Sunday stories: Being broke, finding eureka & making it work

Since I’ve been posting quite a fair bit on personal finance – and we’re friends now, aren’t we – I thought I’d share a short background story into how I got started and where it all began. 

I started to dabble in managing my own money (properly, with a plan) when I was the epitome of a broke postgraduate student and needed to make sure my monthly allowance stretched wide enough to cover all my “life in an expensive city” expenses. My rent was through the roof and slashed away more than half my allowance, and my grocery budget – already pared down to the bare necessities – was so tight I hardly wasted any food (which was a great upside).

bills

Tracking my daily expenses became a necessity, and I balanced my budget at the end of every week to make sure I had enough to keep me going for the rest of the month. One key point to this story is I really had no choice but to count every penny (and make every penny count) because if the money ran dry, that was it – I was at the bottom of the barrel. I had zero access to credit – no credit card, not even an overdraft facility – so cash was king.

But living like that for a year and a half taught me so much. I lived in a big city where I would walk past a number of homeless people on my daily trek to class, and that taught me really important lessons on humility and gratitude. I very quickly stopped focusing on the limitations of my tight budget, all the things I couldn’t do or buy, and gained a sincere appreciation for what I did have. Sure, a Starbucks coffee was a weighted choice for me (and certainly not just an automatic purchase), but I had a bed to go home to, food in the fridge, and enough clothing to keep me warm

It was challenging – and demotivating – at first, because after being so used to throwing things into my grocery basket and sauntering through the check-out cashiers without so much as batting an eye, I suddenly found that my grocery trips became weekly exercises of mental math, where I would tally up my shopping bill in real-time whenever I took something new off a shelf. It was like playing grocery budget tetris; if I wanted a big box of fresh strawberries maybe I should just get chicken (again!) instead of prawns this week?

But after a couple of months, it became second nature to me and it wasn’t that difficult anymore. The wonderful thing is that I wasn’t miserable either. I adjusted quite quickly and just made it work. Tracking my spending, planning my budget, and making sure I was financially set gave me a very powerful and important sense of control.

It’s so easy to pull yourself down, especially when “life is hard” and you don’t have a job/enough money/a husband (or whatever may ail you at the time), and feel like you’ve completely lost control. This is dangerous because it could start a downward cycle of “why me” self-victimizing, and a toxic belief that your situation is someone/something else’s fault and you can’t do anything to help yourself because the cards have been dealt, the game is rigged, and you’re doomed to lose. You might start thinking, I don’t earn enough, my salary is too small. Or perhaps you have family commitments that you can’t shake off: chipping in to pay for the bills, or supplementing a younger sibling’s school fees. The price of milk keeps going up, the government isn’t doing their job regulating this – and that’s why I’m broke!

Going through the reality of having no choice but to make it work (because sorry buddy your family and government are on the other side of the globe and you’re on your own!) chased away all these thoughts before they could even blossom. Yeah okay, maybe I could’ve complained that my student allowance wasn’t enough. I mean HELLO, my rent ate a whopping 53% of the entire amount – and I wasn’t exactly living the penthouse life either! I took the living room of a one bedroom apartment and I didn’t even have my own door, I strung a curtain over a tension rod and called it a day. None of this was my fault right? My government sponsor should update their darn standard of living database and think of the welfare of their scholars! How dare they turn a blind eye and allow their scholars to be subjected to these types of living conditions!

*ANGRY RANTING ON BRUNEIFM*

Ya, no.

I’m not saying I possessed a higher-order of virtue and goodness, gratitude and inner peace, and just accepted it like a Saint.

Remember, I was literally half a world away from the place I call home and I was a (sort of) small-town girl in a big city (but no shady business), and I only knew a small handful of people within a 100-mile radius. It was a scary time, truly.

And in times of real urgency, something very natural and very primitive called the fight-or-flight response kicks in.

 

Not to sound like a (corny ass) hero, but I chose to fight. And… Woaw woaw fasten your seatbelts, cos we’re in for a cheesy ride… The most important battles are with ourselves. I knew that I could write letters and protest and petition to get an allowance hike and free lunches and goodness knows what else. I could bang on office doors and embarrass myself demanding to be heard. Or I could just give up, call my parents and tell them I’m struggling to make ends meet – wire over some money please. Even worse, I could just be like nah this is impossible, pack my bags and go home.

