Interest rate in the bank is at the all time low. The time where you are able to get 2% per annum in high interest account is over. With the market at all time high, one question I get is if you should invest your emergency funds?
Should You Invest Your Emergency Funds
“The interest in the bank is so low. I should use the power of compounding and invest in the stock market”.
This is the current narration in Singapore right now and I don’t blame them. Most of us are literally looking at our money stagnant. If you are like me, you might feel frustrations keeping the money in the banks which is “not doing anything”. Here is a quick introduction of compound interest.
Compound Interest
Let’s assume that we have $50,000 that we are keeping as emergency funds. We will be using the following numbers for our illustration.
As you can see on the above future value formulation, the difference is simply ridiculous on a 30 years time horizon. If you have invested the $50,000 in the S&P500, you would have gotten $2.29 million (think about that for a moment). If you invested in the STI, you would have got $89K and if you just leave it in your multiplier account, you would have gotten $61K.
How is it not tempting to invest your emergency funds?
If you desperately need cash then and if the market is NOT in your favor. That would mean that you will need to take a loss without giving it time to bounce back. Ask yourself, do you want to sell at an unfavorable time?
Should You Invest Your Emergency Funds and Sell Here
Some reasons to have emergency funds are job loss, medical emergencies (especially with the changes in the hospital plans: Co-payments), your family member’s medical emergencies, car repairs or home repairs.
“You will never know when you need the money”
Your emergency fund is not designed to be a wealth builder
Not everything is designed to be a wealth builder. Sometimes you need the liquidity as a “personal insurance policy” for yourself and your family. I know some that uses credit cards (which might be suitable credit card for emergency) to design their emergency funds, but that’s another topic all together.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
It is 2021. I find it annoying that there are still tons of articles out there will tell you to write down New Year Resolutions such as paying off debts, spend less than you earn, set a budget, drink less Starbucks etc. It is 2021. You already know that. In the new era, it is not about finding information. It is also not just about finding the right information (6 Steps Wealth Karate). In the new era, it is making use of the right information easily.
Some of readers have shared with me they fall short of their 2020 financial resolution because they have the lack of clarity or strategy. I wish to take this one step deeper. It is not that you did not know what to do. It is also not that you did not know how to do. However, psychologically it is not easy.
In this article, I will be writing how to start a financial revolution so that you can create the right environment to win psychologically.
To put yourself in the right environment, you need to first understand yourself. I summarized this by a quote that I frequently used.
There are three things extremely hard: steel, a diamond, and to know one’s self. ~ Benjamin Franklin
After understanding yourself, then you can create the right environment for success. You want to create a system that is psychologically easy to win. Here are 4 ways to put things in your favor psychologically. I bet you will not be able to find this easily elsewhere.
#1: Set Weekly Budgets Instead of Monthly Budgets
Ever wonder how we could save so much when we were students but not now? The trick is that most of the students are given a weekly allowance instead of a monthly one. When students then track their budget on a frequent basis, this creates a saliency effect. The more we noticed something, the more we are aware about it, the more we will review it.
For majority of us, we are now following a monthly budget. We don’t review it as often and so become surprised when we overspend during the 3rd or 4th week of the month. If budgeting is an issue for you (psychologically), set weekly budgets.
Just like teachers marking the examinations paper for students, or MAS checking the quality of consultant’s advice, we feel a certain pressure and would want to make sure that our work is correct. It is the same for finances. It has came to my attention that most people don’t audit their finances at all. This means we will not know if we are on the right track when it comes to finances.
Auditing your finances is very simple. Just like a teacher marking each question, ask yourself if an expenditure is reasonable. Notice that I mentioned reasonable rather than “correct”.
For example, one of my friend have been subscribing to Spotify for $9.99 a month. He initially subscribed to Spotify because he wanted to listen to ads-free music on the way to work (I think that’s pretty reasonable). However, in March 2020 he has started to worked from home and he realised he has forgotten about it and is continuing to pay for Spotify but have not been using the service for the past 7 to 8 months. He has now stopped the payment but will be taking it up again when he needs to travel to work again.
I recommend you to audit your finances once every half a year. Spot those that are “unreasonable”. They could help you save a lot in the long run.
Financial Revolution 2021 Audit: Source: CIA
#3: Allocate More
Do this only after you have already prepared your emergency funds. After that, yes. Allocate more.
It is very natural to feel happy when you see your bank account increasing. However, you will only realised the effects of inflation after many years. I strongly recommend you to allocate more when you have the opportunity. Whether it is an insurance policy, an endowment policy, an investment policy or buying into stocks or property, I encourage you to add more when the time is right.
To psychologically help you, you can employ certain tools such as regular saving plans to deduct a similar amount every month. This automation will help you allocate more and yes be on your journey to financial freedom.
#4: Sell Things That Are New That You Don’t Want
Look around your house right now, I believe that there will be some items that have been there sitting in the cupboard for a while. Be it a gift from a friend or a book that have not been touched or a lucky draw that you have won, there will be some item that has been around but have not been used.
