Dennis Ng Gives Tips on Managing Money in Sunday Times

[Dennis Ng]

Sunday Times's award winning reporter Lorna Tan interviewed me in "Me & My Money" column. The article was entitled "Ex-banker likes chalking up Good Debt" published on 4 Nov 2007.

It gives me an opportunity to share some of my thoughts and views on Planning and Managing Finances with the public.

Below I summarise some of the main points I shared.

Cheers!

Dennis Ng, http://www.HousingLoanSG.com

My Growing Up Years
When I was growing up, my parents keep telling me:”Not to owe anyone any money. If you do borrow, pay off your loan as soon as possible.” Most books on Personal Finance will also teach you to be debt-free as soon as possible. I used to think this way too. However, after I became financially literate, I realized that there is “Good Debt” and “Bad Debt”.

Avoid all “Bad Debts”.

Bad Debts are any debt on consumption eg. car loan, personal loans or credit card spending.

Bad Debt drags you down as you're paying interest on something that depreciates in value. Imagine paying instalment on buying a plasma TV which cost S$8,000 3 years ago but currently sells for S$3,000. You would definitely lose money incurring "Bad Debt". I personally do not have any bad debt.

Manage Good Debt Wisely to Accumulate Wealth
However, there is “Good Debt” as well. Good Debt is any debt where it is possible to earn a return that is higher than the interest on the debt. A Good Debt that almost everyone has access to is Housing Loan.

Incidentally, Housing Loan is also the cheapest loan anyone can get. Currently, interest rates on Housing Loan is 3% to 4%, 6% for Car Loans, 8% for Renovation Loans, 20% for GE Money EzyCash and 24% for credit cards.

Instead of using my savings and cash to pay off my Housing Loan as quickly as possible, I would channel my cash into higher-yielding investments such as shares, Land Banking (annual returns of 10% to 20%) and Traded Endowment (annual returns of 6% to 8%).

Financial Planning is like a Soccer Match…
Insurance is a good way to transfer potential risk of financial losses that might arise from unforeseen circumstances.

“Insurance is like a goalkeeper in a soccer match. It fends off disasters.” “However, to move financially ahead, you need to win. You win by scoring, not defending. Financial investments, like strikers in a match, help you hit the goal.”

Most people do NOT reach Financial Independence becos they only focus on "defending" what they have and avoiding losses, but they don't have enough investments (strikers) to score goals and win the match (reach Financial Independence).

Tips on Managing Money:
Have a “Just in Case” fund that cover your total expenses for 6 to 12 months. This will help to boost your "defence", on top of Insurance coverage.

Also have an Opportunity Fund. Opportunity Fund is cash set aside to take advantage of rare opportunities and bargains. For instance, when stock markets crashed in year 2002, I used it to buy stocks whose returns have exceeded 500% in some cases.

Opportunity Fund is like "reserve strikers". Only send them in when you're almost certain that they will help to score some goals.

Tips on Insurance Planning
It is important to have comprehensive Medical Insurance plans as medical treatment for serious illnesses can cost anything from S$50,000 to S$200,000. I observe that most people’s medical insurance coverage is typically inadequate.

Tips on Investment Philosophy
When people invest, most think only of making money if their opinion is right. Whenever, I invest, I always ask myself what the worst-case scenario would be, and if that happens, whether my financial position would be hurt.

We must invest on the basis of avoiding Devastating financial losses.

My rule of thumb is to invest only if the potential upside is at least twice the potential downside. For example, if a stock is priced at S$2 and it might go up to S$4 or more, but the downside risk is only S$1, then I might be interested.

I personally find that it is not difficult to generate average returns of say 5% to 10% on a person’s investment portfolio.

Thus, even if I had lost 50% to 65% on some of my worst investments, these losses are more than made up for by the gains I made on other investments. For instance, a 500% returns is equivalent to generating an average compounded returns of 5% for a time period of 33 years!

The Rich always manage and invest their money on a portfolio basis. They know that they can make their money grow by just being right 5.1 times out of 10 times. You don’t need to be right all the time to make money.

Tips on Choosing a Housing Loan
People always ask which bank’s Housing Loan is the best now.

There are more than 100 different types of packages and what is best for one person might not work for another.

Know your needs and priorities, and pick the package that best fits you.

How to plan to buy a House?
Buy a House within your means and aim to pay off the loan by the time you retire. For instance, if you plan to retire by age 60, do not take a Housing Loan that stretches repayment till age 65.

As a rule of thumb, the total monthly debt repayments you have on all loans (eg. Housing Loan plus Car Loan) should not exceed 35% of your Monthly Income.

Tips on Car Ownership
I structure my lifestyle around where I live. I’m 7 minutes drive from my in-laws’ house and 10 minutes from my son’s school and my office is 10-minute walk away. By doing so, I make it not necessary to have a car. In fact, I made it inconvenient and troublesome to have a car.

In doing so, every month I save an extra S$800 a month compared to someone who owns a car. Over a period of 40 years, assuming 6% annual returns, I would have saved an additional S$1.59 million more than someone who owns a car.

How to Solve Singapore’s Retirement Problem?
Recently, there is a lot of spotlight on the problem that most Singaporeans would not have enough money to retire by the time they reach age 60. Thus, the recommendation is to raise retirement age.

