Embarking on my $2 a day challenge

From now on, I decided to put away a purple note each day, as soon as I received it.

Even though Singapore is heading towards a cash-light society, it is still not uncommon to use cash for day-to-day transactions. For example, we pay for our food and drinks (probably at least 3 times a day) – a high probability at least one transaction will be spent in cash, and one of the following notes being used:

Why $2 a day?

A question many would pose is, why not $5? $10? Why not a few $2s?

$10 a day amounts to $300 a month, not a small amount at all when compared against the salaries of the lower income.

$5 note is more of a chance to obtain on daily transactions. Change is easily return in $2 notes and coins.

To get a few $2 notes in change daily is usually a hit or miss. But I can say with 99% confidence level that one would get at least one $2 note on daily cash transactions under normal circumstances.

To build up a habit of forced savings, it should be so routine and easy to comply that one does not have second-thoughts before doing it. The amount must both be manageable and easy to obtain.

What could $2 amount to?

After a period of savings, this is what it will amount to:

Time periodDollar amount
1 day$2
1 month$60 (assuming 30 days)
1 year$730
10 years$7300
20 years$14,600
55 years$40,150

Assuming the savings do not stay stagnant and are invested once annually with a 4% compounded returns:

Time periodDollar amount
2nd year$759
After 10 years$8034
After 20 years$21,008
After 55 years$138,816

Why 4%? We are taking CPF SA interest rate of 4% as a base reference, though we recognise that investment returns could be greater than 4% per annum.

I thought it is also a good way to educate forced savings or basic financial literacy to your child as well. You could help them out till they are financially able to contribute $2 a day with their own efforts. By inculcating this forced savings behaviour, a mere $2 a day or $40,150 savings over a lifetime of 55 years would become $138,816 due to the power of compounding interests!

Would you not want to take up this $2 a day challenge as well?

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I want to be an Entrepreneur

By now, it is not too hard to infer that I am a salaried worker or employee of a company. I have had thought about entrepreneurship before, though in a fleeing manner: being your own Boss, working at your own pace and time, greater control over your path in life and greater sense of satisfaction at work.

However, when most people think about embarking as an entrepreneurs or leave the company they are currently in to start work outside, what they really mean is to be self-employed or work for themselves.

There are differences between the following:

Professionals have studied and are working in their specialised field
Self-employed does everything
Business owners own and grow businesses
Entrepreneurs employ skilled people to do work

What does being a Professional entails?

Professionals are specialists qualified in their own fields. They could be your accountants, lawyers, doctors etc. They have to be physically there or else the business would not run.

A partner at an accounting firm could get his administrative staff to carry out some functions or his apprentice to help audit a customer’s financial statements. However without him signing off, the final report would not be valid.

What is also interesting is that a Professional can work at different professional levels depending on his drive. Let us take the case of a doctor. A doctor could attempt to climb high up the corporate ladder in his hospital. He could also choose to leave and open his own practice outside. The very same profession could also take on the role of CEO of a hospital or even CEO of a hospital group.

A Professional is only limited by his capabilities and drive at work.

What does being a Self-employed entails?

A Self-employed basically means a one-man show. You are your own hirer. If you work, you will income. Otherwise you starve. Most people who think hard about being an entrepreneur (like I mentioned above) really meant that they want to be self-employed.

Being Self-employed is the first step to being an Entrepreneur, as how we would see later in the article. The start from scratch is not easy. Without the administrative, IT, financial services etc. support of a corporate structure, you are basically left to run every single thing from sourcing and engaging potential customers, doing up and maintaining your own company website, filing your tax returns at the end of the year.

Of course you could choose to outsource some services, for example engaging a part-time accountant to verify accuracy of your annual financial statements or filing your taxes once annually. However, this will eat into your revenue and most Self-employed are “Jack of all trades” in this aspect.

The difference being a Professional and Self-employed is that the earlier has skills and expertise so niche that he could practically survive in the open market (whether as a freelancer, own practice or corporate world) due to market demand. A Self-employed is more generic, he could offer products and services so common in the market that he would have to stand out in his own niche to even have a decent market share.

Examples would include being a insurance agent, property agent, Grab driver etc. This is where my previous article comes in handy, which is the need to create value for your customer to stand out from the crowd.

What does being a Business Owner entails?

After some time, you would have matured and be more familiar with your business. You would have thought of expansion and scaling upwards, both in terms of your business and your team. There is only so much one person can do in 24 hours.

