Hello

Thank you for subscribing to BigFatPurse.com I am very happy that many readers have found the website informative. This ebook is created for you, my loyal readers. It has been a great learning journey with you around. I have compiled 15 scoops (or articles) that I think would provide a very good foundation to manage your finances. It will come in 3 parts. Part 1 aims to change your mindset towards money. Everything in life is a projection of your beliefs and thoughts. Hence, this is the first thing to change if you are not having success with money. Part 2 aims to impart the personal finance mantras to you. Questions like how to save, plan for insurance and housing loans will be answered. Part 3 is about growing your money. Why it is not wise to buy unit trusts? Why STI ETF is the best instrument to grow your money with the best balance of risk and rewards? I hope these 15 scoops can really help you in your finances. Feel free to send this ebook to your family, relatives and friends. But do not attempt to edit and/or claim it as your work and sell for profits. Warmest regards, Alvin

15 Scoops of Money for your Purse

Disclaimer
This is to protect myself. The financial concepts and ideas preached in this ebook are created from my perspective. It may not be relevant to your situation and if unsure, please consult your licensed financial advisor. The parties quoted/mentioned in this ebook, BigFatPurse.com, and me (Alvin), will not be held liable for any inaccurate information or financial losses incurred. Nonetheless, I have prepared this ebook to the best of my ability. 1st Edition - 2010 Contact: alvin@bigfatpurse.com

15 Scoops of Money for your Purse

The 15 scoops Part 1 Stories to change the way you think about money
Scoop 1 - What do you really want in life Scoop 2 - Today is the day you live happily ever after Scoop3 - Lessons from the movie: UP Scoop 4 - How much money do you need (want)? Scoop 5 - Money, wealth and you

Part 2 Save and protect what you have

Scoop 6 - Rule of thumb for your personal finance Scoop 7 - How to save money Scoop 8 - The importance of having 2 bank accounts Scoop 9 - Insurance should protect your worst case scenarios Scoop 10 - Insure yourself against Partial Disability Scoop 11 - 6 Reasons why you should not repay your housing loan early

15 Scoops of Money for your Purse

Part 3 The smartest and easiest way to grow your money (and includes the lousy but popular way)
Scoop 12 - Why investing in mutual funds and unit trusts may not be a good idea Scoop 13 - Why investing in mutual funds and unit trusts may not be a good idea Part 2 Scoop 14 - Straits Times Index Exchange Traded Fund (STI ETF) Scoop 15 - My STI ETF survived the subprime crisis

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Scoop 1 - What do you really want in life?

Do you really know what you want in life? I believe being rich is one of the most popular goals. But is being rich really an end point? Or is it a means to an end? An anonymous Mexican parable enlightens us (version from The 4 hour workweek): An American businessman took a vacation to a small coastal Mexican village on doctors orders. Unable to sleep after an urgent call from the office the first morning, he walked out to the pier to clear his head. A small boat with just one fisherman had docked, and inside the boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish. How long did it take you to catch them? the American asked. Only a little while, the Mexican replied in surprisingly good English. Why didnt you stay out longer and catch more fish? the American then asked. I have enough to support my family and give a few to friends, the Mexican said as he unloaded them into a basket.

15 Scoops of Money for your Purse

But what do you do with the rest of your time? The Mexican looked up and smiled. I sleep late, fish a little, play with my children, take siesta with my wife, and stroll into the village each evening, where I sip wine and play guitar with my amigos. I have a full and busy life, senor. The American laughed and stood tall. Sir, I am a Harvard M.B.A. and could help you. You should spend more time fishing, and with the proceeds, buy a bigger boat. In no time, you could buy several boats with the increased haul. Eventually, you would have a fleet of fishing boats. He continued, Instead of selling your catch to a middleman, you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution. You would need to leave this small coastal fishing village, and move to Mexico City, then Los Angeles and eventually New York City, where you will run your expanding enterprise with proper management. The Mexican fisherman asked, But, senor, how long will this all take? To which the American replied, 15-20 years. 25 tops. But what then, senor?

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The American laughed and said,Thats the best part. When the time is right, you would announce an IPO and sell your company stock to the public and become very rich, you would make millions. Millions, senor? Then what? Then you would retire and move to a small coastal fishing village, where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos If one day you really earn your millions, what do you want to do? The answer would most probably be what you really want in your life.

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Scoop 2 - Today is the day you live happily ever after

I must confess I am one of those who cannot live in the present. I always believe the future will be better and how good it will to be in that position. Having the things I will like to have and doing the things I will want to do. It was till I read The Monk Who Sold His Ferrari that I had an awakening Happiness is not meant to be reserved for the future. It is now, today that you savor every single moment. Happiness is a journey, not a destination. Ironically, it is by having the sense of happiness and gratitude now that will allow you to reach your goals in life in the future. Here is an extract of the story Peter and the Magic Thread, taken from The Monk Who Sold His Ferrari, to illustrate what it means to live at the moment: Peter was a very lively little boy. Everyone loved him: his family, his teachers and his friends. But he did have one weakness. Peter could never live in the moment. He had not learned to enjoy the process of life. When he was in school, he dreamed of being outside playing. When he was outside playing he dreamed of his summer vacation.

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Peter constantly daydreamed, never taking the time to savor the special moments that filled his days. One morning, Peter was out walking in a forest near his home. Feeling tired, he decided to rest on a patch of grass and eventually dozed off. After only a few minutes of deep sleep, he heard someone calling his name. Peter! Peter! came the shrill voice from above. As he slowly opened his eyes, he was startled to see a striking woman standing above him. She must have been over a hundred years old and her snow-white hair dangled well below her shoulders like a matted blanket of wool. In this womans wrinkled hand was a magical little ball with a hole in the center and out of the hole dangled a long, golden thread. Peter, she said, this is the thread of your life. If you pull the thread just a bit, an hour will pass in seconds. If you pull a little harder, whole days will pass in minutes. And if you pull with all your might, months even years will pass by in days. Peter grew very excited at this discovery. Id like to have it if I may? he asked. The elderly woman quickly reached down and gave the ball with the magic thread to the young boy.

