Thursday, April 26, 2012

Be Brave.

A student of mine recently got 'scolded' by me. She was trying to solve a physics problem but she had no idea how to do it. I had a glimpse of her thinking when I asked her to think out loud. She said after doing this and that, she had no idea what to do. Then I realised that she is trying to figure out entirely the solution of the problem in her head before she even attempt it on paper. I told her severely that perhaps in simpler problems, the entire steps of the solution can be visualised before attempting it. That would be the ideal case, wouldn't it? You would have the confidence to go through the entire process of writing down the solution since you already had in mind what you are going to do next.

However, I told her, that as problems get increasingly complex, it's nearly impossible to figure out all the steps that you're going to do without at least writing down some stuff. As long as you some clues on how to do it, you should just proceed to write something and find out whatever you can from the clues, then let the things you had worked out provide further leads. This trial and error kind of behaviour in doing things would separate the good from the bad students. The good students simply tries something that they know in order to arrive at something that they don't know, whereas the bad students need to know everything before even attempting it. When they can't figure out a step, they won't even want to do the first step. The good students have the confidence to know that they would be able to innovate and improvise along the way to hit their objectives.

I was wondering how many of us are also doing that in our lives. Most of the time, we fear the unknown so much. But understand that fear drives us to either want to find out more about it or paralyses us straight there and then. No matter how much we research, there'll be a moment where you just have to press the trigger and decide to proceed on with the best knowledge that you have at that moment and just jump with leap of faith. How many of us are stumped and paralysed when the first unknown comes along that throw us off our path? How many of us reads all about swimming in books but keeps on postponing the actual act in the pool?

I can also think of many many examples of myself procrastinating objectives that I know would enrich me but because of my fear of the unknowns, I keep dragging doing the first steps towards it. I must believe that even without knowing how I would get to the end, I would eventually reach there. That definitely needs a leap of faith. From what I see, there's two ways  to get it - one is from religion, the other is by a similarly zealous belief in yourself. Both are not necessarily mutually exclusive.

Have courage, my friends. Be brave.

Thursday, April 19, 2012

What's the minimum salary to live comfortably?

I was wondering what is the salary that one would need in order to survive life here in Singapore. It would not be surprising to hear a wide range, perhaps from as low as 1k/mth to as high as 20k/mth. That's because we want different things in life and for certain things, we really do not want to do without because if these basic comfort levels are gone, then our quality of life also decreases. After all, we do not want to merely survive; we want to live a life. Knowing that this would be a subjective topic, let's just start with me.

Here's some of the basic things that I need to pay on a monthly basis:

1. Food $200
2. Parents $650
3. Insurance $400
4. Mortgage for house $1000 (my part alone)
5. Phone and internet bills $80
6. Groceries $80
7. Car expenses + loan $360 (my part alone)
8. Water and electricity bills $100
9. Conservancy charges $60
10. Overseas holiday $100
11. Entertainment $50

Total: $3080

This amount does not include tax yet. But tax on a monthly basis would not add much to the overall figure. To avoid underestimating some variable expenses and to account for tax, let's just put a blanket figure of $3300. That should iron out all the variation in certain expenses and include tax too, which would make the figure a pretty good estimate of how much I need to live comfortably.

I think the median salary per month in Singapore in 2011 is $2700 and the average salary is $4,100. That should make the $3300 a pretty average kind of salary for a comfortable life here. But bear this in mind, if you really earn that much and spend it all, you won't have much savings, if at all. If you are retrenched, or just simply retired from work, you won't have a drop of money to last you a month. That means that if you plan to retire, you need to earn more than this amount. So how much is a good salary that can cover my expenses and to include savings?

I think savings 20% is too low for my liking, so I would say a minimum of 50%, which puts the income at 6.6k per month. With that kind of salary, I can pay my expenses plus save up another month of expenses for the future. This makes things a lot easier to calculate. For every month that I'm earning a 6.6k salary now, I'll  be able to NOT work for another month in the future. So, if I still have 20 yrs of working life left, then I don't have to work for 20 yrs till I'm dead. Of course, this simplistic back-envelope calculation does not include the eroding effects of inflation, but neither does it take into account what I can do with the savings that I stashed aside.

I mustn't let my income drop below 6.6k. But this year is a hard year for me, so far. Bearing in mind that in the future, the expenses might go up or down, so it's good to do this kind of calculation in the future again. My target of 100k savings is still in-the-works, and I still want to push my income level towards 12k. If that happens, hor say liao, haha :)

Tuesday, April 17, 2012

Changing market strategy?