I firmly believe the solution to the retirement problem is not extending the retirement age but increasing financial literacy.

If people have financial literacy and good at planning and managing their finances, it is possible to retire by age 60 or even age 50 or earlier.

When I reached Financial Independence, I plan to devote more time and effort to help in raising Financial Literacy in Singapore.

[Dennis Ng]

actually during the interview I was also asked why did I choose to start a Loan Consulting business? Why not other business?

Below was my reply. Guess it was omitted due to space constraint.

Cheers!

Dennis Ng, http://www.HousingLoanSG.com

I chose to start a Loan Consulting firm. As you might know, I am a Certified Financial Planner and have passed all relevant exams to distribute all kinds of products, including Insurance, General Insurance, Investments, Health Insurance, Unit Trust. I even passed Dealers’ Representative Exams (required for Remiser).

The reason was the “magic” of Mortgage Broking. If I plan insurance for my clients, my clients might only benefit 10 to 20 years down the road, when their saving plan matures or they make insurance claims. If I help clients plan their investments into Unit Trusts, it might also take a few years for me to help make their money grow.

However, when I helped a client to choose a suitable loan, they can easily save $5,000 to $10,000 in interest costs.

By setting up Leverage Holdings Pte Ltd, I feel that I can leverage on my gift and experience in Finance to help people move financially ahead and help people to save both time and money.

For example, if you are currently servicing a loan that charges an interest rate of 4%, I am quite confident that I can help you save $5,000 to $10,000 through refinancing. Based on local statistics, with Singaporeans making an average of $4,000, a savings of $5,000 will definitely help to move a person financially ahead, without him having to work overtime, or taking up more jobs.

It is precisely of this "magic" in refinancing that made me embark on this business.

In my business, I make money by helping people save money, move ahead, expand their business or increase their wealth. The more people I help, the more money I make. People literally get richer after they walk out of my office.

One thing I learned from the second richest man in the world, Warren Buffet is this: "Choose something you love to do and you will never have to work a single day in your life." To know if something is your passion, ask yourself if you will do it if you are not paid? If you said yes, it is most probably a passion for you. I'm enjoying myself each day doing what I enjoy doing. Thus, sometimes I tell people I have not worked a single day since I resigned from bank 7 years ago.

[Dennis Ng]

Originally posted by mrStock
Dennis,
What impress me most about you is that you are fast!
Once you believe it is an opportunity, you will grab fast like landbanking, property, gold and wine (all in the name of diversification).
You does disclose a lot. Based on your last year postings in your holdings of stocks, I can actually tally out your worth last year and I can see the large change this year (You remember your argument about having a million dollars with some of the other forumers!)

Wish you success in achieving financial independent so that more can benefits from your giving!

Hi MrStock,
thanks for your message.

Yes, I'm a person who makes decision fast. The reason I make decision fast is becos I know exactly my objectives and what I want. (Most people do not really know what they want).

I also use the following to help me make decision:
1. I always ask myself what if I'm wrong? What is the worst case scenario? Will I be financially ok if the worst case scenario happens?

As I mentioned, most people make the mistake of only thinking about making money if they're right, not how much they would lose if they are wrong.

2. what is the upside potential? What's the downside risk? My rule of thumb is the upside potential must be at least twice the downside risk.

I also disclose what I do and more importantly, WHY I did what I did. For instance, earlier in the year, I shared on the forum that I'm taking profits on some stocks and moving part of the money into property.

I remember even during that time there were people who opined it is better to stay in stocks than invest in property. However, my opinion was otherwise and I put my money where my mouth is.

Note: As it turns out, prices of most stocks actually have gone NOWHERE in the last 6 months from April 2007, exactly as what I thought.

I actually only hope for 10% rise in property prices over the next 2 years when I bought the condo in Tanah Merah. However, this target was hit within 2 months of me buying the property. I decided to sell as at that time my opinion is the upside potential of a "suburb" property willl not be as good as a property nearer the city.

Thus, I sold the condo at Tanah Merah and reinvested the profits into another condo in Lavender. I just check the transacted prices at URA website today and indeed the prices of the condo in Tanah Merah stay about the same compared to the time I sold it in Jun (I collected my money in late Aug), while the prices of condo nearer the city have gone up another 30% in the last 4 months.

I'm not trying to give out tips on what stocks to buy or what properties to buy or sell, I"m just sharing what I did and WHY I did what I did.

And of course, since all the information I share are REAL, it also helps to demonstrate to everyone that it is indeed possible for an average Middle Class Singaporean to move ahead financially just by planning and managing and also GROWING one's finances.

My main motivation and reason for posting is to INSPIRE others that they can do the same, that we don't have to work till age 65 or extend retirement age to 67 to solve the retirement savings not enough problem.

For most people, they can simply retire comfortably by GIVING UP a car. As I have shared with Sunday Times, by NOT owning a car and thus saving an extra S$800 a month, if I can earn 6% annual returns on this savings, over a time period of 40 years, it would accumulate to an additional S$1.59 million.

What I hope to share are Financial Principles which everyone can Adopt and Adapt and Apply, not fanciful theories that might not work as I only share things that have WORKED for others and which I learn and practise and have similarly worked for me.