Kopi with Song StoneCold: Getting value out of everything!

Song StoneCold says:
I decided to embark on my path to financial freedom about 5 years ago. So, what inspired me to get started?

I discovered that no matter how hard I worked I would still be a stinking rat in the rat race. Looking at some of my colleagues carrying balls and backstabbing each other just to get a promotion and increment of about $200 bucks truly disgusted me.

Then, I reached a ‘tipping point’ and decided enough was enough! I needed to get out of the rat race!

I started reading thousands of books and attended thousands of seminars. Ok, ok . Maybe just a few hundred books and a few hundred seminars. All these were on investing and financial planning.

To cut a long story short, every single financial planning book advocated living with a budget, recording every single transaction, being frugal and bla bla bla.

Well, some even tell you to forgo Starbucks coffee! Now, imagine the money you can save after the compounding effect! Gosh! 

(AK's comment: Gosh! Talking about me, are you?)

Nevertheless, I decided to give budgeting a try. I tracked every single transaction, everyday. I tried to save money here and there. I was frugal and I seldom bought any luxury items or had a good meal at restaurants. What was the result?

PAIN!

I realized that it was not what I really wanted.

I want to have a decent lifestyle even before I am financially free, not a lifestyle of frugality, not to live by the ‘suffer now and enjoy later’ mantra’. I want to occasionally enjoy my caramel frappacinno at Starbucks!

Something happened 3 years ago that reaffirmed my thinking. My late aunt passed away at the age of 40 leaving behind a large sum of money for my uncle. She had been frugal all her life to the extent of dividing a packet of chicken rice for lunch and dinner.

In short, she tried to save every single cent possible. She didn’t even buy coffee at the neighbourhood coffee shop, much less from Starbucks. Mind you, she was not poor at all. She was earning a decent monthly salary.

In the end, my uncle used all the money and spent it on another woman. My late aunt's pain became his gain. Sad story. Lesson learned for me.

1) No point being too frugal. We need to enjoy life once in a while and use our money wisely 

2) Suffer now and enjoy later may not happen. Life is unpredictable and at any time we may just say bye bye before we can enjoy life. What is the point of being the richest man in the graveyard?

I am not going to splurge on everything but I decided that to keep a balance is the way to go. I need to enjoy my life while building my wealth through investing. Having investments which generate cash flow will give me passive income while growth stocks will give me capital gain. I will enjoy my life NOW and not later.

After some trial and error, I found that to achieve this I just need two simple steps. 

1) Get value out of everything.

2) Just ask.

It is possible to have a decent lifestyle if you make some small efforts. Below are some of the examples of how I managed to have a decent lifestyle

1) I have many credit cards from different banks. Now if you are poor in financial discipline please don’t try this. This is only for people who pay off their bills every single month. There are many ways different credit cards can give you quality perks. 

For example, Citibank Dividend Card not only gives you cashback for everything you spend on, it even gives you FREE travel insurance when you book your flights using the card. It offers you 10 percent cash back for your Starbucks purchases too.

Then, Maybank's Family and Friends’ card offers you 5 percent cash back at Watson and Guardian. These are the places we will spend money at anyway. So, why not get a better deal. Find credit cards that suit your lifestyle and apply for them. Just make sure you pay them in full every month.

2) If you are a bookworm like me. You can borrow books from the public libraries instead of purchasing them. Recently, I discovered that we can borrow ebooks from the library too. It is hassle free and reading ebooks from my iPad feels so good. If you need to buy a physical book, try bookdepository.com. It offers free shipping worldwide. 

(AK's comment: If you do not mind pre-owned books, they are usually cheaper to buy. Betterworldbooks also ships globally for free and every book you buy helps to promote literacy for the poor.)

3) Once in a while, if you decide to buy a luxury item, just wait for a discount. Be patient!

More often than not, there would be a discount in any shop sometime in a year. I usually wait for the Great Singapore Sale to buy the expensive items that I want. Use your credit card during this period and it often offers more discounts and perks.

If you want to attend a concert or seminar, just Google. There will surely be people who are selling their tickets at a lower price because they cannot attend the event due to some reason. Compare prices in shops and Google to check online.

When you are travelling, you can buy items from the transit area of Changi Aiport. I bought my iPad Air there and saved on the GST of 7%. Many shops in Changi Airport in the areas open to everyone offer waivers on GST too. 

These steps will save you tons of dollars while you continue to enjoy your purchases.

