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Financial security: 5 points you ignore at your own risk.

Saturday, January 4, 2014

I wrote something in response to an article which was shared by a guest blogger. The essence of my response were these 5 points:

1. Have an emergency fund and beef up our Medisave Account.

2. Have a good H&S plan with a rider to cover deductibles.

3. Live well below our means.

4. Know the difference between needs and wants.

5. Create a passive income stream.

Want to know what kind of article would draw such a response from me? This:
"I have a 6 figure salary but I am in financial trouble."

If we are able to tick off each of the 5 points I have listed, chances are that situations like this are totally avoidable, barring catastrophic events.

Don't think that we are invincible. Don't be extravagant. Don't be a wage slave. Don't put ourselves at risk of financial trouble.

It is not even about becoming a millionaire, it is about becoming financially secure and we don't have to be a millionaire to have financial security.

"I have pledged — to you, the rating agencies and myself – to always run Berkshire with more ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits." 
- Warren Buffett.

On that note, have a great weekend!

Related posts:
1. Get free medical insurance in Singapore.
2. A meaningful emergency fund is important.
3. Think you cannot reduce your spending?
4. Don't see money, won't spend money.
5. Wage slaves should be fearful.

19 comments:

la papillion said...

Hi AK,

Let's see if I hit all 5:

1. Yup, I have about 3-4 months expenses. More if I include investible cash. Medisave account, quite healthy too :)

2. Talking about that...my medishield premiums increased by 70%. The rider, to be paid in cash, also increased. Oh well, I still think this is not something negotiable.

3. Living below means = having savings, then yup

4. I shouldn't have a problem, I hope

5. This is not enough. Need to accumulate more capital first before I can generate the mass to get a decent passive stream.

Thanks for the reminder :)

AK71 said...

Hi LP,

You are financially savvy. You know what to do and you have been doing all the right stuff. :)

“Never depend on single income. Make investment to create a second source.” Warren Buffett.

The Sun said...

IMHO, reading the 'Millionaire Next Door' will serve as a good reference & learning point to the advice and the story of the pharmacist shared in your blog post.

lofan73 said...

Hi ak71,

im thinking to shift my fund to singapore stocks.will make it 70% in sgx n remain 30 in klse.btw,let's enjoy ths song so that i can take some pressure off from myself

http://www.youtube.com/watch?v=fCP2-Bfhy04

AK71 said...

Hi Sun,

Yes, I remember the book and it was at your recommendation that I blogged about it: The Millionaire Next Door.

Thanks for the reminder. :)

AK71 said...

Hi lofan,

Thanks for the show of confidence in Singapore's stocks!

Also, thanks for sharing the song. ;p

EY said...

Hi AK.

Great reminder! I can't agree more but a bit shy to say I've not done enough basing on my own expectations.

Coincidentally, I was also sharing with someone last week on 5 important decisions that impact our financial security:

1. Career
Passion and sustainability is key. Choose work that leverages on our core competencies and in an industry that offers sufficient stability and growth. Be our own boss if we wish but we must consider if we can sustain ourselves in that enterprise both emotionally and financially in the long haul.

2. Spouse
To wed or not to wed? Only if 1+1 = >2. Nope, not about procreation. That's the financial formula and litmus test before saying 'I do'. Find a partner who is wealth accretive not depletive. If not investment savvy, at least has to be a decent saver and a prudent spender. For one who spends money that he/she doesn't have and buys things that he/she doesn't need and beyond his/her means, 'I do' is not the phrase, just say, 'Next, please!'.

3. Debt
Use debt selectively and sparingly. Preferably only for buying assets and do not overgear. Watch the interest rates and pay down the debt within a reasonable time frame. The faster, the better.

4. Savings
Save for rainy days and sunny days! Savings is a means to an end. Define the end(s) and feed our piggy bank as much as we can.

5. Insurance and Investments
It's about defense and growth. Insurance before investments.

But I must add a disclaimer. These are reminders to myself and I have not necessarily walked to talk for every single one of them. Still trying! :D

AK71 said...

Hi Endrene,

Thanks for sharing. This is a gem of a comment. You should have sent this to me as an email. Definitely guest blog material. :)

I particularly enjoyed point number 2. Hahaha... ;p

Your husband is lucky. :)

EY said...

