personal finance

Hi SG Wealth Builder,

Many Singaporeans want to be rich and retire early in Singapore. But not many of them are keen to invest the time and energy to gain the knowledge required to be a millionaire. I came across a recent article by well-known Hong Kong billionaire, Li Ka Shing who shared some tips on how to become rich. Li Ka Shing’s story is one of rag-to-riches, so his success is particularly inspiring.

Like many of you, I share the same aspiration to achieve financial freedom. While I have not achieved Li Ka Shing’s wealth status, his strategy resonates with my philosophy of having a growth mindset. This means that one should put in the extra effort to develop new skills and knowledge. Take note that none of his pointers below encourages you to hoard money like a scrooge.

In that article, he outlined a unique plan that can help to improve one’s financial destiny. His approach is refreshing to me because so far I have not come across anyone with a similar approach. Basically, the gist is to split your income into five portions.

1st portion (Expenditure)
The first set of fund is to cover your living expenses. He elaborated that one should take hardship when young and eat simple.

This is not surprising as most students were not taught about how to manage money in schools and at home, most parents also seldom discuss household budgets with their children. As Asian, we also find it taboo to talk about money issues during social meetings. All these factors reinforce the notion that budgeting is not relevant to successful personal finance, which is totally untrue.

Many people thought that budgeting is all about counting beans and tracking your daily expenses. But I beg to differ. Sure, there are means and various mobile apps designed to track your daily expenses but I find that managing personal finance at such micro-level would take the kick out of living a meaningful life.

Just imaging this: having to think twice about buying or treating your good pal that cuppa of Starbuck coffee. Or how about skipping a close colleague just to save that ang pow money? Money is important but we should not let it rules our lives and stresses us out.

11 September 2013
The Monetary Authority of Singapore (MAS) has finalised changes to credit card and unsecured credit rules aimed at improving lending practices by financial institutions and enabling individuals to make better borrowing decisions.

2. The policy changes follow a public consultation, in which respondents generally supported the proposals. MAS has taken the public feedback into consideration and adjusted the proposals where appropriate. Details are set out in the responses to feedback received on the consultation paper.

3. The key policy changes are as follows:
(a) Financial institutions will be required to review a borrower’s total debt and credit limits before granting a new credit card or unsecured credit facility, or increasing the credit limit on such facilities. This is to enable a more realistic assessment of an individual’s borrowing capacity.

(b) Financial institutions will be required to disclose to individuals who roll over their credit card debts and revolving credit facilities the potential cost of doing so and how the debt will accumulate.

My dad passed away earlier this year. It was unexpected and my family was totally unprepared for his demise. Like many Singaporeans, my father did not plan his estate distribution and left without a Will. So we had some problems trying to close his bank saving accounts.

Intestate Succession Act
In the absence of a will, your assets will be distributed according to the Intestate Succession law.

In recent years, there were various articles on increasing trend of Singaporeans defaulting on their credit card payments. This is a worrying sign in Singapore. In fact, one of my readers commented that he belongs to the group of credit card payment defaulters and is struggling to settle his mounting bills. I hope he managed to dig his way out of the hole he created for himself, but I suspect it is going to be a long and tough road for him. I believe this is also the case for many young Singaporean adults who just entered the workforce and spend lavishly. In this article, I will share my thoughts on how to pay yourself first.

Financial Discipline
When I just started out working, I always thought that credit card gives consumers a false sense of purchasing power. It was only until when my brother, who works in the credit department of an international bank, pointed out that the key to managing credit card spending is financial discipline. It was then that I corrected my thinking. Having many credit lines or credit cards is not a bad thing in itself. After all, we can make use of the various point rewards, rebates or discounts that credit cards offer.

Recently, the government announced several Budget inititatives that aim to improve the lives of Singapore citizens. Most of the Budget goodies are targeted at the lower income group and I suppose most of the less well-off households in Singapore will benefit from the 2013 Budget. As I fell into the middle-income bracket, the only Budget goodies that I may be entitled would be the GST Vouchers and the 30% personal tax rebate.

Difference between Income Tax Relief and Income Tax Rebate
In Singapore, citizens are eligible for various applicable tax relief and rebate. It is important that tax payers understand the difference between tax relief and rebate because it can help tax payers to save thousand of dollars. Essentially, reliefs are deductibles which you can claim on your total income taxable while rebates are offsets on your tax payable.

Importance of protection
I am not an insurance agent and I don’t work in the finance industry. But you might be aware that in my previous articles, I have always encouraged my readers to insure themselves adequately. It is also important to educate yourselves on the type of insurance that best suit your needs. In my father’s case, when he was healthy, he ignored the importance of buying insurance. It was only after he suffered from stroke, then he regretted and realised his mistake. By then, no insurers would offer to protect him because he was considered a high-risk personnel to insure. Even Great Eastern rejected his Dependent Protection Scheme and returned his pro-rated premiums. So do make sure you are protected adequately and purchase insurance policies when you are healthy. My view is that term insurance policies offers the best protection value because for a low amount of premium, you can be insured for a large amount of money.

I always encourage young people who just entered the workforce to build up their Emergency Fund as soon as possible. Life is always unpredictable. You never know when you will lose your job or encounter personal finance crisis.

On 10 Oct 2012, I wrote an article on “The state of healthcare in Singapore” and criticized the limitations of 3M (Medisave, Medishield and Medifund). Two days after my blog posting was published, the Singapore government immediately announced changes in the Medishield, our national healthcare insurance. Among the changes included the coverage and claim limits for policyholders.

Readers might call it pure coincidence. After all, the changes would take effect only in March next year, even though it was announced two days after my blog posting. I would like to think so but more importantly, the response validates my concerns of the state of healthcare in Singapore. In my previous posting, I had criticized Medishield’s fine print of “SGD50,000 maximum claim per policy year”. The government noted that and stated that they would increase the cap to SGD70,000 next year.

Some readers may argue that enhancement is incremental only but I feel that at least the government is moving in the right direction. In fact, the announced changes in the Medishield only served to reinforce my argument that it is time for our national insurance policy to be enhanced. Going forward, I feel that the next step should be to relax the ruling on the use of Medisave and also to review the eligibility requirements of Medifund.

Firstly, I have decided to set aside a small amount of cash every month to invest in stocks. My objective is to beat the inflation that has been eroding the cash value in my bank account. In order to reduce the costs, I have decided to purchase stock through POEMS online rather than call up my broker.

Secondly, I have decided to shift my focus from value stocks to defensive stocks that pay dividends regularly. Defensive companies are those whose future earnings are able to withstand and economic downturn. Typically, they would have relatively low business and financial risks. Examples are Suntec Reit and Singtel.

I believe 2011 would be a boom year for Singapore’s stock market.