tzlee.com/blog

Tag: Money

  • The truth about offsetting loans with investments

    I’ve often heard people say it is easy to overcome the low car loan interest rates. While it may be 1.88%, the effective interest rate is much higher than that, about 4%.

    And people will tell me that it is easy to find something with an interest yield of 4%.

    I tell them their maths fail. Why?

    Disregarding all risks and investment yield fluctuations, simple arithmetic says that one must invest the same amount over the same period of time as the loan quantum to yield the same returns.

    This means if you took a $100K loan for 8 years, you need to plonk $100K into an investment yielding the same interest rates for 8 years.

  • Saving is a virtue, investing is a method

    I thought this would be a very good blog entry so I decided to write it.

    I was out with my junior from Ngee Ann Polytechnic. He wanted to get himself a nice Cello before he serves NS so we went Cello shopping. After viewing some nice instruments we sat down at TCC and I had a chat with him.

    My first advice to him was not to spend his life savings on a Cello. He assured me that that was not all the money he had and he had intended to use some of his savings to invest in blue chips. My first reaction was 😮 (not bad for a 19yr old!)

    I asked him, what kind of yield are you expecting from, say, $5,000.

    “5-7%”, he said.

    “That’s pretty much nothing”, I said.

    It works out to $250-$350 per year or about $20-30 per month if the yields meet his expectations. I told him that he’s still young and while his earning power is zero at the moment his expenditures are at an all time high. I sold him a new concept that at this point in life he should first learn to reduce his expenditure because that gives a better “yield” in relative dollars versus investing his life savings of several thousand dollars, not to mention the risks of investments.

    Afterall most people spend a larger portion of their income than save and it is generally easier to save 10% more than to earn an additional 10% from the savings.

    N.B. Saving does not mean scrimping, i.e. being a cheapskate to an extent that it impacts the wellbeing of yourself and people around you.

    One way to go about doing this is to leverage credit cards with cash rebates. But the bill must be paid in full at the end of each month, i.e. do not overspend. For example I have a UOB One card that gives me approx 3% cash-back on my expenses. If I spend on average $800 a month that works out to about $20+ per month, which is about the same amount that he would have gotten if his investments of $5,000 yielded 5%-7%.

    This is just one example, and probably not the best. There are many, many of these cards out there. I heard Standard Chartered even gives you $100 for a new sign up!

    If you are a student and not eligible for a card, just get an adult to sign up for you or be your guarantor. It is actually a good way to build a positive credit rating and to learn to manage your finances.

    Of course some apply for all the wrong reason, e.g. to get discounts eating out at fancy restaurants or simply to show off. It’s not that discounts are bad but when you keep eating out for the sake of that 15% discount, you are doing it for the wrong reasons. A plate of $3 chicken rice versus 15% off a $30 buffet is not savings.

    Without self control all these credit facilities can go out of hand and that’s exactly what the banks want — for you to default payment and pay the hefty 25% p.a. interest rate and $50 late payment fee, or to buy that Prada bag and miss one of your 12-month installments.

    Saving is a virtue and one should always start with that. Investment is one of the many methods to grow your money only when you already have enough money to go around.

  • Life is like a cuppa kopi

    A group of alumni, highly established in their careers, got together to visit their old university professor. Conversation soon turned into complaints about stress in work and life.

    Offering his guests coffee, the professor went to the kitchen and returned with a large pot of coffee and an assortment of cups – porcelain, plastic, glass, crystal, some plain looking, some expensive, some exquisite – telling them to help themselves to the coffee.

    When all the students had a cup of coffee in hand, the professor said: “If you noticed, all the nice looking expensive cups have been taken up, leaving behind the plain and cheap ones. While it is normal for you to want only the best for yourselves, that is the source of your problems and stress.

    Be assured that the cup itself adds no quality to the coffee. In most cases it is just more expensive and in some cases even hides what we drink. What all of you really wanted was coffee, not the cup, but you consciously went for the best cups… And then you began eyeing each other’s cups.

    Now consider this: Life is the coffee; the jobs, money and position in society are the cups. They are just tools to hold and contain Life, and the type of cup we have does not define, nor change the quality of life we live.

    Sometimes, by concentrating only on the cup, we fail to enjoy the coffee. Savor the coffee, not the cups! The happiest people don’t have the best of everything. They just make the best of everything. Live simply. Love generously. Care deeply. Speak kindly.

    Taken from: http://www.spiritual-short-stories.com/spiritual-short-story-106-Life+is+Like+a+Cup+of+Coffee.html

  • Image and Social Status

    I had a discussion with wifey while driving home from dinner today that no matter how we tell ourselves not to judge a book by its cover, it’s only human that we do. Afterall we have two eyes.

    (This is semi-related to my earlier post on the Chinese MTV.)

    We were at Marina Square and were window-browsing some watches. Not Swatch or Seiko – I’m talking about Tag Hauer, Longines, Rolex, etc. These watches easily cost $3,000 up to $100,000+. Then comes the question: Why do people wear such expensive watches?

    Back in the early days, a watch is a watch. It does one simple thing – tell time (and maybe day/date). Mechanical watch movements have been invented long, long ago. I don’t think it gets any more complicated these days. Digital watches can do miracles as well. Even back when I was in primary school some 20 years ago, I had Casio watches that could store phonebook entries of my entire class… and maybe some exam answers. Nowadays there’s even GPS watches accurate to the millisecond. Patek Philippe, beat that!

    Today’s watches are jewelry. They not only make you look better; they also convey a hidden message to people who “know” them, like how you’ll know that an auntie’s pasar malam LV bag is an obvious fake, or that a Lexus RX300 is actually a Toyota Harrier rebadged.

    At different “levels” of society, we use material items to communicate subtle messages related to ones’ wealth and social status. Why?

    When wealth catches up with us, it’s only natural that we spend some to improve our quality of life. Some of us buy a car or a bigger house, or go on a holiday in a more exquisite airline. Over time, we get used to our higher standards of living.

    But as with any living thing, humans are resistant to change. By change meaning anything – environment, wealth, people, comfort. We will try to keep things at our comfort level (and thus happiness), and that also means getting around people of the same comfort level. To do so, we establish a connection by using material items to send each other subtle messages: “Hi, I am as ho seh (well to do) as you are.”

    Just think about it for a moment. I’m not going to cite any examples here for racial/religious/social reasons but you get the idea.

    I know, it’s weird analogy of mine, but people spend tonnes of money to make themselves look good and feel confident. People go after branded goods for this very reason. Is a LV bag really worth $3,000? Is a Rolex really worth $8,000?

    But how much is enough? Wealth can buy happiness, but only up to a certain extent. Once you’ve gone over the threshold, things start to go downhill. Studies say it’s approximately $75,000 per year.

    To break this cycle we need to resist temptation to “level up” further. Some of us simply just move away from a city to a town where the pace of life becomes slower. Some of us just occupy ourselves with silly hobbies. But some of us are stuck in a rat race.

    I don’t really have a closure to this discussion yet, so I’ll think more about it and post an update. Meanwhile do drop a note if you have any thoughts…

  • Money in the bank

    I’m sure many of you have heard of (or a variant of) the following question:

    If I gave you a million dollars, what would you do with it?

    My usual answer is “I don’t know, give it to me first.” Hehe.

    Anyway, just for fun leave a comment and tell me what you would do, then answer the next question:

    If you saved the next 20 years for a million dollars instead, what would you do with it?

    And on a related topic, see https://michaelochurch.wordpress.com/2011/01/30/yes-rich-kids-already-won-the-career-game-heres-why/