfer to an account at the same bank or another account in another bank. That is what i've been doing for the past few years and it really works.


The challenge

If you have a problem of saving money, try out the pay yourself first method. If you can save $200 per month, in one year you would have saved $2400. It doesn't seem like a lot of money because in 10 years time, it's only $24,000. But if you had invested this amount over the 10 years at 8% return, the amount would have been $10,000 more at $34,767.

Saving money is key before you even think of investing. Many people try to find the short cut to make money through investing without the need of saving money. This is a far cry from the reality. Instead of wasting your time to look for short cuts, start saving now. It is important to increase your income by trying to earn more money but it'll all be futile if you do not practice the basic of saving money first. Take the challenge this week to set up an automatic fund transfer. Decide how much you want to save and make it happen. You'll see your money grow soon.

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Related Posts:
1. Getting Rich And Spending Money Without Looking At Price Tags
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The true reality of starting a business

We see lots of successful businessman and woman and could probably name a few right now in our minds. But, here's the deal. Starting a business can make you lots of money but it can also cause you lots of troubles if not managed properly. So how do we balance between making money and not losing everything? Here are a few factors to consider before starting a business.

1. Risk is a must in business but don't risk everything

Everyone starts a business with a great idea. Or maybe you thought it was a great idea but who cares? How well your idea or product will sell in the market will never be known until the day you really sell it out. On this basis alone, it'll probably be wise not to put in your money saved for your kids education for a business, not to put in money saved for your marriage for a business and not to put in your whole retirement fund into the business.

Bankruptcy is your worse enemy in business. If you risk a bankruptcy, the next time you want to borrow any loans for a business will be almost impossible. No investors would want to work with you as well. Take risk but don't risk everything.


2. Be realistic about your profits, know your profit margins

Numbers tell you a great story about the future. Everyone wants to make big money in a business but you should calculate and work out the numbers in order to know its future growth story. Take for instance you create a product at a cost of $10 and sell it for $15. Your profit will be $5 which is a 33.33% profit margin. If you sell 1000 sets of this product, your revenue will be $15,000 and your net profit will be $5000. Think about it now, if you did not calculate the numbers, you probably would have thought that selling 1000 sets is a great achievement but in actual fact, you only earn $5000 from this sales. Let's bump it up a little. Selling 10,000 sets now will make you $50,000 now. That's still not a lot of money isn't it? Having said that, it is important to do your market research to roughly know how your product will sell in the market. But, always remember to be realistic. Estimating a 10,000 sets sale when the actual sale could only be 1000, would be a disaster.

Profit margins are important. If you can create a low cost product and sell it at a high price, you get to earn a lot of money. But make sure the price you set for your product is realistic as well. You do not want to set a price so high that you only get to sell 100 sets of that product in the end.


3. You got to work really hard

Having a business makes you a boss. But it doesn't mean you don't ahve to wkr hard like how you did before when you were an employee of another company. In fact, the truth is, you got to work even harder. A 100 times harder. As a start-up, you have to make the necessary sales, create the product, manufacture the product, makes phone calls, do the administrative work, manage the money etc. You have to do almost everything. If you're not prepared to work hard, chances are your business will not succeed. It takes more than just a good idea to make a business successful . Execution is the more important key to a successful business.

To work hard for a long long time, you've got to have passion for the business. Ask yourself why do you want to start that business? Is it just to make money or there's a higher purpose to it? IF your answer is just to make money, you won't be able to last a long time. Money may be a motivation at first but the effect wears out after awhile. Find a higher purpose for that business to make an impact for the world and make it a better place.


4. Start small, grow bigger

Never bite off more than you can chew. Most people start off envisioning that their business would become a world renowned brand like Facebook, Apple or Instagram. While that is a good vision to have, it's always good to start small. Putting in $100,000 of your whole savings in a business without knowing how well your product or service will sell is too risky. Instead, you can consider putting in $10,000 first, manufacture some prototype of that product and test out how well the market receives your product. Make the sales, get the orders and then start off in that momentum. You don't want to end up already manufacturing all those products and leave it in your storeroom.

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Related Posts:
1. The tale of 2 brothers starting a business
2. How to pick stocks (Part 2) - The profitability of a business
3. Taking risks without killing yourself

Going from working middle class to rich with a simple tweak

Ever wondered how much an average family in Singapore spends on a monthly basis? Just last month, the Department of Statistics Singapore released a report on the Household Expenditure Survey 2012/13. It was reported that Singapore resident households spent an average of $4,720 a month. When we look down deeper, the 41st to 60th Quintile of the population spent an average of $5066.80 (inclusive of housing cost).

