Thursday, 11 August 2016

Our ability to take risks

As things have been slowing down at work, it has given me the opportunity to re-evaluate whether I want to continue in my current tax advisory role. It has been great for my professional development for the past 2.5 years but I'm starting to get restless.

This is one of my biggest weaknesses - I get bored quickly with what I'm doing and don't work on it long enough to become proficient. If you have been reading my posts about our life in Australia, you will notice that I stayed 2 years each at my jobs in Melbourne and Sydney. In fact, I'm surprised I have stayed 6 months more than I usually do at this current job in Singapore.

More importantly, my work was very different at each job and the variety kept my interest in tax as a field of work. However, I find myself wondering what it's like to work outside of tax and whether I'm still young enough to make a career change. It doesn't help that I have no idea what I want to work as in my next office job or whether I want to try something completely different.

This got me thinking about our ability to take risks in life as a couple and the impact it can have in such situations. After all, any decision I make will affect my wife and me directly, which suggests a lower appetite for risk taking since the consequences can be far reaching. However, this also means a higher ability to take risk when I realised just how much support my wife can offer.

A big advantage for us is that I met my wife at university and we were able to develop our personal, professional & financial skills both individually and as a couple for a longer time. This also meant we had to learn from the many mistakes we made, get through the several setbacks we faced and come out together. What this has done for us is to establish circumstances and outcomes that have increased our ability to take risks due to a higher capability to absorb possible losses.
1. Benefits of a higher earning career wife

It's not a surprise that my blog post on how and why my wife earns more than me is one of my most popular posts. This topic is discussed more widely now that the earning power of women has increased significantly but society continues to expect men to provide and women to take care of the family.

The social norms are changing with each generation but these expectations still pose problems and the issues surface once in a while when we interact with our family and friends. As a beneficiary of my higher earning career wife, I have few complaints.

We realised early on in our careers that my wife was better suited for the corporate world and in a higher paying industry. Hence, we took steps by moving to Sydney and Singapore to develop her earning capability. As a result, my wife's salary has increased at a faster pace than mine.

We were able to achieve a higher income as a couple over the years than if we had tried to increase both our salaries at the same pace by not taking the risk to move cities. This provided valuable cashflow that has allowed us to build our savings and investments more quickly from a young age.

At the same time, my wife's salary can cover most of our monthly expenses, which reduces the impact of lower or no income from my risk-taking ventures. Although an increased reliance on my wife's salary has its own sets of problems, it's important that we have trust and faith in each other's capabilities.

Besides, it's okay to fail as long as we move past it together. These are essential attributes of our relationship that we have developed over the years and will continue to build on as we mature.

2. Stronger financial and emotional support infrastructure

When we were living in Australia, we had less financial and emotional support when things weren't going well. Having to pay for discretionary and non-discretionary expenses meant that we had to take much more calculated risks. Losing one of our incomes would have resulted in financial problems because we had little room to reduce these expenses.

This is not forgetting the relationship problems that will come up from having to deal with the additional stress and adjusting our lifestyle. We had no family to move in with if things didn't work out and our social circles were smaller as we had to build them from scratch since we went overseas for study and work.

Less financial and emotional support meant we had to rely on ourselves a lot. We discussed many decisions, debated the pros & cons, considered the consequences as a couple most of the time before taking those risks. Over time, we became a strong support system for each other.

Now that we are back in Singapore, we have access to greater financial and emotional support. Loss of income has less consequences when we know we can move back to either of our parents' places together to stay and recover. Having more family and friends to talk to when we are having problems or facing issues meant a less stressful coping mechanism and better advice.

To have all these on top of our own support system provides a stronger financial and emotional support infrastructure that puts us in a better position to take risks.

3. Sufficient savings & investments for cashflow

It isn't good enough to achieve a higher earning potential as a couple. We had to learn how to allocate our cashflow and it was disastrous at first when we were younger. We made the common mistakes of not maintaining an emergency fund, over-spending, insufficient savings and not researching on the investment options. However, we were fortunate that it's easier to learn from them when we have less at stake.

The important lesson for us is that the lack of cashflow is the main problem when we lose our salary income sources. That's what causes the inability to pay for expenses, stress from having to find new jobs urgently and these woes can escalate quickly into other problems.

This is why we maintain a big emergency fund in high interest bank accounts. The principal amount and interest income become our cashflow when things go south from taking risks that don't work out. This is also why we invest in a portfolio of shares, ETFs and bonds. The dividends and coupons that are paid regularly reduce the rate of drawdown of the emergency fund and stretches its sustainability.

4. Contingency plans to reduce expenses

As much as we have allowed for lifestyle inflation to creep in, we have put in place our first layer of contingency plans to cut our discretionary expenses the moment we take the risks. We have already identified the areas of reduction in our dining, travel and entertainment expense categories. This will involve less of eating out, long-distance destination travelling and shopping.

If the loss of income is long-term, we have also put in place our second layer of contingency plans to cut our non-discretionary expenses. The main course of action is to move into the spare room in my parents-in-law's house and rent out our apartment. This reduces our housing loan, cable & broadband, utilities and groceries expenses.

Basically, we will utilise all the resources we have on hand to reduce our expenses during such a time. If we choose to take the risks, we cannot be above putting our pride aside to admit when they are not working out and doing everything we can to keep ourselves going.

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