Saturday, October 31, 2009

Lifestyle tips for financial success

Sat, Oct 31, 2009
The Business Times

Lifestyle tips for financial success

By Lu Geok Lan

MANY years ago, I read the book, Of Human Bondage by W Somerset Maugham. In this book, he portrayed the life of Philip Carey and his struggles with constraints such as money resources and career demands.

There was one passage that caught my attention, which reads as follows: 'There is nothing so degrading as the constant anxiety about one's means of livelihood. I have nothing but contempt for people who despise money. They are hypocrites or fools. Money is like a sixth sense without which you cannot make a complete case of the other five.

'Without an adequate income half of the possibilities of life are shut off. The only thing to be careful about is that you do not pay a shilling more than the shilling you earn. Poverty exposes you to endless humiliation, it cuts your wings, it eats your soul like a cancer. It is not wealth one asks for, but just enough to preserve one's dignity, to work unhampered, to be generous, frank and independent ...'

What was set out in the novel by Maughm in the early 1900s still rings true today. Several authors have reinforced the need to have a balanced, circumspect view of wealth, or financial success and its pursuits.

They contend that financial problems can be managed or curtailed through prudence, good common sense, realistic goal setting and planning.

With financial specialists and analysts warning us of tough times ahead, it is good, therefore to brace ourselves, reorganise our priorities, goals and assumptions and inculcate good financial habits, working towards financial security in life. In this respect, here are four useful broad lifestyle tips or habits that you can easily adopt.

Take care of yourself first and the intangibles in life that matter

Look after yourself well. Whenever possible, maintain your physical, mental and spiritual health so that you are in a good position to look after your family well and be a well adjusted individual, capable of establishing and preserving enduring meaningful relationships.

Indulgences are not necessarily wrong, but you should acquire interests or possessions needed to enrich your life meaningfully. You should not go on credit to buy things unless it is for your property.

To possess the peace of mind and sense of security - two important components of successful living - do buy all the term, disability and health insurance that you and your family need.

You can increase your self worth through diligence, a positive attitude, enthusiasm, continual upgrading of relevant skills and knowledge sets with a view to improving your career or making smart career choices.

These efforts have a more significant impact on your financial security or well-being than perhaps trying to save more by denying yourself some forms of luxury. Market relevant skills will also equip you to earn extra income from several sources.

Start early, set realistic budgets and short-term goals

You can adopt a regular savings plan as early as possible. It is never too late to start allocating a portion of your income to savings, increasing the proportion when you get a pay rise or bonus, or when your income from other sources increases.

Remember the power of compounding when interests earned each period are rolled over.

Setting a realistic cash budget, keeping track of expenses, and reviewing your budget when your circumstances change are keys to financial well-being.

Related to setting a cash budget is the idea of aiming for a series of short-term goals. They pave the way to the achievement of your long-term goals and financial security.

Remember, the short-term goals should be attainable, for example saving 10 per cent of your income every month, cutting down on non-essential spending by, say, $200 a month or whatever amount you find appropriate.

Saving regularly will also ensure that you will be financially prepared for distant future events such as children's education and retirement.

Managing your debt in line with your debt servicing ability is essential. You should strive to maintain a healthy debt servicing ratio (debt/income) which is roughly 35 per cent or less. This means commitment to properties, housing and car loans should not be crippling.

Take calculated risks and seize investment opportunities

Before you can take any risk, you must determine your own tolerance for risk. Factors such as your cash flow, financial position and age will determine your comfort level with risk.

You will also have to look at your savings or investment horizon. Basically, the longer it is (that is, when you are young), the more you are able to capitalise on riskier opportunities that present themselves.

Taking calculated risks such as taking a new job with good prospects, venturing into a business, investing in high risk/high return stocks may be necessary to forge ahead financially.

Keep in mind the timeless principles of cultivating investments. These include diversifying or spreading your investments and reviewing your portfolio in the midst of changes in the market and your life situation.

By investing in regular intervals, you can also reduce the risk of losing a large sum at the wrong time. The same goes for liquidating your investment instruments. Sell a small percentage of your investment at a time. Your investment horizon or your time in the market is what matters and not timing the market, since markets are ever so unpredictable.

Maintain your dignity, reputation, sense of social contribution and credit score

Ensuring that the cost of your lifestyle lags your income or salary growth will guarantee sufficient recurring cash flows. Paying your bills on time and maintaining a healthy debt servicing ratio will not only steer you out of financial failures, but also reflect your character and preserve your reputation and dignity.

All these are essential prerequisites for a high credit score - which will provide you with the means to increase your financial worth.

Through all these sound financial habits, you can, in the words of Maughm, 'work unhampered', 'be generous', 'frank and independent'. You can contribute to society of which you are an integral part - in terms of time and monetary resources, thus manifesting compassion and generosity.

The writer is a senior lecturer at the Singapore Polytechnic's School of Business

This article was first published in The Business Times.

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