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The next day, Peter was sitting in the classroom feeling restless and bored. Suddenly, he remembered his new toy. As he pulled a little bit of the golden thread, he quickly found himself at home, playing in his garden. Realizing the power of the magic thread, Peter soon grew tired of being a schoolboy and longed to be a teenager, with all the excitement that phase of life would bring. So again he pulled out the ball and pulled hard on the golden thread. Suddenly he was a teenager with a very pretty young girlfriend named Elise. But Peter still wasnt content. He had never learned to enjoy the moment and to explore the simple wonders of every stage of his life. Instead, he dreamed of being an adult. So again he pulled on the thread and many years whizzed by in an instant. Now he found that he had been transformed into a middle-aged adult. Elise was now his wife and Peter was surrounded with a houseful of kids. But Peter also noticed something else. His once jet black hair had started to turn grey. And his once youthful mother whom he loved so dearly had grown old and frail. Yet Peter still could not live in the moment. He had never learned to live in the now. So, once again, he pulled on the magic thread and waited for the changes to appear. Peter now found that he was a ninety-year-old man. His thick

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dark hair had turned white as snow and his beautiful young wife Elise had also grown old and had passed away a few years earlier. His wonderful children had grown up and left home to lead lives of their own. For the first time in his entire life, Peter realized that he had not taken the time to embrace the wonders of living. He had never gone fishing with his kids or taken a moonlight stroll with Elise. He had never planted a garden or read those wonderful books his mother had loved to read. Instead, he had hurried through life, never resting to see all that was good along the way. Peter became very sad at this discovery. He decided to go out to the forest where he used to walk as a boy to clear his head and warm his spirit. As he entered the forest, he noticed that the little saplings of his childhood had grown into mighty oaks. The forest itself had matured into a paradise of nature. He lay down on a small patch of grass and fell into a deep slumber. After only a minute, he heard someone calling out to him. Peter! Peter! cried the voice. He looked up in astonishment to see that it was none other than the old woman who had given him the ball with the magic golden thread many years earlier. How have you enjoyed my special gift? she asked.

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Peter was direct in his reply. At first it was fun but now I hate it. My whole life has passed before my eyes without giving me the chance to enjoy it. Sure, there would have been sad times as well as great times but I havent had the chance to experience either. I feel empty inside. I have missed the gift of living. You are very ungrateful, said the old woman. Still, I will give you one last wish. Peter thought for an instant and then answered hastily. Id like to go back to being a schoolboy and live my life over again. He then returned to his deep sleep. Again he heard someone calling his name and opened his eyes. Who could it be this time? he wondered. When he opened his eyes, he was absolutely delighted to see his mother standing over his bedside. She looked young, healthy and radiant. Peter realized that the strange woman of the forest had indeed granted his wish and he had returned to his former life. Hurry up Peter. You sleep too much. Your dreams will make you late for school if you dont get up right this minute, his mother admonished. Needless to say, Peter dashed out of bed on this morning and began to live the way he had hoped.

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Peter went on to live a full life, one rich with many delights, joys and triumphs, but it all started when he stopped sacrificing the present for the future and began to live in the moment.

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Scoop 3 - Lessons from the movie: UP

I caught the show during a flight. Even though it is an animation movie, I was able to relate to reality of life and I would like to share my thoughts on them. Leaving life goals and dreams to lower priorities The movie is about a boy, Carl Fredrickson, who has a common idol with childhood sweetheart, Ellie. The idol is Charlie Muntz and he is an adventurer/explorer who went away to Paradise Falls. Ellie has a life dream of having a house on Paradise Falls which she made Carl to promise to fulfil the dream. They got married and life gets pretty much like ordinary folks life revolves around work. Carl manned a balloon stall while Ellie worked as a zookeeper. They made it a point to save money so that they can fulfil the dream to go to Paradise Falls. However, they had to use their savings time and time again for unforseen events in life. This carried on until one day, Ellie was ill and eventually passed away. She left without having fulfilled her dream. Do you have dreams that you want to do but kept postponing them? During my recent travel, I saw majority of the travellers are elderlies. I was wondering is it true that you will only have time and money to travel and see the world when you are

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old and have retired. But will an elderly be able to enjoy as much as when he/she is more energetic during his/her youth? There are bound to be places where elderlies will have difficulties to go to, like diving, hiking or mountain scaling. To put it crudely, it is like leaving sex for old age. As adults, we centered our life around work and we put off everything else to the back of our minds. Do we work to live? That is the reason why achieving financial freedom is important to me. I do not want to exchange my life for money. I want to live my life. Forced to get out of comfort zone After Ellie passed away, Carl was devastated. He had nothing to live for except for the unfulfilled promise he made with Ellie. However, he did not went ahead to work on the promise. Instead, he was just staying home and mulling with sadness. It just takes too much courage and effort to embark on the journey to Paradise Falls. It was only when he was forced to move to old folks home that he decided to escape. Most of us are always in our comfort zone. The fact is we need to get out of our comfort zone in order to grow as a person or to achieve things in life. But it is easy to say, most of us will not be able to get out of comfort zone just by ourselves. Like Carl, he took the first step to leave for Paradise Falls only when he was forced by external pressure.

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Thus, find someone who will hold you responsible for your goals. He/she should be able to check on you and give constant reminder to make sure you make progress towards your goals. Burning the bridge behind you Once Carl went to Paradise Falls, there was no looking back. He encountered many misfortunes and even his idol, Charlie Muntz, was not who Carl thought he was. Despite all these problems, he pressed on to fight his way out. He survived and managed to place the house on Paradise Falls (coincidentally) and fulfilling Ellies dream. Maybe this is what burning the bridge behind you is all about. When you know at the back of your mind that retreating to your comfort zone is no longer an option, you can only move on with the best of your abilities. Destroying your retreat option may be a good option if you have problem persevering towards your goals. Staying happy always Despite not able to travel to Paradise Falls, Ellie was not disappointed. She had a happy life with Carl and she sticked their pictures of happy moments in her adventure book, that was reserved for Paradise Falls. It sounds a little confusing now you may be thinking if she is happy with

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her life, she will not be able to leave the comfort zone and go for her dream. To an extent, it is true. But this is because she was dying and she knew it is no longer possible to realise her dream ever. Knowing that, she probably had lowered her expectations in life, and while looking back in time, she was contented and thankful with what she had experienced. The point is to look for things to be happy about. Do not always look for imperfection and be unhappy about it. There are bound to be things to be happy around you, just that you did not realise and tend to pay more attention on negative issues. Positiveness is necessary to propel you towards your goal. Even if you fail to reach the stars, you enjoyed happiness. Stay happy always.

