Let’s assume you’ve amassed a modest sum of money from the amount of savings that you’ve set aside every month (presumably at least 10% of your monthly salary). What then do you do with it? Go for a holiday with the money? Buy the pair of shoes you’ve always wanted? Treat yourself to that expensive buffet at Shangri-la? If you’re thinking of all these…….. give yourself a slap in the face NOW. You should know by this time that all those items mentioned should be taken either from your living expenses budget, or your frivolous spending budget a la Miss Lala but NEVER from your savings/investment budget.

How then do you go about investing your hard-earned money? Before we get to there, you need to ask yourself a few basic questions. These questions form the basic plan of your investment strategy.

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Have you ever wondered, why do rich people get richer and while the majority of the poor people remained almost as poor as before?

You’ve probably come across this before, maybe your mother was trying to tell you about the very capable daughter your Auntie Jane has because she got a $5,000 job right out of school….. or maybe your childhood friend just had a lottery windfall of $30,000. You see, for most laymen out there, when we think of how wealthy a person is, we tend to think of how much cash he/she holds. Whereas, when you read about the world’s richest people such as Bill Gates, Warren Buffet, Li Ka-shing, etc , notice that nothing is mentioned about how much cash they hold? Here is when you learn a new word “networth”.

In the context of personal finance, networth refers to the market value of all your assets less all liabilities/debts. If you have a huge collection of shoes, or a fleet of sports cars, or the latest tech gadget, these are NOT assets. And while we’re on the topic, note that networth also excludes the value of the house you are staying in. With so many exclusions, what then do you include? Basically, cash and all your investments. Refer back to this article for Aunty Scroogey’s definition of an investment.

Cash doesn’t grow very much (and you probably know that already), and even if it does grow via fixed deposits, it is usually hardly enough to beat inflation. So it is very important that we put our hard earned money into the right type of investments and let our networth grow. The rich folks out there don’t keep a large proportion of their wealth in cash – they make their money work for them through the investments they make.

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From time to time we encounter the inevitable occasion of having to spend money on big ticket items. By “big ticket”, I mean a sum so large that your monthly spending budget is not enough to handle, or that even if the said budget could manage it, you end up not having anything money left for your monthly miscellaneous expenditure. Think washing machine, PDA, laptop, and you get what I mean.

Typically, for sake of good order, we match big ticket expenses with big ticket money – that is, a lump sum that does not happen on a monthly recurring basis, eg bonus, lottery, capital gains from stock market, monetary gift, etc. But then at times (say your P.C broke down), it’s a matter of life and death and we just do not have the luxury to wait. So what do you do? Such that you do not burden yourself with a sudden big amount that would upset the balance of your ratios?

This is when you learn a new word – amortize. As per the definition of an online dictionary, to amortize means to “write off gradually and systematically a given amount of money within a specific number of time periods.

Let’s put all these in simpleton terms.

Assuming Ms Lala’s monthly take home salary of $4,000 is divided into 70% living expenses ($2,800), 20% savings/investments ($800) and 10% spending money for frivolous items ($400). One fine day in March, her son decided that it was funny to wash his bake beans dinner in the washing machine. The poor old machine couldn’t take the abuse and broke down. A new washer would cost Ms Lala $550. To amortize, Miss A spreads out the $550 over a period of 5 months and it looks something like this:-

April 2009 – $150 ($100 from 70% money, and $50 from 10% money)
May – $100 (from 70% money)
June – $100 (from 70% money)
July – $100 (from 70% money)
Aug – $100 (from 70% money)

At the same time, from the period from April to Aug, her 70% money goes down by $100 every month to $2,700 (10% money also goes down by $50 in April). Assuming there are no further amortizations, living expenses returns to status quo at $2,800 by Sept. Spreading out the cost of a big ticket item over a period of time is certainly easier to live with, than to have to live with $550 less in a single month.

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Do you sometimes encounter obstacles as you trod on your financial journey, even as early as the planning stage? I don’t mean physical obstacles such as cutting down on unnecessary spending, but rather the deterrents from people around you who do not see the value in what you are doing.

How often do you encounter people who reinforce their money perspectives on you, such as:

(a) money can’t buy you happiness

(b) live for the moment and enjoy, don’t regret not doing anything while you’re still alive

(c) or maybe you yourself might be thinking that “oh well…. I’m not born rich, what’s the point of financial planning when I am likely to remain poor all my life?”

While it is true that moolah can’t buy you happiness, neither does poverty. And even while planning and saving for the future, that doesn’t mean that we have to deprive ourselves totally as to what we can enjoy in the present – the key is to strike a balance (see blog entry on Relativity). As for the last point, there are many folks out there who are not born rich, but practised a lifestyle where they could be considered well off in later years. Just ask Warren Buffet, or the Secretary and the Fruits Seller if you can’t get Warren. He is a pretty busy man afterall.