Image Credit: https://www.flickr.com/photos/franganillo/3678747186/

$5066.80 sounds quite excessive to me. It is no wonder many people remain as middle class instead of becoming rich. We have to understand and know that the rich don't spend their money like what we see on movies and television, buying Lamborghinis and snapping up luxurious suites along the beaches. They are more frugal than what we imagined them to be. Here's an important note: The rich are good at keeping their money, they spend base on their current financial situation and their goals.There are even more appealing reasons to live a frugal lifestyle. Overconsumption results in wastage. It cause the desires to always want more which makes us unhappy creatures on Earth.

With a little tweak, we can actually go from middle class to rich in a shorter time. To know how that happens, we'll need to look at each individual expense item for an average household in Singapore.


Expenditure for an average household

The department of Statistics has broken down the expenses into individual items. I would use the broad items to illustrate this example.

Type of good and services	Current $	Tweaked $	Remarks
Food and Non-Alcoholic Beverages	$444.90	$444.90
Alcoholic Beverages and Tobacco	$60.10	$20.00	Can cut down on excessive alcohol and tobacco which is bad for health
Clothing and Footwear	$126.60	$70.00	$840 per year on clothes is more than enough
Housing and Utilities	$328.50	$200.00	Save some electricity and water
Furnishings, Household Equipment and Routine Household Maintenance	$219.60	$100.00	Fix/Do it yourself to save some money
Health	$222.80	$222.80	Can't really save on health cost. But stay healthy
Transport	$663.40	$500.00	A fuel efficient car or take the public transport
Communication	$225.20	$180.00	Get the best bundle plans for mobile and broadband
Recreation and Culture	$307.70	$200.00	Learn how to plan well when travelling to get the best deals
Educational Services	$254.90	$254.90
Food Serving Services (Eating out, restaurants etc)	$734.20	$500.00	Occasionally eating out is enough. Make delicious home cook meals at lower prices
Accommodation Services	$22.90	$22.90
Miscellaneous Goods and Services (hairdressing, insurance etc)	$476.00	$250.00	Your hair doesn't need frequent expensive treatement. Buy cheaper term insurance plans
Non-Assignable Expenditure	$23.50	$23.50
Imputed rentals for owner-occupied accommodation	$956.50	$956.50	Can't really save on housing cost unless you buy a smaller flat. *Housing loans paid by CPF
Total monthly expenditure	$5,066.80	$3,945.50
Total monthly expenditure (exclude housing loans paid by CPF)	$4,110.30	$2,989.00
Monthly household income	$6,000	$6,000
Savings rate	31.50%	50.18%
Years to retirement	28 Years	17 years

Source (Current $): Housing expenditure survey 2012/2013

With a simple tweak, we manage to save more than a $1000 dollars per month. This shortens the years to retirement by 11 years. If you're not sure how I derive my retirement years, you may want to read my previous post on "Save 75% of your income to retire in 7 years". Basically, the assumption is that we invest the savings to earn a 5% yield after inflation. If you save 50% of your income, you'll be able to retire in 17 years where at that time you will have a 4% safe withdrawal rate in the form of passive income. This passive income can come from dividends from stocks, rental from properties which will pay for your daily expenses for as long as you live.

Now back to the table above. From there, we can see if we just tweak our expenditure a little, we could retire like a rich man 11 years earlier. A monthly expenditure of about $3000 equates to about $36,000 per year. I think this is still quite a decent amount to live on. At least you don't have to live on bread and instant noodles for your daily meals. In fact, you could still eat out at restaurants occasionally, own a fuel efficient car and even go on annual overseas trips.

Now you may think why is spending only $3000 per month considered rich? This looks like a poor middle class to me. However, the difference is it lies in the ability to keep your money forever. You may have a Million dollars but if you do not know how to generate cash flow with it, it'll be gone sooner or later. This difference is explained further below.


The difference between retirement for the middle class and the rich

Most of us when we plan for retirement, we would think we just save a certain amount and then draw down that savings when we retire. The problem with that kind of planning is your money will certainly run out one day which means your savings may deplete when you're still alive. I was having a small chat with my colleagues on retirement just last week and we did a small calculation. We were shock that with $1 Million dollars, it would only last about 27 years for $3000 monthly expenses. The $1 Million dollars you saved so hard throughout your working years will be gone in 27 years.