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Scoop 4 - How much money do you need (want)?

Have you ever asked yourself how much money do you need? Everyday we are working for money, constantly worrying about it and always hoping we can have more. Most of us will think that we will be happy by having more money. Is that so? How much do you need? If you say we need money to survive, then you would not need that much. Maslows hierachy of needs (see figure below) specified that humans need to fulfil the basic physiological needs like food, water, clothing and shelter in order to think about something else. I would say most Singaporeans would be able to afford these basic necessities. The question is how expensive you want to eat, wear and stay. Hawker or restaurant? Functional clothes or branded? 3 room HDB flat or Condominium? If you already have the latter for most of the questions, you have more than fulfilled your physiological needs. In fact, you are choosing a particular lifestyle.

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What if you have achieved your desired lifestyle? Do you forsee yourself being fulfilled and happy? Or when you have a condominium, you would want a landed property? If the attention is on upgrading your lifestyle, you will never be able to achieve fulfillment in life. I find this common to many people around me, including myself, which my perspective has begun to change. Life is much more than what money can bring. If we keep thinking that money can make us happy, we will be chasing shadows and be disappointed at the end of the day. You should chase money only when your basic needs cannot be fulfilled. Because you need money to exchange for food, water, clothes and shelter. I would assume you have fulfilled level 1 since you are still alive and reading this post online. In this

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case, if you are chasing money, you are not talking about needs, but wants. You want a desired lifestyle. Let us revisit the Maslows hierarchy again. If you asked me, only the first two levels (physiological and safety) require money. Humans seek certainty and want things to be under control. Once our basic needs are fulfilled, we look at protecting what we have. We do indeed need more money to be safe and secure. But how many of us do proper financial planning, such that we get free from the money trap? The more you earn, the more money you need to protect your lifestyle. Most of us always complain Singapore is so competitive and life is getting harder. This is because our security (or current lifestyle) is threatened. Without a sound mindset and proper financial planning, we will never be able to escape from this level. To fulfill the level of love/belonging, most of us believe that improving our with our lifestyle partners will and improve the relationship same family. The

thinking applies to the levels of esteem and self-actualization. By having a better lifestyle, we assume we will be well respected and successful. Instead of protecting our current lifestyle with proper financial planning, we keep spending to improve our lifestyle. With a better lifestyle, we now have to protect it by having more money. We get trapped in the second level (safety). We find that we can

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never be satisfied. We always feel we do not have enough money. Money is not the problem. Mindset is the problem. We need to understand and accept that having a better lifestyle does not equate to having a better life. If we seek a better lifestyle, when will it end? There will always be a better lifestyle to chase after. I am not suggesting you should not have a dream lifestyle. In fact you should. But know when to stop. Work on your relationships. Work on your passion in life. Warren Buffett is always a good example. Despite his wealth, he still stays in the same house that he first bought. Drinks coke and eat McDonalds. But he has reached the level of self-actualization. Recently, 40 US billionaires pledged half their wealth to charity. Have you ever wondered why the rich earn more money only to give them away? Because they have long detached themselves from money. They no longer chase money. They no longer desire a certain lifestyle. They want to achieve other things in life that cannot be achieved by money. My point is, fulfillment in life is not about lifestyle or things that money can buy. We have given too much credit to it.

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Scoop 5 - Money, Wealth and You

I have heard from different sources about value creation brings about wealth. You get richer only if you increase the value that you give to others. Zig Ziglar said, you will get what you want if you help enough people get what they want. Initially, I am not sure about this principle even when teacher Dennis mentioned about providing value and not to aim for financial freedom as a goal. If I give something to others, wouldnt it make me worse off? As I continue to learn and inquire about money, that I start to understand this principle. When you provide a service or product that is needed by the society, you solve problems and people who need the service or product will pay you for it. They become better off consuming the service or product, and you become wealthier. It is a win-win relationship. The more value you can create, the more money you can make. Hence, it is contrary to what most people believe, in order to have more, you need to take more. Instead, in order to have more, you need to give more. Thanks to La Papillion for recommending Killing Sacred Cows which gave me a better understanding of this principle. I cannot explain better than the author, Garrett Gunderson, so I shall quote his passages:

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Focusing on accumulating money is like wanting to harvest the fruits of a tree while ignoring the roots. As we accept the accumulation theory, most of us become frustrated with the lack of fruit on our tree or lack of money in our bank accounts. And what do we do to solve this problem? We focus on the fruit only, rather than tracing the fruit to the branches, then to the roots. The real solution is to nourish the roots; then the fruit will naturally follow. This is the principle-based, rather than strategy-driven approach. Value and dollars follow value creation. Dollars are the effect; value creation is the cause. The way for you to get what you want is to give others what they want; to make yourself valuable to others. When you create value for others, and they find it more beneficial to live life with you than without you, you create a true sense of security based on personal production, rather than on external, uncontrollable factors. Wise stewards of money have power because of their applied knowledge and human life value; they dont derive their power from money. If we didnt have currency, the only way to exchange would be the barter system. If I have wheat and you have pigs, and I want pigs and you want wheat, we can exchange wheat for pigs, and we both walk away from the transaction wealthier than before. I gave up something I valued less for something

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that I valued more, and so did you. But what do we do when you dont want wheat, but I still want pigs? In that case, you and I have no basis for exchange, because you dont value what I have to give you in exchange. Now put currency into the equation. If we agree upon symbols of value (ones that other people in our society also agree upon), I can give you currency instead of wheat in exchange for pigs, and you can use the currency to exchange with another person for something that you actually value. So what does the currency represent? The value that each of us individually want. People choose what denominations of currency are worth to them, because they choose what they want to buy with the currency. The value is in the minds of people, not the currency. Money does only what we tell it to do, and the things we tell it to do are based on the things that we value and want. Nobody wants currency; they want the things that can be bought with currency. Or they want the prestige and image that they think comes with having money. If you want to prosper, you must stop thinking about money and instead start thinking of ways that you can create maximum value for as many people as possible.

