How to Master Your Finances?

[Dennis Ng]

This issue’s topic is “How to Master Your Finances?”. This is a summary of what was discussed in the First episode of Financial Talk Show “Li Cai Zhang Men Ren” on 3 July 2007. This is a one-month program on Capital Radio 95.8 FM, every Tuesday 4.15 pm to 5 pm. This program will end on 31 July 2007.

Each week we will discuss a different topic. The program is conceptualized by both myself and Capital Radio 95.8 FM DJ Lee Jeng.

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Cheers!

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

How to Master your Finances

Who is “Li Cai Zhang Men Ren”?

DJ: many listeners might be wondering why is this program entitled Li Cai Zhang Men Ren, so is the Zhang Men Ren Capital Radio DJ Lee Jeng or Certified Financial Planner, Dennis Ng?

Dennis: we want to educate the public and the objective of the program is to empower listeners to learn how to “master” your finances, thus, each and every listener would be empowered to be the “Li Cai Zhang Men Ren” of their Households. That’s why we named the program Li Cai Zhang Men Ren.

DJ Lee Jeng: Dennis, What is Financial Literacy to you?

Dennis: One aspect of Financial Literacy is for you to know how to “look at numbers” from the right perspective.

For instance, when members of the public were interviewed about the changes in GST from 5% to 7%, most of them said that the increase is marginal, just a 2% increase, not much of an impact.

DJ Lee Jeng: yes, that’s how most people view the GST increase, so is there anything incorrect about this view?

Dennis: certainly. Because when we look at “increment”, basically we use the latest GST rate of 7% to be divided by the original rate of 5%, if we do so, the ACTUAL percentage increase in GST is not 2%, but 40% instead!

Similarly, when coffee shops increase coffee prices from 80 cents to 90 cents, the increase is not 10% but 12.5% instead. Thus, one key step to Financial Literacy is to learn how to look at numbers correctly.

DJ: What good news were announced in Singapore recently?

Dennis: one good news is CPF Contribution by employer is increased from 13% to 14.5% from 1 July 2007. If we use an example of a person earning S$2,000 a month, the actual increase in CPF contribution per month is about S$30 per month.

DJ: yes, this is good news, but the increment is not exactly a lot.

Most people overlook the Power Of Accumulation and Compounding
Dennis: another thing most people overlook is the POWER of ACCUMULATION and COMPOUNDING. Yes, the increment of S$30 per month does not seem like a lot, however, in actual fact, over a period of 30 years, this represent additional RETIREMENT funds of S$16,061! More than 50% of Singaporeans do not even have $50,000 in their CPF account when they retire at age 55. Thus, this “small” increase in CPF actually can help them boost their retirement savings by a not insignificant S$16,061! And if this person invest this additional CPF and earns 4% instead of 2.5%, the increment would be S$20,821, or an additional of 30% compared to leaving the money in CPF Ordinary Account.

Thus, most people IGNORE the fact that each little bit of savings and money can actually be the seeds of a MONEY TREE if you allow the seeds time to grow into a tree.

For instance, when I was born, my family is actually quite poor. However, my mother is a very frugal person and very disciplined in savings. She managed to nurture all 6 of her children and even planned enough for her own retirement, not from earning big bucks, but all through just disciplined savings.

I remembered when I was about to enter university, my mum passed me back a savings passbook to me. She said this savings is what she saved for me all these years and she is passing it back to me since I’m grown up and know how to use the money wisely. It was like over S$10,000, (I know some of you might say it is just “peanuts”). However, when I looked through the passbook, I realized the money was accumulated over a long 20 years of time, with deposits as low as S$10, S$20…..so basically, my mum saved on a regular basis, about S$30 per month and the money grew to over S$10,000.

The morale of the story is that you don’t need to start saving a lot of money, just a little on a disciplined basis and it can amount to something over a period of time. So for all those people out there who give excuse you don’t have much money to save, well I guess now you have no more excuse.

DJ: some people complained that prices of most things in Singapore seem to be rising, coffee, GST, taxi fare etc, etc?

Financial Literacy: Learn how to focus and TAP on opportunities to grow Richer
Dennis: well, most people only focused on 1 side of the coin. On the other side of the coin, Singapore’s economy is growing by more than 5% in the last 3 years, many foreigners are attracted by the many opportunities in Singapore and are coming to set up business and buy properties. Property market has recovered, in fact prices increased by more than 20% in last year itself. Imagine if your house was worth S$400,000 1 year ago, now it is worth about S$500,000, or in other words, your NETWORTH has increased by S$100,000 without you doing anything at all.

Many Singaporeans are “blind” to the opportunities in Singapore. For instance, the Company tax in Singapore is only 8.5% for companies with Net profit of below S$300,000 a year, this is possibly the lowest in Asia, even lower than Hong Kong. Many foreigners are attracted by the opportunities in Singapore. The question Singaporeans need to ask themselves is how can we tap on the opportunities in Singapore, rather than just focus on the price increase of some of the things.

DJ: thank you Dennis for sharing with us some useful tips on Personal Finance today, next week we’ll discuss about Singapore Property Market Outlook, stay tuned.