You Only Live Once

credit: http://www.flickr.com/photos/49568889@N08/7684077336/sizes/m/in/photostream/

I’m a HUGE fan of Lonely Island. Came across this awesome music video titled YOU ONLY LIVE ONCE, feat Adam Levine and Kendrick Lamar (who?).

I love it because it makes fun of people who take risk a little too seriously (“Two words about furniture: KILLING MACHINES!!”).

But while we scoff at the idea that we should stop going to clubs because loud music is bad for your ears, it amazes me that so many young people adopt that very same mindset when it comes to investing.

Here’s an interesting thought: Investing in the stock market is risky in the short run, but it’s the safest investment you can have in the long run.

The stock market is risky in the short run

Let’s tackle the first half of that last para first. Check out the returns from the stock market’s five worst years, from Financial Ramblings:

  1. 1931, -52.7%
  2. 2008, -33.8%
  3. 1930, -33.8%
  4. 1937, -32.8%
  5. 1974, -27.6%

So yep, in the very short term, buying and holding stocks is risky. Based on what history tells us, you could lose as much as half of your portfolio in a single year – Investors sure as hell weren’t popping champagne in 1931.

But it kicks ass in the long run

But it’s a very different story when you’re holding stocks for long periods of time.

Jeremy Siegel (whose classes I used to crash in college to leech off his market insights – woot woot!) argued in Chapter 2 of his book Stocks for the Long Run, that with a sufficiently long holding period, stocks are actually less risky than bonds.

According to Wikipedia, “During 1802–2001, the worst 1-year returns for stocks and bonds were -38.6% and -21.9% respectively. However for a holding period of 10-years, the worst performance for stocks and bonds were -4.1% and -5.4%; and for a holding period of 20 years, stocks have always been profitable.” Bonds, however, once fell as much as -3% per year below inflation.

In short, Siegel found that if you held stocks for 17 years or more, you never lost money even in the worst case scenario. 

Okay, so critics might claim that his findings are way too optimistic, and that the stock market’s prosperity in the 20th century may not necessarily repeat itself. But what’s the alternative? Investing in scammy gold buyback schemes?

The truth is, based on any historical record so far, the safest, and best, long-term investment for most young people has clearly been a diversified portfolio of stocks. Yes, even after you account for the stock market crashes in the past couple of years.

Young Heart, Run Free

And therein lies the awesomeness of being young and sexy – as young people, we have the luxury of having enough time. Enough time for a long career of earning money ahead of us. Enough time to hold on to our stocks without worrying about their fluctuations in any given day/month/year, knowing fully well that in the long run, we’ll come out on top.

So please. Stop getting intimidated by the stories of banks failing, and quantitative easing, and Justin Bieber’s Twitter account getting hacked. These are all short run risks (especially if you’re Justin Bieber), which are irrelevant if you’re holding out for the long term.

Take a little bit of risk in the short run to enjoy some awesomeness in the long run.

You only live once.

Image credit: TheOnyxBirmingham

Passive Investing: The Movie

Credit: http://www.flickr.com/photos/cheriejphotos/7158114527/sizes/m/in/photostream/It’s only 2 weeks into 2013 and I’m already swamped! These few weeks are absolutely packed for me, with work guzzling most of my brain fuel, and an upcoming work trip to Beijing. I’m also sticking with my 2013 goal schedule, as well as finding time to work on a free ebook (woot!) that will be making its way here soon, I promise!

So whenever life hits me with a gazillion things to do, I usually take things a little slower, kick back and do something chill like watch a movie. But because I’m a huge financial nerd, I get my kicks watching stuff like Passive Investing – an awesome 54-minute video on passive investing (duh) and why it rocks.

While there’re tons of books and articles written on the subject, I believe that this is the first time someone has made an entire documentary on it. The PF community has already been excitedly sharing it for a month or so now (yeah, I know, I’m a little late in the game.. my bad).