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Scoop 6 - Rule of Thumb for your Personal Finance

There are a few popular rule of thumb when it comes to managing money. I would say they do ensure you will be financially sound if you follow them. Do not chalk up debt more than 35% of your income Banks use 35% as your borrowing limit when approving your loan applications. This means that your monthly repayment towards any form of debt should be below 35% of your gross salary. The debts can be car installment, housing loans, outstanding credit card bills, etc. This rule is to protect you from taking too much debts. Breaking this rule will likely undermine your ability to save and you may find yourself paying debts for the rest of your life. Save at least 10% of your income As the parable from The Richest Man In Babylon says, For each ten coins I put in, to spend but nine. Always save at least 10% of your income. This is actually the very first step one should take to be well financially. The correct way to save is to pay yourself first. Always put aside 10% of your pay in another bank account (apart from the account that your salary credits into) immediately when you receive it. The account with the purpose to save should have minimal

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facilities, ie. without cheques, debit cards linking to it. This is to make it difficult for you to withdraw the money. Do not commit more than 10% of your income into insurance Do not under-insure but do not over-insure too! Many people treat whole life insurance as a form of savings. It is wrong! To me, insurance is a cost, it is not investment. One should not try to kill two birds with one stone. There isnt anything is this world that sounds so good you can have comprehensive protection while the same pool of money grows rapidly. Remember, buy what you need to protect as protection is a cost. It must be a needs driven requirement. Do not buy insurance to save (and invest). You will get much better returns investing in STI ETF, which is simple to understand. If you need a disciplined way to save, open a Save as you earn account, where it will deduct monthly contribution directly from your bank account. I am not a believer that you can excel in both protection and investment in one insurance policy.

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Scoop 7 - How to save money?

Do you find it hard to save money and that even if you have tried, the figure in your bank account always remains stagnant? Saving money is the foundation of personal financial planning. Even if you are a capable high salaried personnel, you can end up poor with extravagant spending. Thus, I hope the following tips can help you to save money. Value money. As simple as it is, you need to value money so that you will think thrice before parting with it. Protect it at all cost and do not let others take away your hard earned money easily. Once you have the correct mindset that money is valuable, you are ready to start saving. Pay yourself first Rich Dads popular phrase. Most people tend to do otherwise; they would spend first and thereafter, save the remaining. Chances are, there is nothing left. Thus, set a target to save each time you get your paycheck. The Richest Man in Babylon advises you to save no less than 10% of your salary. You can open another bank account specially for savings where you channel that 10% every month religiously. Do not touch the money in this account unless it is an emergency. If you think that you do not have the discipline, you can sign up for regular savings plan with your local banks who would automatically

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channel your money to another account. In Singapore, here are some of the options: - MySavings account (POSB) - FlexiDeposit (UOB) - Monthly Savings Account (OCBC) Live below your means. This is a classic answer to how to be rich. Buy things that you can afford, especially the big ticket items. You may adore the convertible sports coupe or the penthouse in the prime location, but seriously ask yourself whether you can afford it comfortably without a big loan. Do not end up in huge debts that you are not able to pay, not to even mention you will not have the capacity to save. Set a budget. After you set aside 10% of your paycheck for savings, plan a budget of the remainder for regular expenditure like your bills, transport, food and most importantly, leave some for your entertainment and recreation. Everyone needs to enjoy but set a budget and make sure you keep to the amount. In this way, you will be able to control your expenses. Remember: If you fail to plan, you plan to fail. Track your expenditure monthly to make sure your budget is realistic and if it is, whether you kept to it. It would be easier to track if you make transactions with your bank card or credit card as the bank will send you the transaction records each month. However, be careful with

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credit cards, do not spend more than your planned budget or above your means. One advantage of credit cards is that you can save some money through the discounts at merchant outlets. When you are able to do the above, I am sure you will feel more secure and definitely a less stressed person is a happier person.

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Scoop 8 - The importance of having 2 bank accounts?

I dont know about you. But I do have 2 bank accounts. One is known as an operating account where my salary gets paid into as well as all my expenditures are taken from. Here is the list of transactions are made with this account: Income: - Salary Expenditure: - Bills payment - Loan installment - Insurance premium - Cash withdrawal - Share payment - Petrol costs - Donations The other account is truly a savings account where I divert a portion of my salary to this account almost immediately when my salary is paid. I keep the ATM card out of reach so that I do not touch the money inside this account. I do not have checks or other withdrawing facilities tied to this account. No bill payment or insurance premium are made

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from it. It is important to make the account as inaccessible as possible so that your money is safe. I will only use the money for emergency situations. This is what you should do:

Set up a new savings account with minimum banking facilities Divert a portion of your salary into this account the moment you get paid Leave the ATM card at home or leave it with your spouse (without him/her knowing your password of course!)

Once you have saved sufficient emergency fund, continue to put money into this account Invest when you have thousands of dollars more than your emergency fund level Repeatedly save and invest

Understanding the purpose alone is insufficient, you need to take action. Open an account today and tell us that you have done so. For those who have an additional account already, save now and tell us you have done so. I will give you a pat on your back. Trust me, you will feel good about yourself.

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Scoop 9 - Insurance should protect against your worst case scenarios

I believe everyone should buy insurance to cover his/her worst case scenarios and not just buy because it is likely to happen. In fact, your worst case scenarios are likely to be low probability events and hence, unlikely to occur. But because they are unlikely to occur, most people are unprepared for them (just when you think you are healthy). This causes the impact of such low probability events to have big detrimental effects. Analogous to betting where odds are involved, the payout for the outcome is the highest when the probability of happening is the lowest. If you are not insured against your worst, then you have the pay the most price in the end. Defining the worst case scenarios Worst case scenarios can be very subjective and differs from person to person, but there should be some similarities. Defining your worst case scenarios is equivalent to defining your needs, instead of your financial planner defining the needs for you. For illustration purposes, here are my worst case scenarios: Scenario 1 I contracted major illness/disability such that I am not able to work and have to depend on family.