But I thought about it rationally. Pleading for more aid on top of my fully-paid-for tuition fees was a ridiculous proposition. Even if the suggestion were considered, it would take a long time to implement and I’d probably graduate long before that came into force. My parents? God no. I prided myself on being able to live fairly independently as soon as I left high school, I wasn’t about to backtrack on that now. And quitting to go home just because textbooks were exorbitantly overpriced was pretty unthinkable.

So what choice did I have? Well, one: make it work. Count every penny, and make every penny count.

And, honestly, it was one of the best life lessons I ever had the opportunity to experience first hand. I graduated three years ago, with zero debt and (deliberately) zero savings too because I wasn’t about to pass up my last opportunity to travel unbounded. I was lucky in that I secured my first job while I was still away, and started work seven days after landing back home for good.

So ever since then I’ve been an employed, young professional (…yuppie…) and my disposable income is more than I ever had when I was a student. I remember receiving my first paycheck and thinking WOAH LOOK AT ALL THIS MONEY I NEVER USED TO HAVE! And by then I was back at home, didn’t have to feed the rent monster and dining out was affordable. I had more cash to play with than I ever had before, and it didn’t matter if I spent it all, I’d get another paycheck just like it next month, and then the next, and then the next! And the cherry on top of the cake was the bank offered me a free credit card(!), THE WORLD WAS MY SHOPPING MALL!!!11!!1

 

Except.

I worked so hard to get to this point – of finally! having a decent income that I didn’t need to closely scrutinize and scrimp and pinch to make ends meet – why would I just throw it all away? 

Especially when I realized just how powerful money is as a tool. It can do so much for you, or at least – you can make it do so much for you. My cash crunch cross-fit taught me how to mold it, stretch it, and put it to work so I got the most bang for my buck. I kept my purse on a tight leash and made sure it never ran away or bit me in the ass.

If there’s one thing I learnt: Money is your servant, money is your slave – it’s not meant to be the other way round so don’t ever get that backwards.

So that’s perhaps the story of how my journey into personal finance began. As I mentioned, I live a more comfortable life now, alhamdulillah, and I don’t have to keep an eye on every cent and penny that leaves my bank account. I buy flat whites and cappucinos, and if I wanted strawberries and prawns, I’d be able to have strawberries and prawns guilt-free! (Not in a single dish, of course. Ew.)

And yet, in the three years since starting work and earning my own income, I’ve found myself doing a lot of leisure reading on personal finance. The natural questions began to pop up – how much should I aim to save? Is there a specific “best way to save”? Is personal finance simply about saving money? Or is there more to it?

I suppose now, after many long months of doing my own personal reading and mulling it over and cooking it up, I’m in the process of transcribing the rather large inventory of mental notes I’ve built up. I hope you find something useful – see you in the next one 🙂

The myth of investing through buying stuff

 

chanel

“A Chanel handbag is a good investment.”

“I’m thinking of investing in a Kuvings slow-juicer.”

“It’s about time I take the plunge and invest in a Clarisonic to supplement my skincare regime.”

Earlier today I was asked if it would be wise to invest in a Rolex.

My first response to this question was probably a little rude.

HAHA.

 

No.

But I did go on to say that buying a Rolex isn’t an investment at all. Except under extraordinary circumstances, buying a Rolex simply means you’ve sunk the money, and then it’s pretty much gone. If you ever decide to sell the watch, you’d very likely do so at a loss.

To invest in something, by definition, means to put money into a scheme, or venture, or “vehicle” of some sort, with the expectation of achieving a profit. Hence, a good investment would have some expectation of greater return.

Then how come it’s now common to hear that buying designer bags is an investment? Expensive electronics are investments. Signing up for a one-year premium gym membership is an investment.

“Investment” has become a word people use to justify expensive purchases. 

Now, I’m not saying you should never buy a great (and expensive) food processor, never buy a classic, timeless (and expensive) watch, never for the love of God buy a premium leather handbag when a paper bag performs the same function!

We all have our needs and wants (note: I know I know, that series ground to a halt – sorry! I will get on Part 5 eventually) and that’s perfectly normal. If you want to buy an expensive “something”, then fine! Fair game! It’s your money after all, right? Just don’t lie to yourself and pretend it’s an “investment” when come on stop kidding yourself it’s not.

Misuse of the term “investment” perhaps started when people began to justify spending more money for quality goods.

After all, there’s this saying:

The poor man pays twice.