On the other hand, the rich will have money that last them for a lifetime. They could retire at 40 and their money will last them forever and even for the next few generations. The key is in creating cash flow. Cash flow is passive income. The strategy is simple. Let's say we still use $3000 as our monthly expenses. We just need to save up $900,000 then invest this amount for a 4% annual yield. That would give us $36,000 annually which equates to $3000 monthly. Keep investing and this money would continue to generate income for you every month and it could even grow to more than a million dollars as years go by.

So which is better?

1. The $1 Million dollars that can only last for 27 years?
2. The $900,000 which can last for a lifetime?

Both still give you a monthly expense of $3000. One will deplete and the other will continue forever.

Going from middle class to rich works in both ways:

• Living a frugal lifestyle base on current financial situation to accumulate capital (it is very hard to become rich with an expensive lifestyle)
• Investing the money to create cash flow 

Herein lies the key point in the path to riches. When the cash flow is created and you do not have to work for money anymore, money at this instance multiplies over and over again. This is the amazing thing about money. When put into the right place, it grows and multiplies for the rest of your life. When money is no longer a problem, you can indulge in some dose of luxuries as time goes by. Spending on luxuries does not kill you anymore like how it did to the middle class population.

Learn the right strategy and you could well be the next rich person. Start managing your money like a rich person.

For the full report of household expenditure survey 2012/13, click here.

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Weekend Video: Having a Life of Gratitude

I saw this video which I thought would be good to share as its really touching. More often than not, we always take things for granted which makes us unhappy individuals on Earth. On the other side of life, there are people who live in harsh environments but they still learn to adapt and survive.

Credit: https://www.flickr.com/photos/gisele13/4979586231/

Just a few days ago, I wrote an article on practising frugality to achieve happiness in a high cost of living environment. In Singapore, we have the convenience a lot of people in poor countries yearn to have but somehow, we are still not happy. Another financial blogger B, also wrote an article on Things become luxuries when you don't take them for granted. In his post, there's a quote that "gratitude unlocks the fullness of life".

Think your life is tough, think again. Watch the video below:
(Sorry there are no English subtitles. The video audio is in Chinese with Malay subtitles)

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Practising Frugality to Achieve Happiness in a High Cost of Living Environment

To be rich, one has to spend less than he earns. He should probably save more than 50% of his income too. It is common sense that whoever spends more than he earns will never ever ever become rich. I live in a small city called Singapore. Over the years, Singapore has evolved from a third world nation into what we call a first world nation today. It has one of the best airports in the world along with towering skyscrapers, luxurious condominiums with private yachts and luxurious cars can be seen frequently on the roads of Singapore as well. In fact, i've seen BMWs and Mercedes as a common sighting everyday. Even luxurious cars like Ferrari and Porsche can be seen almost everyday.

The skyline of Singapore at night

Rising prices in Singapore

Of course with all these, prices have risen exorbitantly over the years as well. Property prices which were once $50,000 has risen to almost $400,000 today. A meal which cost less than $2 in the past can cost as much as $20 today. Not to mention even more luxurious Michelin starred restaurants which sprung up lifting food prices to more than a hundred dollars. Furthermore, shopping malls can be seen everywhere with branded goods at your neighbourhood malls. Then there's the killer of online shopping which makes buying of stuffs even easier at the click of a mouse since almost every household has access to an internet connection at home and with smart phones, all of us have internet access wherever we go.


The plain porridge and chicken story

With all the convenience and luxuries all around us, it is not surprising that most young people would think that this is the lifestyle that they should have. Eating at restaurants becomes a common hang out place for young working adults. Chilling with their friends at Starbucks becomes common for students. Owning a car and living in a condominium seems to be the average middle class lifestyle. It is vastly different from what our ancestors experienced in Singapore back then. They had to survive on eating bread and plain porridge for most of their meals. They had to scrimp and save just to live another day. They had to work long hours and in harsh environments just to earn that meagre salary. They were forced to be frugal but they were still poor in many ways. They could only save less than 10% of their salary.

Fast forward to now, there are still many people who are poor. Poor in a sense that they can only save 10% of their salary or even lesser. They still feel that they are just scraping by even with higher incomes. It seems like the hardship of saving money was passed on from generations to generations even though we earn a much higher salary now. The interesting thing is even though we own much more stuffs and earn a much higher salary, most Singaporeans are still not happy as compared to the generations of the past. Why is this so?