It features some of the biggest, badass (in a good way) names in the index investing industry, such as John Bogle, Kenneth French, William Sharpe, Burton Malkiel, and Rick Ferri. The production is pretty high quality, and there are summaries at the end of each chapter in case you get too distracted by the super strong British-newscaster accent.

So grab some popcorn, snuggle down on the couch, and enjoy 🙂

A caveat: While I agree with most of the concepts presented, I don’t fully agree with everything in the film. One of my biggest bugbears is their assertion that the Capital Asset Pricing Model (CAPM) is the “mathematical foundation of passive investing.” I won’t go into a snooty academic diatribe about the the flaws of CAPM here, but it suffices to say that you don’t need CAPM to hold in order to show that passive investing is still the best way to invest for most people.

Other than that though, the film is excellent. I also love how they display all the logos of actively managed funds throughout the film, subtly dissing the crap out of them without actually naming any names. It’s a little more subtle than my usual practice of pointing and loudly jeering at fund management ads displayed on the subway, causing people around me to move slowly away from me and whisper under their breath. I can only assume that they must be talking about how wise I am.

If you’re looking to learn a little bit more about passive investing but aren’t inclined to read a book, you could totally start here. It could be the most profitable 54 minutes you’ve ever spent. 🙂

Image credit: cheriej

The Ultimate Guide on What To Do With Your Year-End Bonus

Credit: http://www.flickr.com/photos/muppethouse/341714428/sizes/m/in/photostream/So last week, I had surgery to remove TWO of my wisdom teeth – one on each side. Now, if you’ve ever had your wisdom teeth extracted, you’ll know that the operation is relatively painless, but the aftermath hurts like a b****. Seriously. Try stuffing 2 golf balls in your mouth and you’ll get an idea of what it’s like. Owtch.

On the bright side, it left me with a surprisingly long SEVEN-DAY medical leave from work (Though I spent the first half of it writhing in pain). Pain or no pain, a weeklong break from work is awesome. I caught up on my sleep, reorganized my room, and watched like 20 episodes of Modern Family (which is awesome btw, go watch it).

How to Handle Unexpected (Nice) Surprises

A weeklong break from work is a nice surprise, and so is the other great institution of a regular job: the year-end bonus (or “13-month bonus” as it’s commonly known in Singapore).

It feels pretty damn awesome to receive a year-end bonus, even though it’s not really a true “bonus” per se. So what are you going to do with your year-end bonus this year? Here are 5 possible options:

1. Spend it – What most consumer sheep will do. “Ooh extra money! Time to buy an iPad/massage chair/goat NOMNOMNOMNOM” (coupled with crazed look in their eyes)

2. Save it – What most people will do with the remainder after they’ve purchased said iPad/massage chair/goat. Be sure to take your shopping home in a cab – the possibility of upcoming bus fare increases might leave you with a remainder of maybe $4.70.

3. Sock it into a tax-sheltered SRS account – What very few people will do but could save you hundreds of dollars in taxes next year, depending on your tax rate.

4. Invest it – What old uncles will do (also with crazed looks in their eyes)

5. All of the above – what I think you should do.

Credit: http://www.flickr.com/photos/nicubunuphotos/5296305774/sizes/m/in/photostream/This is what your bonus will look like if SMRT increases its bus fares

The All Of The Above Option

There’s really no reason why you should limit yourself to one or two choices with your year-end bonus. Instead, see your bonus as a way to give a boost to everything that will improve your life. Here’s how I’m allocating my year-end bonus this year:

1. Spend 10% of it on whatever I want – In true L’Oreal wisdom: “Because I’m worth it.”

2. Save 45% of it by adding it to the house downpayment fund

3. Sock 45% of it into my SRS account. Ta-dahhh: instant tax savings!

4. Invest the amount in the SRS account in a portfolio of sensible index ETFs

The great thing about this formula is that it lets me resist the temptation of overspending, meets my dual objectives of saving and investing, AND it saves me money on taxes next year to boot. Awesomesauce.

