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4-3-2-1 Approach to Financial Freedom

I speak to clients on a daily basis regarding management of their wealth. One common trend I observe is many people aspire to reach financial freedom at some point in their lives, but most are clueless how to get there. Financial freedom is the point in your life when your work becomes an option rather than a means of survival. In this article, I outline some broad strategies on how you can get started along this journey towards financial freedom. The 4-3-2-1 Approach Photo by Jason Hogan on Unsplash One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance. While this is by no means a hard fixed rule, it is a useful guide to ensure you are not over-allocating resources towards any one single area while neglecting the rest. For a young person who has yet to acquire the first property, the 30% for housing

5 Instruments to Build Passive Income

Dividend or income investing has been gaining traction in recent years, particularly with the FIRE (i.e. Financial Independence, Retire Early) movement amongst the younger crowd to build up a passive income stream towards financial freedom. In this article, I highlight some of the main financial instruments you can deploy to build up a passive income stream for yourself. Photo by Jonathan K├Ârner on Unsplash DIVIDEND STOCKS Dividend yielding stocks are a common tool for building passive income. In particular, companies in more stable or defensive industries tend to give out part of their operating profits in the form of dividends to reward shareholders. Dividend stocks tend to be less volatile than growth counters due to the dividend payout providing support for stock prices. As with all stock investing, a good knowledge of stock analysis will give you a better chance of picking out good dividend counters. REAL ESTATE INVESTMENT TRUSTS (REITS) REITs have been gaining popularity in rece

Should I Invest in Stocks?

Speaking to clients regularly on their investments, one common question I am asked is "should I invest in stocks?". The simple answer to this is "it depends". In this brief article, I hope to outline a few questions you can ask yourself to see if stocks are the right investment vehicle for you. Most people who turn to stocks are generally intrigued by the potential returns and maybe some times envious of friends who seem to earn insane returns from the stock markets. Yes, it's true. It's possible to earn higher potential returns from stock picking. The opposite applies. You can similarly lose a large part of your capital by picking the wrong stocks.  Here are 3 criteria I generally lay out to see if stock picking is for you. Photo by ben o'bro on Unsplash  1. Do you have an interest in stock analysis?  Stock picking generally involves in depth study of the financials of the company to determine if a particular stock is worth buying. Most people who do w

Tax Planning 101

The saying goes, there is nothing certain in life but death and taxes. Every year, we get a letter thanking us for our contribution to nation building. While I think paying taxes is an important part to the entire fiscal system, proper tax planning allows us to not pay more taxes than what is legally necessary. In this article, I highlight 3 simple things you can do to reduce your tax obligations while achieving other objectives such as retirement planning. Photo by Luca Bravo on Unsplash CONTRIBUTING TO THE SUPPLEMENTARY RETIREMENT SCHEME (SRS) The Supplementary Retirement Scheme (SRS) was launched in 2001 to encourage individuals to save for their retirement, complementing their existing CPF funds. You can open an SRS account with any of the 3 local banks (i.e. DBS, OCBC or UOB). This allows you to contribute a maximum of $15,300 a year to your SRS account for Singapore Citizens and Permanent Residents. Your tax obligation for the year of assessment will be reduced by the correspond

Essential Elements of Wealth Plan

While many tend to approach wealth management on an adhoc basis (i.e. implementing products off the shelf), I think there are merits to incorporate financial instruments at a more holistic portfolio basis. In this article, I provide an overview of what I believe are essential elements of a comprehensive wealth plan. Insurance or risk management tends to form the foundation of a wealth management plan, however, for the purpose of this article I will not include discussions on insurance and protection planning. Photo by Pietro De Grandi on Unsplash EMERGENCY FUND One key element of your wealth plan are your emergency funds. These are generally liquid assets which you can activate on short notice in the event of emergencies (e.g. unforeseen expenditure, retrenchment, etc). One trend I notice around emergency funds is that most people either have too little or too much emergency funds. I recommend around 3 to 6 months of income to be kept liquid as emergency funds. The risk of having too

Top 5 CPF Hacks For You

The Central Provident Fund (CPF) is a government scheme initiated to help members prepare for their retirement. Over the years, many initiatives have been introduced to enable people greater flexibility in deciding how funds in their CPF accounts are used. There are 3 accounts in the CPF, namely the Ordinary, Special and Medisave accounts. In this article, I put together the top 5 hacks you can do to ensure your CPF is well utilised. Photo by Rowan Heuvel on Unsplash 1. TOPPING UP THE SPECIAL ACCOUNT Starting with the Special account, the Special account currently earns you interests of 4% per annum. This is a decent return for something relatively lower risk. You can do a voluntary cash top-up of your Special account up to $14,000 per annum (maximum $7,000 for self and $7,000 for family members). Not only does this ensure you have more funds in your CPF during retirement, the cash top up qualifies you for tax reliefs when you do a voluntary contribution to your Special account up to