The importance of setting financial resolutions cannot be overstated, and financial literacy plays a crucial role in our goal setting and overall well-being. In this digital era, where bad financial advice is just a click away, understanding the basics of personal finance is more important than ever.

Today, we are writing this article to convince you to invest more into your financial literacy and arm yourselves with the necessary information to make informed decisions. Heck — it will be even better if you are going to make it your goal to read more financial content in 2024.

The Cost of Financial Illiteracy

Financial illiteracy comes with a high cost. A study by the National Financial Educators Council (NFEC) revealed that Americans estimated they lost an average of $1,506 in 2023[1] due to a lack of financial knowledge. This loss, extrapolated over a lifetime, can amount to tens of thousands of dollars per individual. This stems from the lack of understanding about basic financial concepts such as interest rates, inflation, and the principles of investing can lead to poor financial decisions. If you consider the opportunity costs and compounding impacts, this is far more than $1,500.

The Price of Bad Financial Advice

The internet, while a valuable resource, is also rife with misleading financial advice. Following poor advice can be costly. For instance, the trend of investing in volatile stocks promoted on social media has led many inexperienced investors to significant losses. In 2021, a report from FINRA Investor Education Foundation found that individuals who frequently received financial information from social platforms experienced a median loss of $3,000 due to bad investments[2]. This has almost doubled from $1,550 in 2020.

Not just that financial advice is bad, there are even some that are simply scams but masked up.

Celebrities and experts have longed called for the improvement on financial literacy/advice but this is an uphill battle for individuals who are unwilling to find out more and discern themselves. Take it from Snoop Dogg who was once advised for bankruptcy[3] but decided to go against it and came out on top.

He continued, “They started telling me about, ‘Well this artist did it, and this person did it.’ I said, ‘None of them motherf — kers [are] Black. You ain’t name nobody that look like me.’ They can do that s — t and get back in the game, and it won’t look crazy.”

Snoop Dogg

Evidently it is also difficult for advisors to provide objective advice as they are not in your position and feeling the pressures. Obviously being financially literate helps to counter some of these as you are better equipped to spot anomalies and position yourself to avoid such situations in the first place.

The Last Point

Just to drive this across, research also shows that individuals who set specific financial goals are more likely to save money and have financial security. A study by the University of Scranton found that people who explicitly make resolutions are 10 times more likely to attain their goals than people who don’t explicitly make resolutions. This may be counterintuitive (since most folks often lament that their 2024 resolutions are down the drain by March) but I assure you that at least you will make improvements towards the goal.

Incorporating Financial Education into Resolutions

Investing time in financial education can yield significant returns. Learning about budgeting, investing, and financial planning can save thousands of dollars in the long run. For example, understanding the power of tax benefits can help in making more informed decisions to save cash.

Conclusion

As we embrace the New Year, let’s prioritize financial literacy in our resolutions. The cost of being financially uninformed is too high to ignore. By setting SMART financial goals and dedicating time to understand the fundamentals of personal finance, we can pave the way for a more secure and prosperous future.

Guides are useful to read but templates put action into context. Family and friends have been asking how I track, monitor and review my finances. I created some personal finance templates for my personal use and found them to be helpful in making my plans/actions more concrete.

You can find those that are available here: https://pocketmint.gumroad.com/.

1 — https://www.financialeducatorscouncil.org/financial-illiteracy-costs/
2 — https://www.jacksonsun.com/story/news/2022/11/17/better-business-bureau-protect-yourself-from-investment-fraud/69651219007/

In this article, we will explore the importance of strategic portfolio allocation, supported by real-world examples, research studies, and statistical evidence, and provide key tips to help readers optimize their investment strategies.

Benefits of Strategic Portfolio Allocation

Strategic portfolio allocation offers compelling benefits that have been substantiated by numerous studies and statistical evidence:

• Risk Reduction: A well-diversified portfolio can minimize the impact of market volatility. According to a study by Ibbotson and Kaplan, between 1970 and 2019, a portfolio diversified across stocks, bonds, and cash reduced volatility by approximately 50% compared to a concentrated equity portfolio.
• Potential for Higher Returns: Allocating funds to a mix of asset classes allows investors to participate in the growth potential of different markets and sectors. Research studies consistently show that strategic allocation tends to outperform concentrated portfolios over the long term. According to a report by Vanguard, a balanced portfolio of stocks and bonds outperformed a purely stock-focused portfolio by an average of 1.5% per year from 1926 to 2019.
• Preservation of Capital: During market downturns, a diversified portfolio helps protect against significant losses. Morningstar’s study during the 2008 global financial crisis found that diversified portfolios experienced lower drawdowns, with the average loss reduced by 20% compared to concentrated portfolios.

