A chat on inflation and cost of living (UPDATED JULY 2018).

This was a chat I had with a reader who is also a very concerned parent.

T
do we see a 3% increase in basic necessities costs? 

Perhaps 1-1.5% is more reasonable?


AK
core inflation. That would be 2 to 3% per annum. 

Recently, we have been experiencing deflationary pressure but even so, food prices saw inflation of 2.2% or so, year on year. 

Oil prices being so low now contribute to deflationary pressure but I don't this this will last more than a year or two. 

I hope that the Singapore dollar stays relatively strong and that we don't see inflation at 5% again just like a couple of years or so ago.




T
(Referring to the CPF) 3% incremental retirement sum will amount to 445k retirement sum 34 years later.... 

Oh wow... It will wipe out a lot of middle income ppl's Sa! 

Seen from the perspective of a 21 yr old male who just entered the workforce at 21 yrs now in 2015

AK
Inflation is a monster but we rather have that than deflation. wink emoticon 

 things will get more challenging in the years ahead. 

I remember a bowl of Lor Mee was 50c when I was in Primary One. 

Fast forward almost 40 years, it is $3 a bowl today. 

I think the price has gone up by more than 3% per annum. 

It is not an easy job to keep cost of living down. I don't want to be the government.







T
Cost of living will definitely go up over a period of 30-40 years.... 

Think the bigger challenge would be ensuring wages keep up.... 

During that time of 50cent lor mee, wages were probably around the 300-500 mark I guess



AK
I too young to know what wages were like. 

I think everyone must be financially prudent. 

What we have control over, we must make the best of things.





T
I worry abt the daughter's future.... 

I can instill financial knowledge into her from an early age but I'm afraid cost of living goes up too fast

AK
We probably have less control over our wages or prices. 

However, we have control over what we spend on and how much we save.




T
Yup... That I totally agree.... 

If cost of living goes up much faster then wages, it does not really make sense for the future generation to live like a hermit just to plan for retirement... 

What kind of life would that be?

AK
It really depends on our expectations and if we are willing to manage them, I feel.




T
I already lead a life sorta like a hermit just so I can afford my daughter's future academic needs and my own retirement needs.... 

I think I'm not at your level yet but I'm spending less then 600 per month on my own food, transport and personal needs so I think I'm on the right track.

Anyway I just wanna let u know I learnt quite a lot just from your posts.... 

Once I have my emergency fund set and a war chest ready, I'll start investing.....

Maybe the details of which stock which REIT, gearing and debt etc I still don't understand... 

But I learnt a lot from the concepts behind it. The concept of delayed gratification. Saving 100% of your income etc.

We are approaching a time in history now that simply earning a salary and saving will not be enough for even a simple retirement. Investment knowledge is important.








AK's closing comments:
I hope that Singapore doesn't become another Hong Kong or Taiwan where young graduates cannot afford to buy an apartment. 

I hope that Singapore doesn't become another Japan which suffered not one but two lost decades.

I am sure many Singaporeans have the same worries. 

(Source:
https://www.straitstimes.com/asia/east-asia/taiwan-youth-struggle-to-find-well-paying-jobs)
.............




.............
We do what is in our power to make sure that we are able to weather the storms which could come our way. 

We should not think that we would always see fair weather.

When we are prepared, we would have less to worry about.





Related post:
Don't think and grow rich. 

What is the purpose of insurance and are you overpaying?

Regular readers know that I have blogged about the need for having the necessary insurance and how the amount of insurance should be adequate. We also want to make sure that we do not overpay for insurance.

Do you believe me if I were to tell you that many people are paying a lot of money for insurance but are still severely underinsured. 

In fact, a reader wrote to me today to say that after reading my blogs on insurance, she believes that her husband who recently bought a $100K life insurance policy might have paid too much. The premium? $3,500 a year. Wow!

If we think that a young couple with kids might need $1 million of life insurance coverage each, it could amount to quite a bit of money every year. $1 million sounds like a lot to you? 

Well, in case they were to pass away at a relatively young age, $1 million might not be much if we know how much it would cost to bring up a child in Singapore and the cost of bringing up a child is something I have blogged about before. 