4) Car related expenses. I have no loyalty when it comes to petroleum companies. Which company offers the best price will get my business. This could be through some credit card tie-ups or discount coupons, for examples. Sometimes, loyalty doesn’t pay. We need to get value out of everything.

5) You can still watch movies at the cinema but do it during weekdays. It is much cheaper. You could get discounts with some credit cards. One credit card even offers you free popcorn.

6) Eat at your favourite restaurants during lunch instead of dinner. Lunch is generally cheaper. Again use credit cards to get better offers. Try to have only ice water. Drinks are the most marked up items in the menu. They are not worth it.

Next step is to just open your mouth and ask! You will be surprised how much money you can save by just asking for a discount, free samples, annual fee waivers from credit cards etc. There is no harm asking. If we don’t get it, just look for another shop and move on.

There are so many ways and these are just a few.

What I am trying to say is that it is possible to live a good life at discounted prices.

In the stock market, we look for under-valued stocks. Here, we look for under-valued items. One of my favourite quotes from Warren Buffet is this:

"Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down." - Warren Buffett.

Let us all enjoy a good life while we build our wealth at the same time.

Related posts:
1. 7 money habits of AK's.
2. Free shipping globally!
3. A modern day good life.
4. To be a happy peasant.
5. How rich is rich?
(... do not forget that being happy is more important than the pursuit of money. If we can be happy every day of our lives, we are truly rich.)

Tea with EY: CPF Life or ETF for retirement?

Annuity - It's Income Insurance!

Thanks for doing up a nice summary on Value Investing Summit (VIS) Day 1. I left during lunch and not attending Day 2. Decided that the takeaways are too marginal for me to spend my weekend there. But I must say, VIS is really useful for those who are rather passive or inexperienced in financial planning. :)

About the not buying annuity, I can't agree entirely. I used to hold the same perspective but when I got down to map out my retirement planning using CPF SA savings (please see attached), I had a different realisation.

From the computations on the last slide, you can see that $200,000 in the CPF SA transferred to RA at 55 years old could give us a monthly income of $1,325 to $1,479 till we konk off, regardless of rain or shine. How much is the FV of $200,000 at 65 years old? It's about $300,000. So that will be about 30% of the $1m which we need for retirement.

Click to enlarge

Personally, I believe in diversifying my retirement income. I don't know for sure if my mental faculty can be as sharp when I grow old and for how long I'm still able to manage my investments. If I have to depend on my family to invest for me, wouldn't it be additional burden for them?

I take buying an annuity as some form of insurance on income. I would have some peace of mind if I were to live up to 100 years old (choy! touch wood, touch wood!!). If I don't and I konk off at 85, there is still $100k left as bequest. If I were to go even earlier at 75, there would still be $200k left. This is if I choose the CPF Life Basic Plan.

To balance the need to leave behind a larger legacy, I'll invest the $700,000 in different income generating assets. If I can achieve an average of 5% returns, that will be $35,000 a year, or $2,916 a month. At 6% returns, that will be $42,000 a year, or $3,500 a month. Add that to my annuity plan, I will have $1,325+($2,916 or $3,500) = $4,241 or $4,825 a month.

My point is, we must be clear of our financial planning/retirement objective. Do we expect passive income generation with absolutely no effort? Then there is a trade off on capital preservation. If otherwise, it would mean some work or a lot of work, depending on the monthly retirement income we are after.

My strategy is to build up the CPF SA savings to buy my income insurance, i.e. the CPF Life Basic Plan. If we have $150,000 in CPF SA at around 40 years old, and continue to have contributions up to 60 years old, we would have $600,000 at 65 years old if we delay our withdrawal.

Click to enlarge.

Click to enlarge.

After buying the annuity, I would still have $300,000 available for other investments. If $1m is the target amount for retirement, technically, I should have accumulated $400,000 outside my CPF SA savings by 65 years old. Assuming I have no savings at all at 40 years old, I would need to save $9,600 each year or $800 per month, for the next 25 years, with a CAGR at 4%, to reach $400,000 at 65 years old.

The above calculation is based on the assumption of hitting the CPF contribution limit on $5,000 monthly income. 

The Retirement Savings calculator and the Compound Interest calculator can be found on CPF's website: http://mycpf.cpf.gov.sg/Members/Calculators/mbr-Calculators.htm

New calculators on CPF's website:
https://www.cpf.gov.sg/members/tools/calculators

Related post:
A cornerstone in retirement funding...