Evidence of the Importance of Strategic Allocation

Several empirical studies and statistical evidence validate the significance of strategic portfolio allocation:

• Modern Portfolio Theory (MPT): Nobel laureate Harry Markowitz’s groundbreaking work on MPT demonstrated that an optimal allocation of assets can enhance returns while reducing risk. MPT provides a framework for constructing efficient portfolios based on risk and return expectations.
• Historical Performance: Long-term analysis of various asset allocation strategies consistently shows that strategic allocation delivers favorable results. According to a study by Fidelity, between 1988 and 2018, a portfolio allocated to 60% stocks and 40% bonds outperformed both an all-stock and all-bond portfolio, with an annualized return of 9.7%.

Key Tips for Effective Strategic Portfolio Allocation

Most of the tips are similar to what was shared in our Retirement Guide.

• Define Investment Objectives: Clearly articulate your investment goals, time horizon, and risk tolerance. This step helps establish a suitable asset allocation strategy tailored to your specific needs.
• Assess Risk Tolerance: Understand your capacity to tolerate market fluctuations and align your asset allocation accordingly. Tools such as risk tolerance questionnaires can help determine an appropriate mix of asset classes.
• Diversify Across Asset Classes: Allocate investments across a diverse range of asset classes, including stocks, bonds, real estate, and alternative investments. Diversification spreads risk and captures potential returns from different sources, reducing the impact of any single investment.
• Regularly Rebalance: Periodically review and rebalance your portfolio to maintain the desired asset allocation. Rebalancing involves selling or buying assets to restore the original proportions, ensuring your portfolio remains aligned with your goals and risk tolerance.
• Seek Professional Guidance: If you are uncertain about constructing a strategic allocation strategy, consider consulting with a qualified financial advisor. They can provide personalized advice based on your unique circumstances and help optimize your portfolio.

Conclusion

Strategic portfolio allocation is a powerful tool for investors seeking to maximize returns while managing risks effectively. Empirical evidence, research studies, and statistical data consistently demonstrate the benefits of diversification and asset allocation. By defining investment objectives, assessing risk tolerance, and diversifying across asset classes, investors can enhance their long-term financial success. Regularly reviewing and rebalancing the portfolio and seeking professional guidance when needed further support a strategic allocation approach. Embracing this strategy can pave the way for a more secure financial future, reducing vulnerability to market fluctuations and positioning investors for long-term growth.

The journey to financial success can be challenging and sometimes overwhelming. However, a dose of inspiration and motivation can make all the difference. That’s why we’ve compiled 7 inspiring quotes from influential figures across various fields to help you stay focused and committed to your personal finance goals. Let’s dive into these quotes and explore the highlights they offer.

This quote reminds us to stay focused on our goals and not be deterred by the passing of time. Time is a precious resource, and by consistently taking action and moving forward, we can make progress towards our financial objectives. Embrace the determination and perseverance needed to overcome challenges along the way.

By breaking down our financial goals into manageable steps, we can achieve the seemingly impossible. Begin by addressing essential financial tasks, such as budgeting and saving, then gradually expand our efforts to explore investment opportunities, build additional income streams, and achieve financial milestones that once appeared out of reach.

Preparation is key to securing a successful financial future. By proactively planning, saving, and investing, we can create a solid foundation that provides financial security and enables us to seize opportunities. Embrace the mindset of long-term planning and make decisions today that will shape a brighter tomorrow.

Recognize the significance of self-care and how it impacts our overall well-being, including our financial journey. Prioritize your health, both physical and mental, as it directly affects your productivity, decision-making abilities, and long-term financial success. Invest in yourself by adopting healthy habits, managing stress, and seeking balance in all areas of life.

Believe in your capabilities and set high expectations for yourself. This quote highlights the importance of self-belief and a positive mindset. Develop a strong belief in your financial abilities, set ambitious goals, and cultivate the determination to take the necessary steps towards achieving them. Success begins with the belief that you are capable of accomplishing great things.

Hard work and dedication are essential ingredients for financial success. This quote reminds us that there are no shortcuts or quick fixes. To achieve our financial goals, we must put in the effort, stay committed, and consistently work towards improving our financial situation. Embrace the value of discipline, persistence, and a strong work ethic on your journey to financial freedom.

Just as a sailor adjusts their sails to navigate changing winds, we must adapt our financial strategies to align with evolving circumstances. This quote encourages us to be flexible and open to adjustments along our financial journey. Regularly review and reassess your financial plans, adapt to market conditions, and make necessary course corrections to ensure you stay on track towards your desired financial freedom.

These seven inspiring quotes offer valuable insights and motivation to help you stay committed to your personal finance journey. Use them as daily reminders to persevere, embrace challenges, and maintain confidence in your abilities.

Each quote serves as a reminder of the different aspects of personal finance, from the importance of persistence and self-belief to the value of staying true to yourself. We hope these nuggets of wisdom inspire you on your personal finance journey. Remember, success in personal finance, like in life, is about taking one step at a time and staying true to your journey.

By applying these lessons, you can develop a strong foundation for financial success and continue making progress towards your goals. Remember, the journey may be challenging, but with the right mindset and determination, you can achieve financial success. Stay tuned for more inspiring quotes next week!

