STI: Family secret: Let the money do the work

Apr 12, 2004

Family secret: Let the money do the work
by Rachel Lin

FOR the Changs, it was a book that changed their financial lives.

Previously, their surplus income went into a relatively low-risk structured fund which locked their money in for more than four years, an investment they were not too happy with because of the meagre returns.

The turning point came last year, when they met a relationship manager with Standard Chartered Bank who introduced them to the best-selling book Rich Dad, Poor Dad by Robert Kiyosaki.

This book talks about how one should conduct one's investment life and states that one doesn't need to have a high income to get rich.

'It gave us some insight into the basis for investing, like a philosophy and a strategy for investments,' said 48-year-old Nathanel Chang, an agent who sells international direct dialling plans.

He was so enthused by the book that he urged his wife and daughter to read it.

Said Mrs Amy Chang, 45, a freelance travel consultant: 'The book really taught us how to live our financial lives.'

The Changs decided to make their money work harder for them. Partly on the advice of the relationship manager, the family now has a finger in every pie - from country-specific funds invested in Malaysia and China to shares.

Most importantly, they're satisfied with the returns.

The average gains the Changs have enjoyed from the funds they have redeemed were 10 per cent.

In fact, they're considering making the plunge into one of the riskiest classes of investment: foreign currencies.

'What's important here is patience,' said Mrs Chang. 'Our philosophy is: Do not over-invest, have sufficient funds for your daily expenditure. Only invest your surplus.'

Added Mr Chang: 'Whenever we consider investing, we have to understand fully what the salesman says, weigh the possible gains against the risks and decide which is more probable.'

When it came to their biggest investment, however, the Changs had a strategy of their own.

They recognised the key questions: How much to borrow for a home loan, how long the tenure should be and the extent to which they should draw on their Central Provident Fund (CPF).

The home they now live in, a 1,000-sq-ft three-room executive condominium in Simei Green, cost around $500,000.

The Changs did not borrow a single cent to pay for it.

Instead, they used their CPF savings and proceeds from the sale of their previous home, a Housing Board (HDB) flat in Tampines, to fund their purchase.

They had bought the HDB flat with a loan that was paid off in five years - an unusually short period.

'We don't believe in over-borrowing,' declared Mr Chang. 'We wanted to take the smallest and the shortest loan that we could manage.'

Savings-wise, the family aims to put aside 30 per cent of their monthly income to tide them over their retirement, perhaps in Malaysia.

The Changs have started saving $500 a month for their daughter's education at a local university under a Prudential Assurance plan that they took up last year.

On top of it, they bought a foundation insurance which promises to pay $40,000 for 16-year-old Gillian when she reaches the age of 21.

The plan attracts yearly premiums of about $700.

Nevertheless, the Changs are not taking their comfortable position - with total assets of more than $800,000 - for granted.

Mr Chang said that the family has life, personal accident and health insurance plans - a total value of $250,000.

The premiums come to about $4,000 per annum.

'Life is unpredictable, after all,' he said.

Furthermore, they have set aside six months' worth of emergency funds to provide a cushion for their normal expenses should any unforeseen circumstances arise.

There is no perfect formula, but the Changs appear to have done well handling the five key areas of planning their personal finance: emergency funds, protection, home ownership, cash management and savings, and investment.

Mr Wilson Chia, head of consumer banking at Standard Chartered, said you should get these basics right.

'This will build a solid foundation upon which your personal savings and investment strategies can succeed and support your financial goals.'

To allocate your income in these five areas, first come up with a personal income statement.

Tabulating your income and expenditure will help you manage both inflows and outflows more effectively.

Equally important is a personal balance sheet, which lists all your assets, including insurance policies, investments, property, home and personal loans.

This balance sheet should be managed such that you do not borrow substantially more than what you can pay.

And finally, it's important to get the whole family involved, said Mr Leong Sze Hian, a board member of the Society of Financial Services Professionals.

'It's hard to manage your expenses if you don't get all your family members involved in tracking inflows and especially outflows.

'You need to get everybody involved so you know where your money is going,' he said.