Do It Now

Most people get really ambitious when it comes to planning their time and money. We plan to use our time to get through our to-do lists, and we plan to save and invest our money.

But our plans inadvertently break down once time and money unexpectedly fall into our laps. Instead, we’ll spend our medical leave watching Modern Family, and squander our year-end bonuses on iPads which will probably become obsolete in 6-9 months.

Don’t make the same mistake as the other consumer sheep. Make a decision on the percentage of your bonus that you’re going to spend/save/invest. Then transfer the amounts to the relevant accounts immediately. If you’re reading this outside, set a reminder to do this once you get home. And if you’re home, do it now. If you put this off till later, you’ll run the risk of it disappearing mysteriously. Seriously. Do it now.

Are you done?

Okay, now you can go reward yourself with a couple of episodes of Modern Family. 😉

5 Surprising Truths About Investing in Real Estate

Singaporeans are absolutely crazy about property. Whenever I walk into a bookstore, I see shelves upon shelves of real estate investing books with pictures greasy men in business suits on the cover, wearing a big smile and screaming “I Got Rich Making Big Money Investing in Real Estate, AND YOU CAN TOO!!”

I hate those books. One day, I’m going to write a book with a naked picture of me on the cover, wearing nothing but a big smile and screaming “I Published a Book With A Picture of Me In a Birthday Suit, AND YOU CAN TOO!!” And I’m going to get the bookstores to stack ‘em right next to those damn real estate books.

I get really puzzled whenever I talk to someone my age about investing, and hear that they would rather “just invest in property”. Those greasy men in business suits can’t be that convincing, can they?

I’m probably going to piss off every single real estate agent in the world by writing this, but I can think of 5 reasons why real estate isn’t the best investment for young people:

1. Your first house isn’t an investment

Most people who buy a house more expensive than they can afford justify it by claiming that it’s an “investment”. Let’s be clear here – your first house is a place to live. It is NOT an investment. Even if your house rises in value along with every other house in the country, whatever you gained from selling your house would just go right back into purchasing another place to live in.

2. Property isn’t necessarily safer than the stock market

Most people think that property is “safer” that the stock market. But really, if you’re lumping ALL your savings into one house, how diversified is your investment portfolio, really? Compare that to investing in the Straits Times Index (STI), which immediately diversifies your investment into 30 stocks, each backed by a real, physical, blue-chip company.

By the way, you can lose money in real estate. Anyone remember 2008?

3. Property may not give you a better return than stocks

An SGX-led study showed that if you invested in Singapore property in 2001 and held it until 2010, you’d be worse off than if you had simply invested that same amount in the STI. Globally, stocks may or may not outpace real estate in any given year, but stocks have historically performed better than real estate over the long-term.

A New York Times article also described how real estate in the US has only barely managed to keep up with inflation, while stocks have risen comfortably above inflation for the past 200 years. As Yale economist Robert Shiller puts it, “from 1890 through 1990, the return of real estate was just about zero after inflation.”

4. Costs will destroy a large chunk of your returns

If someone bought a house for $250,000 and sold it 5 years later for $400,000, most people would think, “Great! I made $150,000!” But they failed to account for all the associated costs that go along with it: Taxes, agent fees, commissions, insurance, maintenance, stamp duties, renovation costs, furnishing, etc, which would add hundreds, if not thousands, of dollars to your monthly bill.

Let’s not forget the interest you’ll have to pay on the housing loan you took out, which is easily in the ballpark of tens of thousands of dollars. For Singaporeans, if you use your CPF to purchase a house, you’d have to pay back the amount you “borrowed” from CPF, PLUS INTEREST (It stands at 2.6% today, but it’ll rise once interest rates go up. I totally see the rationale of this policy from the government’s perspective, but am I the only one who thinks this is a crappy deal from an investing standpoint?).

