Learn from the Ants!

There's a lot of things that we can learn from the ants. Here's a trick on productivity coming straight from the ants colony itself - it's called Ant Colony Optimization.


How does a scouting ant tell the rest of her colony that there's food here? She will secrete more pheromones - some kind of ant perfume - along the path that she found the food. When her colony mates passes by and picks up the pheromones, they will follow the trail, find the food, giving more pheromones and attract more ant mates and so on. Over time, you find that the chemical trail will get reinforced and becomes stronger and stronger.

So how does Ant Colony Optimization works? It works on exactly that principle - that which is useful will be ranked higher than those that are less useful, subsequently reinforced through repeated trials and eventually, the more useful 'path' will be discovered simply by the usage frequency. I'll give a few examples of how this can work in your everyday life:


1. Sorting files

We tend to sort files alphabetically or chronologically. We don't have to. Take for example one file filled with notes arranged chronologically. Every time we take out something from that file, we place it right in front of the rest, ignoring the order. After several iterations, what we use most often will be placed right in front of the file, making it more optimized for your usage instead of arranging in other common order (like chronological or alphabetical or subject matter) but ultimately useless arrangement.

This is exactly what the Noguchi Filing system works. When I read that, I was mindblown. It wasn't until I read and watched a lot of ants video on Youtube before I realized that it's derived from nature.

2. Sorting apps in your smart phone

Same theory. Arrange your apps according to the usage. Every time you use the app, arrange it in the forefront. Upon subsequent iterations, you'll find that the most useful apps will be right in front and the least useful app are right behind. Go ahead and delete that once it crosses a certain time threshold.


3. Internet bookmarks

If you're like me, you'll have so many 'useful' bookmarks in my internet browser that it's not always possible to find the stuff you need anymore. Yet you can't bare to delete them in the event that you might need it one day.


Here's where ant colony optimisation comes in too. You just sort the bookmark by arranging the one that you use right in front. Over time, the most useful bookmarks will be ranked right at the top while the least useful one will be at the bottom of the least. Again, you can delete those at the bottom with the knowledge that you seldom use it anyway, so there's no need to miss them.


These are just 3 examples that you can use to simplify your life. Besides micro things like these, ant colony optimisation can also be used to decide the best route for transportation networks like where to build a highway, bus routes etc. Basically when there's so many choices leading from point A to point B with multiple variables involved, ant colony optimisation will be useful.


Think about it.

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The 3 components of ROE

I've written in the past about the dangers of relying solely on ROE calculations. The danger comes from not knowing the components that makes up ROE. For the uninitiated, it refers to a matrix called Return on Equities.

Not this roe lah!

I think it's important to use Dupont analysis of ROE to break up the components of ROE into 3 main categories:

1. Financial leverage = Total assets / Equity
2. Assets turnover = Revenue / Assets
3. Net margin = Profits after tax (PAT)/ Revenues

If you take the 3 ratios above and multiply them, you'll find that the denominator and numerator of most components will cancel each other, giving you :


ROE = Total assets/Equity x Revenue/Assets x PAT/Revenues = PAT/equity

That is the standard formula for the computation of ROE


Let's use some concrete examples. I randomly take 3 STI components, SGX, ST Eng and Capitaland. They have nothing to do with each other (in terms of the business they do). The only commonality is that they have easily accessible annual reports so that I don't have to plow through everything to get the numbers required. Lazy, I know :)


So here it goes:

If you look at the ROE component, you'll have realised that ST Engineering's ROE is high because it is more highly geared up. Basically with leverage, you'll have a multiplier effect on your gains or your losses. That's not necessary bad, it's just that if you compare ROE alone, you'll miss that fact.


Again, if you look at the ROE of SGX, you'll find that the main component driving it is actually it's high net margins. That super delicious net margins pushes up the ROE. That is not necessary good or bad, it's just something that might not be noticed if you just focus on ROE alone.


You can dig more about ROE in my previous post here. The real important one is the 2nd link, but it's riddled with broken links of pictures...argh..

1. Dupont analysis of ROE
2. Woe be to those who missed out ROE
(I apologise for the lack of pictures...the server that I had uploaded the pictures went bust...so it's gone)

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Winning the skirmishes but losing the war

We are sometimes so caught up with our lives that we neglect the big picture. We often keep doing the things that are urgent, but forget about the things that are less urgent but nevertheless are important.

Study the matrix above.


Urgent means that it has a time factor to it. It needs to be done as soon as possible in order to meet datelines that are either self-imposed or externally imposed. Important means that it fulfills certain long term goals or mission.