Like how Adam Khoo puts it, reserve your time for performing higher-value work and hired relevant people to take up the lower-value work for yourself. If you still know little about web design at this stage, hire a web developer. If you don’t know the difference between revenue, gross income or turnover, please do yourself a favor and hire an accountant.

A business owner reserves his time to focus on growing his business – more clients, more projects, more networking sessions.

What does being an Entrepreneur entails?

An entrepreneur is the epitome of this “career path”. By this time, you are considerably very matured in your business and able to run it freely with only some intervention needed at critical times. A good gauge is this, can you not meddle with your business for 3 months confidently and still hit the performance targets? No?

An entrepreneur who runs a childcare business in Singapore, or more specifically 2 childcare centres employs a principal in each of his centres. The principals are skilled staff who had worked their ranks up from being a childcare teacher through the years and have the necessary qualification and certification. They are left to run the run the show and submit quarterly reports to the entrepreneur for review.

Another entrepreneur runs a cafe business in several Singapore secondary and primary schools. He hires a manager for each cafe, who reports upwards to an area manager in the North, South, East and West regions. The entrepreneur receives a consolidated earnings report at each semester and plans his move for the next expansion. He sends his deputies to carry out spot checks at his branches to ensure consistency of the reports.

This is the level to hit to be considered an Entrepreneur. You dedicate downwards to the experts and concentrate on consolidating your businesses. Many people would stop here. Those who are more adventurous would go on to be an Investor of other people’s businesses or even ding philanthropy works.

Conclusion

The path to being an Entrepreneur is not an overnight journey. It is undeniably tough, some sacrifice their youth and family time. However, what I also observe is that these same people are usually the ones who are the most motivated and forward looking in life. All, if not for exceptions, are following through on their passion.

Before you start out and tender your resignation, consider this: Do you have what it takes to be an Entrepreneur?

Why are CPF LIFE monthly payouts for BRS, FRS and ERS not proportional?

A common misconception by many Singaporeans is regarding the Retirement Sum set aside in their Retirement Account (RA) versus what they “should be proportionately getting” in their monthly payouts.

There are three levels of Retirement Sum: The Full Retirement Sum (FRS) is two times the Basic Retirement Sum (BRS), and the Enhanced Retirement Sum (ERS) three times the BRS. These are subject to annual revisions to cater for long-term inflation and increase in standard of living.

However, why are CPF LIFE monthly payouts for BRS, FRS and ERS not proportional?

The first $60,000 of your CPF balances earns higher interest of up to 6% p.a. This is due to the

Extra 1% Interest, which is currently paid on the first combined $60,000 balances.

Additional Extra 1% Interest, which is currently paid on top of the Extra Interest on the first combined $30,000 balances for Singaporeans aged 55 and above

Logically speaking, does it not simply mean that the higher the interest rate on your principal amount, the higher the resulting returns?

With the extra interests, this means that the first portion ($30,000 at 6% and $30,000 at 5% interest rates) of your BRS, FRS and ERS will grow faster than the rest of the monies (at 4% interest rate) in the same BRS, FRS and ERS.

Hence when you start CPF LIFE monthly payouts at 65 years old, the first portion (in blue) would give you higher payouts of $790. In comparison, the second (in orange) and third portion (in green) which earns 4% interest rate, would give a lower payout of $660 respectively as it would not have grown as much.

Therefore, even though ERS is tripled of BRS and FRS doubled of BRS, your payouts do not proportionately tripled or doubled.

Retirement SumMonthly Payout
Basic Retirement Sum$790
Full Retirement Sum$1450
Enhanced Retirement Sum$2110

The above is based on CPF LIFE Standard Plan payouts computed as of 2019 for a male member

What does this mean for Singaporeans?

A progressive interest rate structure allows Singaporeans with lower balances to benefit more with a higher effective interest rate enjoyed as compared to members with higher balances. CPF savings for lower balances would grow faster than those with higher balances, resulting in higher payouts.

In short, Singaporeans should take advantage of the higher interest rates of 6% and 5% respectively by amassing their RA balances to be at least $60,000 as early as possible in life.

I have personally done this by making monthly OA to SA transfers as well as contributing small cash top-ups via Retirement Sum Topping-up scheme. Why not start a little at a time, today?

Are you Poor, or not?

Generally, Singaporeans have the perception that we are poor. With rising costs of living (think housing prices, healthcare costs, education fees) and widening income equality, it is right to presume based on comparison with yesterday’s standards.

Yet, are we that far off from the norm as proclaimed?

How does Singapore compare worldwide?

According to Credit Suisse’s 2018 Global Wealth Report, of the world’s population

Top 1% currently holds over 47% of global wealth. Minimum net worth of US$871,320 required.

