by Leong Hiong Yee
Written from an interesting angle of a father to child, Leong Hiong Yee shares his personal take on managing finances.
My dear child
PF101 – Personal Finance 101 – is not a subject covered in universities. Learning to manage personal finance will be part of your lifelong journey. To ace this subject, you must have the willingness to learn continually and the (financial) discipline. Let me impart some valuable lessons to you.
First and foremost — filing. You might ask, what has filing to do with managing personal finance? Everything, my child. Being organised is the first step to managing your finances. A starting point is to keep at least two ring files; one for all your expense statements such as bills and the other for all your income / bank statements. You will then know which bills to pay, when to pay them and how much you have in your bank accounts.
Now for the five big-ticket items in your life: wedding, home ownership, children’s education, medical expenses and retirement. At the time of writing, I have yet to go through all of those phases. Nonetheless let me share with you my thoughts on these areas.
Your Wedding. Have a budget before you start planning. A wedding is a once-in-a-lifetime affair so the tendency is to overspend as you progress in preparation. A budget will keep the expenditure in rein. With the banquet prices inflating, your “ang bao” money might not cover the full banquet costs therefore be prudent. Have a budget that gives you an idea how much you can afford to spend rather than how much you can recover. Consider less expensive venues to hold the wedding. Church weddings, for example, can be more affordable.
Buy property you can afford to pay off soon. Presently the government is promoting asset enhancement through home ownership but I subscribe to a different maxim: “Your first property is a liability; your second property is the asset”. Let me explain. You and your spouse would need to live in your first home so you are unable to profit from it through rental or sale. If you have committed too much to your first property, you might end up servicing the mortgage loan right up till age 65.
That property would not be an asset but a “long term liability”. However, with a second property, you have greater flexibility to rent or sell. This second property becomes your “current asset”. Consider carefully when buying a house, do you want to work for the bank (loan) till your retirement?
Children’s education. Save up for your children’s education. The most financially draining stages are pre-primary schooling and tertiary education. Set aside funds for these stages especially for their tertiary education which would coincide with you approaching retirement.
Medical expenses can blow off your entire savings. Insure your family and yourself adequately against death, permanent disabilities, critical illnesses and hospitalisations. However do not over-commit to insurances since you cannot “double claim”. Meaning, most policies do not allow you to claim compensation for the same loss which you have already been compensated for by another policy. These days insurance and investment are intertwined, therefore be clear what you are getting, whether it is for financial exigencies or investment.
Retirement. At this stage of life, you’ll be dependent on your savings and the money in your Central Provident Fund (CPF). Plan ahead for retirement, estimate your monthly financial need and extrapolate that over your retirement years. If full retirement is not possible, consider semi-retirement. Take up a part-time job that you will enjoy working till you retire to the Lord.
To pay for the above 5 big-ticket items, you need to earn an income. I trust you won’t count on me for allowances when you’re an adult. Work for your keep as suggested in 2 Thessalonians 3:10. Once you start earning an income, I suggest you make the following financial allocations:
10% – Tithe. Giving the first fruits to the Lord (Levi 23:10). In the common prayer that we read during Holy Communion (1 Chr 29:14), we believe that everything we have comes from God. Give God the first 10% will also enable you to better manage the 90%. God will enable us to do more with less just as in Gideon’s story. Trust God on this, He will not shortchange you says Malachi 3:10.
20% – Savings. The financial experts say “pay yourself first”. The Bible teaches us to save during days of abundance. In Genesis 41:34, Joseph wisely advised Pharaoh to save 1/5, which is 20%, during the years of abundance. These savings go toward your big ticket items and your emergency funds. You may find it difficult to save 20% when you first embark on your career, but as your salary increases; adjust the percentage to 20%.
70% – Expenses. This is the amount you can spend, and I would advice you to spend it as follows:
Honour your parents by giving them pocket money (Mark 7:11-13).
Invest in yourself through further education beyond tertiary level.
Set aside money to travel. As the Chinese proverb goes “读万卷书不如行万里路”, loosely translated into “better to walk ten thousand miles than to read ten thousand books” . Broaden your horizon through travel, have fun but do come back home. We’ll miss you.
Do not buy things on impulse. Walk away from salespeople who do not give you time to consider and compare.
Buy things that are useful or have a return on investment. Don’t buy something that you think you will probably use in the future.
Lending money. At some point in your life, people may borrow from you. It is good to help others but be aware that to lend is easy to retrieve the loan is difficult. Be wise who you lend to. Yes, be prepared to write off the debt. God also teaches us to cancel debt in the 7th year cycle. Cancelling the debt will free both the debtor as well as the creditor.
Philanthropy. Singapore ranks low in the World Giving Index 2011 survey by Charities Aid Foundation (CAF). Consider giving to charitable organisations or making an anonymous offering (Matt 6:3-4) to a missionary or a fellow brother / sister in need. There is unexplainable joy from blessing others (Acts 20:35).
As I conclude, let me share with you the lesson I learnt from peanuts. Just starting out to work after studies, I had a meeting with a pastor over a simple dinner meeting. We had decided to go Dutch that evening.
While we waited hungrily for our food to be served, the pastor bought a packet of peanuts to share. He poured the peanuts onto a plate and said, simply and sincerely, “My treat.” As both of us shared the packet of peanuts before dinner, I learnt an important lesson about money that day. One does not have to be rich to share, simply give within means at the appropriate time and occasion.
So my child, take heed and use your money wisely but beware the love of money. The love of money is the root of all kinds of evil (1 Tim 6:10). Master money, be not a slave unto it.
Hiong Yee worships at the Saturday Praise Service. He is married but does not have children yet. He reckons that these are the financial advice he would pass on to his children in the future.
This article first appeared in Issue 4, April 2012 CHORUS Magazine.