What every independent person needs to know. (Part 1)

No right?
I guessed so.

In the 21^st century, education is touted as the most important tool to attain independence, survival and stability in this dog-eat-dog world. That's the reason behind the paper chase and why we are funneled into the education system for a good 20 odd years of our lives. Unfortunately, the most important type of knowledge we need for survival is never ever taught in schools. And that is: financial education.

By financial education, I mean the knowledge of how to manage your finances, budget, invest and make financial plans to ensure you don't have empty pockets at the end of retirement. In the early years, most of us receive our financial education from our parents. It is passed down from generation to generation. And our parent's knowledge is usually derived from their own personal experiences. This includes good (or bad) choices that they make, which they then pass down to us because that is all they know of. Or they might give us advice which everyone is doing at that moment. (Anyone heard of the 'Herd mentality' syndrome?) That's what we're good at and thus prone to doing. So is it no surprise that the rich get richer and the poor get poorer?

Moreover, people are often 'lazy' to take charge of their finances. Even adults! I often hear people grouse about how the dollar chase is wearing them out and financial independence is an elusive goal. Plus, if you look all around you, you can see many people stuck in dead-end jobs which they slave for all their lives. I saw that in my parents. This laziness is one major stumbling block to financial independence and education. Many people aren’t interested in going ‘shopping’. Wrong, you might say. Singaporeans love to shop! Sure we shop for clothes, house, car, maybe even partner. However many people don’t bother shopping for financial products and plans that would be useful. Or learning, on their own, about finances and expanding their awareness on the issue.

A lot of others are stuck in ‘old mindsets’ of how money should be managed. They choose not to broaden their minds to other possibilities and prefer to stick to the tried and tested formulae (whether or not these were successful is irrelevant to them).

Worse, a strong solid foundation of financial education needs to be cemented from young. Good financial habits need to be inculcated and learnt. Unfortunately, I have had many young peers my age telling me that they aren’t interested in finances yet. That is something that they will only bother about when they start working and are older.

You know, some time after grudgingly admitting to myself that I am not straight and therefore highly unlikely that I will get married or have children; I pictured a most frightening scenario: At the old ancient age of 70, there I am, in my wrinkled skin and graying hair, without children and very likely without a mate. Alone. Probably in a 2 room HDB flat and living on government pensions. Or worse, a nursing home to live out the last of my days. I envisioned these painful worst-case scenarios because by Murphy’s Law, there is an undeniable possibility that it might happen! No matter how small the chance (as the optimist in me likes to think). In the past, I always thought husband dear and my babies will take care of this shriveled prune when she retires. I always assumed that. But no! It is a possibility that people will stay single in the last stages of their lives, without descendants.

And may I add that this also applies to straight people? Even if you have a family, your kids might be un-filial and abandon you. Your husband might die before you and leave you with pittance.Too bad for you.

It was then that I realized the importance of being financially independent. Completely independent from others. And on top of that, financial independence means that even if you cannot work, or are retired, you can still survive financially. And that meant that I had to have a plan. That I can’t wait until I’m at age 40 (with my weight starting to shift to the bottom), and then frantically search for some semblance of a retirement plan. Neither can I wait till I’m 30 and then start doing my homework on finances. Because the earlier you start, the more thankful you would be when you’re older and in a stable position.

So I implore the smart ladies of Sayoni to stay tune for Part Two of this article where I will share the learning experience that me and others recently had’ about financial intelligence. If you are interested about Part Two, I am really glad that I might have convinced at least one person about the importance of financial education. If you aren’t, you either know a lot already or… you just proved my point in the fourth paragraph (lol)’
(End of part 1)

(Part 2)
Warning: Heavy in-depth spiel about finances is about to commence. And has little or no connection whatsoever to being lesbian or bisexual. But it has plenty to do with personal well-being and street-smarts. Read on if interested. Click ‘FORUMS’ if not. Thank you and have a nice day =)

Recently, AWARE organized a Financial Intelligence Training seminar (‘FIT’); in which many useful tidbits of information and basic financial knowledge were dispensed. Besides the explanation of financial jargon, many facets of personal finances were covered and strategies discussed. No matter what age or financial background you come from, everyone took back something useful from the FIT. Below is a brief summary of all the financial knowledge that was covered and hopefully, you would find it of use =)

WHAT ALL OF US CAN DO NOW:

At the end of every rainbow is a pot of gold =) Thus, our personal financial plans must be driven by a purpose, by an end-point to reach. For some it could be the accumulation of assets (entities you own which earn money for you) or the reduction of debt. What is your pot of gold?
‘
For example, one of the most basic financial goals is to grow wealth. To do that you have to

‘..earn the money

‘Keep the money

‘..GROW the money.

Most people can apply the first principle. That’s what they teach us in school for, to equip us with the skills so that we can work and earn! However, people tend to falter in the last two principles. To keep the money, we have to learn how to budget and ‘force’ ourselves to save. To grow the money, we have to invest smartly. To do this, we have to constantly update ourselves on the investment possibilities out there and that means reading up on books on personal finances etc.