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Nope, the secretary and the fruits seller are not going out with each other; they are two real life characters who have demonstrated to the rest of us that you need not be a highly educated white-collar executive in order to build up a comfortable retirement nest egg. Neither do you need to strike lottery (although that would help a lot) nor discover some profound financial secrets. All it takes is a hell lot of financial discipline and diligence.

The Secretary is an ex-colleague of Aunty Scroogey’s, she is in her mid-60′s this year. The Secretary has been working as ….well, a secretary in a financial institution throughout her career to date, and is by any accounts, not considered to be a high-paying salaried personnel. Here’s the scoop – The Secretary herself stays in a HDB flat (co-owned with another family member) but owns 2 condominium apartments which forms the basis of her retirement fund — bought without the help of any winning lottery tickets nor inheritance. She is collecting rent on the 2 properties now, but would be selling them some time in the near future. So how did she do it?

While she did not go into details right down to dollars and cents, The Secretary revealed that her financial journey was pretty much what Aunty Scroogey has been preaching all along – spend within your limits, cultivate a firm habit to set aside money for savings/investment every month, and learn more about managing your own investments. Since leaving school almost 50 years ago, The Secretary has diligently set aside a sum of money every month for rainy days. Bonus money was hardly used for anything more than a new rice cooker, or a new washing machine — no fancy handbags nor indulgent botox treatments. Approximately once in about 4-5 years, she would use a generous part of the bonus money for an overseas holiday but it’s not something that she would do every year. The moolah accumulated over the years and the rest is history.

The Fruits Seller is not an acquaintance of Aunty Scroogey’s but the same probably goes for him. He lives in the same neighbourhood as one of the Aunty’s friends (let’s call him Brian) and is rather pally pally with Brian’s grandma. The Fruits Seller is slightly older than The Secretary and owns the shop in which he is selling fruits AS WELL AS the 2 other units on the right. From eons ago until now, The Fruits Seller has been bringing his own lunch to work and doesn’t eat out much. His clothes are bought from the market where he sells fruits, they are not branded but are neat and clean.

Wealth takes time to grow. If you’re in your 20′s or early 30′s and still have not amassed a comfortable amount for your retirement nest egg yet, relax…. that is not quite something to freak at. But if you’re at that age, and still running into credit card debts, have a low savings to monthly salary ratio, have no idea how to start your financial journey, you know it’s high time you need to do something.

Most of us have it, some of you have only one and for others perhaps too many. I know people whose lives depend on it. No am not talking about shoes (close call though), nor your weird, unspeakable fetishes. It is the little rectangular pieces of plastic that I have a love-hate relationship with.

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Auntey Scroogey has a colleague who loooooves branded stuff -  Prada shoes, Gucci handbags, Chanel sunglasses, LV wallets, etc.  Twice a month, she would turn up for work with a new branded item after her fortnightly shopping harvest. For someone who earned a decent but not decadent salary of $4,000 a month, I asked her if she thinks that she is over-spending.  She says she isn’t, because according to her, the branded items she bought are for “investment”.

Investment??? Now, that doesn’t sound quite right. First of all, how could something like an LV wallet be an investment? For it to qualify as a investment, it needs to satisfy at least one of 2 criteria:

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The economy seemed to be doing better now, compared to say, 6 months ago. While economic indicators paint a less gloomy picture these days, there are many of the poor out there who are still struggling to earn a living. I came across a friend’s blog and through his thoughts, I realized how we’ve come to take certain things for granted, even a simple meal. Not a day goes by that Aunty Scroogey doesn’t hear about someone complaining about something trivial, like not being able to afford a car *rolls eyes*

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The Great Singapore Sale has descended upon us once again. Many items out there now carries a lower price tag compared to before, perhaps, including the pair of shades you’ve been eyeing, or the handbag that your sister bought which you would like to get as well.  Before you go out to spend your hard earned money on any of these, let’s get familiar with the concept of relativity first.

So often, we hear of someone coming back from a shopping spree, proclaiming she got a good bargain thats “So cheap!”, of say a $500 handbag which was marked down from $800. Is it really cheap? The true intrinsic definition of “cheap” should be viewed relative to earning power, not viewed in terms of absolute numbers. If the spender’s take home pay is only $2,000 a month, then a $500 handbag accounts for a whopping 25% of her income – definitely not what Aunty Scroogey would call “cheap”.

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Hi all, I am Aunty Scroogey, a guest columnist for The Peonies. Whether is buying stocks or socks, Aunty Scroogey (also known as The Aunty) likes to buy into value, not prices…. thus The Aunty will be writing on issues relating to buying values and being thrifty. For the record, Aunty Scroogey works in the market and is a scrooge because she has 3 kids to bring up single-handedly.

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