Take this opportunity to do some spring cleaning and make some money. Put it on carousel. You will be surprised at how much money you can make out of your own room.
Before selling them, ask yourself 3 questions.
Have you used it for the last 3 months?
Will you use it for the next 3 months?
Does it have sentimental value?
If those answers are no, those items will not be missed. This is where I personally sell my own items. Check out my Carousell items to give yourself an idea.
Final Thoughts By Wealthdojo
Don’t start a resolution, start a revolution! If you haven’t been successful in your financial journey, just pick one of the above and commit to it for the next 3 months. I assure you that you will look back at 2021 and be proud of yourself.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
3 Money Beliefs That Will Destroy Your Life Worried: Image source
Much of our lives revolve around money. In a sense, money does make the world go round. We rely on money to get things done and fulfil our basic needs each day.
The set of beliefs that we have about money can either make things better or worse. When we have disempowering beliefs, it’s difficult to see opportunities and possibilities since we’re so focused on the negative. E.g. I can’t, I don’t, I’m never going to, It’s hard.
These negative thoughts lead to negative feelings, which then go on to impact every other aspect of our lives.
I believe that having the right mindset can change the way that we perceive and experience life. Here are three money beliefs that can hold you back from living a fulfilled life, and ways that you can shift your perspective on them.
Belief #1: If you work harder, you’ll be able to earn more
This might’ve been true back in the day. But nowadays, with the possibilities that the internet affords, more and more people are finding ways to work less and earn more. Your income no longer needs to be tied to the amount of hours you put in.
Instead of working harder, you can work smarter. It’s like the difference between trying to chop down trees with a dull vs. sharpened axe. Spend some time sharpening your axe (upfront effort), and you’ll be able to get the job done much faster.
3 Money Beliefs That Will Destroy Your Life Sharpen Your Axe Image source
Internet entrepreneurs who sell a product that doesn’t require a huge ongoing time commitment can work fewer hours and might eventually even earn more than salaried employees. The internet enables you to reach customers at scale from all over the world and earn money while you sleep.
One way to start selling something online without needing to spend much money upfront is teaching something that you know.
For example, you can use platforms like Skillshare or Udemy to create an online course. You create it once, and each time someone enrols, you get paid!
Of course, this will require some time and effort upfront, but once it’s done, the money will keep coming in without you having to lift a finger. And this is just ONE potential business idea. A quick Google will enable you to find many, many more.
3 Money Beliefs That Will Destroy Your Life New Skills: Image source
Nevertheless, if you think that the internet entrepreneur thing is not for you, there are still ways that you can increase your income potential without working harder.
You can learn some new skills online through the very same platforms that I just mentioned (+ many more) and increase your value to an employer. If you’re a Singaporean over the age of 25, you can also make use of your SkillsFuture credit.
Of course, don’t learn something for the sake of learning it — ideally, you’d actually have some interest in it! Otherwise, it’ll be very painful and it won’t be a career that you’ll enjoy.
Belief #2: It’s not possible to become wealthy without a good family background
It’s true that being from a well-off family provides you with many opportunities that might not be available to others. You can move in the right social circles, get access to a good education and have more financial resources at your disposal.
But there are many examples of people who became wealthy despite not growing up with a valuable network, getting a prestigious education or having money readily available.
You shouldn’t let your upbringing or circumstances hold you back, nor complain about all the entitled people who seem to have an easy life because they got handed a silver spoon.
Daymond John from Shark Tank was raised by a single mom in a rough neighbourhood and is dyslexic. He’s now got an estimated net worth of $300 million.
3 Money Beliefs That Will Destroy Your Life Daymond John: Image source
He didn’t win the lottery or have it easy. He started a business called FUBU from the ground up, and their “office” was his mother’s house. He even closed the business three times from 1989-1992 because he ran out of capital.
You might think, “oh sure, he’s probably one of those rare lucky people,” but there are also quite a few (largely unfamiliar) examples of Asian entrepreneurs going from rags to riches.
Just because these people are not famous in mainstream media and their stories are not well-known, it doesn’t mean that they don’t exist. There are probably many more people out there who haven’t had a story written about them. You could become one of them.
Belief #3: Money can buy happiness
Money can buy a lot of things. And it can definitely help you solve a lot of problems. But it can’t buy happiness, because that’s something that can only be achieved internally.
Our minds are programmed to keep wanting something new, something better, something different. We build up a sense of excitement and believe that getting X thing will bring us long-lasting happiness.
We may be really happy for a moment, but the feeling will soon pass and we’ll be back to wanting something else to experience the same high.
Having a good meal — that’s great in the moment, but forgotten in a few hours.
Getting a nice bag/car/house/[insert other material thing here] — that’s great for a while, and then you get used to it. What’s next?
3 Money Beliefs That Will Destroy Your Life Shopping: Image source
And for the people who want the money not for the high of consumption, but for the high you get by showing off your status, when will it ever be enough?
The truth is, we don’t end up happier after fulfilling our wants.
We just end up wanting more.