Read our personal finance guides by clicking on the Guides tab. If you wish to receive these daily quotes and its related actionable steps in your inbox daily, subscribe here. It’s free :)

You are here because of 2 things:

1. You are looking forward and learning to manage debt
2. You are aware that you are in the slow spiral of debt and looking to climb out of it

In either case, it is great that you’re taking this step forward.

This guide is meant for you to understand debt, avoid our mistakes and find out what is important for your success to manage debt. It is put together from our personal experiences, researches and useful techniques to manage debt.

If you have not read our guide to master budgeting, please go through it as it will form the foundation of this debt management guide and determine your success in managing debt.

What is debt and how it matters in the realm of personal finance?

Debt is a sum of money that is borrowed for a certain period of time and is to be returned along with additional amount of money as interest.
Debt is a key tool in personal finance where it is commonly used to buy assets and things that are out of your reach financially.

Besides stating the obvious above, I will highlight this 1 point.

Debt is neither good or bad, despite its negative connotations. It depends on the user and amplifies the impact. 
Just like a knife, it enhances the capability of the wielder. A knife cuts both ways - both the enemy and the user, if poorly used. Those who utilises this tool well will often reach financial success at an accelerated pace while those that mismanage will fall into an abyss.

How do you then define good or bad debt?

Simply put, good debt is one that is used to generate positive cash flows while bad debt causes you to lose cashflow.

In other words, it does not matter where the debt is from or the type of debt. Debt that helps you generate positive income net of its interest is a good debt. Bad debt is one that is used to purchase assets or things that requires you to pay back cash.

To further narrow the scope of this guide, here we will focus on managing bad debt with the intention mentioned above: to share our lessons and help you jumpstart the process. The reasons for this narrower scope are:

1. This guide will get too long with its wide scope. Good debt can also be understood as an investment decision which is related to retirement planning, etc. We will dive into these in other guides.
2. There are tons of resources in making use of good debt. You may check these:

• Investopedia (Free Cash Flow Analysis is an academic topic that explores this further)
• CFA (lots of academic resources available)

Climbing out of the abyss — out of bad debts

Debt is notoriously difficult to climb out of and you would have heard of stories that support this. It, however, is not entirely the fault of the borrower. While the borrowers may have originated the debt, once debt kicks in, there is also a mechanic coined as debt overhang that is working against the borrower.

Debt overhang is generally a term used for corporates but it also applies to individuals. It basically means that all earnings of the borrower is used to pay off existing debt and interest rather than allocating it into opportunities for higher income. This creates a vicious cycle where the borrower is trapped to make consistent debt payments while income is capped due to lack of investments. This results in higher probability of defaulting.

With the above in mind, here are 5 steps in sequence that we think are the most useful to take to get out of the debt spiral.

1. Understanding Your Debt

Start by taking a thorough inventory of all your debts. List each one, including credit cards, student loans, car loans, mortgages, and any other form of debt. Note the interest rate, minimum monthly payment, and outstanding balance for each debt. This will give you a clearer picture of your current financial situation and help you prioritize which debts to tackle first.

Debt NameEffective Interest Rate per annum (%)Min. Monthly PaymentOutstanding BalanceExample of the table

2. Budgeting

As mentioned above, budgeting will be one of the foundation of this guide. Here are the highlighted steps of the budgeting guide relevant for debt management.

1. Track your income and expenses
2. Based on information from point 1, create a budget where you reduce expenses and allocate an amount to pay off your debt regularly. The key here is to prioritise paying off the debt if interest rate is higher than investment returns. You should forgo allocating for investments unless you are confident that an investment is capable of providing a return higher than the interest rate — this is rarely the case.
3. Execute consistently and pay off the debt

The above will feel like going into austerity mode. We understand that it will be a painful and slow process depending on the debt amount but it will pay off (pun intended 🥸) as you progress towards being debt-free. We also find it useful to join a community to discuss and share your progress: Facebook Group/Page.

3. Combat strategies against debt

You might have skipped to this section as this seem to be the crux of the guide. But I would mention that this guide is detailed in sequential steps. Each step is related and important to achieve the overall success. We also recommend reading the earlier sections. You can bookmark and revisit this guide.

In other guides that we have written, we try to provide clear, specific steps to best achieve the outcome. However, due to the different situations (amount/type of debt and number of debt), this guide contains various methods and strategies that will be most effective for you.

We will introduce 4 strategies that we think are most useful in the table below. These are simple and effective techniques, which are also commonly elaborated.

