Thursday, December 03, 2009

Finance, Philosophy and You.

One element missing in tertiary education in Singapore is that we are not trained to develop a viable philosophy of life. Many of us, myself included, focused on securing a good MNC job upon graduation so our grades, CCAs and networks before landing our first job was almost entirely focused on job seeking.

Philosophy is important in lifestyle design as it forms the foundation of a viable rule of thumb in all our personal affairs. Mature philosophies, constantly challenged by life's realities, can hone our personal effectiveness as we review and tune our approach towards the way we live.

Good rules of thumb then evolve into heuristics which then become algorithms and finally become codified into a plan of action. Codes are actual blueprints for positioning our investments and managing our careers. This forms the foundation of design thinking, a new new thing in management consultant speak today.

My position as a finance writer is not so much as to give you a finance philosophy but to guide you through the development of your own financial philosophy. As you prosper and gain confidence in your own abilities and performance, I reap good karma and you can, in turn teach me something about making more money.

The next snippet can be found in the last chapter of my latest book "Sowing the Seeds of Prosperity".

The Prosperity series philosophy

Like all finance books, this books captures the essence of money management in its own unique way. It is just one way of looking at money in this world. Perhaps changes in technology will render these ideas obsolete but if I am asked to summarize all my life’s works it will be as follows.


Cultivate your human capital to maximize your earnings. This can be done by taking a your education seriously. In the workplace, strive to constantly add value and adopt a strict Calvinist work ethic no matter how secure your personal finances are. Recognize that workers have to move up the value chain from mechanical work to high level problem solving work for their clients to remain relevant in this fast paced society.


As Aristotle had once said, those who are obliged to work cannot possibly be considered free at the same time.

If possible save 100% of your take home pay and live on your dividends. Live on a tight budget and see it as a challenge to derive the maximum pleasure from the simple things in life. Rigorously track your progress on expenditure reduction and never make hasty purchasing decisions. Study the efforts of the media in inciting the consumer to spend more and learn to poke fun at this consumer society.


Build financial capital one step at a time. Employ conservative instruments for capital preservation and income first and then gradually move into equities as you get more comfortable with investing. Reduce sales charges by moving first into low expense unit trusts, then to ETFs and finally into picking your own stocks. Match investments with your financial intelligence and read about the best financial strategies from masters like John Neff and Benjamin Graham.

Diversify your investments whenever possible. There is only one Warren Buffett in this world and you are not likely to be him.


Segregate investment from protection. Stick to a term life policy whenever possible for 5 - 10 years worth of income. For added protection, review your Medisave protection and pick up some disability insurance. Avoid policies which claims to give un-guaranteed bonuses and minimize your commissions to the agent while maximizing your sum assured.


Give if you can but protect the interests of your family first. Have a will or a trust and understand the pains that come from poor succession planning. Wealth is often a great source of pain for families of the recently bereaved, you need to manage this while you are still alive. Give directly to the human capital of your children by investing in a good education, financial capital is secondary if they can learn how to look after themselves.

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