Debunking some Misconceptions about Personal Finance

[Dennis Ng]

Hi all,

I started this Discussion Thread for forumers to discuss and share about some of the Common Misconceptions about Personal Finance.

Have you ever heard of people having the "philosophy" that Money is NOT yours until you spent it?

Well, these people forget the "flip side" (most things in this world have 2 sides or duality) that if you Spend ALL your money, then you have NO money. And NO matter how much you earn, if you make S$10,000 and spend S$10,...000, you would have no money, yes ZERO dollars.

You might think I ask you not to spend money. Of course that's not what I mean. Just Remember NOT to spend more than 90% of your income, Save at least 10% of your income. I remember back in 1993 when I started my first job, my starting pay was S$1,500 and I still managed t save 20% of my income. This habit of saving at least 20% of my income once started, is EASY to continue.

In fact, over the years, I discovered that as my Income increases, I can even increase the Percentage of Income I save every month.

For instance, currently, I save about 60% of my income every month, and I actually lead quite a comfortable lifestyle, as 90% of the times, I take Taxi and am "chauffeured" around.

So, the first Step is to Save at least 10% to 20% of your income, that is the First Step to Financial Freedom, no matter how much or how little you earn. The amount is NOT important, the KEY is developing the HABIT of Saving.

[Dennis Ng]

There are people who come to me and tell me that:"Dennis, I only earn S$1,500 a month, I can't save much. In fact, I have NO savings at all currently."

My reply to them is this:
Firstly, you need to take responsibility of your Current Situation.

Please Realise that your current situation is a Result of Past Thoughts, Beliefs, Decisions and Actions taken.

The Good News is your current situation does NOT represent your future. You can immediate change your Future Situation by changing your Thoughts, Beliefs, Decisions and Actions.

You can start by saving if not 10%, then at least 5% of your income this MONTH. Never, Never, Never procrastinate on taking the First Step.

[Dennis Ng]

Once the habit gets started. It gets easier. As my income increase over the years, I find myself having no problem saving a higher percentage of my income. I currently save 60% of my income.

Of course, Saving is just the First Step.

What I discover is that most Singaporeans Have the Habit of Saving Money

Most people forget or don't know how to Grow their Savings.

From year 2002 to year 2007, I Grew my wealth by over 300% through investing....while most only earn less than 1% on their savings.

[star88]

Hi Dennis,

"Save at least 10% to 20% of your income" does this include the Endownment Plan from Insurance or we call it Saving Plan?

[Dennis Ng]

Hi Dennis,

"Save at least 10% to 20% of your income" does this include the Endownment Plan from Insurance or we call it Saving Plan?

I would not want to save in Singapore Endowment plan, the returns is just 3% and too low.

I would rather invest in UK Endowment (min investment S$20,000) annual returns is 4% to 8%.

[star88]

Hi Dennis,

Min $20,000 for UK Endowment plan, min how many years? My insurance endowment is 25 years.

[Dennis Ng]

Hi Dennis,

Min $20,000 for UK Endowment plan, min how many years? My insurance endowment is 25 years.

Hi star88,
min time period is about 4 years, you can choose time frame, ranges from 4 years to about 20 years maximum.

The Policies are "Traded" Endowment Policies, which mean you're taking over an existing Endowment policy from U.K. that has been paying for say, 15 to 20 years.

So the good new is instead of waiting 10 to 15 years to "break-even" on your policy, it is possible to find Traded Endowment Policies which the Current Cash Value of the Endowment Policy is equal to what you invested, ie. break-even from Day 1 for investors into UK Traded Endowment.

[Dennis Ng]

Some people thought that Power of Compounding only works for money, over the years, I discovered that this is NOT True.

It took me 15 years to reach my First S$ 1Million, but might just take me 2 years to reach my 2nd. Power of Compounding works, not just in Personal Finance, but in every area of your life. For eg, I read 1 hour each day....however, even though I spend the same time NOW as I do 10 yrs ago, now I learn so much more becos of the compounded knowledge/experience I have. The sooner you start, the earlier Compounding can work for you.

Hi all,
the good news is it is no longer might, I indeed reached my 2nd Million Dollars in less than 2 years, by Nov 2010.

It took me 15 years to reach my first million dollars by Dec 2008.

[Dennis Ng]

Some people thought that Power of Compounding only works for money, over the years, I discovered that this is NOT True.

It took me 15 years to reach my First S$ 1Million, but might just take me 2 years to reach my 2nd. Power of Compounding works, not just in Personal Finance, but in every area of your life. For eg, I read 1 hour each day....however, even though I spend the same time NOW as I do 10 yrs ago, now I learn so much more becos of the compounded knowledge/experience I have. The sooner you start, the earlier Compounding can work for you.

Hi all,
the good news is it is no longer might, I indeed reached my 2nd Million Dollars in less than 2 years, by Nov 2010.

It took me 15 years to reach my first million dollars by Dec 2008.