Quadrant 1 are the tasks that are both urgent and important. These are crises situation and are emergencies. Priority should be given to these. But how many crises situation are there in a day? If everything is a crisis, your workflow is not set up yet, so you might need to work on that. An example of such a situation is when your client calls you for an important presentation that may lead to a sale. Everything else needs to be put on hold while you pursue this lead.


Quadrant 2 are the tasks that are not urgent but are important. These are the tasks that are often neglected because of the lack of urgency. A good example is retirement planning. Retirement is a goal that is years away for working adults but if you don't start planning now, it might reach a point of no return. So for such situation, we need to sit down and think about what are the things that are potentially urgent in the future and has great impact on your life. These, we need to do long term planning. You can probably delay for a week or two, but certainly not delay in years.


Quadrant 3 are the tasks that are urgent but not important. At best, these are interruptions to your workflow. It could be your boss asking you for yet another board meeting. It could be your mum asking you to get something for her while you are doing your work.


Quadrant 4 are the tasks that are not important and not urgent. I try to push a lot of task into this category as I grow up. Not a lot of things are as important now as it seems in the past. An example of this is playing games. It serves at best as a time waster event, though we all need such activities to relax and wind down. Just don't make this a priority when there are Q1, Q2 and Q3 things left undone.


The ideal workflow goes like this:

1. Classify all activities into the four quadrants 
2. Settle all the Q1 (urgent and important) activities first
3.  Then try to push those activities from Q3 (urgent but not important) into Q4 (not urgent and not important), as much as possible.
4. Settle the remaining Q3 activities
5. Schedule the Q2 stuff daily or weekly into your timetable. They are not urgent but they are still important. So do them on a daily/weekly/monthly/yearly basis. The key point is to plan it into your timetable, otherwise they will not be missed until it's too late.
6. Do the Q4 activities the last. Or when you need a break from your suddenly productive life.

I'll proceed to give an example of how to use this in a typical student's life.

• Do all assignments that is due this week first
• Pass down some 'arrows' that are shot by your group leaders in your co-curricular activities to others. Those that can't be passed down, just settle it as soon as you can
• Exams are in 2 months time. Have a plan of how your revision schedule will be like. Stick to it every week. Start early, finish leisurely. Start late, finish panicky.
• Stop watching you-tube videos or korean dramas when you don't even have time to finish the above. Allow yourself only a very limited time to do these per week, and only after you've had a good productive week.

You can be surprised how many people cannot find the time to study for exams until it's too late. Too swamped by everyday living that they miss the big picture. Are you doing that in your financial life too? Too concerned with day to day living and miss planning for longer term goals?

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Will you buy a chair for 1.6k?

I read a very interesting article about the comfort principle this morning. It's about optimising your spending in such a way so that you maximise your comfort level. If not taken to the extreme, this provides a very good guide on spending on things that are of value to you, not merely to catch up with or impress others.


Similar to the author in the article, I also spent A LOT of money on a chair. When I renovated my current home, I knew I will be spending a lot of time at home. I'm constantly having back aches from sitting in ill adjusted chairs and because of the long amount of time spent sitting down, the chair gets hot very easily. It's very frustrating when you know you have to do work but you're suffering from back aches and hot butts. Hence, when I saw this awesome chair with mesh netting (to allow ventilation) with lots of adjustments to fit the chair on you, instead of the other way round, I wanted to get it immediately. But the price tag of 1.6k is what held me back.

This is the exact chair that I bought

That was when my wife came in and reasoned with me. This chair will probably last 6 years, probably longer. My previous chairs lasted about that amount of time too (imagine the aches I've to suffer!!). If I spend 8 hours sitting on it per day, it'll be a good 17,500 hours of usage, which works out to be about $0.10 cents per hour. Considering that this is the 3rd year of usage and it's still running strong, I think it can probably last a lot longer than 6 yrs, bringing down the usage cost per hour. Knowing myself, I will probably not buy another chair if this one can last that long.


And so I bought a super duper chair with a price tag of $1.6k. Sounds like a splurge, but I think it's one of the best buy because it's something I use every single day, bringing me a comfort level that I might not have if I've to get a chair which is way cheaper.


This principle is not a good excuse to buy anything because you only live once. The article mentioned that you must also combine it with knowing what is 'good enough'. Also, what is expensive need not necessary be the best, so don't go judging the quality of items with the price tag.