To know the answer, we have to return to the past and have a glimpse of what happiness is all about 40 years ago. In those days, both kids and adults had to eat plain porridge everyday. On special occasions, they would have an additional dish such as a chicken to spice up their meal. Of course if you eat plain porridge every day and suddenly you see a chicken, you would become happy. For those people in the past, seeing a chicken on their dining table would bring happiness to them. Fast forward to the year 2014, a chicken doesn't have the same happiness effect for us today as we see the same chicken everyday. The more you have of something, the less happiness effect it will have on you.


Practising frugality in Vietnam

Let me explain further by illustrating the effect of happiness on my own personal experience. 7 years ago, I was sent to Vietnam without even knowing what country it was back then. I was just a young 19 year old student on a mission to teach English at an International school there. There was supposed to be some form of remuneration or allowance to be paid but it didn't happen so me and my few other friends were left with nothing except for the little money we brought from home. It turned out that Vietnam was a great difference from the life I had in Singapore. The traffic condition was bad, the air pollution was bad. It's as if I went back to the 1960s in Singapore. How could someone who has lived in a city for the past 19 years survive in such an environment for the next few months?

Sunset at the Mekong river in Vietnam when I was there in 2007

As I settled down, life turned out to be good. We had basic meals of 2 dishes that cost less than $1 per meal. We even saved on soft drinks that cost 50cents there all because 2 soft drinks could easily buy us another meal. Occasionally, we would eat out at restaurants that cost $5 per meal. This brought us a lot of happiness even though life was simple. Interestingly, chicken was expensive there. A simple plate of chicken rice would cost more than $2 which is double of the simple meals we had. There was once we bought a packet of chicken rice for a small girl who appeared to be hungry and looking for food on the streets. She displayed the biggest smile I've ever seen and was beaming with happiness throughout her innocent face. I thought to myself: "This must have been true happiness." It is when we are grateful for whatever we have now that we experience true happiness.


Practising frugality in Singapore

Living a frugal lifestyle in a high cost of living environment would bring happiness to you and me. The equivalent of a plain porridge in today's term may be a meal at the hawker centre or a simple home cooked meal while the equivalent of a chicken would be a meal at the restaurant. If you eat at hawker centres everyday and go to restaurants once in awhile, the restaurant will still bring some amount of happiness to you. However, if you eat at restaurants everyday, the happiness effect wears out overtime. People who eat at restaurants everyday would need to find happiness from higher luxury meals which may cost up to a hundred dollars. It is a constant insatiable desire to always want more. It seems like the more expensive life we lead, the more ungrateful we become for the little things. This cause us unhappiness.

Practising frugality in a high cost of living environment such as Singapore is possible. There are alternatives to the high cost lifestyle which we can choose from. Instead of taking the taxi everyday, we can take the bus or MRT. Instead of eating out at restaurants everyday, we can eat out at simple cafes or hawker centres. If you need to drive, you can get a cheaper fuel efficient car instead of a luxury car that burns a hold in your pocket. When you make frugality as part of your lifestyle, you can then indulge in luxury once in awhile to fully enjoy the effects of happiness that it provides. You will be more grateful for it then. Pursuing luxury as part of your daily lifestyle is not as good as what most of us think.

So, if you're looking at that rich person who drives a fanciful car and set yourself a target to achieve that one day, STOP doing that. People who feel that they can only achieve happiness by living a luxury lifestyle in the future will find themselves disappointed when they do reach that stage. When you eat at restaurants and find that it does not bring you happiness any more, take a step back and live a simpler lifestyle. Think about the poor and less fortunate people who are struggling to put food on the table.

The truly rich live a frugal lifestyle and they find much more happiness in it. They also help and give in whatever ways they can. Step back from consumerism and your life will be more meaningful. It helps you to reach financial freedom earlier so you can truly give back to society for the rest of your life. Are you up for the challenge to live a more frugal and simple lifestyle for the better good of the world?

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Make Money Investing For Passive Income

One of the easiest way to generate additional income for yourself is to invest in the stock market. Depending on how much time you spent researching and analysing the stocks of companies, it could be passive or active income. To me, it's still considered passive income as I only have to research on the stocks once and review it every quarterly when the financial results are released. Sometimes there may be other announcements in between but those don't really take up too much of my time.