The costs I pay for investing in a low-cost ETF? A commission of $25, and an annual expense ratio of 0.3% (For every $10,000 invested, that’s like thirty bucks).

5. Mortgages screw with your psyche

“Hey, let’s use other people’s money to get rich!”… is what most people would tell themselves before taking on a huge-ass mortgage.

Dude, a mortgage isn’t something to scoff at. It’s as full-fledged and serious a commitment as… marriage. Things change once you’ve got the ever-present threat of a monthly mortgage payment hanging over your head. You start to see things differently. Mortgages cause people to become way more risk-averse, and less likely to do things like finding a better job, starting their own business, and investing, even though those options may help them to become financially better off.

Think of it as a Big Buy – Not an investment

I’m not saying that real estate is a bad investment. You can make money from it if you already have 1) a house to live in, 2) lots of spare cash, and 3) a strong portfolio and are looking to diversify your investments.

But most young people don’t fall into this category. Instead, we should see our first property as a really, really, really large purchase rather than an investment. Think of it as a great way to build equity and start a family. But please don’t delude yourself into thinking that you’re going to get rich from it. If you’re just starting out, you’d be better off focusing on building a sensible portfolio of stocks and bonds.

Agree/disagree? Leave a comment or send me an email at cheerfulegg [at] gmail [dot] com. I’d love to hear from you, especially if you’re interested in publishing my birthday suited book cover.

The Great Index Unit Trust Hoax

Whenever I check into a hotel, I get really fascinated by just how crazy expensive some of the items in the minibar are.

One time when I was on vacation, I felt a little hungry so I lumbered over to the minibar and pulled out a pack of cashew nuts – just the regular kind you’d find at any convenience store. Just to be safe, I checked the prices before I tore the pack open, and involuntarily yelled: “NINE DOLLARS FOR A PACK OF TWELVE NUTS?! ARE YOU OUT OF YOUR FRICKIN’ MIND???”

It’s absolutely crazy how people are perfectly willing to pay several times the price for the EXACT SAME PRODUCT – a product that they could have gotten much cheaper elsewhere. We see this everywhere: a Nike sneaker vs a non-branded one, Tropicana orange juice vs a house brand, and beer that costs $12 in a restaurant and $2.50 in the supermarket.

A pack of nuts from the minibar might do a little damage to your wallet, but it’s nothing compared to the damage a unit trust (also known as a mutual fund for my American friends) could do to your long-term wealth.

Costs Matter

I’m not even going to discuss actively managed unit trusts with their high management costs. Nobody takes those seriously anymore – There’s more than enough research that shows that as a whole, actively managed unit trusts are a terrible choice compared to index funds.  Check out here and here.

Today, I’ll just uncover a pricing anomaly I like to call The Great Index Unit Trust Hoax, which involves 2 unit trusts being sold to Singaporean investors. Both charge exorbitant amounts to essentially help you invest in portfolios that you could have easily put together yourself… at a fraction of the cost.

To Infinity… and Beyond!

Exhibit A is the Infinity US 500 Stock Index Fund, which is supposed to help you track the return of the S&P 500. To accomplish this, it hits you with a whopping 0.98% expense ratio.  Now 0.98% may not sound like too much of a big deal, but try compounding that over 30 years and you’re talking about a difference of tens of thousands of dollars of extra cash that’s coming out of your pocket.

But hold on – there’s another, cheaper way for you to track the return of the S&P 500 on your own. You could buy an ETF from Vanguard, which gives you the EXACT SAME RETURN, while charging a mere 0.05% expense ratio. This makes the Infinity unit trust almost 20 TIMES MORE EXPENSIVE than the Vanguard ETF. Yeah, I know.

Home Sweet Home… For 4x The Price

Okay, I hear you say, so maybe that’s a problem unique to the USA.

Oh wait, it’s not.

