Commencing your new life (Part 2)

Damon Darlin of the New York Times (yes, I know, it is my favourite reading and if it wasn't for NYT, I will be struggling for materials) wrote recently about financial planning for the young graduates. I agree with him that even though you thought you are the smartest person in the world when you graduated and you have managed to get your first job already, you need to know how to manage your salaries. I mean seriously, most of us have never handle that much money before and suddenly you earn this much and everything that was probably on your wish list is now on your shopping list. But do that and you are looking at the poorhouse when you retire. Like Damon said, if you think it is tough living on very little now, imagine what it will be like when you are old and sick.

It is well known the current savings under TAP will be inadequate, no matter how hard my former investment officers at TAP work to get good returns. The amount of contributions are way too small. So you have to take up the retirement savings slack yourself. This can be done via many Small steps which surprisingly can make a big difference over the first 10 years of a working life.

The easy stuffs - not so easy but easier than the harder stuffs which you will read later on:-
  • Stop taking coffees at Starbucks (oops, no Starbucks in Brunei), Coffeezone then. According to NYT, saving $3.50 a day will let you have about $11,500 in 10 years;
  • Stop smoking - you will save $25,600 over 10 years;
  • Learn to cook - any takeaway and fastfood restaurant will cost you about $10,000 over 10 years;
  • Learn how to pack a lunch - this will save you around $23,000 in 10 years.
Now, the harder stuffs:-
  • Keep 10% of your salary in a savings account separate from the rest of your money - make sure it is not connected to a cheque book or an ATM card - in other words, make it harder for you to take it out, so you will be less tempted;
  • Make sure you save money in a private retirement fund - forget TAP, forget insurance savings - put it in a proper retirement fund - the earlier you start, the more you have;
  • NYT gave an expert bit of advice: Stick the money in the broadest stock index fund offered by your plan, not bonds and not a money market fund. Sure, the markets may stumble at some point during the next 45 years, but history has shown that they will rise over a period that long. You take risks when you are young;
  • Ignore your raises every time you get a raise, and you'll get them because you are working hard instead of spending money you don't have, pretend you didn't get one. Bank in the entire amount (one of my PS says his monthly budget is still based on the assumption that his salary is $2,000 - he earns 9 times more now);
  • Don't borrow to buy depreciating assets - since almost every consumer product from an iPod to a sofa is worth less the moment you buy it - Use cash and do not use credit cards or bank loans as you will pay more for something that is becoming lesser in value. If you can't afford it, don't buy it. (probably an exception is a car);
  • Protect your credit - you will need to borrow later on so by having good credit history - the banks might be willing to lower their interest charges - and also pay all your credit card bills and carry no balance;
  • Cut down your ATM withdrawal to once a month - take just enough cash to last you - you will cut down on incidental expenses;
Over time, you'll start spending the money. It's human nature. But you'll start spending it more slowly. You'll keep the car another few years. You won't immediately move to a new apartment. All that helps money to accumulate. The psychology is - having less to spend can help you spend less on frivolous things and save for worthwhile causes. Having less will also make you work harder to get more. If you are comfortable, you get complacent. My free advice of the day.

Comments

Hafizah said…
Mr BR:
-Make sure you save money in a private retirement fund - forget TAP, forget insurance savings - put it in a proper retirement fund - the earlier you start, the more you have;.
What's a retirement fund?How to get one?
Anonymous said…
"NYT gave an expert bit of advice: Stick the money in the broadest stock index fund offered by your plan, not bonds and not a money market fund. Sure, the markets may stumble at some point during the next 45 years, but history has shown that they will rise over a period that long. You take risks when you are young"
And this too, how to start?
unharm6187 said…
Ever since I'm came to Brisbane, I noticed how, in general, young people plan their finances very early. Students work part-time/full-time to get extra income. They save their salary for travel holidays, cars etc. Couples plan their financial matters together from the moment they move in together. They save up for marriage & beyond. When they have a stable flow of income, they save more for their kids' future - from birth to university.

Perhaps I'm not observant enough while I was in Brunei, but I don't see people doing this kind of financial planning. What I do see is a lot of people spending more than necessary. It rare to hear parents teaching their kids how to plan. But it is quite common to hear people say "tunggu terima" and see people borrowing a lot of money, which they find it hard to pay back on time (and, might I add, borrow off some more from someone else).

I suspect living in luxury (thanks to the black gold) give the impression that Bruneians can afford to spend more than what is wise; that it is okay to borrow loans and defer payments; and there will be no need to save for a rainy day for the government will always be there to help (if not the government, there's always the wealthy relatives/friends/acquaintance).

Sad. We're such a rich country and careless spending will be our undoing when the oil runs out. No matter how much money we have, how certain the income flow is, how good the economy looks, unexpected things can happen and spending unwisely can get us into trouble. I shall refrain from mentioning Amedeo here.
Anonymous said…
Hi Hafizah...A retirement fund is any savings you put away for your retirement. So its not so much as to how get one but rather how to build one.

You can start your own retirement fund by opening a saving account and that account is specifically for your retirement - not for monthly expenses, not for children's education but for your retirement days - days when you no longer working usually age 50 and above.

Deposit in it like you would for TAP, that is on a monthly basis - consistently 10% or more every month. Like in the article dont even get an atm card. Best to forget about it completely till maybe you've reached 55.

A retirement fund is what you make it to be.. so it can be a mixture of savings and investments. So long as you use it for your retirement days. That's all!

Hope that helps :P
Anonymous said…
Hi Anonymous

You can start by googling - What is a mutual fund? What is a unit trust? Understand what it is before you venture into it. Understand what you will get out of it and understand you risk tolerance.

Index fund is a form of mutual fund. So understanding what a mutual fund is beneficial first hand.

Brunei has several companies issuing mutual funds.. would be good to find out from there too.
Hafizah said…
thanks for the reply, anonymousII:)
Btw, I must say I sure am a katak bawah tempurung cos even this i don't know:"Brunei has several companies issuing mutual funds.. would be good to find out from there too."
So the qn is, which companies?Do they include banks?
To tell the truth, I only have the regular savings account with IBB.And I've been thinking of ways to increase my pitiful 'eggs', and not just in the IBB savings basket.So details would be pretty helpful for me to follow.
TAP does a periodical financial planning seminar, you can contact them to know when the next session is. I have kept the first two sets of the powerpoint presentations during the financial planning seminar on http://bruneiresources.com/financialplanningseminar.html that you may want to access to. it will tell you about investments both in the non-Islamic and Islamic finance.
Sorry, the link to the financial planning seminar powerpoints should be:-

link here
Anonymous said…
Hi Hafizah,

The link Brunei Resources gave is a very good link to get a better understanding of managing your finances.

Many of the banks have Mutual funds. Believe it or not even where you bank! Just find out from them and again do your own research. As usual financial institution carrying this will sell you anything especially if they know you dont know much about it. So best to google what is mutual fund and find out how it can benefit you.

There are other avenues like you say savings. Maybe you can start by finding out which savings account among all the banks give the highest interest/dividend rate?? Who knows other banks give higher than IBB?? who knows. If you do know do tell Pleaseeeeeee....

Also Cheers to BR! Honestly I get a lot of resources from your site. Every day I learn new things about Brunei thanks to you :)

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