Hi AK,

Thanks for always being so willing to share your precious real estate on your blog. Much appreciate your generosity! Guest post? Too stressful having to respond to people's comments lah. Haha. I'm more introverted than you think! :P

Yes, my hubby is lucky and hope he will continue to be so! He said he married me because I didn't look too bad and it's a bonus that I have turned out well. Haha. What sort of spouse selection criteria is this?! So he better pray hard that I don't become wealth depletive. Can't say for sure that it won't happen with all of crazy ideas that I would entertain in my rojak head! LOL~

Anyway, just to share a piece of good news. :) Winter didn't last that long for my unit. Tenant moving in on 15 Jan. Didn't meet my set target but considering the spate of events and the timing, it makes sense to seal the deal quickly. Rental yield at 4.64% is at the rate that you had suggested. 2 years contract. :)

AK71 said...

Hi Endrene,

I guess we are all a bit different in real life. I prefer to be alone in real life. Don't really like mixing with people. Strange, isn't it? Maybe, it has to do with growing older and more introspective too.

Yah, blogging is not just about writing and publishing. It is also about replying to comments. There is "after sales" service involved. It is a whole package. There are bloggers who don't reply to comments though.

Your hubby is probably just pulling your leg and, after so many years of being together, I am sure you know him better. :)

Congratulations on renting out your unit. At the rate I suggested? A gross yield of 4.64% is not bad, really, and with a 2 years contract to boot! :)

Yes, have to be more grounded. With new projects, we usually get lots of competition with everyone looking for tenants at the same time. Those who stick to their guns and want higher rentals will lose out especially now when demand is softer.

INVS 2.0 said...

Do you happen to know any trading platform where I can do intra-day trading without having to wait 3 settlement days? :)

AK71 said...

Hi INVS 2.0,

This is not a question I have an answer to. Maybe, some readers here might have the answer.

Anyone?

SOLIDCORE said...

Hi AK,

You know you are too "addicted" to financial security when you watch a movie and go "This guy could have been a millionaire if he had not squandered off his money".

That's how I felt when I watched the new movie about two fantastic F1 drivers. It's a brilliantly good movie too!

*Can't spell the name of the movie! No free advertising! :p

SOLIDCORE said...

Hi AK,

On another note... I followed your advice on CPF matters and made more than enough interest to pay off my Medishield! WooT!

Too bad I can't pay income tax and property tax with my SA if not my interest would have easily covered it too! :p

Cheers and thanks for the great advice in 2013!

Heartfelt thanks from a rookie investor who started in January 2013 and earned $11xxx. Your blog has been an inspiration to many and has helped shaped the future of many lives too. :) MY sincere gratitude and let's have a meal one day.

SOLIDCORE said...

Hi INVS 2.0,

Not too sure about that too but I think local governing laws has made sure 3 days is a must.

Perhaps some other foreign investment tools?

AK71 said...

Hi Solidcore,

I don't have to watch a movie to feel that way. I look at the way some people around me live their lives and I feel that way pretty often already. I am an addict. I am lost. :(

I am glad that my blog has helped you on your journey to greater financial security. I like to share ideas and especially ideas which have worked well. Of course, your decision to act is what really made the mark. :)

Now that you have experience, share with others and help them to help themselves. Pass it on. :)

SOLIDCORE said...

Hi AK,

Of course! I've the great honor to receive and will continue to share the gift that you and your contributors have bestowed upon us :)

Have a very merry new year!

AK71 said...

From my FB wall:

Wenhong Su:
"I think AK is implying that we should not expect ourselves to get rich quick and expose ourselves to tons of risk. We should slowly look Into our daily expenditures, eliminate or reduce the unecessary self-proclaim "needs" so we can save more to invest. Once, we take care of that, eventually our passive income will exceed our expenses. This does not requires a million dollars. It's more about financially free than to get rich quick. (Learning to fish instead of getting a big fish but dunno how to fish) Haha."

AK71 said...

Reader:
Our stat board bracing up for the increasing unemployment rate. Friend’s hubby has been out of job for some 9 months and still couldn’t find employment. He is in his 50s and was in a senior management role. My friend is holding a part-time admin job and trying to find full time work now. Kid has medical issue. Lots of financial commitments. Don’t think they have much savings.

AK:
Times are bad. I am getting more emails from readers who are retrenched and worried in the past few months... Cham...

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