Presenting Exhibit B, the patriotically-named unit trust MyHome Fund run by Singaporean asset management company Nikko AM. It invests in 1) an ETF tracking the Straits Times Index and 2) the ABF Singapore Bond Index Fund ETF. They’ll charge you a ridiculous expense ratio of 1.2% for all their hard work.

But wait! Did you know that you could totally log onto your online brokerage and invest in 2 ETFs which track the EXACT SAME THING for a fraction of the cost? Namely:

1. SPDR Straits Times Index ETF (SGX Ticker: ES3) – Expense ratio: 0.30%

2. ABF Singapore Bond Index Fund ETF (SGX Ticker: A35) – Management fee + trustee fee: 0.20% (I couldn’t find an exact figure for the total expense ratio on their website – those sneaky bastards – but it shouldn’t  be too far away from the sum of these 2 fees).

Total weighted expense ratio: 0.28%

Ta-daahh! You’ve constructed the exact same product, at a quarter of the cost. And that’s not taking into account sales charges, redemption charges, front-end charges, admin charges, and hire-an-attractive-banker-to-convince-you-to-part-with-your-money charges.

Do Yourself a Favor

My point here is to always, always, read the fine print. The finance industry loves to play down details like these because it means higher commissions for them – commissions that come right out of your pocket.

If you plan on investing passively, do yourself a favor and skip out on the unit trusts. You’re way better off buying the equivalent ETFs instead. Of course, there are a few disadvantages in buying ETFs (eg brokerage commissions, currency exposure, inability to invest in small amounts), but they can be easily circumvented (eg investing regularly using no-minimum commission brokers,  or in the case of the STI ETF, setting aside an amount every month until you can afford one lot). None of the disadvantages of ETFs justifies the tens of thousands of dollars you’re giving up in expenses if you invest in unit trusts.

It would be totally awesome if a reputable fund provider like Vanguard would set up an index fund in Singapore (are you reading this, John Bogle?), which would eliminate all the disadvantages in the para above, and yet charge a reasonable expense ratio that doesn’t require us to give up our first-born child.

In the meantime, stay smart and read the fine print. Save your money for those overpriced cashew nuts from the minibar. At least they’re tasty.

How to Hide Money Like a Criminal Mastermind

Let’s do a little role play. You are an international criminal mastermind, wanted by the authorities in 14 countries. Your crime ring has prospered, earning you an obscene amount of money. You could buy over a small country (or attend a Mitt Romney fundraiser) if you wanted to. You’ve also covered your tracks well. The police have got nothing on you, so they’re targeting the easiest piece of evidence they can find – your money.

Tipped off by your trusty financial advisor, you move your money in small parts to a secret bank account in the Cayman Islands. By the time the police crack open your “official” bank accounts, they can’t find anything to charge you with. So once again, you escape scott-free… and tax-free.

The awesomeness of tax-advantaged accounts

Death and taxes are the only 2 sure things in life (That, and the fact that you can never find your keys when you’re late for work on Monday morning).

You can’t escape the first, but you can totally lower the second… legally. You may not have a secret Cayman Islands bank account, but the governments of the world, in their benevolence, have offered the next best thing: tax-advantaged accounts.

I’ll talk about tax-advantaged accounts for Singaporeans, or people living in Singapore, in this post. Americans, you already have more than enough information out there on your tax-advantage accounts – Google it. (Hint: Sign up for a 401k and contribute enough to max out your employer match. You guys are so lucky).

Singaporeans – you have a little-known account called a Supplementary Retirement Scheme (SRS). The SRS is sort of like a beautiful exotic girl who’s been hidden on an island. She’s got a weird-sounding name, not many people have heard of her, but she’s got huge… benefits.

The photographer claims that the girl just *happened* to walk into the shot and he just *happened* to press the shutter. Honest!

Why the SRS is awesome

1. It gives you tax-benefits

Think of the SRS as your own secret tax-free bank account for you to stash a whole bunch of moolah in. Every dollar you contribute into that bank account reduces your taxable income by a dollar.