I think to balance this article, I must also mention that while I can spend so much on a chair, I'm loathe to spend on a watch. A watch is functional to me and it must have 3 things - lights, stopwatch, digital time. I can't wear metal watches (It'll be too heavy for me) and the weather is too hot for leather straps (it'll stink when sweat soaks in). That totally leaves me out of luxury watches, which is perfectly fine for me. I recently got a watch for $30 and I'm so very happy with it. So before you say it, I'm not asking everyone to buy everything that your money can afford.

This watch I got it from qoo10 for about $30

Spend crazily on the things that matter, and frugally on the things that don't.

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Hedging both sides of the bet on life

We usually hedge against a long life by planning for our retirement. We save up. We make sure we have enough passive income to last 20-30 years after our retirement. But we also have to hedge against the possibility of having a short life.


Nobody knows when we're going to pass away. While it's never good to live in the present and forget about the future, it's also equally bad to concentrate solely on the future and skim on the present. I know myself  - I tend to over-worry too much. I worry whether I have enough income and enough savings to last me the next month. It took me quite a while before I can willingly spend part of my savings on myself. I've to thank my enlightened friends to knock some sense into me when I'm obsessed about savings at the neglect of my present self.

So hedge against long life. Go save up for your future self. But do hedge against the possibility of a short life - go spend time with your closed ones, spend money on things that brings you happiness. Different advice works for different people. For people who are tighter on money, advice them to spend more on themselves. It's going to be okay. For people who are looser on their money, advice them to spend less on their present and more on their future. Save up for rainy day.


In the uncertainty of the duration of your life span, we have to hedge both sides of the bet. Live for the moment. Spend impulsively. Live like there's no tomorrow. Then, like a person with split personality, save up for tomorrow. Build up a passive income stream for retirement. Delay gratification.


Is it contradictory? No, I don't think so. The two opposite poles are just swings of the same pendulum. There's no duality. The cup is empty and full at the same time. But if you can't see that the cup is empty and full simultaneously, then practice seeing it as one or the other first. For me, I see that the cup is empty first, so I save up for it. Only recently do I see that the cup is also full, so I must spend to keep it from overflowing.

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$10k a month as a tutor? Think again.

I think by now you should have read this post about a tutor who earns $10k a month. Most of what is mentioned in the article is quite true and I can vouch for its accuracy. Some comments on it though, before you quit your job to become one:


1. There's no CPF contribution by employer, leave, benefits, company dinners, health insurance sponsored by company. There's no company benefits at all.


You must learn to take care of your own affairs. Being a tutor is not just about the teaching part. You have to learn to manage your own affairs, save up for your own retirement and do your own accounts and tax. If you really hate these kind of admin stuff and do not want to pick up stuff like accounting, investment, insurance and a million other things that normally people take for granted, then you should seriously consider another job. It's essentially a one man show.


2. Learn marketing


If you're so good at teaching, it doesn't mean that students will naturally come to you. You have to learn how to sell yourself so that you have a constant stream of students every year. Besides learning your craft, the next biggest thing to ensure longevity of your business is to learn how to sell yourself and market yourself well enough so that through word-of-mouth, you'll get constant referrals.


3. Love what you're doing


If you're in this just for the money, I can assure you that you're going to hate this job. In certain months, there's no life at all. You practically work from Monday to Monday. You'll hate public holidays and weekends. You'll no longer have friends who will ask you out for dinner because you're working. You'll get messages throughout the day from panicky students asking you for help to solve this question and answer that query. Your work is weaved so intricately with your life that you cannot differentiate when work stops.


And so, you had better enjoy what you're doing. Do this for the money? You're not going to last long. Students are also not stupid. They can tell quickly if you really care about them or not.

4. Have a support group


It can be a lonely journey. But fortunately, my wife is also working odd hours just like me. We enjoy shopping when people are working and working through the night when others are relaxing. I can't imagine if one of us is working normal hours and the other odd hours. The conflict and schedule clashes should be quite hard to manage. It's good to have someone walking the journey with me.


5. Learn to be a counselor and a mentor, rather than a mere tutor


 You'll be surprised how often I've to settle issues other than those related to studies. Not everyone comes in all motivated to learn. More often than not, I'll have to find my way to reach out to the person. Sometimes, I failed and sometimes I succeed. That's what makes the job so interesting, once you're past the stage of knowing what to teach or how to teach. It's a combination of listening, observing and motivating that makes a person want to do well for his studies. To me, it's never about the exams. It's a way to touch the inner fire within each person, igniting it strongly enough so that it can glow and touch others too. It's a magical feeling that makes you want to experience it again and again.


That's what keeps me going.