$1 million life insurance coverage. How much would the premium be? Well, the good news is that it need not cost a bomb. 

There is a simple tool available to us and we can find out about our life insurance coverage needs using a simple calculator by DIYInsurance: Click Here.

Remember, just because we pay a large amount of insurance premium does not mean that we are getting adequate insurance coverage.

Let is look at an example of a male non-smoker:

•        Policy coverage till 65 years old (when children become independent)

•        S$1 million Death and Total Permanent Disability Coverage

These are the annual premiums payable to various insurers in Singapore (S$): 

*With information from www.diyinsurance.com.sg  and comparefirst. Figures are compiled on 14th September 2015 and includes existing promotions and discounts which are in the knowledge of.

**You are advised to approach a financial advisor for his/her opinion on the features, details and current quotes of the products or if you are considering to purchase, if you should surrender or restructure your existing insurance policies. 

You may want to do a review of your insurance coverage and premium paid. Compare what you are currently paying for your insurance policy against what is currently offered by the different insurers. 

For us to be covered by life insurance for our entire life, it is very expensive to do so with whole life insurance. In many instances, we may find that we are not able to get adequate insurance at an affordable price. 

For a 30 year-old male, a $500,000 whole life coverage could cost S$7,000 annually* (paid annually) for 49 years! 

Are you overpaying for the insurance coverage you have? Are you sufficiently insured?

Purchasing a term insurance is the value for money way to provide for sufficient coverage. To understand the case for Term Life Insurance: Read here.

Many people don't actually understand what is the purpose of having insurance and this is why they end up buying all sort of unsuitable products. 

The purpose of insurance is to transfer our risk of a loss to another party in exchange for money. It is important that we adequately transfer our risk (i.e. sufficiently insure ourselves) and to keep the cost that we are paying for insurance low. 

However, there are many misconceptions when it comes to insurance and here are some common ones: 

a.        "I need life insurance coverage for my whole life." 

Our financial obligations tend to decrease as we age due to the fact that, as our dependents grow older, they are dependent on us for a fewer number of years. We should have also built up sufficient assets such that if an unexpected event were to occur, we would have sufficient assets to leave behind for our dependents to live on. There comes a point of time in our life when we do not need any life insurance coverage to provide for our loved ones as they are no longer dependent on us financially.  

b.        "Whole life insurance is always better because I may only have to pay for a limited number of years and I can save as well." 

For insurance companies to craft a policy where it is possible for one to pay only for a limited number of years, it means that a lot more has to be paid for the initial years to compensate for the other remaining years. If we are using whole life insurance for savings, for the low liquidity and returns it provides, we could use many other investment tools which allow us the flexibility to draw our money when we need to without any penalties and possibly achieve greater returns with them. 

c.        "More coverage is always better." 

This only holds true if we do not have other financial commitments. Accumulating enough funds to retire is not easy to achieve. In a study done by AIA in 2014, 55% of Singaporean respondents were worried they would not be able to save enough as compared to a regional average of 44%. More worryingly, 35% of Singaporean respondents ranked saving for retirement as the most difficult goal to achieve in life. If we decide to spend more on insurance, something else has to go. This could mean prolonging our working years and pushing back our retirement age.  

Understand what is the purpose of insurance and buy insurance because we need insurance and not anything else.

To compare and purchase insurance, consider DIYInsurance - Singapore’s First Life Insurance Comparison Web Portal by Providend Ltd. 

DIYInsurance aggregates products from various insurance companies and provides 30% commission rebates in addition to ongoing promotions, if any.

Staff from DIYInsurance are all paid fixed salaries and do not participate in sales-based compensation or incentives of any kind.

Not being remunerated on a commission-basis means there is no hard-selling and over-selling. They provide advice on insurance based on no one’s agenda except your own. Request a Term Life Insurance quote through DIYInsurance by clicking Here.

Understand and help to share your understanding on the purpose of insurance and the importance of insuring ourselves sufficiently. 

Buy the right type of insurance and don't overpay. 

Being adequately insured does not have to cost us an arm and a leg.

This is a sponsored blog post brought to you by the good people at DIYInsurance.