Debt SnowballDebt AvalancheDebt ConsolidationBankruptcyKey BenefitsPays of smallest debt to build momentum and confidenceOptimize for debt payment efficiency by prioritizing highest interest-bearing debtConsolidates debt to one of lower interest rates and simpler payments. Re-focuses attention into 1 single debt and payment Trump card of debt management where creditors have known and limited access of debt repayment
(usually for last resort and used wisely!)Steps1List debts from smallest to largest in terms of amountList debts from highest to lowest in terms of interest ratesResearch into institutions or advisors that offer debt consolidationConsult with a bankruptcy attorney or advisor. Determine if important assets are protected from creditors (house, child education fund, etc)2Make minimum payments on all debts. Allocate maximum possible funds to the smallest debtMake minimum payments on all debts. Allocate extra funds to the highest interest rate debtCompare interest rates and feesDetermine eligibility for bankruptcy

3Pay off the smallest debt completelyPay off the highest interest rate debt completelyApply for a loan or balance transfer
File for bankruptcy with the court4Roll the payment from the paid-off debt to the next smallest debtRoll the payment from the paid-off debt to the next highest interest rate debtPay off existing debts with the new loan
Receive bankruptcy discharge and begin rebuilding credit5Repeat steps 3–5 until all debts are paidRepeat steps 3–5 until all debts are paidMake regular payments on the new loanDebt management techniques

4. Different strokes for different folks

Similar to fighting techniques, each debt management technique will be better suited for you and your situation. We ask these questions below to differentiate and assess the situations. The details in the parentheses are the reason for each question.

• Have you done budgeting (step 2) for at least 3 months? (If you have done this, it is likely you have discipline to carry through and pay off debts)
• Do you owe debts from more than 1 creditor? (Applicable for Debt Consolidation)
• Are the debt creditors official institutions — like banks? (Applicable for Debt Consolidation)
• Is the total debt more than 6 months of your take-home salary? (Usually required for Debt Consolidation and Bankruptcy)

Debt SnowballDebt AvalancheDebt ConsolidationBankruptcyBest suited forFolks finding difficult to stick to repayment plansFolks optimizing for lowest debt repayment amountFolks with numerous debts and trying to simplify debt paymentLast resortBudgeting for 3 monthsNoYesYesWon’t matterOwe >1 creditorYesWon’t matterYesWon’t matterOfficial InstitutionsWon’t matterWon’t matterYesYesDebts >6 months of salaryYesYes>12 months>12 months

With the table above, you should now identify a best route forward. But before digging into the trenches and start executing, it is important to discuss the next step: Negotiations with creditors.

5. Negotiations with creditors

As alluded above, the last method of last resort: Bankruptcy is best done with an attorney or advisor as they can best evaluate your requirements and provide guidance on your situation. It has powerful negotiation/bargaining powers.

Bankruptcy exposes both assets and liabilities to the court of law and methods of debt repayments are as per the law guidelines. As such, creditors may have lesser options to get back their debts if proper measures are made in place. They will also tend to avoid this due to the legal costs. Having access to it as an option and understanding your value derived from this option are huge advantages, especially in your negotiations with your creditors. Letting the creditors know that this is a possible option for you could even potentially help to reduce interest charged and simplify repayments.

That said, this should be used wisely and you should be prepared to utilize this. Speak to an attorney or advisor and do your due research/diligence before putting this forward.

6. Start repayments

Ideally, after the negotiations with creditors and strategizing, the debt payment format should be simplified and identified where the interest charge is reduced. Now it is time to get started on the actual work.

While not recommended, it is common to sell off assets or things to repay debt. Here we list some steps and guidelines to do this:

Same exercise as step 1: Start by taking a thorough inventory of all your assets and sellable things. List each one, including stocks, properties and any form of asset. Note the estimated rate of return (i.e. how much you can earn from the asset), estimated value, and if it is for your personal use. This will give you a clearer picture of your current financial situation and help you prioritize which asset to sell first.

Asset NameEstimated rate of return (%)Estimated Value ($)Personal Necessity (Y/N)Example of the table

The key here is to establish an asset sale hierarchy.

• If your debt interest rate is higher than your asset rate of return, you should sell it
• If the asset is a personal necessity (house, phone, etc), you can keep the asset. Your own discretion is needed here and to remind: paying off the debt requires sacrifices.

Conclusion

It has been a long read! We established the context of debt management and discussed at lengths on the details of each step. Bookmark this guide if you need to come back to it again.

Becoming debt-free is a life-changing experience, so much so that there is communities established to celebrate this.(find #debtfree on social media platforms). But more importantly, we also learned valuable lessons from our mistakes and got better at managing finances.

We understood the importance of living within means, planning for the future, and being mindful of spending habits. It is a conscious effort to apply these lessons to daily life and maintain a healthy relationship with money.

Follow us on Medium to read more of such content.

Getting the right financial advisor is extremely difficult and it is something that requires some judgement. As with all topics, a good advisor acts as a mentor that can save you painful mistakes and fast track your success. They can also add a lot of value by helping to provide assistances for insurance claims, sharing market updates on policy and regulatory changes and reviewing your portfolio. You should not shun getting advisors but rather know how to keep the good ones.

I am also fearful of the same negative consequences and have compiled various anecdotes from financial advisors and customers, research on sales tactics[1] and personal encounters. This guide sets out the strategies that I use to identify techniques used by bad financial advisors and ultimately share tips that help me lean towards selecting the good ones.

Red flags or signs of a manipulative financial advisor

Drafting a holistic policy summary for you to view all your coverages

This seems un-intuitive at first. Why would this be a red flag since it is an added convenience for you to view all of your policies in 1 place? It is also a common value-add for advisors to provide such service.