Last but not least, in every financial plan you choose to take up, WRITE IT DOWN! Or you will probably forget it. Or perhaps you might waiver in your plans. The problem with most people’s form of financial planning is that their plans are ALL in their heads. From time to time, they play around with it but nothing is grounded. If investment markets had a sudden downturn, some people might be put off, stop investing and re-write their whole imaginary financial plans.

But the problem is markets fluctuate all the time! And people manage their finances with their emotions and impulses instead of thorough careful planning. At other times, people’s financial plans are often short-term, which although is not wrong, is less solid than long term ones. In other words, when you create your financial plan, make sure it is tangible. Write it down somewhere with a timeframe for you to fulfill your financial goal. And do not procrastinate on acting on it!

GOOD PERSONAL HABITS TO IMPROVE YOUR FINANCES:

- Keep a record book of all your monthly spending. Most people tend to forget what they spend and so find this a difficult habit to keep. For me, I like to do my records daily for easier recall. Others key their spending in their Blackberrys. Whichever method you choose, keeping your records gives you a better understanding of your ‘cashflow’ outwards. From here, you can move on to budgeting. Allocating a fixed percentage of your pay/allowance for expenses each month; plus reducing expenditure on unnecessary luxuries.

- Always save part of your income/allowance, FIRST. Robert T. Kiyosaki once wrote in his famous ‘Rich Dad Poor Dad’ financial self-help book series, about the principle of ‘paying yourself first’. That means your first ‘expenditure’ from your wages/allowance is to put money in the bank. By forcing yourself to save first, spend later, you will always ensure that you won’t spend more than you can afford.

WHAT A YOUTH CAN DO:

- Start practicing good money habits listed above. The younger you start, the more likely you will keep at it when you’re older. (Just like kids who eat lots of veggies when they are young, found them less repulsive than those who don’t)

- Grab any chance you can to learn from your parents. If they are making a trip to the bank for financial services, e.g. housing loan, car loan etc. Follow them and you can learn a thing or two. Also, tell your parents to explain to you all their current, ‘invisible’ expenditure on you (e.g. such as your insurance policies).

- Try, if possible, to start living independently (that means paying for your phone bills, miscellanous expenses, including your insurance premiums)
WHAT AN ADULT CAN DO (Plenty of course!):

- There is much in-depth learning to do about finances as an adult. For example, not many of us tap the maximum potential of our CPF savings. For a comprehensive list of what you can and cannot do using your CPF, go to http://www.cpf.gov.sg/cpf_info/home.asp for more information. Another great website is http://www.qotion.com/Public/default.aspx Less than two months old; this new website does your financial shopping for you! It compares the benefits of different credit cards, savings and fixed deposit rates of most banks.

- Ascertain your investment risk level. By that, I mean how much of your money you are willing to risk in an investment. As a rough guide, young adults have a higher risk level. Being young, you have many years ahead for you to recoup any potential losses. However, if you’re older and have dependents (e.g. parents), your risk level is lower because you cannot afford to ‘gamble’ with too much. For lesbian and bisexual women, our risk level tends to be higher compared to another straight person of the same (old) age. This is because we have fewer or no dependents (i.e. children). To evaluate your personal risk level, go to any bank and they will gladly do a proper assessment of your risk level.

- Insurance plans are an alternative route to grow your money as well. Many of them have investment aspects embedded into it (e.g. investment-linked products). Find out what best suits your needs and risk level. Remember the LifeCycle insurance plan I mentioned? Composed of a mixture of investment tools, bonds (lower risk) and equities (higher risk), it is pretty stable for its risk level changes from high to low over the long term, by varying the composition of bonds and equities in the basket. Thus this follows the average person’s changing risk level (from high to low) as they age.

- If all these is too mind boggling for you, you can also hire a financial advisor (‘FI’) to do part of your homework for you. But first, there are two types of FIs. One type is linked to a firm, the other is independent. Of course, the benefit of an independent FI is that they are less likely to push company-linked products at you. And personally, I feel that independent FIs that charge an annual fee are the best of all. This is because some independent FIs might get commission from selling certain financial packages to you, but fee-based FIs do not earn such commission, hence you might get a more objective assessment/advice. Go google ‘IFAS’ and you might find a website which gives a list of the independent FIs available in Singapore.

- If you are above age 40, perhaps it would be a good idea to seriously calculate how much you need for retirement (if you haven’t done so already). Most Singaporeans have no or only a rough idea of how much they need. Worse still, many do not have enough savings to last them when they actually retire. Do you want to get a bad shock when you’re older, jobless, and hence largely helpless? A sound retirement plan is imperative if you desire to live out the sunset years with a peace of mind. Go find out how you can start planning and what to look out for (e.g. investments/insurance plans that suit your financial goal)

- One last useful website: http://www.smartinvestor.com.sg/livingconcepts2.asp?livconid=138

This concludes an extremely brief summary of what can be learned in the 8-hour long FIT course. Hopefully, you would have found it useful! Either way, its time to start doing your financial homework now. And get down to making some serious plans and changes. Because as one of the instructors in FIT said, ‘If you don’t plan. You plan to fail.’ All it takes is a little bit of effort and diligence to insure yourself against financial failure. Plus it’s not rocket science, whether you want to grab your pot of gold is entirely up to you =)
Carpe diem.