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Scenario 2 I died and my dependents financial future becomes uncertain. Scenario 3 As a single child, my parents contracted major illness/disability such that their medical costs become a toll on my finances. Protection against the worst After defining my worst case scenarios, I should find out what insurance policies are available for protection against such cases: Scenario 1 A whole life or a term life policy with critical illness and total permanent disability clauses would be able to compensate for major illness and total permanent disability. It is impossible to cover all illnesses but like what we went through initially, we should cover the worst cases. Illnesses that are low in probability usually incur high medical costs compare kidney failure to flu. The problem with insurance products is that there is no one policy that can cover all your protection needs. Hence, there are holes in every policy that you need to augment with other policies. The disadvantages of a whole/term life policy in relations to critical illness and total permanent disability: - critical illness cover is pretty useless if you do not opt for early payout. This is because critical illness payout is paid in

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the final stages of your illnesses such that your probability of recovery or even survival is low. This means that from the first detection of the illness, the insurance does not pay you, but only pays when you are about to die. And in fact, your dependents can receive death payments after you die. So having a critical illness coverage only helps in receiving the payout a little earlier before your death. The solution is to get the best shield plan available. The shield plan will be able to cover a substantial amount of hospital treatment and warding when you are contracted with the illness. With the shield plan, you will not be financially strained with prolong treatment. If you can only afford to get one policy, then it should be the shield plan. - total permanent disability (TPD) only pays when you lose a pair of limbs and is irrecoverable. What you can do is to buy an accident plan, where it has different payout percentage of the sum assured for disability of different parts of your body. In this case, you can claim if you lose a leg or an eye and need not be a pair. However, an accident plan is only claimable if your injury or disability is sustained during an accident. Alternatively, you can buy a partial disability income policy, such that in the event you cannot work, be it due to accident or illness, you can be compensated monthly. Even if you are wheel chaired but can recover, you can still claim.

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Scenario 2 Likewise, a whole/term life policy would cover for my worst case scenario 2. The money is to help the dependents after a stream of income is lost in the family. You do not need this if you have no dependents. Scenario 3 - Shield plan becomes very important to my parents to cover hospital bills. In addition, Eldershield can be bought in case they lost their ability to carry out daily functions and require private nurse to look after them. As you can see, the approach is to insure yourself against worst case scenarios that will have the biggest impact on your life. There is no point in looking at the gains when buying an insurance policy. For example, if you are looking at something that is high probability in nature, like falling sick with common flu, sore throat, fever, etc, that can be cured by a general practitioner, and you are insured for this rather than getting an accident plan. You may claim 100 times for years to come, but one day, you get into a car accident and lost your leg and you do not get a single cent. Visitng the general practitioner is a high probability event, but you can afford the costs. Getting hit by car is low probability event, but the costs of treatment may be costly. I understand the example is a little far fetch but I just want to bring across the point clearly. You should insured against the worst and not buy insurance based on returns or rewards.

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Scoop 10 - Insure yourself against Partial Disability

Currently, only Aviva and Great Eastern offer partial disability income. The difference is that Aviva offers a standalone policy while Great Eastern offers as a rider to a whole life policy. Read on to find out why it is important and why you need it. What is partial disability income? An excerpt from an article in Business Times explains it well: A properly designed disability income programme ensures a monthly income payout if you cannot perform your primary occupation because of an injury, accident or any illness which need not be one of the 30 major illnesses named by the insurer. Your earning ability is your most valuable asset as you are the goose who lays the golden eggs. Most insurance policies only pay when the golden goose drops dead or is critically ill, but this is not enough. What we need to do is to insure the gooses ability to lay the golden eggs. For example, no insurance plan pays a teacher if she loses her voice and has to quit teaching. Loss of voice does not meet the definition of TPD, but is sufficient to trigger disability income payouts.

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Similarly, no insurance plan pays a pilot if he is grounded for his diabetic condition. Most people insure their car and home, not realising their lifetime income potential could be many times the value of their home. If you have enough assets to replace your income, income may not matter anymore. Until then, disability income cover provides an important safety net against financial disaster. It should be a part of all prudent financial planning strategies. What I did? I got a whole life policy with the disability income rider. The sum assured is calculated such that when the partial disability rider ends at age 55, the life policy can be terminated and the money returned is enough to cover the entire premium paid. This means that I get free coverage till 55! What you need to take note: It is important to note that the disability income is pegged at 75% of your current salary. Even if your salary increases in the future, the disability income will still remain the same at the time you purchased the policy.disability income. What you can do is to add on another income protection plan to top up the increase in your income. This is especially

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important if you took on more obligations or liabilities when you income increases as income protection essentially provides for ones fixed recurring expenses. Secondly, the payout is only made after 2 to 6 months (depending on your occupation class) from the moment one stops working. So one has to survive on emergency savings in the bank during the interim period. There are 3 factors to consider when taking on an income protection plan. 1) Term of coverage (till age 55, 60 or 65) 2) Monthly payout (Max of 75% of salary) 3) Pre-Benefit period (60,90 or 180) days. It is important to check with your employer how long a period you will continued to be paid if you are disabled and not able to carry on to perform your role in your designation as that will be crucial to determine the prebenefit period. One will not be able to received benefit payout from both employees benefit and also an insurer to an amount more than 75% of last drawn salary. Conclusion

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There are instances where your life, critical illness and accident policy do not cover. Partial disability income will payout as long as you are not able to work due to physical impairment, whether permanent or temporary. If the physical impairment is not due to an accident, you cannot claim the accident policy. If the disability is not permanent, you cannot claim the life policy. If you do not suffer from critical illness, you cannot claim the critical rider to your life policy. But the cruel fact is that you cannot work because of your physical impairment, and you have to stay at home for maybe the next 2 years. Partial disability income will payout to you during this tough period. If you do not have this protection, you will not receive a single cent from all your insurance policies. If you like to find out how it will mend the hole in your protection, you can approach Alfred Toh, who is the kind guy who emphasized the importance of partial disability income to me.

