By Lau (guest contributor)
(Or in Singapore terms, Cents Wise Dollar Foolish)
Recently I had sent a friend home and went up to his apartment for a short 20 minute drink. As Murphy would have told me, anything that can go wrong, will go wrong: Saving the trouble of tearing a 50 cent coupon cost me a $30 parking fine (Gentle reminder: these highly trained ninjas catch you when you least expect it).
Well, enough of my sad story, this experience led me to think about two couples in their late 50s I recently met.
Couple A were typical hard core savers. They worked hard their whole lives, paid off their HDB mortgage (which wasn’t very much since they bought their flat 20 years ago) and received a fair amount of CPF at age 55. They do have some cash savings since they have set aside their income consistently, and put it in fixed deposits as they do not wish to take any risk at all. However, they are afraid that the amount saved right now might not be enough to last as their children need their help for a head start in their tertiary education, wedding and housing. Hence, even though they are retired, they are still worried as interest rates are so low. So they are still working odd jobs just in case.
Couple B, have children too and are not “earning” as much. They too worked their whole lives and fully paid up their 20 year ago purchased HDB flat. For CPF, when the government announced many years ago that it could be used to purchase property, they jumped on the bandwagon and emptied their CPF into two private properties. At age 55, though they will not have much CPF to withdraw, they have two fully paid assets that have more than doubled in value. In addition, they do not have any worry about income as they have been receiving a steady stream of rental from the two properties.
“Earnings” is in terms of salary paid as an employee. However, inclusive of rental income, they will have more income overall than couple A.
Surprisingly, couple A is much more educated and earn a salary twice that of couple B. No doubt investing does carry risk, however, it is important to see the big picture. Scrimping and saving on day to day expenses but neglecting to properly manage your overall savings will cost you dearly in the future. What couple B did was risk and unsophisticated but it allowed them to be financially free.
Disclaimer, I am not saying that property is the best investment and is the only way to financial freedom. In fact, this may not prove feasible today with the high property prices, high COV vis-a-vis affordability. Just felt like sharing their stories and let everyone know that instead of being constantly tied down with everyday decisions on small expenses, some serious thought must be put into seeking a suitable path to financial freedom in the long run.
By guest contributor Lau of Living Healthy, Staying Wealthy, a blog that promotes the need to have a healthy lifestyle and wealth management through proper financial planning.
The challenge is to find out what asset class that we can invest in to achieve returns in a safe manner. Equities are still too volatile and there is some degree of timing.
Property worked for my parents generation as well because of the growth in population (especially foreigners/new PRs/citizens) driving up demand for housing. But the property bubble cannot continue upwards indefinitely as affordability is now a big problem for young people just starting on their careers.
Ultimately each of us has to find the appropriate path towards financial freedom which will differ a lot based on risk appetite, personal circumstances and income levels.
Be well and prosper.