What this means is that if you buy something really cheap and shoddy – like a watch from the Dollar store or WW Mart – it’ll likely be crappy, badly made, and break after a few weeks. You get what you pay for, right? And so the poor man pays twice (and has to keep buying over and over again).

The corollary to this story is obviously it’s worth investing in better quality items, even if you have to pay the higher price tag at the start. The reason why it’s seen as an investment is because the money you put in at the start is expected to generate a return, in terms of the reliability and durability of the product.

So don’t buy dodgy, cheap-o tyres that might be a road safety hazard. And don’t buy a battery-operated blender from the fifty cent store.

It’s certainly wise to fork out a little bit of extra money and buy something of decent and reputable quality which you know will do the job well and last you more than a few weeks.

However, be careful. Because this process is subject to the very sexy thing called the Law of Diminishing Returns

Cody Holt explains it with this cute little chart: (I’m not going to lie, I don’t know who Cody Holt is – I literally just found this pic while doing my usual Google Image search)   

As the girl starts eating, her amount of enjoyment goes up and up and up. Until she reaches a point when she’s obviously getting full and sick of her food, upon which the Law of Diminishing Returns will kick in and her level of enjoyment starts to drop like a hot rock. Well personally I feel like the drop should be much steeper but who am I to argue with the chart-drawing skills of Cody Holt.

In terms of investing in good quality items, the Law also applies. Initially the more money you spend on an item, the more quality, durability, reliability you will get. But like the girl with the KFC Family Bucket all to herself, there will reach a point when more fried chicken does not equal more fun, and similarly more money does not equal more quality, durability, reliability.

In fact, after you reach this inflexion point (“the ideal”), and the line starts to bend downwards, you’re just throwing money into name-brands and prestige for the sake of owning shiny fancy Italian/Swiss/Exotic material goods.

A Kuvings slow-juicer could be an investment if you find yourself buying cold-pressed juices five times a week. It could be an investment if you think you’ll “generate the return” by saving more money making juice than you would buying it bottled from the store. But really think about it – will you really balik modal (break-even); will the savings you make pay for the machine itself? Or are you just going to claim to invest in a Kuvings but only hangat-hangat tahi ayam juice for two weeks before leaving it to rust in a cupboard under your sink.

Personally, I love leather goods. I think quality leather shoes are classic, look great, feel comfortable, and last a long time. And I’m willing to spend a little bit more money on them. But you have to exercise consumer discretion, and it’s important to ask yourself – am I paying for quality or the brand?

Because a lot of premium brands are smartypants with sales and marketing, and they’ll sell crappy, not-great-quality stuff for over-inflated price tags because they know they can get away with it, and people will buy! Because quality or no quality, the items are associated with a brand. 

Overpriced Zara chiffon tops that only last five washes, I’m looking at you.
And you, plastic Ferragamo shoes.

Now let’s not get offended. I’m not anti-designer goods nor am I gluten free.

All I’m saying is that people need to stop kidding themselves: Ask yourself and know if you’re paying for quality or if you’re paying for a designer brand name. If you’re buying an LV Neverfull tote, you’re paying for waxed canvas – with leather straps. Unless you have a lot of extra money and pay for the actual leather line (which is far more expensive than the monogrammed canvas bags).

If you know it’s the brand you’re paying for, and you are aware of how much having the “brand” costs (not necessarily the quality – pls see law of diminishing returns), and you still choose to make the purchase – then that’s great, good for you, no judgment!

Just please don’t try make yourself feel better by calling it an investment.

 

 

(Because it’s not!)

 

Emergency funds: How big should your money cushion be?

Basic personal finance dictates that everyone needs their own “rainy day fund” or emergency fund. I tend to refer to this as a money cushion (or safety net, basically) because it’s meant to break your fall and give you a bit of extra padding when an unexpected expense pops up, for example your car breaks down and needs a sudden repair, or you wake up one morning with a stabbing pain in your jaw and you suddenly find you need a root canal.

In those two scenarios, maybe your money cushion can be quite a modest amount, maybe one or two month’s salary – right? That should certainly cover for a sudden, quick-fix type of emergency.

But what about if you were to (nauzubillah) suddenly lose your income. Say the economy takes a downward turn (which isn’t that hypothetical right now if we’re being honest with ourselves) and your job is at risk. Or perhaps you were to have a medical situation (again, nauzubillah) and had to take a few months of unpaid leave in order to recover.

