Debts

Was in Australia over the past 5 days and I am amazed at the advertisements on TV. There were numerous advertisements on TV about insurance and I wonder how many Australians actually pick up the phone and respond to the ad on TV. For the companies to be placing ads on TV, I am sure the call backs must be quite a number. We already know that in many mature economies like US, UK and even Australia many already have embraced the fact that they need to do a financial plan, and they NEED insurance. Well, in Singapore we still haven't got there yet where people actively search for a financial planner and tell them 'I need a financial plan.' Many still fear talking to an adviser probably because of the bad perceptions of them. 

But one ad on TV actually caught my attention. It is the ads on TV that tells people that 'You are not alone if you are in debt, call this number and our friendly consultants can help you with it.' Wow! There was easily 2 companies that is offering that service. Once again, my believe is that if the TV ads was not effective there will be nobody advertising on TV. I wonder if we place ads like that in Singapore how many will respond.

I think it is a very Asian mentality that we do not talk to strangers about our monies or debt issues. Like that Chinese saying about not hanging your dirty laundry in the open. So we will never admit we have a problem in front of a stranger, neither will we admit we need help with our finances. And being Singaporeans we are worse because we expect the government to handle everything for us. We think the government should stop the inflation so things are cheaper. We expect CPF to help us with our housing, retirement, and kid's education. 

And worse of all is that many think that in death all debts are erased. Many do not know that these debts are actually passed on to their dependants when premature death occurs. Many I have spoken to is surprise to find out that debts are not cancelled at death. Some individuals I have spoken to came from rich family backgrounds with one of the parents in highly successful businesses. Highly successful businesses are usually highly geared with business loans generating good profits for the business. But all these works well with the business owner still alive. When the business owner dies prematurely, these business loans are passed on to the business and if the business is a sole proprietor or partnership these loans are automatically transferred to the estate and recovered from families. Some of the people I have spoken to have been victims to such instances. They have to pay off their parents debt because they never believe that death will happen early.

So if you know you or someone close to you are in debt, there are solutions to consider. Do not be afraid to raise it up to your financial consultant. That is one thing we do too. We can help you ascertain critical expenses and ensure that monies are channelled to reduce your debt. We have solutions to help cancel debts during certain events to ensure that your dependants are not burdened or even you are not burdened by your loved ones debt. Call me 9180 3448 or email me tngjinyau@gmail.com if you do not have anybody else to speak to. This is not some ah long service, if you need me to lend you money to pay off your debts, click the X button on the top right hand corner now... 

The Unseen Monster

Read this in the papers yesterday and I was thinking of the times when I was in corporate, working 9 to 5 and receiving a take home pay at the end of the month.

I have always wondered 'Why does my pay never seem to be enough even when I get a raise every year? Why is it that I get a raise every years yet, you never seem to have more savings or a better standard of living?

After being in the financial industry I started realising the mistakes that most of us make and I have been through it myself.

Firstly, inflation has been slowly eroding away the value of our monies. We all know about inflation but many do not do anything about it. 

The government tells us CPI increased. CPI? What's that? Can eat or not?

For those who knows what CPI represents, most will also ignore the consequences of high CPI.

Some who knows what CPI is, what is its repercussion and consequences, they will still procrastinate about doing something about it.

So what is CPI? CPI, Consumer Price Index or what we know commonly as Inflation is the silent killer that has been eating at our monies. So how does inflation affect us.

I remembered the year 2003 when I started to indulge in kopi-o. One cup of kopi-o then cost $0.50. 8 years on in 2012, my indulgence is now, $0.90 per cup. (And I do not take only a cup one day.) What do you think inflation of my kopi-o has been the past 8 years. On an average the inflation for my cup of kopi-o per year is 7.6%. 

 Many of you might think: 'But its only $0.40 what! Tang why you bother write blog for $0.40!'

Let us move the decimal points, something that cost $5 will cost $9. Something costing $50 will cost $90. Something that had cost $500 now cost $900. The difference is now, $4, $40 and $400 respectively. The difference will get bigger once the sum of money becomes bigger. $0.40 seems acceptable, but does $40,000 in 8 years sound reasonable?

To put inflation into perspective, imagine you earn $4000 every month, you spend $3,500, and save $500. You get a pay raise of 4% and inflation has been at 7%. After 8 years, your income after a pay raise of 4% every year will be $5,475. Your expenses that is growing with inflation of 7% will be at $6,013, with no more extra for savings.

Based on the above example, how can we maintain our standard of living when the cost of our expenses are moving faster than our pay! It has moved beyond our means and we have to start digging into our savings just to maintain the lifestyle we enjoyed just 8 years ago. And once our savings run out, we either start signing our credit cards or compromise our standard of living.

Being young and having my first credit card was detrimental. With inflation increasing, and me trying to keep up with my standard of living, I ran up a total of almost $30,000 in credit card bills. And with the interest rates of credit cards at 24% p.a it is almost impossible to clear my debt while just trying to pay off the minimum amount. 

But when I started in the financial industry, the idea of planning began to sink in. I always thought that Income - Expense = Savings, but some seminars I attended changed my whole perspective. One speaker actually mentioned that the real formula to be rich and financially independent is to save and to save the formula is Income - SAVINGS = Expenses!

That blew me away! I had been a slave to my money! I have allowed myself to work for money, I have not allowed money to work for me. I have to be a master of money and not a slave to it! That day, I got home, took out my scissors, cut away my cards. 

Found some personal loan that will give a slightly lower interest and transferred my balance so that I can pay off my debt in a very systematic way. 

In the mean time, I also walked into POSB,  ask them about an account that will take my money from my salary on a monthly basis on a fixed date. I do not want an ATM card or internet access for this account. They told me about the fabulous MySavings account that allowed flexibility of setting aside a fixed amount of my salary on a user defined date! If I need to withdraw from the account I had to go to the branch, queue, to get my money. (Though now the account has changed, they now give internet access and tie it to your ATM card. But the habit of savings has been formed)

Life changed, debts was cleared and inflation was still a concern. 

Savings interest: 0.125%

Inflation: 7%

Real rate of return on my money: - 6.875%

I knew I had to do something about it.