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Scoop 11 - 6 Reasons Why You Should NOT Repay Your Housing Loan Early
Dennis Ng from www.HousingLoanSG.com, a leading Mortgage Consultancy portal, has been helping and advising many people with regards to housing loan. One of his advice is not to repay your housing loan early, even if you have the capability to do so. Why? You must be thinking it is so contrary to what was often preached be debt free as soon as possible! Dennis does have very valid points: 1) It is the cheapest loan Housing loan is the cheapest loan you can ever get from banks. The interest is about 3-4% and you compare it to car loan (7%), unsecured personal loan (14%) and credit card loan (24%). You can see the contrasting difference! Dont you think you should leverage on the cheapest loan available to you? 2) Your networth remains the same Repaying your housing loan early does not increase your net worth. This is because you are just taking your cash from your bank and putting it into the house. Worse, you are actually freezing your cash.

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3) Losing your life and money Having mortgage insurance can help you in the event of death or total disability, where your loan will be paid off by the insurance. The cash or CPF monies can be left for your beneficiaries. If you have repaid the loan using your cash and CPF, you would have lost this advantage. 4) Opportunity Cost With the cash in hand, you can invest and generate better returns. Rather than being cash strapped, you have the purchasing power to pick up real bargain stocks when the market crashes. Again, it will not be possible if you have your money locked in the house. 5) Use Interest Offset Loan With an interest offset loan, you can earn interest on your cash to offset 100% of your housing loan interest you pay on your loan. This equates to repaying your loan, but with the liquidity of your cash where you can deploy when good investment opportunity arises. 6) Buy Single Premium Endowment If you do not know how to invest and would want to avoid all risky products, you can buy a single premium

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endowment, maybe for 20 years at 3.5% annual return. This would be able to offset your housing loan interest. I have also posted questions to him and they are all documented here: 1) It is indeed a great insight you have provided. However, I feel that most people do not have the luxury to choose to repay their house early. They are often cash strapped and can only meet monthly repayment schedule. The problem is to even get to the position of having the ability to repay housing loan early. Do you agree? I dont quite agree. There are quite a number of people who are in a position to make lump sum repayment to Housing Loan, some do it every year, using the Bonus they receive. My main message is even if you have extra Cash/CPF to make Prepayment to your Housing Loan, you should refrain from doing so, because Housing Loan is possibly the ONLY Good Debt available to almost everyone, and one can speed up ones path to Financial Freedom by keeping ones Home Loan. I define Good Debt as a debt whereby it is possible for you to get a higher return than the interest you pay on the loan. Using this definition, the other common Good Debt is

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Business Loan, however, this is only applicable to people who are in business. 5 years ago I had about S$250,000 in Cash. I owed about S$200,000 in Housing Loan then. Im glad I chose to invest S$200,000 of my cash instead of paying off my Housing Loan. Over the last 5 years, because of the Major uptrend in stocks and property, I managed to turn the S$200,000 into about S$800,000 by leveraging on the Bull market in stocks and later, property. (I also saved total of about S$200,000 in the last 5 years, thus, I managed to reach my first million in year 2008, in the midst of a Financial Crisis. If I had used the S$200,000 to pay off my Housing Loan. Today, Ill be financially very far behind compared to my current status. I observe that most Singaporeans do not have much money to retire because firstly, they over-commit, then they took the next 20 to 30 years using their precious Cash/CPF to pay off their Housing Loan. Thus, ending up Asset Rich (fully-paid house) and Cash Poor when they reach age 60. ie. buying a bigger house than they can comfortably afford. Some also made the mistake of buying property near market peak. Those who made the mistake of buying near the peak in the previous property bull market in 1996 and saw prices crashed by over 40% had to wait for close to 10 years for

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prices to recover to their purchase price. They did not realize that the single Mistake they made (buying High) set them back by 10 years of precious time. Imagine another person who did not make the mistake would be 10 years ahead of them, and because of the Power of Compouding, once youre behind financially by 10 years, you can never really catch up. 2) You mentioned about Interest Offset Loan. Would you be able to elaborate further on how it works and how to go about applying for it? Basically, they allow you to put money into a Current Account linked to the Housing Loan. The unique thing is that the Current Account pays the same interest rate as what they charge you on the Housing Loan. Ie. if bank charge you 3% on your Housing Loan, they will pay you 3% on any amount you deposit in the Current account as well. Thus, if you owe S$1 million in Housing Loan and placed S$1 million in the current account linked to the Housing Loan, effectively youre paying 0%, (similar benefit to paying off the Housing Loan). However, you have the benefit of liquidity, should you need to use part or all of the money in the current account, you are free to withdraw anytime and youre only charged Housing Loan interest rates.

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3) Lastly, buying a single premium endowment wouldnt it be as good as locking your money somewhere else than in your house? I believe there is penalty for redeeming the endowment early. I feel it is not a good alternative to repaying housing loan early, unless I am wrong. Of course, a single endowment policy is not exactly a fantastic investment alternative. I used it as an example in case people give the excuse that they do not know how to invest, thus rather than risk losing their money investing, they rather use their Cash/CPF to pay off their Housing Loan. The good thing about Endowment policy is you can match the time frame of the Asset (Endowment) with your Liability (Housing Loan). The good news is that due to power of compounding, over a long time of say 20 years, even an annual compounded returns of 3.5% can work out to quite a lot. Eg. a S$300,000 earning 3.5% annual compounded interest would grow to S$679,655 over 20 years. and S$842,038 over 30 years! If people say they dont know how to pick stocks, another alternative they can consider is to invest their money into Exchange Traded Funds (ETF). ETF are basically funds

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that are traded like stocks in a stock exchange. Advantage is you can track the performance of an index by a small investment outlay eg. S$1,000, and the annual fees are much lower than typical Unit Trusts. One example is STI ETF. Most people look at things too short term. Eg they only compare the Housing Loan interest they pay over the next 3 years, vs the returns they get, 3.5% over 3 years. However, they did not realize that over a longer period of time, say 30 years, things would look very differently. What is our objective? Our objective should be to ensure that when we reach aged 60, we are financially better off. Most people only look at short term, eg. can I make money in 1 years time? And this is one main reason why many people fall into scams, because most people are too impatient and want to get Rich Quick. Most Get Rich Quick schemes turn out to be Scams. The sad fact is that it seems like people do not seem to be smarter over time. Charles Ponzi conned people about 100 years ago, now people are still falling into similar Ponzi scams, 100 years later. Therefore, I strongly believe that if people can be taught to increase their level of Financial Literacy and financially knowledge, they will be able to retire comfortably. I myself

