How I started on my personal finance journey
12th Jun 2021
Friends of mine would probably describe me as a personal finance nerd. The moment someone brings up insurance, savings, or investments, I will find it difficult to keep mum about the topic.
However, I wasn't always that savvy about my finances. While I was still schooling, I often frequent Starbucks and Coffee Bean to study, despite only receiving a daily allowance of $6. Towards the end of A levels, I remembered only seeing less than $30 in my bank account. Even after I enlisted, I would spend most of my NS allowance on cafes and who knows what else.
So, how did I end up where I am today?
The truth is, I have absolutely no idea.
The first time I came across the concept of investing, was during my second year in the army when a friend of mine brought up an endowment plan he bought in a casual conversation. It sounded like a great idea to me. Save a bit every month, and get back some returns after X years. I immediately went to sign an 8-year plan with NTUC, thinking that I can commit to paying the premiums for 5 years. Little did I know, that would be my first mistake in investing, but more on that later.
For some reason, something clicked inside me. From then on, I slowly read up more on investing, savings and insurance. I didn't spend countless hours on it, but the little time I spent on it every now and then accumulated. Eventually, I signed up for a regular savings plan (RSP) with POSB to invest some amount of money in the STI ETF every month.
On that note, I'm not sure why people shit on the STI ETF so much. Sure it's not as fantastic as the S&P500 but it still has its merits. If you look at the STI during 2003 - 2008. You'll see that it did very well.
But I digress.
Soon after, when I was in university, I started investing through robo-advisors and a brokerage, and later I interviewed to be a Seedly ambassador. Nowadays I think I'm the go-to for tips on personal finance.
This is not to say that I'm a subject matter expert on personal finance. What I'm trying to get at is that it took a long time before I got to where I am today, and I want to encourage those who still haven't started, that it is okay to feel intimidated, because it is intimidating.
The good news is, just like investing, your knowledge also accumulates and compounds. You just need to start. I previously wrote an article on Seedly about learning how to invest. You can view it here: https://seedly.sg/opinions/learning-to-invest
In general though, even for other topics like savings and insurance, try to understand the broad terms first before delving into the specific concepts. These are all very heavy topics, and it can feel like you're going down into a rabbit hole. I figured that a better approach is to glean the surface first before carefully digging deeper.
For example, if you want to find out more about health insurance, it might be useful to first find out what Medishield is doing, before delving into the solutions that private insurers are offering, especially since private hospitalization plans build on top of Medishield.
Mistakes to Avoid
Of course, it isn't adulting if you aren't making mistakes along the way. I imagine it would be useful to list some of my mistakes here for you to learn from.
1. Committing to an investment you can't afford
I mentioned earlier that I signed up for an 8-year endowment plan, with a 5-year premium period. This turned out to be a mistake in hindsight.
I initially thought I would be able to do part-time work during school to pay off the premiums. However, my course turned out to be much, MUCH more difficult than I thought, and I didn't have the capacity to earn an income along the way; I had to focus on my studies.
As a result, I had very little cash at hand, to the point where I can't even go on exchange even if I wanted to. And I can't terminate my endowment plan due to the penalties I would incur.
Thankfully, these days you have alternatives like RSPs and robo-advisors which do not require you to commit a monthly/annual amount - you can invest and put in money whenever you want.
However, for those looking to invest in an ILP or endowment plan, this is something to look out for. Can you commit to the premium payments?
2. Not understanding the behavioral aspects of investing
Ok I know this sounds iffy but hear me out. It is not uncommon to see some of these phrases in the investment community:
Sell HIGH, Buy LOW
Time in the market over timing the market
Even though these sound like common sense, you'll be surprised at how you may behave when you see your investments dipping. I experienced this during the March 2020 dip when I almost sold my investments because it dropped by a mere 5%.
Ultimately, we aren't as rational as we think we are, and we need to be aware of our emotions when it comes to investing our own monies.
I'm no expert on this, but I can recommend some books that helped shaped my principles when it comes to investing. They are:
The Psychology of Money - By Morgan Housel
The Little Book of Common Sense Investing - By John Bogle
Fooled by Randomness - By Nassim Taleb (This is quite a difficult book to read)
The list isn't exhaustive; There are plenty of other books that I have yet to read that deals with the psychological aspects of investing. That being said, the first 2 books on the list are pretty beginner-friendly.
3. Over-insuring yourself
Most advisors you consult will tell you to allocate 10% of your salary towards insuring yourself. However, I previously read that you shouldn't spend more than 10% on insurance. So I'm not sure how "Don't spend more than 10% on insurance" became "Allocate 10% to insurance".
I think the main point is that you should maximise your coverage while trying to minimise the premiums you're paying, and the total sum of what you're paying ideally shouldn't exceed 10% of your salary.
Due to the opacity of the industry, I almost ended up spending more than I should on my insurance. Thankfully, another advisor said I was possibly overpaying, and I cancelled my plans within the 14-day free-look period to revise my policies.
Insurance is a tricky thing that I'm still trying to figure out. I'll probably write another article on this. The main issue with the industry is that the barriers to entry are extremely low, and it is largely sales-driven. Hence, there will always be this conflict of interest since it is not in an agent's interest to recommend you a product from another company. There will also always be dipshits unethical agents who will try to upsell shitty products products you don't need. This is not to say that ALL agents are bad. It's just that you're going to have to do a lot of research and cross-referencing to find the correct insurance plans for yourself.
Conclusion
Personal finance is an intimidating topic. Thankfully, there are many blogs and forums in Singapore catered for beginners. Information is plenty.
You just need to start.
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