Managing your Money - Key to Financial Freedom

Jars, yes that’s all it could take you to become financially free. I attended a 3-day seminar recently by best selling author T.Harve Eker. Within the first few hours I discovered what I feel is a most effective method of managing my money.

Jars! Prepare 6 jars (the Chinese New Year cookie jars, with the red covers, will do nicely). Label them as follows:

1. LTSS – Long term Savings for Spending
2. FFA – Financial Freedom Account (whatever you do DO NOT touch this account; it’s key to your Financial Freedom)
3. Give – For Charity
4. Play – For money to party and have fun with
5. Nec – For spending on daily necessities
6. Edc – For money you use to attend seminars, buy books etc, for your personal education

Now, with a dose of self discipline (you must want financial freedom bad enough), on a daily basis, split your daily budget into these 6 jars as follows:

• LTSS – 10%


• FFA – 10%


• Give – 5%


• Play – 10%


• Nec – 55%


• Edc – 10%

The benefit of doing this is that once you’ve split up your dollars this way, you can spend all the money set aside for Necessities and Play, look forward to buying a big ticket item from money saved in the LTSS jar, do your part for charity, increase your knowledge and personal development, AND still have enough money to save and invest for your Financial Freedom.

Once every week or two take the money from the FFA jar and deposit it into an account set up specially for it. DO NOT attach any ATM card or checking account to this. Once the money is inside, keep it there. The only time you do anything with it is when you’ve decided how you’re going to grow it by investing.

I learnt over that weekend that, “The Habit is more important than the Amount.” Because once the habit is instilled, almost like magic, the amount will tend to increase too.

If you would like to receive a set of beautiful mind maps of the whole 3-day seminar, write to vasuisnow@gmail.com. It consist 6 mind maps, 2 for each day. You will have to send me a check for SGD25 first, to help me cover the cost of copying and courier costs (for Singapore).

What can you do with your CPF?

Your Special Account is currently yielding 4% per annum. If inflation is 3%; your net gain is 1%. This means that the $40,000 in your special will take 72 years to double in real value.

Place it in a unit trust, and if that yields 8% net, it’ll double in 9 years – that’s $80,000. And that amount doubles again in the next 9 years, and doubles again in the following 9 years.

Assuming you have $40,000 in your Special Account at the age of 40, you’ll have $360,000** (based on a compounding growth of 8% per annum) by the time you’re 67.

Draw down from that amount (assuming interest is cancelled out by inflation) over the next 18 years (the new life expectancy is 85 years) and you’ll have an annual income of $20,000 or more than $1,600 per month. Now isn’t that a much more decent sum than $300?

Plus if you happen to be called back to that happy place in the sky sooner, the remaining sum forms part of your estate and not the common pool. At least you’ll be able to leave behind a legacy.

Now if you are already investing, and you’ve calculated that at the age of 67, a monthly income of $1600 is not going to be enough, then you might contemplate starting a business now.

How Much Will You Need?

Well that depends on what standard of living you been accustomed to. A luxury once enjoyed, becomes a necessity.

If an average meal cost $5, or $15 a day today, it’ll already cost you $136,875 (based on today’s value), to have 3 meals a day over the next 25 years. Assuming inflation is 3% and you’re retiring in 15 years, based on a future value projection, you alone will need $213,246 for food. And you have not even taken everything else into consideration yet. And what about your spouse?

The much touted compulsory Annuity that pays you $250 or $300 month is not going to be able to support you when you’re 65. Try living on that sum today.

Start Planning NOW

Start an Investment Plan

You can start setting aside an additional sum or use your existing CPF Special and Ordinary Account in a regular investment plan. “What? And risk my money?” you say. Well let’s put things in perspective.

Besides taxes, the biggest thief is Inflation. It erodes the value of your money and depreciates it even if you leave it ‘safely’ under your pillow. Officially our inflation rate has been hovering around 2% to 3%, but that’s only the official rate. The actual rate may really be much higher. (Ask your self how much the prices of things have gone up in the past few months alone.)

An inflation rate of 3% would half the value of your ‘under the pillow money’ in about 24 years. So if you have $100,000 and are not investing it, you’ll still physically have $100,000 in 24 years, but you’ll be able to purchase only $50,000 worth of items with it then.

So the real RISK is not doing any investment with your money – you’ll definitely lose it in the long run!

If you have the time horizon of 15 to 25 years, you might consider investing in relatively safe instruments like unit trusts. Many have been able to give annual average returns of 8% and more (despite the bad years) in the long run i.e. 15 to 25 year period and NOT on a year on year basis.

They are safer because when investing in them you are placing your dollars into a large pool of funds. This is managed by experienced fund managers, who’ve done the proper due diligence and are armed with the most updated financial reports, valuations and information about the basket of companies, stocks or bonds they are investing in.

At a poker table, who do you think will always win – the guy with $1 to bet or the guy with $100million?

You still have to exercise due diligence though as not all unit trusts are safe bets. One way to be more certain is to invest in those that have been around for some time already and have consistently been performing well. Even if it did a meagre 7% is it definitely better than the paltry 1% that the banks are currently paying. At least your money will double in 10.2 years instead of the 72 years it’ll take with the bank at 1%.

Actually if the bank is paying 1% and inflation is 2.5%, your will never ever double your money much less see it grow in real value.

In a unit trust, you can always switch in and out of funds, while keeping in mind your risk tolerance profile and time horizons, into different types of funds, to maximise your returns. If you’ve invested in bonds and if that’s not doing well, you could switch into a managed or equity fund, provided it fits your investment horizon.

Again it’s good to check what kind of bonds and equity the fund is investing in. Whether they are blue chip equities, secured corporate bonds; whether they are narrowly focussed into one particular industry – which gives them great potential growth BUT exposes you to much higher risk, in general, or very widely spread across countries and industries – which then greatly reduces your risk but may also give you low returns in the long run.

And it’s not about timing the markets. Warren Buffet once said this about investing, “It’s about Time and NOT about Timing.” Markets have always and will always move up and down; that’s what they do. But in the long run (compare the performance of all major markets for the past 40 years, and you’ll see this trend) almost all markets have only seen an upward trend.

So invest when the markets are high and when it’s low – the key is regularity. In the long run it will only go upward*. (*This is based on the economics of our time – that price is directly proportional to demand.)

Retirement need not be about working

The thinking used to be that Retirement is a time when one no longer works and spends the days with friends, going on vacations and living it up; taking it easy, living full, meaningful lives.

Well for many however this is not to be. The increasing cost of living and the lack of any substantial liquid savings (as they are mostly tied up in the brick and mortar of their HDB flats) mean that we may have to continue working well into old age.

The question we should ask ourselves is if we are simply fooling ourselves, thinking we can be happily and gainfully employed at age 65; that we’ll contribute in any meaningful manner?

“I beg your pardon, I never promised you a rose garden,” is the order of the day and is the mantra being sung in some quarters, when you ask “What happened?”

Do you really believe that you will be employed in jobs you’re passionate about, or will you simply be working to survive, taking on any job that comes along? Will you have the stamina and health to work? And what can legislation really do, when maximising profits is the order of the day.

So what must you do now in order to be financially free in your retirement? Hunger leaves no Choice, it is said. But for now, you have to make some choices. One thing’s for sure – the Government’s dead set against taking care of your financial needs and have made it clear that the ball’s in your court.

Well, you have several options BUT WHATEVER OPTION YOU CHOOSE YOU MUST TAKE ACTION NOW!