So if your tax rate is 7%, contributing $12,750 a year effectively saves you $892.50 in taxes every year. Ta-dahhhh, you just earned your next weekend getaway vacation! You’re welcome.

It’s purely voluntary, meaning that you can contribute any amount you like, up to a cap of $12,750 a year (Yeah, the government realizes how awesome this is too, so they’ve gotta put a limit on how much you can screw them over by not paying taxes).

 2. It boosts your investments

What are you gonna do with all that money you’ve put into it? Don’t be a kuku and just leave it sitting there (remember my post on Don’t Save For Retirement?). Instead, invest it – preferably in a couple of index-based ETFs – and let your money grow absolutely tax-free.

There’s also a hidden benefit to investing that cash. By not paying $893 in taxes, that means that you’ve earned a guaranteed 7% return on your $12,750 for that year (ie: if you invested that $12,750, your investment would have had to grow by approximately 7% just to match the tax savings).

If you can resist the temptation to withdraw your investments till you’re 62, you’ll only be taxed for 50% of the prevailing tax rate. That may seem annoying at first, but ask yourself:

Would you rather pay 1) a 10% tax on $100,000, or 2) a 5% tax on $1,600,000? (Hint: The answer is option 2).

Sure, option 2 entails you paying more in taxes, but it also means that you have ONE POINT FIVE MILLION DOLLARS to play with after tax. Paying more tax is a good thing – it means you’re richer. By not paying tax initially and deferring it till the end, you’re effectively allowing your whole amount of cash to work harder for you. 

3. It’s flexible on withdrawals

Unlike CPF, you’re allowed to withdraw your cash pretty much anytime you like.  It’s meant to be kept till you’re retired, but if you really need the cash before you’re 62 you’ll have to pay a 5% penalty and get taxed for 100% of the rate (The penalty is waived if it’s withdrawn in the event of death or medical cases). It’s annoying to have to pay those, but at least you still get access to it if you really need it for an emergency.

“What are we gonna do tonight, Brain?” “The same thing we do every night Pinky… Try to open a TAX-ADVANTAGED ACCOUNT!”

How to set up your own criminal mastermind account

1. Contact any one of the three local banks (DBS / OCBC / UOB) to set up an SRS account. If you already have another savings account with those banks, you probably won’t even need to visit the branch – just download the application form from their websites. If you’re Singaporean, all you need is a copy of your NRIC.

2. You won’t even need to make a claim in your annual tax return – it’ll be automatically done for you through your SRS operator. Yay to #FirstWorldAwesomeness 🙂

3. If you’re a foreigner living in Singapore, the contribution cap is different, but all of the above apply to you too. You’ll also have to submit an annual IRAS declaration form.

And finally…

Congratulations – you’ve now embarked on your journey towards being a world-class, financially-savvy criminal mastermind. So if you’ve got nothing to do tonight, maybe you can try to TAKE OVER THE WORLD!

Don’t Save For Retirement

It is close to midnight on December 29, 1972, and Eastern Air Lines Flight 401 is making its final approach to Miami International Airport. 163 passengers are onboard, most hoping to enjoy their new year in sunny Miami.

As it approaches the airport, the landing wheels are lowered and locked into position. At this point, the captain notices something amiss: the green light linked to the landing wheels has failed to light up. This could mean one of two things: Either the wheels have failed to lock into position, or the light is faulty. The pilots report the situation to Air Traffic Control, who orders the plane to circle back and try their descent again.

At this point, the pilot and co-pilot fixate on the light. They take it out of its fitting, blow on it to remove dust, and try to jam it back. Their conversation goes back and forth as they try to figure out what the fault is. They become so fixated on the light, that they fail to notice the 300-pound gorilla in their midst.