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only earn an average income of S$6,000 in the last 15 years, or total of S$1.08 million. (For your information, my starting pay in 1993 was only S$1,500). However, over the same time period, I managed to save, invest and accumulate S$1 million, excluding my house, by aged 39. Thus, I hope that by sharing my knowledge and experience, I can inspire more people that it is possible for an average middle class Singaporean to retire by age 40. This year I planned to launch seminars and workshops to teach How to Save, Invest and Accumulate Your First Million Dollars, because I firmly believe that if I give people a fish, it can only fill them for one day, but if I teach them how to fish, they will never go hungry again. Dennis Ng is an active contributor to the media, especially on My Paper and 95.8 FM Capital Radio. He is a qualified CFP, Accountant and ex-banker. He co-founded LEVERAGE HOLDINGS Pte Ltd, a leading loan consulting firm in Singapore. For more information, visit www.HousingLoanSG.com

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Scoop 12 - Why investing in mutual funds or unit trusts may not be a good idea?
Be careful when agents try to sell you mutual funds (equivalent to unit trusts in Singapore). Since you do not have the expertise and time to invest on your own, you may feel it is better off to leave your money with the professional fund managers who do it full time. It seems like an easy way out, but there are important issues that you need to understand before you think it is the best way for you to invest. 1) Most actively managed funds cannot beat the benchmark or the index over the long run. John Bogle, the founder of Vanguard funds and a strong supporter of index funds, analysed the performance of US mutual funds in the 36 year period from 1970-2006. At the start of 1970 there were 355 equity funds. By 2006, only three out of the original 355 funds beat the index consistently over the 36 year period. Hence, your chance of picking the 3 winners is 0.8% and how slim is that? You can easily beat 352 funds by buying the index fund. 2) High fund management fees eats into your earnings. This is one of the reasons why it is so difficult for funds to beat the index because the annual management fees (2-3%)

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reduces your returns. Moreover, the fees are fixed no matter how the fund performs even if the fund had a negative return, the manager still gets paid. Overtime, compound interest can aid you but on the other hand, your annual fund management fees can compound against you as well. 3) Randomness of the market. Burton Malkiel (author of the once controversial book, A Random Walk Down Wall Street) and many other efficient market believers feel that you cannot predict the market and profit from it. Fund managers are therefore, no different from monkeys throwing darts to select the stocks to buy. They may have their own investment system and philosophy, but they cannot disprove the luck factor in their success or failure. The randomness was further addressed by Nassim Taleb in his book, Fooled by Randomness. He mentioned that randomness very much determines the success or failure of managers. To answer how some managers managed to be spot on in stocks, he drew the analogy of coin throwing where everyone has a 50% chance of the correct answer. For e.g., we begin with 100 managers, after 1 throw, 50 managers (50%) were right. After second throw, 25third, 12 fourth, 6. fifth 3. Thus, this is a simplified example of how the top 3 funds can be spot on for 5 years in a row. So how long more can they sustain

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their luck? It can be the moment you put your money in, they start to choose the wrong side of the coin. 4) Restrictions for fund managers. Fund managers have restrictions on what they can invest in according to the promise and description of their respective funds. Even if a golden opportunity comes knocking, they may not be able to seize it due to these restrictions. Secondly, if a particular sector or country is undergoing a downturn, they may have to stay invested as stated in their fund objectives. An additional problem also arised when the popular fund gets too big they have too much money and they cannot just sit on the cash. They are thus pressured to keep the money invested even when there are no good options. In the end, they may end up with second rated investments. It just goes to say, the restrictions and pressures are piled on top of the effect of randomness to make managers more difficult to beat the market. 5) Sales charges. Like management fees, sale charges (when you buy and sell) eats your earnings away. It is true that there are few funds that can beat the market each year (and it is often true that this years top 5 funds will not be the next years top 5). You may believe that you just need to identify these top funds each year, you can earn big gains. As we know that there are

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hundreds of funds out there, your chances of finding the top performing ones are slim. Coupled with the fact that you buy sell frequently, you incur many sales charges, which greatly reduces your returns even if you managed to pick one or two correct ones.

In the future, if someone tries to sell you mutual funds, maybe you can pose these challenges to them. I think if they can defend their products convincingly, they deserve your investment.

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Scoop 12 - Why investing in mutual funds or unit trusts may not be a good idea part 2
Followers of bigfatpurse will know that I am not a definitely not a fan of mutual funds or unit trusts. I stated my reasons in this earlier post: Why investing in mutual funds or unit trusts may not be a good idea. It rekindled my thoughts about mutual funds when I was reading Peter Lynchs One Up on Wall Street, who as a fund manager, believes an investment professional may not do as well as an ordinary retail investor. In his book, he provided elaboration that was not covered in my post and it was his view from the inside that made it even more convincing. Analysts may not be qualified afterall Peter was hired at Fidelity (a fund management company) as an intern while he was at Wharton University. He sounded very critical against the investment professionals like the research analysts (which I believe not all are bad) Summer interns such as me, with no experience in corporate finance or accounting, were put to work researching companies and writing reports, the same as the regular analysts. The whole intimidating business was suddenly demystified even liberal arts majors could analyze a stock.

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He even called professional investing an oxymoron but redeemed himself speaking of a handful successful ones like John Templeton, Warren Buffett and a few others. Professionals are slow to recognize business success than commoners He argued that it takes a longer than desired time to identify a business that has tremendous growth potential. He termed it Street lag. Under the current system, a stock isnt truly attractive until a number of large institutions have recognized its suitability and an equal number of respected Wall Street analysts have put it on the recommended list. With so many people waiting for others to make the first move, its amazing that anything gets bought. He substantiated with the example of The Limited, where many analysts missed the stock in its early days. It was up eighteenfold from 1979 to 1983, but only 6 analysts were tracking it from 1981. It was only until 1985, the stock came under the radar of the analysts and institutions chased after it at $15, up from the initial 50 cents. He reckoned that many commoners visiting any of the 400 The Limited stores back in 1981 would have realized its thriving business earlier than the professionals. The need to keep his job

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Fund managers have big clients and bosses to answer to and they have to justify for their fund performance and stock selections to these people. With survival at stake, its the rare professional who has the guts to traffic in an unknown La Quinta. In fact, between the chance of making an unusually large profit on an unknown company and the assurance of losing only a small amount on an established company, the normal mutual-fund manager, pension-fund manager, or corporate-portfolio manager would jump at the latter. Succes is one thing, but its more important not to look bad if you fail. Theres an unwritten rule on Wall Street: Youll never lose your job losing your clients money in IBM." If IBM goes bad and you bought it, the clients and the bosses will ask: Whats wrong with the damn IBM lately? But if La Quinta Motor Inns goes bad, theyll ask: Whats wrong with you?" In other words, fund managers find it easier to justify their losing positions on big recognized companies than losing positions on almost unknown companies. And it is often that the greatest growth comes from the small companies.