While it is indeed useful for you to have the information easily accessible, the key here is that the financial advisor also has the same information since he/she is the one compiling the details. Having this information will allow them to weaponize it against you where they can craft specific reasons to manipulate your thinking and sell things that you do not need. There will always be coverage gaps as we try to balance between premiums paid and the coverages provided. Advisors can simply analyze for coverage gaps, convince you that these are critical needs which you should not ignore, provide a range of “reasonable” options and pitch for one that has the “most value” and affordable price. Truth is: you probably do not need it.

The best strategy forward is simply to do your own tracking of your insurance policies. You can either put them in an Excel or subscribe to our newsletter to receive our Insurance policy tracker template. Then using the tracker and armed with the knowledge you have now, you are in a better information position to evaluate if the advisor presents valid explanations on the coverage gaps.

Delivering documents physically even though it can be done digitally

Ever wondered why people are still delivering physical documents despite emails and softcopies being so prevalent? There is simply an ulterior motive to this.

While the financial advisor has closed the sales for you, he/she is always looking for the next person or simply to increase his/her sales pipeline. This means putting themselves in favorable positions to speak to their target clients — clients who have a real need to be solved.

The act of delivering the documents has many benefits:

• Shows commitment and displays value to you as he/she is willing to take the effort to deliver the documents
• Anyone who sees the act and are associated with you will take the positive signal of the financial advisor
• The financial advisor now has a lead in onto more people

The real intention is to go to your place, try to hook and associate with whoever is around to deliver the final question — “Would you like something like this? I can do it for you too.” With that, now they have 1 more lead in the pipeline and can restart the whole upsell process.

Always differentiate genuine services against intentional advances.

Free webinars or consultations

I have attended too many free webinars and consultations to know that they are just a sales gimmick. These webinars do not offer real content beyond what is available online. They are only created to target and narrow down individuals with specific characteristics: folks who want to do more with their money or wishes to protect themselves or family financially.

Once this targeting is completed and you have joined the sessions, they can now use the battle-tested and proven presentation agenda to guide your perspectives and lure you in. As the target audience was carefully curated, the sales tactics will work as people joining the sessions have the similar mindset and objectives. All that is left is to provide a range of options and upsell a “most suitable” one to you.

Trust me: save yourself some time and scour online resources instead.

Persistent or rushed sales process

This is a common technique that is still employed till date. As the header suggests, the financial advisor will persistently push you to close a sale. Or he/she rushes you throughout the sales process, leaving you no time to research or evaluate your options. In both cases, the objective is to limit your time to get information and find options so that they can present their carefully thought out case to their advantage and pressure you to complete the sale.

Another related red flag on this is that the financial advisor made no effort to listen to your needs and understand your situation. Instead he/she is simply motivated to push forward along the sales process to close the deal.

Positive signs of an ethical financial advisor

Insurance is a complex subject and selling it is difficult. Selling it in your best interest multiplies the difficulty and increases the time required to close the deal. Hence, it is never in the interest of the financial advisor to do this. Instead, an ethical advisor will simply balance the time required for the sales and provide important value-added service that is in your best interest.

While there are no hard-and-fast rule, this is a framework that I think ethical financial advisors adopt. If you find them, it is best to stick with them.

Value-based selling

1. Ask the important questions to uncover your needs

With the growth of AI, there is a trend of AI prompt engineering. While this might seem unrelated, it is definitely a skill where the right questions and prompts will solicit the target responses. Similar to AI prompting, a good financial advisor knows the key questions and prompts to ask, so that you can provide the best answers to paint your situation.

2. Listens to your needs and put themselves in your shoes

The importance of listening to your needs have been emphasized too often by many sources. This guide will not dive too much into it.

Instead the latter point needs to be reiterated. Simply listening to your needs would not be sufficient. The best outcome is where the financial advisors can understand all your concerns, goals and limitations and make the best decision as if they were you.

3. Does sufficient research and presents realistic options tailored to your situations

Once the advisor has all the necessary information and context, he/she will then need to research for the best available options for you. Not all options should simply be presented but rather carefully curated according to your needs. The key here is that all options should be viable as your final decision. This is especially since you have went through the exercise of explaining your needs in detail.

The options should generally be in a spectrum and mainly offer you a choice to calibrate more finely to balance between each consideration (costs, coverages, gaps, etc). They should not be too off from each other or you might be at risk of a marketing psychology trick [2].

4. Takes time to educate you on each option and their considerations

This will take time and most financial advisor will rush through this by simply choosing the pre-determined solution as cheapest option amongst the offered range. Your objective here is to ensure that the financial advisor explains through each option as to why each is offered for your consideration and how it matches with your needs. This also checks upon the previous step where each option presented by the financial advisor is well thought off in your position.

Ethical financial advisors will spend the time to walkthrough their research findings, thought process and evaluation criteria before reaching the options that you are seeing. This should feel almost as though you did it for yourself but you are able to rely on your financial advisor to do it on your behalf.