Most people invest in stocks to sell it off at a higher price and earn a profit. However, there are some other people who invest in stocks for income. This is a slow way to grow wealth but has worked well for many people. Another way to invest for passive income is to buy a property and rent it out. In this way, you receive a monthly income from the rental collected. However, the problem is buying a property is expensive especially in Singapore. If we were to buy a private condominium, the down payment is already 20% which means it could be $200,000 for a $1 Million dollars condominium. How many of us actually have that kind of cash to begin with?

Investing in stocks seems to be a more practical way for a start. So how do we go about investing for passive income?


Beware the temptation of high yields/dividends

When investing for income, we like to see good dividends which translates into high yields on our investment. Imagine if the yield is 10%, every $10,000 invested will give you $1000. It is really tempting to go for high yields. However, as investors who invest for income, even though high yields seems attractive, we should not jump straight into in.

Jumping straight into a high yield stock is like jumping into an ocean without knowing if its water is shark infested. It all seem good from the outside but if we look deeper, there may be dangers lurking ahead. A company which pay out high dividends have to get the money from somewhere. It can be paid from its income or it can be paid from its existing cash.

There are a few questions we need to ask ourselves when investing into stocks for passive income.

1. Where does the company pay its dividends from?
2. Are the dividends sustainable? Will the company continue to grow?
3. What's the trend of its past dividend payouts? Is it increasing or decreasing year by year?

Since we're investing for income, we want that income to be sustainable and even better if its increasing yearly. Look at the company's business structure for clues on where they derive its income. If income is not stable, most likely the high dividends are not sustainable as well. This is especially so for REITS where their income is derived from rental collected.


Be a lazy landlord by investing into REITS

A REIT, also known as a real estate investment trust, has a portfolio of properties which they rent out to collect income. Buying a share of the REIT makes you a shareholder of the many properties that it has. For example, if you buy the shares of Capitamall or Suntec, then you actually become a shareholder and own part of the shopping malls you see at City Hall, Tampines, Jurong, Woodlands and many other parts of Singapore. Some of these Reits have properties in other parts of the world too.

The rental collected is distributed to all the many other shareholders and each will receive a portion of the income according to the number of shares they own. Reits listed in Singapore typically pay a range of 5-8% in dividends. If dividend remains constant, the lower the price you buy a share of the Reit for, the higher the expected dividend yield will be. The best thing is you don't have to manage the property to get the rental. The Reit manages it for you.

Reits own assets which are mostly properties. If we can buy a Reit at its fair value to its asset or better still at a lower value than its asset, then it may be a good investment. Think of it this way. When you're buying a house in this particular estate and you realise the house is selling at 20% cheaper than the neighbour who stays beside you, is it a good deal? Of course its a good deal which should be kept secret from your neighbour when you move in. This is buying at a lower value to its asset.

Therefore, buying a Reit below its asset value is much better than buying above its asset value. If we buy below its asset value, we're buying it at a discount. The net asset shows the total assets a Reit has. Divide this amount by the number of common shares, we get the net asset value (NAV) per share. If a Reit's NAV per share is $1 and we buy it at 50cents, we're buying it at a 50% discount. This NAV figure is mostly provided by the company in its annual report.


Watch debt like a hawk

Debt is a powerful force. We can use debt to buy a penthouse at Sentosa cove and everyone will think you're rich. But in actual fact, you do not have the actual money to own it. Reits also use debt to buy some of their properties. It may not be a bad thing as long as they don't stay it it or leave it vacant. It has to be rented out to other people so they can collect rental every month.

Renting out your Sentosa cove apartment may make you a lot of money but the problem comes when you can't find any tenants to rent it out to. Without tenants, you lose your income and still have to pay the debt (monthly housing loan) every month. If you still can't find tenants and you don't have money any more, you'll be in deep trouble. This is similar for Reits. If they can't find tenants and their debt is very high and they don't have much cash, it'll be like a bomb just waiting to explode.


Passive income for financial independence

In our early days of investing, the dividends received should be reinvested to let your money compound over the years. Once your dividend income (passive income) surpasses your monthly expenses, you've reach financial independence. If you're still working, you can now save 100% of your take home pay and just spend using the passive income. Now, you can choose to work or not to work. Now, you can choose to do the stuffs you're passionate about.

Investing for passive income can make you money for as long as you live. If you buy a property and rent out over the years, you would have got back all your capital after some time and still be able to collect rent as long as there are tenants. If you invest in shares of companies, you also get back all your capital after some time and this company still continues to pay you as long as its still around and listed on the stock exchange. A slow way to grow money but this patience will definitely pay off after a period of time.

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