The Struggle with Immediate Spendings & Future Savings
- Admin
- Sep 6, 2021
- 6 min read
Updated: Oct 22, 2021
Just 5 years ago, I was still sweating over my financial responsibilities to my elderly parents, grandparents, and my new family. I felt sandwiched. There were too much IMMEDIATE expenses and too little FUTURE savings.
Fast forward to today, I am 85% on track to my retirement goal of a 5-figure monthly passive income at age 55. With a nice roof over my head, warm food on the table and the financial capacity to provide for my grandparent, my wife and my cheeky 2 year-old, I am grateful to have found a system to manage my resources better and stay accountable to my financial goals. Yet life wasn't always on track in this manner. In my growing up years, I experienced a lot of uncertainty and stress because of money.
My dad was a business owner, and we used to stay comfortably in a condominium. However, my dad was mostly busy with work, and on rare occasions when he was at home, I would see my parents argue. When I was 6 years old, my dad’s business went downhill and he was forced to shut it down. From having my own bedroom, I now share a room with my parents and siblings in a tiny flat. The irony is, though life was tougher, the family was happier.
I felt that when my family had money, we had little family warmth. And when we had family warmth, we didn't have enough money. So, when I was anticipating the birth of my baby girl, I started to question myself – can I provide both family warmth and financial security for her, even though I had not experienced it for myself?
My parents, like many others of their time, slogged hard to provide for the family. They scrimped and saved to see the 3 of us through university education. That also meant they neglected their own retirement planning and only managed to build a small nest egg. This is not uncommon amongst my clients and friends who are in the sandwich generation like me, juggling responsibilities on both fronts. And in some cases, these money issues lead to squabbles among siblings, sowing seeds of disharmony at home.
To be honest, the previous generation did not enjoy the same level of opportunities, and financial literacy as us, to prepare themselves better for the future. However, what is more alarming, is that not everyone in our generation is ready to put a stop to this vicious cycle. In fact, a recent AIA survey shows that parents are spending a higher proportion of their income on their children than on their own retirement planning – 2.5 times more, to be exact. This holds true across all household income levels, whether they earn $2,000, or more than $14,000 a month. This means that the more you earn, the more likely you are to spend even more on your kids, and in turn, more likely to underestimate the amount you need for your retirement years.
When my baby girl came into this world, I worked hard to steward my resources well so that I do not unintentionally burden my child with my retirement. And I am proud of my progress so far.
As I reflected, there are 2 things that really made a difference:
1. Having an accountability partner
An accountability partner is someone who keeps you on track of your goals, encourages you when you fall short and challenges you to do better. I am grateful that I have a great accountability partner, who is also my wife, Xueyi. We have each set a goal for ourselves to be achieved by 55 and have kept each other accountable on how we spend, budget and invest ever since. Like a listed company, we hold regular family Annual General Meetings (AGMs) where we discuss, track and celebrate our progress in our retirement goals as a family. This ritual not only help us understand each other’s spending and savings habits better, it also brought to light our beliefs and values, and brought us closer.
As typical first-time parents, we found ourselves spending without careful considerations. Unsure of what is necessary and what is good to have, we found ourselves exceeding our budget for too many months, which made us pause and review.
We had to learn to differentiate between giving our child the best in everything and giving her the BEST versions of ourselves, which often do not have any material requirements. We are also learning how to pick our battles in a society that fosters competitions and comparisons, be it grades, schools, or even toys. I believe that one of the best gift to my child, is planning well for our own retirement, and giving her the freedom to pursue her own passion, instead of being burdened and strapped to provide for us financially.
As daunting as these discussions may sound, I am thankful to have my wife as a sounding board and an alternative voice. Walking this journey together with someone does make it more enjoyable.
This is much like clients who have FAs serving and helping them with their retirement goals. The value of an advisor is in understanding the importance of your dreams and goals, and keeping you on track to achieving them. While clients are leveraging on the advisor's expertise, they can spend their time and resources with their loved ones and things that matter more to them.
2. Allocating my assets with greater awareness and precision
The alpha (excess returns) of your portfolio is not in the type of asset, but in the allocation. That means your portfolio structure is more critical than the individual policies or investments you have in your portfolio.
Even though it is easy to find information, platform and tools online to start investing for your retirement, there are 2 challenges I often hear from my friends and clients:
1) With so many different financial products out there, how do I choose?
2) How can I grow my wealth in a manner, such that I can achieve my future goals without compromising my present lifestyle?
Though it sounds cliché to say that different products serve different needs, it is the fact. Take the traditional stocks and bonds for example – stocks typically serve as a tool to drive portfolio performance, while bonds serves as a hedge when there is market downturn. But in today’s investment universe, the tools have evolved so much, it is no longer that straightforward.
Jumping back to my first point on having an accountability partner, it is pertinent to have that someone to walk through your thought process, to analyse and evaluate the options so that you can make a better decision. Choose a partner with complementary attitude & skills – If you are good with details but may experience paralysis because of analysis, work with an advisor whom you know will nudge you towards taking action. If you tend to jump into action first then panic later, find someone who will remind you to take a step back and look at the big picture before making a decision.
I truly believe it is possible to achieve the harmony of current lifestyle while taking care of future needs. And the key is in designing the right allocation strategy for your resources. To do that effectively, we have to take into account these few factors – what is your retirement goal, how much resources you have now, and how are you like as an investor. You have to take an honest look at the current resources you have for this assessment, and it is not just about money, but also time and future growth capacity. Resource allocation itself is a huge topic, and this can be another topic another time.
One of the core principles I apply in my own life and my advisory process for clients is known as Radical Stewardship. This to me, means being responsible and held accountable towards managing the wealth given to me; having a family charter and creating a system of budgeting that engages the family in the whole process. With this, it is very possible to grow your wealth abundantly and yet not neglect time with your loved ones and the things that are important to you NOW, and not when we retire, not 20, 10 or even 5 years later. It’s my utmost hope that the sandwich generation problem that has been perpetuating for generations can end in our lifetime, and I believe it is possible with more success examples and greater awareness of how to steward our resources better.
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Andy Ang is an authorized Financial Consultant representing finexis advisory Pte Ltd.
This article contains only his personal views and opinions and is for informational purposes only. The information provided is of a general nature only and does not take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and should not be relied upon as financial advice. You should seek advice from your financial consultant before making any financial decisions.
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