5. Provide ample time and information for decision making and evaluation

This might seem as a simple opposite of the above red flag (Persistent or rushed sales process) but the key here is to ensure you evaluate the options and progress towards making a decision. More often than not, after the first 4 steps are completed, the discussion ends as the customer, or you, procrastinates from a decision. Making a decision is important. A decision can be both yes (buying one of the offered option) or no.

A good financial advisor is comfortable taking “No” as an answer as long as the client has sufficient time and information to evaluate the options provided and making the decision.

6.Provides after-sales service

Most financial advisors end their services once the sale is made but the client, or you, it is just the beginning. The real value of an advisor is the after-sales service. While there are no real methods to ensure this happens, you can reduce the risk of this by looking for advisors with credible reviews of providing such service. This can either be from word-of-mouth reviews or online verbatim for their services.

It will ultimately be a trial-and-error process at this point but the above 5 steps should have significantly reduce the risk and narrow down the search.

Conclusion and caveat

It is never easy to find the right advisor in any circumstance. It is ultimately a judgement call akin to hiring the right employee. The above observations may not always mean that the advisor is good or bad. Heck, it may even invalidate a good agent. But it does equip you with some awareness and knowledge to “defend” yourself if you do come into such positions.

Follow me on Medium to read more of such content. Discuss the above in our Facebook Group/Page. Write in to us if you have any questions or feedback.

1 Reddit thread on sales techniques used by financial advisors: link

As the housing situation could be different in countries, we look at the American market to discuss. The same analysis can then be done to draw relevance to whichever countries you may be reading this from.

Deciphering House Prices Through the Commodity Lens

House prices in the US have witnessed a marked increase since the 1970s. The U.S. Census Bureau indicates that the median price of houses sold in the country, which was approximately $25,000 in 1970, has surged to nearly $400,000 as of 2021.

That said, did the housing price really increased when it is compared to another item? This comparison of real estate prices to a commodity is so that you can understand the net impact of dollar devaluations. A piece of gold and a property essentially remained the same throughout the years but the dollar prices fluctuate due to demand and currency movements.

Interestingly, when juxtaposed with the price of gold, a different story unfolds. Gold, priced at around $35 per ounce in 1970, skyrocketed to about $1,800 per ounce by 2021. If we evaluate the cost of a house in terms of gold ounces, the median house required about 714 ounces in 1970, but only about 222 ounces in 2021. This suggests that while the dollar price of homes has risen, they have actually depreciated relative to gold. You can see the chart below (it goes back to pre-1900s) where in fact, housing prices are comparatively lower versus to gold.

A similar pattern emerges when we compare house prices to other commodities such as beef. The price per pound of beef was roughly $0.76 in 1970, but by 2021, it had escalated to nearly $6. Therefore, despite the nominal increase in house prices, they have remained relatively consistent when compared to certain commodities.

The Intersection of Demographics, Wages, and Housing Prices

Demographic changes and wage growth in the US provide another essential perspective to the housing affordability debate. The American population has undergone significant shifts over the last five decades, including growing diversity and aging, both of which significantly influence housing demand and consequently, prices.

That said, the US population is plateauing. Generally, if the population is increasing, there will be more demand for housing. It should cause a downward pressure on prices.

However, the trajectory of wage growth paints a less optimistic picture. Data from the U.S. Bureau of Labor Statistics indicates that the real average hourly earnings only grew by approximately 12% from 1973 to 2018, a stark contrast to the productivity growth of 77% over the same period. This widening gap between wage growth and rising living expenses, including housing, has posed a major obstacle to housing affordability.

This does also paint to the above point where housing affordability could be due to other factors besides pure price increases.

Politics and Housing Prices

The political arena plays a crucial role in shaping housing prices. Tax laws, interest rates, housing policies, and even international trade agreements can significantly sway the cost and demand for housing.

The 2017 Tax Cuts and Jobs Act, for instance, capped the amount of mortgage interest that can be deducted from federal taxes, potentially making homeownership more costly for some buyers. Conversely, low interest rates can make mortgages more affordable and spur demand, although these rates are often the result of political decisions or economic downturns.

Is Housing Really Affordable?

Given this data, is housing in the United States truly affordable? The answer is complex and largely depends on the economic lens through which one chooses to view it.

When compared to commodities such as gold and beef, housing prices have remained relatively stable. However, the glaring disparity between wage growth and housing prices cannot be ignored. As wages have stagnated, the cost of housing has continued its upward march, placing homeownership out of reach for many.

This is further compounded by political decisions that may either mitigate or exacerbate these challenges. Low interest rates may bring temporary relief, but tax laws could offset these benefits.

Conclusion

The issue of housing affordability in the United States is multifaceted, encompassing economic, political, and societal variables. While housing prices may appear affordable when compared to commodities like gold or beef, this perspective is challenged by stagnant wage growth, demographic changes, and the impact of political policies.

Therefore, asserting that housing in the United States is universally affordable would be an oversimplification of the complex dynamics at play. The reality is that affordability is relative, dependent on individual circumstances, and affected by broader economic and political trends.