6. Be comfortable with the seasons of work and play


You're never going to have a stable pay. Face it and accept it and plan for it. Each year, your income might drop by 50% or more and you'll have to work hard to recruit new students just to match up to the previous year income. This makes a fixed monthly pay such a luxury. Face it, accept it and plan for it. If you're not ready for such a drastic change in your pay schedule, you're going to feel very jittery in the dry season from November to January.


Ten years playing this game, I've learnt to look forward to my dry months when I'm busy with work and looking forward to work in the busy months when I've had enough play. Worry also no use. Learn to flow along and learn to let go. Bad times don't stay forever, so do good times.


You think it's so easy to earn $10k? Try it and see if you can handle the downsides first.

Related post:
1. Self analysis of tuition business
2. Unstable income stream from tutoring
3. The other side of being a tutor

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Retirement thoughts

I was thinking about retirement income recently, especially after reading a click bait post from a magical blog. I felt cheated because I was baited into it, so that set me thinking. It's not the same topic however, but certainly in the same general area of personal finance.


To get a retirement income, we have to settle a few variables. Once those variables are thought of, we can perhaps (roughly) solve this question of getting the monthly retirement income. The factors are:


1. When are you going to retire?

2. How much income do you need when you retire?

3. What is your life's expectancy?


Your solution to this question is going to be as good as your inputs and hence your assumptions involved. We might not be able to know all the answers to the 3 questions exactly, but a rough idea is better than none.

Let's apply it to myself. Let's say I'm 35 this yr and I'm going to retire by age 60. Assuming life expectancy of 85 yrs old, I'll still have another 25 yrs to work and another 25 yrs after retirement to ration my money so that I'll have enough for money to last my life. Let's assume that all the medical bills are taken care of by insurance to make the situation cleaner and less cumbersome, so that the retirement income is purely for spending and consumption.


My expenditure is about 3.5k per month, but that includes my mortgage of 1k (split between wife and myself) which no longer needs to be paid by age 60. There are things that no longer need to be paid when I'm 60, like my limited whole life plan and the mortgage insurance. But let's just take it conservatively (in fact, very conservatively) that my expenses is going to be 3.5k.


3.5k per month over 25 yrs after I retired at 60 works out to be $1,050,000. That's on today's terms, inflation of about 3% not inclusive.  How long do I have to save up that amount?


I've 25 yrs of years after retirement and 25 yrs of work years to save up, so that means I've to save 3.5k per month, every month of my working year, in order to retire with enough income to have 3.5k when I retire till I'm 85 yrs old.  Wow, that means I've to earn 7k per month from now till age 60 in order to get that amount. The 7k is split up into 3.5k for living expenses now and 3.5k for living expenses for my future self.


Of course, that's just pure savings alone. It'll be a lot better with some investment returns, so I can accumulate more with lesser savings per month. But the problem is made worse by the fact that we begin with -3% 'investment return' to begin with. That's because of inflation. Just to break even, we need to get 3% per year AND save that much to get 3.5k per month upon retirement.


Not exactly easy eh? So what can be done?

Firstly, lead a simple life and reduce your expenses. If you can live with 2.5k per month, you just need to save 2.5k per month for every working month. The idea is simple. If you want $500 per month in the future, save $500 per month while working. If you want $1k per month, save $1 k per month for every working month.


Secondly, start earning money and start saving early. The good thing is that if you live a simple life now, you probably will be leading a simple life in your retirement too. If you don't reduce your expenditure and spend the exact amount during your retirement years, you'll need a savings ratio of 50% to reach there (3.5k to save for retirement on an income of 7k means 50% savings), based on my 25 yrs of working years and 25 yrs of life after retirement.  I think if you are a conscious spender, and include your CPF contribution in your retirement plan, saving 50% is not a problem unless you are earning below 2k. If that's the case, you really need to find ways to boost up your income first. Unfortunately, you'll have more pressing issues at present to think about than to think about retirement in the future, I believe.


If you start work earlier, you can save for your retirement earlier. Think of it this way. For my situation, I've 25 yrs to work to earn 25 yrs of retirement income. If I start working towards this goal earlier, I might have 35 yrs to work to earn 25 yrs of retirement income. It'll be much much easier and less stressful. Conversely, if you started late and you have 10 yrs of work to earn 25 yrs of retirement income, I seriously don't know how it's going to be done without suffering a drop in standard of living.