[Dennis Ng]

With inflation rate in Singapore currently at 5%, it means that if you borrow Housing Loan and interest rate is less than 5%, you're actually paying NEGATIVE interest (or earning by borrowing).

eg. Housing Loan interest rate 3%, Inflation 5%, you actually GAIN 2% by borrowing since your S$1 now is only worth S$0.95 1 year later.

Think about it.

Yet, there are still people who do NOT want to take Housing Loan or minimise Housing Loan when they buy a property in Singapore today.

[Dennis Ng]

I like to share another common misconception.

When GST was increased from 5% to 7%, most people say this is 2% increase. Is this correct?

2% is the absolute increase, but it has no meaning.

The actual increase in GST revenue is ‎2/5 * 100 = 40% increase!

Absolute has no meaning. eg. if I tell you I make returns of S$200,000 from stocks last year. This has no meaning without me telling you how much is my capital, what's meaningful is Return on Investment, measured in percentage terms.

So if my capital was S$10 million, this is just 2% returns, very miserable and even less than inflation rate of 5% currently.

But if I tell you my capital is S$500,000, then it is 40% returns and very different indeed.

Another simple example to show absolute has no meaning. eg. I tell you that my weight is 65 kg.

You won't know whether this is healthy, overweight or underweight unless I tell you my height.

[Dennis Ng]

Average is misleading.

If there are 5 persons, the top earner earns S$1 million a year, 3 of them earns S$40,000 a year, and 1 of them earn S$20,000 a year.

We say the average income of the 3 person is S$228,000 a year!!!

If you look at this example, there is actually NO ONE earning S$228,000 among the 5 persons, this is how misleading Average can be.

While Median Income means the income earns by the person as the 50th percentage, is closer to what an "average" person in Singapore earns than Average income.

so if I want to "increase" the average income of Singaporeans, I just let more foreigners earning High Income to become Singaporeans and voila, I achieved this Goal!!!

I hope more people can know this so that from now onwards, they will scrutinise statistics quoting Average figures more closely and make their own independent intelligent analysis.

So even GDP per capita is misleading, do you see it?

[stanlee]

With inflation rate in Singapore currently at 5%, it means that if you borrow Housing Loan and interest rate is less than 5%, you're actually paying NEGATIVE interest (or earning by borrowing).

eg. Housing Loan interest rate 3%, Inflation 5%, you actually GAIN 2% by borrowing since your S$1 now is only worth S$0.95 1 year later.

Think about it.

Yet, there are still people who do NOT want to take Housing Loan or minimise Housing Loan when they buy a property in Singapore today.

and we lend bank at interest less than 1% and insurance at 3-5%..sigh no wonder i'm getting poorer and poorer

[Dennis Ng]

With inflation rate in Singapore currently at 5%, it means that if you borrow Housing Loan and interest rate is less than 5%, you're actually paying NEGATIVE interest (or earning by borrowing).

eg. Housing Loan interest rate 3%, Inflation 5%, you actually GAIN 2% by borrowing since your S$1 now is only worth S$0.95 1 year later.

Think about it.

Yet, there are still people who do NOT want to take Housing Loan or minimise Housing Loan when they buy a property in Singapore today.

and we lend bank at interest less than 1% and insurance at 3-5%..sigh no wonder i'm getting poorer and poorer

Hi stanlee,
yup, most people are getting poorer and poorer without them realising it.

We need to learn how to grow our money at returns higher than inflation to become Richer.

Last year silver price was US$17, now US$34, whoever who bought silver then has not made 100% and which is definitely more than enough to beat the inflation in the last year itself.

With global competition, do NOT hope salary to increase, unlikely to happen, the way to reach Financial Freedom is learn to grow your money, this is how I reached Financial Freedom when I was aged 39 (3 years ago), not through earning a high income.

[stanlee]

With inflation rate in Singapore currently at 5%, it means that if you borrow Housing Loan and interest rate is less than 5%, you're actually paying NEGATIVE interest (or earning by borrowing).

eg. Housing Loan interest rate 3%, Inflation 5%, you actually GAIN 2% by borrowing since your S$1 now is only worth S$0.95 1 year later.

Think about it.

Yet, there are still people who do NOT want to take Housing Loan or minimise Housing Loan when they buy a property in Singapore today.

and we lend bank at interest less than 1% and insurance at 3-5%..sigh no wonder i'm getting poorer and poorer

Hi stanlee,
yup, most people are getting poorer and poorer without them realising it.

We need to learn how to grow our money at returns higher than inflation to become Richer.

Last year silver price was US$17, now US$34, whoever who bought silver then has not made 100% and which is definitely more than enough to beat the inflation in the last year itself.

With global competition, do NOT hope salary to increase, unlikely to happen, the way to reach Financial Freedom is learn to grow your money, this is how I reached Financial Freedom when I was aged 39 (3 years ago), not through earning a high income.

Hi Dennis,

yes i was financial idiot before attending your seminar. i sold half of my silver holding at US$45 and gain 50% in about 5 months time. The only regret is not attending your seminar earlier