Addressing the affordability conundrum necessitates a multifaceted approach that not only stimulates wage growth in line with housing prices, but also explores innovative housing policies and takes into account the profound influence of political decisions on the housing landscape.

So what does this mean for you, as an individual?

Our take is that generally you should still purchase your house at an affordable price. This can be measured against a few ratios such as your mortgage payments to your income, purchase price to your annual income. Overpaying for a house which is beyond your financial capabilities is often a huge setback to your journey towards financial freedom, given that a mortgage often last at least 25 years.

What other takeaways do you have from your home country and how did this article helped you think further? Love to hear your comments.

There is a plethora of online content and resources devoted to insurance planning. But most of these content tend to be complicated, filled with jargons or written against your interest as a buyer.

This definitive guide to insurance mainly elaborates from an objective (i.e. not coming from an agent whom is trying to sell you something) and self-practiced standpoint to help you in your planning and review.

This is a big topic and hence, the post is lengthy. Bookmark this and re-visit again if you need to.

We also welcome any comments or feedback. Email us here.

Step 1: Know what you have

For those who are fortunate like us, our parents may have already bought insurance policies when we were kids and these should give you a head start. There are also often government or employer policies which include insurances.

You might be thinking you are starting from ground zero but often, this is not the case. It is best to check what policies you already have. Similar to being lost in a jungle, the best way out is to use what you have and find out where you are on the map before navigating out of the woods. First, check in with your parents, pull out old insurance booklets and tabulate what type of coverages you have.

Step 2: Understand what you need

What is insurance and what should I buy first?

The basis of insurance is to cover unexpected expenses or losses.

There are many variations of insurance categories that you can buy, ranging from life, health, personal accident and more. Out of all these, there are mainly 3 types of insurance policies that you will absolutely need. They are needed because they cover for events that you will 100% suffer from. The 3 types are life, critical illness and hospitalisation policies.

Ordered in terms of priority and their reasons:

1. Hospitalisation insurance typically pays for your hospitalisation charges incurred above the capped amount that you have paid for
2. Critical illness insurance pays out a lump sum amount or regular payments in the event you suffer an illness specified in the policy
3. Term life insurance pays out a lump sum amount in the event of your death. This is an altruistic decision as you buy this insurance for benefit of others. For example, absolving your family’s burden of home mortgage by using your payout from life insurance to pay it off

These 3 should form the foundation of your insurance coverage and you should buy them as soon as you can. Depending on your inclinations, other insurance policy types such personal accidents, disabilities and hospitalisation income can then be added.

How much should I buy?

After picking the insurance category, there are typically 4 elements in insurance which you will need to balance and decide as part of your plan. They are:

• Premium costs: how much you pay for the insurance
• Coverage period: how long you are covered
• Specific type of coverage: what are you covered for
• Amount of coverage: how much you are covered for

Each element will affect the other components, with premiums usually being the balancing element. I will share my strategies for the above 3 policy types to get you started but you can adjust to your preferences.

If you like to find out more about what I think on the other insurance policy types, join my newsletter or email me.

Hospitalisation Insurance

For hospitalisation plans, the premiums will often differ depending on the coverage amount cap and the type of hospital. Typically, the higher the coverage amount cap, higher the premiums. Treatment at private/non-federal/specialised hospitals also results in higher premiums due to better quality of treatments and its higher costs.

To get a gauge on how much coverage should be, you can use these latest available hospitalisation fee estimates from official sources.

• United States: Average adjusted cost of $14,101 per inpatient stay at community hospitals in 2019 [1]
• Singapore: The average bill of B ward may range from $2,830 — $7,876 while the average surgical bill for a B1 ward ranged from $4,629 — $9,922 [2]

Factoring in medical inflation of >7%, it is safe to assume that hospitalisation costs will keep increasing. Given that you will be buying this policy for the long term, it is best to have some buffer to accommodate for this inflation.

Combining the above information and with my personal experiences of treatment for relapsed cancer of a loved one, a good coverage amount is at least $100,000.

Critical illness insurance

For critical illness plans, the premiums will often differ depending on the coverage amount cap and the type of illnesses covered. Typically, the higher the coverage amount cap, higher the premiums. More types of illnesses also result in higher premiums.

When you suffer from a critical illness, you should expect to lose your income as treatment and rest becomes the priority. Depending on the severity of illness, the income loss could last for months or years. This insurance is typically used to replace your income and pay for additional hospitalisation charges if it exceeds the policy coverage amount cap. It is prudent to have an average of 2 years of expenses as coverage. A ballpark estimate of $2,000/month of expenses will thus equal to ~$50,000 of coverage.

Term life Insurance

For life insurance, premiums will often differ depending on the coverage amount cap and your age when you bought the coverage. Typically, the higher the coverage amount cap, higher the premiums. The older you are, the higher the premiums as it also means that you have higher chance of mortality compared to average human longevity.

If this is used to cover for home mortgages, it is common to match the period and amount of coverage of a term life insurance to that of the home mortgage loan.