It’s funny, though, because our happiness actually comes from the absence of wanting. When we’ve gotten that new [insert material thing here], for a moment we don’t want anything else. But once our mind gets bored, it looks for something else to focus on…
To find more lasting happiness and fulfilment, we should work towards things that also benefit others, or things that have a sense of profound importance to us (e.g. things we want to do before we die).
Having a daily gratitude practice is also beneficial to remind us of everything that we already have and lessen our urge to have more.
Change your beliefs, change your life
We always act in accordance with our beliefs. That’s why a simple mindset shift can do wonders. I believe that we should seek to learn about different perspectives and find role models who have achieved what we might’ve once thought was impossible.
Have you had any of these beliefs? If so, will you take steps to overcome them?
This is a guest post by Rachel from Hey, it’s Rachel. She writes about mindset, personal finance, and all things personal development. She’s on a mission to empower millions of people around the world to live their best lives through education on mindset and growth.
Final thoughts by Wealthdojo
These are my favorite quotes from Rachel. Thanks for the beautiful article.
Money can buy a lot of things. And it can definitely help you solve a lot of problems. But it can’t buy happiness, because that’s something that can only be achieved internally.
It’s funny, though, because our happiness actually comes from the absence of wanting. When we’ve gotten that new [insert material thing here], for a moment we don’t want anything else.
Instead of working harder, you can work smarter.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.
When I ask this question to my clients, the first response I get is: HOW I FIND SUCH A JOB??
Last Sunday, Straits Times published an article titled $30,000 salaries, yet in serious debt (it is an premium article). This started almost an outrage in the Wealth Management and Personal Finance community in Singapore. Most of the comments were related to where to find such a job and probably missed the point of personal finance. Let’s explore the reasons when $30,000 salary a month is not enough?
$30000 per month: Crazy Rich Asians: May not with $30,000
Reason #1: You spend more than $30,000 a month
Typically, as we grow in affluence, our purchasing power increase and we tend to spend more to.
Meet John. John is a hardworking young professional. His first salary was $3000/month and he had to live a simple lifestyle. Along the years, John got promoted for his outstanding working performance and ability to show results. His salary gradually increase to $15,000/month. John is now working harder at work and often end work late. He will take a cab home (he used to take the public transport) and order a good meal from a nearby restaurant (he used to cook) to reward himself for the hard work. When he sees something that likes during shopping, he will buy it immediately (he used to ponder if the item is essential) because he feels that he can afford it and he don’t have much time to shop anyway. He buys his friends meals (he used to go dutch) because he feels he is doing well.
John wakes up one day and was shocked to find out that his bank account balance haven’t been increasing after his promotion and has decreased.
If you spend more than you earn, then you will be in deficit.
$30000 per month salary: spending more than you make
Reason #2: You acquire more debts that you can handle.
Previously, I wrote about a Quick Ratio that we can use to evaluate whether the company is financially healthy.
“A company CANNOT go bankrupt if it doesn’t have debts” ~Chengkok
I can’t remember who said this before so I’m just going to quote myself until someone prove me wrong. (Haha). During the COVID19 season, we are seeing record number of companies going bankrupt and closing down. Examples are like JC Penny, Hertz and AMC just to name a few. If you look at their financial records, it would be just a matter of them that they will go under.
Similarly, for personal finance, if you take on too much debts than you can handle, your cashflow will be severely impacted.
Reason #2.1: Leverage
Reason 2.1 is a compounder for reason 2.
When I was 19 years old, I was scared stiff of the stock market. That was because I had a friend who lost over USD$50,000 in one night in his CFD trade. $50,000 is a huge sum to a 19 year old kid and it scared me silly.
Leverage works like this. You ONLY require a SMALL sum to get a BIGGER exposure. Most people who have limited capital are attracted to this because of the high returns. However, if the stock price goes south, you have to pay for the exposure too. A capital of $10,000 can easily give you an exposure of $200,000. However, if the stock price plunge, you could lose a significant portion of the $200,000 that you DO NOT EVEN HAVE and hence acquire the debts that you don’t want.
“Go big or go home. Typically in investing, people go home” ~Chengkok
$30000 per month salary: Leverage
Reason #3: Bad Habits
In The Straits Times article, bad habits or poor financial planning will cause your financial downfall no matter how much you earn. Data from the Monetary Authority of Singapore shows that
34 home owners have asked to stop payment for their loan until December
2100 people have problem paying education and renovation loans
6200 have asked to convert high credit card debt into term loan on lower interest rates
The list goes on. Gambling is also one habit that might cause financial woes. We are often reminded by the National Council on Problem Gambling on not to gamble especially during the Chinese New Year.
Conclusion
Some questions that we can ask ourselves in our financial journey.
Income plays just one part in your Wealth Management journey. It is your habits, your mindset and the people that you hang around with that helps you reach the level of financial freedom you want.
No one will care about your money as much as you do.
In Wealth Management, it is important to Pay yourself first. Beware of scams. Before you invest in any company or popular investment opportunity, be sure to do your own due diligence. If you wish to learn more about investment, I hope to nurture genuine relationships with all of my readers.