Thirdly, retire later. If you push back the retirement age, you boost your chances of retiring better. How so? Pushing back your retirement age shortens the amount of funds needed for retirement because you have lesser years to plan for. At the same time, you increase the number of working years to save up more. This is like a Krav Maga move where you counter and attack simultaneously. If the Israeli martial arts can be used surviving in real life situations, this move of pushing your retirement age certainly increases your chances of surviving retirement, so to speak.

Fourthly, you have to keep on working and be employed. To do that, you need to keep yourself updated and retrained if necessary in order to stay employable. If that's not possible, you'll have to engage in some small business or become self employed. Nobody owes you a living, so start planning for your own business or self employment when still at your prime, while you can.


Lastly, it's taboo but it still must be said. Just live a shorter life. Shorter life, less retirement funding needed. Period. But we can't really control that without resorting to the final solution, can we?

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Is it a "waste of yourself" to be caught up in investing?

I think financial education is a must in this world. It's not even an option. Everything (almost) transacts in monetary terms, so without a working knowledge of money, you'll be severely disadvantaged in this world that you're currently living in.


But even though it's a necessity, it doesn't mean everyone needs to be an expert in it. There are different levels of involvement. Essentially, if you're not interested in financial stuff, you just need to know enough not to make big mistakes. If you're more interested in dollars and cents, then you get more involved in perhaps actively choosing your insurance or managing your funds to reap a better return.

That's my new CASIO calculator, by the way.

There are a few components of financial education that we should all know a little about:

1. Personal finance - credit cards, savings, needs and wants, budgeting, tax etc

2. Insurance - the difference types like whole, term, endowment, ILP, accident, H&S, disability income, annuity, mortgage and car insurance

3. Investments - bonds, stocks, retirement funds like CPF, commodities etc


As mentioned, you really don't need to know everything in detailed, because at best, these are just chapter topics. Take for example - stocks. There are huge write ups about the different methods of valuating stocks, from technical analysis to fundamental analysis. If you delve into fundamental analysis, you also need a crash course on accounts to know what is happening. Then you need to read into sector/industry analysis and many reports on the individual companies and their competitors. If you're into technical analysis, there are various time frames you need to learn, the different indicators and their respective signals and whether they are lagging or forward looking. No wonder it's so daunting for beginners to pick up. Where do you start? What do you need to know?


Imagine a person with zero working knowledge of these stuff. They will be at the mercy of someone who knows better and acts in his own self interest. You can't blame regulatory board only for making huge financial mistakes because you trust others. You must also shine the light of blame on yourself for not taking the time and effort to find out more. I made a huge mistake when I bought a huge chunk of whole life very early in my twenties. It sucked up a lot of my cash, possibly not even giving me enough coverage. But it's that very act of stupidity on my part that made me want to learn more about financial stuff. This lead to that, and soon, I began to learn more about insurance because it's really another aspect of financial education. It's a costly mistake on my part (I've since reduced the coverage of that whole life and thus reduced the premium) but in a way, my lack of knowledge made me a susceptible victim to any one who is more knowledgeable and wants to earn my money.


So when a student from the sociology department asked a panel of speakers in the first Young and Savvy seminar on Aug 22nd this year, about whether it's a "waste of yourself" to be caught up with the idea of investing just because everyone else seems to say it's important, I thought that he hit a very important question.

The Young and Savvy series of talks is organised by The Straits Times with presenting sponsor, Frank by OCBC. Note the sponsor is a credit card by a bank.

Just because you're not interested in something doesn't make that something less important to life. I think investing, which is but a component of financial education, is as important to life as swimming. You might not need to swim for your life everyday, but when you do, you'd better know how. It's a shame that our education system does not have a major component of financial education even though it's so important to life. Things might be a little better now though, I must admit. At least this gap is recognised and steps are taken to incorporate more of these life skills into their curriculum, albeit in the form of extra curricular seminars or workshops. It'll be great joy to tutor someone in financial education in the future, I must confess.


But learning need not be formal. Most of us learn though informal channels anyway. Educational institutions should just be a place where we learn how to learn. Engineering, the course I major in, is really a good place to learn how to learn because you learn enough about everything so that you can pick it up yourself. In my 4 years, apart from the heavy stuff in engineering itself, I've learnt a little about accounting, sociology, communication skills, microbiology, economics and computing. No small feat. If you want to find out more, you can just pick up a book, or google it and learn. I'm sure there are more formal courses online, free or otherwise, that enables you to pick enough stuff so that you won't feel so daunted learning them yourself.


So start now. Read some blogs. Read some books. Enroll into some courses and learn the skill that is so essential for modern life now and reap the benefits far into the future.

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