An alternative use is to simply replace the funeral costs and income loss to your family due to your death. Again, using official statistics as a benchmark for funeral costs:

• United States: $7,848 [4]
• Singapore: $4,800 [5]

A common ballpark time period for income loss replacement is 2 years.

Combining the estimated funeral costs and income loss, a term life coverage amount is typically $50,000.

Step 3: Compare providers and procure the insurance

This step may seem the easiest and obvious but there are some points to note.

Firstly, you will need to research and find out the available options in the market. A good place to start is to search online for direct insurance providers. These companies offer policies which removes the middleman — financial advisors and translates the savings into lower premiums. It will also be a good basis to understand your options and benchmark.

Second step: start reaching out to financial advisors to tap on their market knowledge of insurance products available. Direct insurance is usually limited in terms of coverage and hence, reaching to financial advisors will give you access to more policy types. While advisors provide valuable services such as assisting in claims and keeping you updated with insurance changes, there may be possible conflicts of interests where they are incentivized to sell products with higher commissions. The key here is to stay focused on your needs and strategies while using your research in the previous step as a benchmark as you speak to them. It will be on your judgment to decide if an insurance policy suits your needs.

Lastly, diversify your insurance providers. While insurance is to remove your risk of an event, there is an inherent risk of your provider being bankrupt. In such cases, you will lose your coverage with premiums paid. This is uncommon but has definitely happened before [6]. The insurance provider and financial advisor will incentivize you to buy all policies with them by throwing in discounts or additional benefits as it makes you shop with them more. It is imperative that you also consider and manage this risk.

While there is no need to buy just 1 insurance policy from each insurance provider, the key is to ensure you have bought your policies separately from at least 2 providers.

In summary, first do your research on what’s available to get a sense of pricing and coverages offered. Then, reach out to financial advisors to find out more and cover for any gaps in your research. Lastly, when getting your insurance, it is important to diversify your insurance providers.

Step 4: Purchase insurance

After the research and sourcing is done, now it is time to make the purchase. Work is not completed yet and before you buy, ALWAYS ask for the policy to be drafted for review. This is the last chance to ensure there are no red flags or issues.

Some points that you should scrutinize in the policy.

1. Coverage Amount

• Instead of just looking at the amount highlighted by the insurer, check to understand if the coverage is indeed what you understood to be.
• In addition, check into each benefits. For example, depending on the body part, different claim amounts might be capped. Don’t be shocked that your eye is worth less than 100% of your coverage.

2. Insured person and beneficiary

• Ensure that the insurance policy is covered for the right person. If the intention is to replace your income in your absence for your family, the insured person should be your name and beneficiary is one of your family member (typically spouse). There are serious complications relating to taxes and claims handling when you get these wrong (trust me)

3. Exclusions

• Insurers reduce risks by excluding specific issues. A logical example is pre-existing health conditions. Know where you are not protected by the insurance and appeal if needed.

4. Read the definitions

• Different insurers have different contract writing and hence, very different coverages. For example, loss of sight vs loss of 2 eyes; loss of mobility vs loss of limbs. These meant separate legal concepts. Using the first example, the former will pay only when you lose sight while the latter pays when you physically lose 2 eyes. These are writings that insurers deploy to not pay you! Read between the lines and understand what they mean.

5. Check the distribution costs

• This may or may not be available depending on jurisdiction but distribution costs basically indicate the commission value that your advisor is receiving. While its fair to compensate for their efforts, do not overpay too much.
• This will also give a sense of the value that your advisor is providing. Find someone reliable, stable and willing to commit to the job.

6. View the investment fees and load charges, if applicable

• Insurance policies have evolved to include investment schemes due to its lucrative features of fees and charges. While it has its use cases, calculate the fees incurred. You are generally better off investing on your own and save fees.

Once all of these are reviewed, you can then proceed with the purchase.

Give yourself a pat on the back as you have finally made the most informed and important step to sorting out your insurance coverages.

Step 5: Re-evaluate on a regular basis

No plan will last you forever and it is important to keep a view of your changing needs and plans. The review need not be often but should at least be annually. You will also need to record down your insurance policies and its details down to do this review efficiently. We have a holistic tracker that can help you manage all of these. To receive the tracker, subscribe to the newsletter!

This should also be done synergistically with your financial advisors as they are aware of latest policy and government regulatory changes.

Here is a checklist of points and some examples to go through:

• Any change in life situations that warrant a change in needs: a birth or death in the family, divorce/marriage, lifestyle changes, change in income due to promotion or job loss, approaching retirement age
• Any recent updates on the policy benefits or government benefits/restrictions?
• Are premiums still affordable and value provided commensurate with the premiums paid?

Conclusion

The above steps should form your framework towards getting your insurances to hedge for life risk events. The key is to understand your expected needs, balance the costs and plan for risk events appropriately.

We have a holistic tracker that can help you manage all of these. To receive the tracker, subscribe to the newsletter!

Write in to us if you have any questions or feedback.