Did you know that 60% of Bruneians won’t be able to sustain their living expenses for more than two months if they lose their source of income? In fact, more than 30% said they won’t even sustain their cost of living for a month!

(Source: BT – Most Bruneians do not have emergency funds;  news article about the national financial literacy survey)

All the scenarios I mentioned above are pretty realistic, and while we never wish for them to happen to us (or anyone else), it’s definitely important to be prepared – especially financially – because these “emergencies” can take a real emotional toll and truly affect our well-being. Like I’d said at the end of this post, the things that really matter most in our lives are our families and our health. And if there is ever a time when your health or a member of your family is in jeopardy, not having enough money is the last thing you want to deal with.

Anyway, we’ll talk about how to build your emergency fund and how to prioritize your savings (into short-term savings like a holiday, medium-term savings like an emergency fund, a wedding, a house deposit or whatever, and long-term savings like your completely ungraspable future of retirement and your kids’ education and all that boring stuff) another time – first we’ll just quickly address the how much and how big question.

Most personal finance folk online will tell you 6-12 months of income.

In Brunei, Rozielawati Hj Jamil, a financial planner from BIBD has recommended 3-6 months worth of expenses.

Now, I don’t entirely agree (or disagree) with the above recommendations, and between the two I think the BIBD financial planner has the better answer.

So how big should your emergency fund be?

In my opinion, there are three key questions you need to ask yourself before you get to the answer:

  1. How much do you (need to) spend per month? Your emergency fund should be based on your estimated monthly expenses not your income.

The reason is because some people’s expenses are equal and sometimes bigger than their income. For Person A, who earns $2,000 but spends $2,100 (credit card, ka-ching!) this would mean that 6 months of income would dry up in less than 6 months – and so his emergency fund would need to be > 6 months income.

Other people on the other hand, like Person B, habitually spend less than their monthly income. So if he earns $2,000 also but only spends $1,000 monthly, his income would technically stretch twice that of Person A, and maybe he wouldn’t need such a big cushion.

Estimate or better yet track your spending so you have a good idea of how much you will need per month regardless of how much your income is.

2. I would personally recommend at least six months worth (of expenses) in your emergency fund, but to be even safer try to get that number up to one year.  

The reason is that if you lost your income (job), chances are it will take longer than three months to get a new one. And having at least half a year of cushion gives you a bit more breathing time, so you don’t have to hit the OH MY GOD PANIC button and have to desperately need financial assistance (from your family, or make bad decisions about getting emergency loans, etc. with no real idea of how you’re going to pay it off) right away.

3. The more people you support, the bigger your cushion should be.

If you’re only one person, and don’t have any other dependents, then things are a little bit less unpredictable. I mean sure, your wisdom tooth could explode into excruciating pain, or you could be out of work for a bit – but at least it would only affect one person, right?

If you have a family or other people that depend on you for financial support, then the situation could easily get more unpredictable; the probability and possibility of unexpected “things” cropping up will start to multiply. And while it’s still good to estimate based on your monthly expenses (which would already include the money spent on your dependents), you’d probably sleep better at night if your cushion stretched a little wider.

 

The obvious corollary to all this is that we’re all different, we have different needs, and because of that it’s logical to conclude that every person’s emergency fund should be different; it depends. It’s up to you to assess your situation and take a good look at the risks and the likelihood that an emergency will hit. If you have a child who is asthmatic, that’s a risk to consider. If your job is on a contractual basis, then that’s a risk (because what happens if the contract is not renewed?). If your car is a little older, and has a tendency to be temperamental… Then well, write that down.

You know how insurance agencies always ask about whether you smoke, what your medical history and family background is, have you been involved in any car accidents in the past, etc. They do this in order to assess the risks involved, and the potential likelihood of something unexpected popping up.

Having an emergency fund is an important form of self-insurance. It’s fully in your control, no “commission charges” or other middle-men, and you don’t have to fill up tedious paperwork to file a claim. But at the same time, you have to exercise the responsibility to do your own risk assessment, get a good estimate of how much you would need in the event of an emergency – even write down what you think the most likely emergencies are. This’ll help you plan your money and your overall life better, and you don’t have to stress out so much at every little unexpected expense.

One final note, since this self-insurance is self-administered, do yourself a favour and exercise the responsibility of not misusing your emergency fund for something like… A new pair of shoes.

Okay?