The gorilla, in this case, is the fact that their autopilot is disengaged and that they are rapidly losing altitude. They don’t notice that they are dropping rapidly because it is a moonless night and they can’t see the horizon. The altitude warning alarm rings through the cockpit and the altitude meter is dropping crazily, though neither pilot notices. They are too fixated on the light. Only when the aircraft is 7 seconds to impact, do the pilots realize that something is very wrong. They take evasive action, but it’s too late. The plane crashes, killing 101 people.

Crash investigators later found that the wheels had indeed locked into place – it was the light that was faulty. “The crash occurred due to the failure of a $12 piece of kit,” one journalist pointed out. However, the true cause of the crash was deeper than that – it was the pilots’ fixation on one particular problem, which blinded them from the true danger they were in.*

*story taken from Bounce by Matthew Syed

What other gorillas are you failing to see in your life?

Like the pilots who were overfocused on the green landing gear light, most people are fixated on one goal when it comes to personal finance: retirement. They believe that in order to retire, they need to hoard as much cash as possible, starting now. But they fail to realize the huge gorilla charging towards their bank accounts: inflation.

Two posts ago, I wrote about how inflation would slowly but surely destroy the buying power of your savings. If you’re young, letting your cash sit in your bank account (or in your fixed deposits / CPF / mattress) is like putting it in a nest of termites: it’ll eventually get eaten up.

So here’s my advice when it comes to inflation: Don’t save for retirement.

Say what?

Hear me out for a second. If you’re young and wild and free, there are other, more important things you should be focusing your attention on. Instead of saving up for “retirement” and getting a lot less bang for your buck, there are three more useful things you should be directing your money towards:

1.Save for assets

The best way to tackle the inflation gorilla is to put your money into assets that will grow faster than inflation: Stocks and real estate. Stocks are the most accessible because they don’t require a huge cash outlay, they’re easy to understand, and if you live in Singapore, they’re tax-free. Woot woot! Real estate is pretty nifty too, if you can afford the huge downpayment (or if you can’t afford the huge downpayment, you can also look into REITs – more on that later).

The biggest bonus of all is that if you plough your cash into assets that exceed inflation, you will, in fact, be prepping yourself for retirement.

2. Save for life chapters

Here, I’m talking about big, life chapters that you were planning on spending on regardless of what happens. I’m talking about your wedding, your first house, and your daughter’s upcoming college fees. If any of these are going to be happening within the next 10 years, then you should be saving up for them. Don’t act as if you didn’t know they were coming: If you know you’ll be getting married in 3 years, you should be saving up for your hypothetical $30,000 banquet and $15,000 ring… now.

A caveat: I’m not talking about cars, or vacations, or that new washing machine, that you “know” you’re going to spend on anyway. I’m talking about the big, necessary, life chapters here, people.

3. Save for emergencies

Sh*t happens. You’ll need cash to deal with it. If something bad happens, (like losing your job) the last thing you want is to be dipping into your investments to pay for your meals. If you don’t have an emergency fund of 3 months of income parked in an easily accessible bank account, then you should totally start saving up for one now.

In short…

Don’t bother saving for retirement – inflation will render your efforts futile. Other than cash set aside for emergencies and stuff you’re going to spend on within the next 10 years, everything else should be directed towards assets – Assets that keep pace with inflation. If an insurance agent / banker tries to sell you a fancy schmancy 50-year savings plan, run as fast as you can.

Don’t get too fixated on the wrong things. Just because personal finance “experts” tell you that you should be saving for retirement, doesn’t mean that you should be blindly stuffing cash into a bank account. Keep an eye out for the inflation gorilla in your midst, and take action to deal with it.

PS: the topic for this post came from a friend who replied to my previous post on spending money. To everyone reading this, keep the comments coming! They totally give me the inspiration for future blog posts.

As a young person, what do you think about the 3 ways you should be putting your money towards, instead of saving for retirement? Leave a comment, or drop me an email at cheerfulegg@gmail.com. Hope to hear from you soon 🙂