Retire young, retire rich

ACCORDING to the annual world wealth report compiled by Merrill Lynch and the Capgemini Group last year, Singapore registered the fastest increase in the number of US-dollar millionaires in 2006. More than 11,000 people joined this wealthy club that year, raising the number of high net worth individuals to a total of 66,660.
With more and more people making it into the group of the wealthy, it appears that joining their ranks is no longer as unattainable as once thought. No wonder many young professionals and undergraduates here are dreaming of joining that select group sooner rather than later. If you are one of those with that goal in mind, it may be timely to start planning how to get there. After all, the earlier one starts, the higher the chances of getting there in time. Here are some tips culled from various sources.
Start saving now and let compound interest work your way
'Tip number one is you have to start saving immediately,' said James O'Shaughnessy, founder of O'Shaughnessy Funds and author of How to Retire Rich in an earlier CNN Money report. 'The younger you are when you start, the better chance of retiring in style.'
Easy as it seems, most people have trouble saving for the long term. 'Saving is often a vicious cycle for most people. They are only disciplined enough to save in the short term before blowing all their savings away in a big ticket item like a car,' said Alvin Chia, a private investor who turned financially free at the age of 27. 'It is important to live below your means and avoid splurging on unnecessary items if you want to achieve the retirement dream early.'
Both early savings and living below your means allow you to take full advantage of the power of compound interest. If you save $2,000 a year starting at the age of 20 until you are 30, you will still have more money than a person who saved the same amount between the ages of 30 and 60. Enough said.
Pay yourself first
Taken from David Bach, who shared the powerful concept of automated savings in his book, The Automatic Millionaire, the trick to this is to have money automatically channelled from your payroll and deposited into your savings account before you even have access to it.
Invest for the long term
Equities offer the best form of long-term growth among most classes of investments. From 1926 through 2004, stocks - using the S&P 500 index as a measure - have posted an average annual return of 10.4 per cent versus a mere 5.4 per cent for bonds, according to Ibbotson Associates.
Both Mr Chia and Laura Oh, a 26-year-old home tutor, have their investments mostly in equities as well. They both have achieved their financial freedom.
Interestingly, they are both long-term value investors who invest in undervalued companies that pay high dividend yields and use these dividends to re-invest again when the right opportunities strike. Miss Oh, for one, started paper trading at the age of 19. 'Starting to invest early and putting your money into the right class of investments definitely helps you grow your money faster than putting it in fixed deposits,' she said.
Have a detailed game plan and monitor your progress
Set realistic goals by projecting your retirement expenses based on your needs. 'Know how you want to live in retirement and be honest about it,' said Mr Chia. 'Then calculate how much savings you need to put aside a year to achieve your ultimate goal.' One rule of thumb is that you will need at least 70 per cent of your annual pre-retirement income to live comfortably.
Review your status at least every couple of years to make sure you are still advancing towards your goal.
Don't be discouraged by failures and remain focused
It is not uncommon to meet with obstacles along the way. Don't lose faith or be daunted by the goals that you set for yourself. Break that impossible goal into a million achievable bite-sized goals and conquer each one at a time. As Mr Chia recalled, he was relentless in the pursuit of his retirement dream and took small steps to build up his investment pool. He said: 'When I was 19, I worked as a security guard at night to make sure I was making money sleeping. My main duty was to open the gates for the staff every morning and in that process, I earned myself $1,400 extra a month just from sleeping.'
Find a mentor to guide you
Having a mentor to constantly give you personal advice on your financial state and the allocation of your investment portfolio is a major plus. Very often, your mentor should also be someone who shares the same life and investing philosophy as you. Only then can the mentorship be very successful.

By Jason Low

How Much to Give Mum and Dad

MONEY talk can be a taboo topic not only among couples but also between parents and their grown-up children.
Once the children start working, how much of a cash allowance they give their parents on a regular basis often becomes a touchy issue.
Give too much and the children might suffer financially; give too little and their parents might not be able to maintain their current lifestyle.
Let's look at two contrasting examples. Computer consultant Diana Low, 42, gives a token monthly sum of $200 to her parents, who are retired comfortably.
This is in contrast to her colleague, Ms Joyce Chua, 43, who gives $950 per month to her parents, who are less well-off than Ms Low's parents. She also pays the phone bills at her parents' house.
Both earn about $11,000 monthly and are married with two children.
Clearly, Ms Low's amount will look meagre compared with Ms Chua's.
But advisers such as Mr Stephen Teo, Alpha Financial Advisers' business director, believe that the amount that one gives ought to be a matter of financial capacity and not filial piety.
"Filial piety to me is about the commitment to take care of your parents when they need you and should not be measured by the amount of money you give them," he said.
Mr Tony Tan, a consultant with independent private wealth manager Providend, suggests that if parents are working and can comfortably support themselves, "the gesture of giving is more important than the amount itself".
He explains that this is especially so in traditional Asian societies that hold filial piety in high regard. "This act of giving symbolises our gratitude to our parents for their unconditional love and nurturing all these years," he said.
Ms Low said: "My parents don't need money from me, so the $200 monthly allowance is just a token sum."
On the other hand, Ms Chua considers herself part of the "sandwich generation" - those who have one source of income but two sets of dependants' financial commitments to be fulfilled - ageing parents and growing children.
Anecdotal evidence suggests that many children do not discuss budgets or other money-related issues with their parents early enough.
Nevertheless, good communication regarding finances is critical to a healthy relationship not only between couples, but also between adult children and their parents.
Many start communicating only when it becomes unavoidable - for instance, when their parents are suddenly taken ill and the question surfaces as to who should foot the bill for long-term care.
In Ms Chua's case, her brother Alvin, 37, gives a monthly allowance of $800 to his parents, in addition to footing the annual premiums for their hospitalisation plans.
Ms Chua's parents are retired and totally reliant on their two children to support them. In this case, it is important to know how much would be sufficient for them to lead a comfortable lifestyle.
Mr Teo proposes that before deciding what amount to give your parents, you should have a clear idea of your own financial situation. Only then would you know how much you had in excess to meet various other financial commitments.
Factors that affect your financial capacity to give an allowance to your parents include: income, expenses, the number of dependants that you have, and other financial goals such as housing, education and retirement.
Mr Tan estimates that, as a minimum, $600 a month "should provide a decent standard of living" for one retiree living in his own flat. This is based on certain assumptions such as a fully paid-up home mortgage and a moderate lifestyle, including one annual regional vacation.
For two parents, he worked out that the minimum monthly allowance would be about $1,000.
This amount is sufficient to cover basic monthly expenses such as utilities, groceries and transportation.
As for himself, he gives $1,000 every month to his parents, to be split equally between his mum and dad.
The actual payment can be made in various ways such as cash, Giro, cheque or directly into an investment portfolio.
from: Lorna Tan