Top 10% holds over 85% of global wealth. Minimum net worth of US$93,170 required.

Bottom 50% holds under 1% of global wealth. Minimum net worth of US$4,210 required to be richer than 50% of the world’s population.

Income of the 1 Percenters

Income standards could differ wildly in each country, depending on whose perspective you are looking at. The same 1 Percenters in oil-rich United Arab Emirates could be earning a stark difference to those in China, in fact almost 9 times more. For Singapore, the top 1% earns at least US$694,000 annually, faring much better against the rest of the world.

Singaporeans are number six actually, if we were to look at the world ranking of household wealth per adult.

World Inequality Database, Statistics Canada. All figures are in 2017 USD, adjusted for Purchasing Power Parity.

Taxes of the 1 Percenters

The only things certain in Life are Death and Taxes. Anyone who earns an income would usually not get to keep all of it. France currently has the most progressive tax rate against the rich with 45% on income well about €156,244. Taxable income for France includes earnings from employment, investments, dividends, bank interest, pensions, and property.

Singapore has a progressive resident tax rate ranging from 0% to 22% on annual net assessable income well above S$320,000.

KPMG, 2018

Expenses of the 1 Percenters

The “Rich” will lead a rich lifestyle, though cost of luxuries and amenities will be relative as well. What you pay for a luxurious bungalow in Singapore might get you slightly above a charming apartment in Monaco.

Knight Frank, Chamness WorldWide (2018)

Half of Singaporeans are the world’s richest 10% – 226,000 among the elite 1%

The term “top 1%” of global income may sound like an exclusive club, but the membership from Singapore alone is 226,000 Singaporeans. Out of the 226,000, there are 207,000 millionaire Singaporeans.

We are constantly being reminded of how prosperous nations like Singapore are compared to the vast majority of the others on the same planet.

Wealth Class divide

The issue is that the sharpest social divide now is based not on race nor religion, but on class – Wealth. Wealth refers to the overall value of a person’s entire assets, including income, disposable cash, investment instruments and property, minus all their debts, such as loans and mortgages.

The Institute of Policy Studies’ (IPS) Study On Social Capital In Singapore had a “revelation” in a 2017 study:

Singaporeans who live in public housing have fewer than one friend who lives in private housing.

Singaporeans who study in elite schools also tend to be less close to those in non-elite schools, and vice versa.

3,000 Singaporeans were interviewed in a first of its kind study on such a scale. Even with equal opportunities, society tend to gravitate or hang out with people “within their class”, which is worrying for Singapore as a whole.

We’ve done a pretty good job in fostering multiculturalism and mixing between ethnic groups, but maybe the next step now is to increase efforts to increase mixing between class groups

The results are apparent enough. The richer are not mixing around with the poorer. The smarter are not mixing around the the lesser.

Forward thinking

Should Singapore continue to be divided by wealth class? Is the low-income class doomed to remain in this class by generations to come? Will middle-income class never be “rich”? Are the high-income siloed in their ivory tower, forever?

Formal Education will make you a Living; Self Education will make you a Fortune.

Possessing a formal education like diploma, degree, masters or even PhD does not mean that he or she is adept in savings & investment as compared to a lesser educated Singaporean.

The case in point is that as long as one makes it a point to be interested and self-read, self-educate or self-motivate, he or she can still possibly amass a fortune amid small, over time. It is not hard nor complicated. With so many financial instruments in the market, study the one(s) that is of your risk appetite and level of interest.

Start small, work and think long term. Let the power of compound interest do the rest. Even for myself, my learning journey was not all that smooth. I had to really read and pick up knowledge, sometimes from my own personal experience. Some recent reads include:

My 21 Cardinal Investment Rules

Why I refuse to fall between the cracks during my retirement

Investing in UOB Gold

Take control of every dollar flow for your Monthly Salary

Maximising my CPF returns while I am young

Would you not start early, while you are young?

Create Value for your Customer or Boss

What is Value?

Value is the monetary, material, or assessed worth of an asset, good, service or work.

At the end of this article, there is a short video that I want you to watch which is enlightening to me on the delivering of value. I can relate it to the 2 articles on CPF 101 and CPF Hacks which I had written recently among all the other posts that I have written to share with the community. An article that has no value to your readers will have no readership over the long run.

Price is the conversation people have in the absence of Value

While I am not a salesperson, it is not uncommon to observe during the sales process, how people have a disparity between value and price. It is both interesting and intriguing to me. Customers always desire the cheapest, whether they are being illogical, irrational or unpredictable.