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Scoop 14 - Straits Times Index Exchange Traded Fund (STI ETF)

If you are interested to invest in the Straits Times Index (STI), it is available in SGX through the STI Exchange Traded Fund (ETF). It started in 2002 and is managed by State Street Global Advisors. STI is mainly a blue chip (major companies) index of the top 30 companies listed in SGX. As compared to S&P 500, it is a much narrower basket of stocks. Nonetheless, it is the most widely used indicator for Singapore market. The Funds investment objective is to replicate as closely as possible, before expenses, the performance of the Straits Times Index. As this will disallow the Fund Manager to buy or sell based on his own judgement, it eliminates possible human errors or emotions in investments. And because of this mechanical investing style, the fund management fee is low (0.3% per annum) as compared to a typical actively managed fund (~1.5% per annum). Another advantage of ETF is that it can be easily traded (like stocks) via the exchange and thus, facilitates short term trading. Although the ETF is convenient to buy and sell, it is better to buy and hold for the long term so as to have a longer time horizon as an edge. I believe using the dollar cost averaging (DCA) method (buying a fixed amount each

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month regardless of the ETF price) should be the initial and primary method of investing. It may sound boring but it is one of the safest and easiest, yet able to get reasonable returns for a person who knows nothing about investing. It eliminates the need for market timing and any form of analysis of specific companies in the stock market. One note to be taken seriously for DCA is that it takes great discipline to contribute regularly in buying the counter, especially when the market is not doing well. This is because the method actually takes advantage when the counter price is low (like a discount so you can buy more). If you are not able to do it, then it will defeat its purpose and thus, think thrice of the commitment level before you jump into it. If you are interested in applying the DCA method for STI ETF, PhillipCapital has a Shares Builder Plan (SBP) where they accept a minimum of S$200/mth to purchase the ETF for you. The cost of each transaction is S$6 + GST (for investment www.poems.com.sg Financial Services Stocks & Shares Share Builders Plan. I am currently suscribing to this plan, buying S$200 worth of STI ETF shares each month and I decided to do it long term. (Update: I have just increased it to S$400 in Apr 09!) Here are some details about STI ETF: Counter Name STI ETF Management fee 0.30% per annum (max 1%)

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1 Trading lot = 1000 shares Currency SGD Performance of STI ETF (taken from the funds annual report on 30 Jun 07)

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Scoop 15 - My STI ETF Survived the Subprime Crisis

I have mentioned that I have been putting aside $400 every month into STI ETF, through POEMS Sharebuilder plan. I started the investment about 2-3 years ago and only contributed $200 per month. It was only about mid-2009 that I increased the contribution to $400. We all know that due to the US Sub-prime crisis, the market took a beating and plunged. My STI ETF sank too. But I held on to the Sharebuilder plan, believing that dollar cost averaging will work better for me in a down market. Dollar cost averaging (DCA) is to use a fixed sum of money to buy a particular shares on a regular basis, instead of a lump sum investment. The strategy works like how Singaporeans go for shopping. When there is a sale, Singaporeans will buy in bulk the items that are on discount. Likewise, with $400 each month, I buy more when the stock price falls, and buy less when the stock becomes more expensive. Overtime, I get a big discount for the shares I buy. You may say that I could have profited more if I have bought near the low of STI but I must say I did not know when the market will bottom and never will I in the future.

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What I must emphasized is that ordinary folks who do not know how to time the market, can invest in this way and gain very decent profits. Since it is so simple and relatively safer than many other strategies or asset classes, it is highly recommended for people who do not have the interest to follow the market but like to profit from equities. Lets talk about real life results: As of Dec 09 holdings, I have 3077 shares of STI ETF and a DCA price of $2.5448 for each share. STI ETF closed at $2.99 today. This would translate to a positive gain of $1369.63. You may feel that the gain is small. But I want to stress that I have a gain despite buying near the peak and went through the entire market crash in 2007-08. How many people have their investment in the positive territory now? And I did not time the market. It was robotic, the bank just GIRO my contribution to the plan without me doing anything. Anyone can do it! If this is the worst time, my STI ETF will even perform better in better times. If you are not convinced, do check out the annual reports released by Streettracks. For your convenience, I took the performance table from the latest 09 annual report:

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I feel that it is quite impressive if you compare to many other managed funds or unit trusts. And the management fee is only 0.3% per annum. If you ask me if DBS STI ETF is better, I would say both are the same. But I would prefer StreetTracks because it has higher liquidity than DBS. Liquidity is important when you want to sell your shares. If you are interested, you can visit POEMS website and look for the sharebuilder plan. Please note that I am not inviting you to invest although I own the shares. I am just sharing how this investment product is doing well for me. If you are unsure, please consult your financial adviser before investing in the ETF.

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For more information and resources 1) Visit www.BigFatPurse.com for more articles and updates 2) For free quotations of Housing Loans, leave your contact at www.bigfatpurse.com/free-housing-loananalysis 3) Need to renew car insurance? Leave your details at www.bigfatpurse.com/request-for-motor-carinsurance-quotations/ for a free quotation 4) For partial disability income insurance, you can contact me alvin@bigfatpurse.com. 5) For FREE financial workshop, register at www.bigfatpurse.com/path-to-financial-freedomworkshop-free/ 6) For stocks and property investment courses, visit www.masteryourfinance.com. Or you can contact alvin@bigfatpurse.com!