Some people follow a market strategy of being a contrarian. This means that if others are buying, then you will be selling and vice versa. I think this makes a lot of sense, at least in theory. The hard thing is not about the theory itself, but deciding when the theory is applicable. If you look at a snapshot of all the available market theory, they will work in particular situations but not in others, hence to a beginner who is bombarded by a thousand and one market strategy, he will only get more confused after reading all these.

I am saying all these because it seems like people are trying out new strategies almost like changing new clothes. Try a bit of value investing, try a bit of momentum trading, try a bit of this and a bit of that. I'm quite sure some of the advice for a particular school of thought is completely opposite to other schools. I'm also quite sure that all of them work in certain situations. Hence, while it takes intelligence to understand what the theory and market strategy is all about for the different schools of though, it'll take wisdom to know where and when to apply it and more importantly, temperament to know if that particular strategy suits your personality.

But how do you know if a particular method is suited for you or not? Haha, seems like we're going back to square one. Perhaps that's why some people are trying out the new methods to see if it suits their temperament. Talk so much still goes back to the same point, haha :) Actually will checking one's XIRR to see if your method is effective works? I'm not so sure. First of all, when is the right time to say your current strategy sucks? 6 mths? 1 yr? 10 yrs? I'm quite sure for value investing to work, at least a few years (or market cycles) needed to be put in in order to ascertain a certain degree of confidence. What if one changes strategy at the critical point before it starts to work and therefore drawing the wrong conclusion? I don't know.

I've done my searching and circling in the past. I think I've found a method that works pretty well for me and suits my temperament as well. I'll be sticking to that :)

Tuesday, April 03, 2012

Sharing my monthly ritual

I just finished tidying up my month end accounts. I've been doing this for quite a while, so it didn't take too much time as all the necessary process had already been routinized and it's just a matter of clicking the right websites and recording down some numbers. Let me share what I do every month end:

1. Open up my excel spreadsheet. There are 2 books that needed me to fill up. First is the monthly expenditure. In the past I used to record all my expenses, big or small, onto that spreadsheet daily. But these days, I tend to consolidate over a few days to a week before putting them into the spreadsheet. I realised that I don't need such precision and accuracy now, because I already know what my spending pattern is. I take that as a reason to reduce the amount of work to do some tracking (it's not much work even if I do it on a daily basis, but a few minutes shaved off is still a bonus haha!)

After filling that up, I'll do up my second book -  networth. This means going to the respective websites, log in, and record the following:

Group A: Amount at month end of all my personal and joint bank accounts, as well as spare cash in the drawer

Group B: Amount in the money market fund

Group C: Amount of money in stock portfolio, based on latest market price

Group D: Net surrender value of whole life policies

Group E: Amount of CPF in various accounts

I do not take into account the market price of my HDB flat, but neither did I take into account the existing liabilities in terms of the mortgage loans. I will treat my networth accounting as such for similar asset that I had borrowed money to get it.

2. I'll also take the opportunity to pay up all my credit card bills in full. I usually use my posb everyday card for day to day purchases. However, for big items, I'll use manhanttan card to do that. I used to pay using scb's debit card for the rebate, but thought that I should conserve more cash since I'm a bit tight in liquidity the last few months. Why? Look at my post on the financial bombs.

3. Lastly, I'll transfer a portion of the cash in my bank account over to a separate account. This will form the savings that I will need to do every month. I think the amount doesn't matter (but it does matter if you want to hit a particular savings target per year), it's the act of putting aside a portion of your income that is important. I always think that if you do not save a portion, even a small amount, when you have this salary that you are drawing currently, what makes you think you can save when your salary increased in the future?  Thus the habit that is inculcated is more important that the amount saved, at least at the beginning.

What's the point of tracking all these, you ask? I think the greatest pros of doing this exercise is to give confidence to your own financial status at any point in time. You will know what you have at a glance by looking through your books. This will allow you to make proper and realistic financial decisions when the time calls for it. At the same time, you will also be able to track your progress over time and see if you had been doing the right things financially. Too much debt? Too much spending on luxury items? Too little income? All these will be shown in the books that you keep, much like the quarterly financial statements that public companies publish for their listing requirements.

It's good to see yourself as a company, especially in matters dealing with finance.