Everyone wants a good bargain, but do you look beyond that for good value instead?

There are usually many similar products in the market for the same objective. Think health insurance (7 Integrated Shield Plan providers). Think property (HDB 4-room, 5-room, Executive Condo, Condo etc). Think family MPV (Honda, Toyota, Mitsubishi, Kia etc). What if you are in the market with the only offer to customers is being the cheapest? Where is your value?

Personal Experience

One example I could fondly remember is when I was buying Hospitalisation plan for myself. I was focusing on prices among the 7 Integrated Shield Plan providers. My insurance agent was focusing on value. As a consultant, she understood my medical history and the first thing she did was to sell me on moratorium underwritten. The insurer was more costly as compared to others in the market. But I was sold. Now, that was Value.

What is moratorium underwriting?

With moratorium underwriting, applicants are not required to submit any medical history records. This underwriting method will not be available for new business application from 1 January 2019.

Under moratorium underwriting, no underwriting is required. Any new, unexpected medical conditions arising after commencement of life assured’s coverage will be covered, subject to the terms and conditions of the policy.

Other than the list of permanently excluded pre-existing conditions, pre-existing conditions can be covered after a continuous period of 5 years from the cover start date or reinstatement date or date of upgrade, whichever is later, provided the life assured has NOT in respect of that particular pre-existing condition…

As a customer, is searching for the cheapest the only objective in mind? Is there not a bigger picture to it? Let us take a look whereby being expensive is still sought after.

Perspective from Mercedes-Benz

While Mercedes-Benz is one of the more expensive car brands, it continues to be highly sought after among the top brands. Why is this so?

Mercedes motto: “Das Beste oder Nichts” which literally means – “the best or nothing”.

We talk about Value again, not Price.

Premium Parts
Mercedes uses only the highest quality parts for their vehicles. Most mechanics who are not Mercedes-Benz certified cannot fix these cars as the parts are too high quality, thus too expensive. The better the parts, the better the car.

Technology
Mercedes has a long history engaging in long-time research and development and using cutting edge technology in their vehicles. Innovative features for each new model is much appreciated by the consumers who is willing to pay at a price that is well worth it.

Quality & Consistency
Mercedes vehicles are generally made in Germany, even though production costs abroad might be lesser. Some people are still driving the same Mercedes Benz they first purchased in 1980s. Premium parts, knowledgeable factory experts, elegant craftsmanship and attention to detail has exalted Mercedes for its long-lasting cars that stands the test of time.

A Trustworthy Name
The above three has made Mercedes-Benz a household name for years and an epitome of luxury. Think VVIP, think Mercedes. Think chauffeured vehicles for important events, think Mercedes. Luxury comes at a price but promised quality, which is the value Mercedes offers its customers.

Customer Service
When you go next visit a Mercedes Benz dealer, whether it is for car servicing or purchase of a new vehicle, you can expect the employees there to be patient, dedicated and experienced.

There is no product too expensive, only the wrong customer. Would somebody walk into Lamborghini and say that a Toyota cost less?

As an Employee for a Company

How do we apply the concept of Value as an employee to the company? As a regular salaried employee who have multiple bosses above me, the concept of value to the organisation is even more so important to me.

If you are a salesperson, talk value not price.

If you are a salaried employee, talk value not workload or number of project hours or number of overtime hours or even effort spent.

Promotion and Bonus distribution

So your colleague is being promoted over you, or receives more bonus this year as compared to you. Is the reason being our colleague is more handsome? Is it because he comes to work earlier than anybody else, or put in more hours at work than others? I bet you not!

What he would probably have done was to have created lots of value for the organisation during this work year or that Bosses are well aware of the good work he is doing. Any talk on workload or number of project hours or number of overtime hours or even effort spent without the correlated value brought to the organisation is not going to ring bells on how good you perceived to be. If any, you might be ineffective, redundant or even pose a burden to the organisation.

Do not work in silo environment! More importantly, highlight what you have achieved to your Bosses! When your Bosses do not see what you are doing, they cannot assess your value to the company. Think email correspondence, presentation update, keeping them in the loop for major milestones. Asking them for their opinions, comments and inputs “forces them” to take a closer look at your work but in a good way.

Lastly, you might have “created a lot of value” during this work year. However, your competitors are stronger by creating even more value than you did. This is where you might have lost out at annual ranking exercises, but do not fret on macro-factors that are uncontrollable by you. Do your best.

10:04 mins onwards is a good watch. If you have time, you can watch the entire video. Inspiring!