What ever kind of watches you are keen on getting, get one today and wear it everyday.
Sunday, February 1, 2015
Guys tip of the day: WEAR A WATCH EVERYDAY!!!
This is perhaps one of the best things I've ever did as a guy after from carrying a notebook and wet shaving.
What ever kind of watches you are keen on getting, get one today and wear it everyday.
What ever kind of watches you are keen on getting, get one today and wear it everyday.
CPF: whose money is this?
This kind of post landed someone into a lawsuit, our views should best be kept to ourselves as the CPF scheme, like all other schemes, laws and systems, affect each and everyone of us differently.
Good read: How CPF works for those who are confused about minimum sum, draw down age, the gist of the CPF is inside there in layman terms.
How to manage your account in CPF is different, there are many methods available to some what suit your retirement planning.
However, one think I can tell you is, the goal each of us should try to achieve is not minimum sum. If we only try to hit the minimum sum, we will be very jialat during age 55 to 65 or whenever is this age adjusted to by the time you get there. We should aim for a much more substantial amount of money above the minimum sum. And seems like pledging property is not a long term solution either.
Remember: AIM FOR A SUBSTANTIAL AMOUNT OF MONEY ABOVE THE PREVAILING MINIMUM SUM.
Disclaimer, I would like to say that if you are of low income, I hope you will strive hard and get out of this rut. All the best. Never give up hope and do not rely on Singapore Pools and stop spending money on cigarettes and/or liquor.
The hard truths is that as far as CPF problems is concerned, we have no choice in that matter really. It seems like the only way to 'beat' the system is to stay healthy and live to a ripe old age.
I will not delve into the specifics of the CPF Life Standard Plan and CPF Life Basic Plan, you can read up about it here. I think despite what the name suggests, CPF Life Basic Plan is more of a better plan as you really do not need CPF to match your old age's lifestyle as your children's contribution + your own savings should be the key. And you have to leave some for your children, which is why its better to take up the Basic Plan as it has a much higher bequest amount.
For those who is planning to just meet the minimum sum in their retirement account, think about this for a moment if you think the money is better off in your account (if Govt lets you withdraw out the minimum sum at 65 and put into your bank):
If you live to 80 years old, you will have this 155000 for 15 years.
- Thats: $10,333 a year or $861 a month till age 80
If you live to 85 years old, you will have this 155000 for 20 years.
- Thats: $7,750 a year or $645 a month till age 85
If you live to 90 years old, you will have this 155000 for 25 years.
- Thats: $6,200 a year or $516 a month till age 90
You get the picture. You can say that you have bank interest or side incomes or children's contribution. But with no job or income, the compound interest is going to take a very long time to set in, on top of that you are withdrawing too. And children giving you money is a touchy subject. Not 100% confirmed.
As far as I can see, I am not that investment savvy to be still earning a size-able passive income at an old age. I would mostly cash out to minimise my exposure to zero. But that is at a later stage.
If you understand the concept of Total Defense, you will see that despite CPF, being some what unfavourable to us Singaporeans (mainly due to the fact that foreigners can just give up their SG passport to get back their money and return to their village to retire happily), the scheme in its whole as a nation, prevents scammers from targeting old people and somewhat protects the money.
Abit of a payout is better than no payout at all. And honestly, if you look around, you will find plenty of people wasting money, some wasting more than the others. Which is why, it will be abit hard for them to wisely manage their own money when they are older.
I always have this believe, if you give a huge sum of money to a low income family, most likely they will spend it all very quickly. Hence do not give a man a fish, nor teach him how to fish. Instead, loan him a rod, fishing is not that hard, and collect portions of money he makes from fishing.
If you are like me, mid 20s this year, it's much better to suffer now, save up, work more while we still can than end up still having to work till you die and not enjoy retirement fully. I rather work a job that pays $1,500 at age 25 than be having to work a job pay $2000 at age 65.
Good read: How CPF works for those who are confused about minimum sum, draw down age, the gist of the CPF is inside there in layman terms.
How to manage your account in CPF is different, there are many methods available to some what suit your retirement planning.
However, one think I can tell you is, the goal each of us should try to achieve is not minimum sum. If we only try to hit the minimum sum, we will be very jialat during age 55 to 65 or whenever is this age adjusted to by the time you get there. We should aim for a much more substantial amount of money above the minimum sum. And seems like pledging property is not a long term solution either.
Remember: AIM FOR A SUBSTANTIAL AMOUNT OF MONEY ABOVE THE PREVAILING MINIMUM SUM.
Disclaimer, I would like to say that if you are of low income, I hope you will strive hard and get out of this rut. All the best. Never give up hope and do not rely on Singapore Pools and stop spending money on cigarettes and/or liquor.
The hard truths is that as far as CPF problems is concerned, we have no choice in that matter really. It seems like the only way to 'beat' the system is to stay healthy and live to a ripe old age.
I will not delve into the specifics of the CPF Life Standard Plan and CPF Life Basic Plan, you can read up about it here. I think despite what the name suggests, CPF Life Basic Plan is more of a better plan as you really do not need CPF to match your old age's lifestyle as your children's contribution + your own savings should be the key. And you have to leave some for your children, which is why its better to take up the Basic Plan as it has a much higher bequest amount.
For those who is planning to just meet the minimum sum in their retirement account, think about this for a moment if you think the money is better off in your account (if Govt lets you withdraw out the minimum sum at 65 and put into your bank):
If you live to 80 years old, you will have this 155000 for 15 years.
- Thats: $10,333 a year or $861 a month till age 80
If you live to 85 years old, you will have this 155000 for 20 years.
- Thats: $7,750 a year or $645 a month till age 85
- Thats: $6,200 a year or $516 a month till age 90
As far as I can see, I am not that investment savvy to be still earning a size-able passive income at an old age. I would mostly cash out to minimise my exposure to zero. But that is at a later stage.
If you understand the concept of Total Defense, you will see that despite CPF, being some what unfavourable to us Singaporeans (mainly due to the fact that foreigners can just give up their SG passport to get back their money and return to their village to retire happily), the scheme in its whole as a nation, prevents scammers from targeting old people and somewhat protects the money.
Abit of a payout is better than no payout at all. And honestly, if you look around, you will find plenty of people wasting money, some wasting more than the others. Which is why, it will be abit hard for them to wisely manage their own money when they are older.
I always have this believe, if you give a huge sum of money to a low income family, most likely they will spend it all very quickly. Hence do not give a man a fish, nor teach him how to fish. Instead, loan him a rod, fishing is not that hard, and collect portions of money he makes from fishing.
If you are like me, mid 20s this year, it's much better to suffer now, save up, work more while we still can than end up still having to work till you die and not enjoy retirement fully. I rather work a job that pays $1,500 at age 25 than be having to work a job pay $2000 at age 65.
Wednesday, January 28, 2015
I do not watch local TV
As titled, I don't.
The contents are largely derivative, acting is bad (I do not blame actors, I blame the fact that acting in Singapore isn't quite what it is overseas), the actors just have a pretty face (most of the actors are from talent searches where looks are initially very important).
For the longest time, there hasn't been anything scripted on local tv that is quote worthy, however, recently a TV show changed that quite abit. I am still not watching the show, but I do feel that the quote more or less touches hard on the subject. It is basis of this blog.
The acting still sucks especially from Chow Chor Meng (sorry bro, I liked you when you were in Don't Worry, Be Happy, but I felt your acting seriously declined, but what do I know about acting eh?)
The translation as follows and the comments:
You (the kid's dad) think I'm the only one anxious about earning money? Why not you ask the youngsters today, who isn't anxious? (you mean its the prerogative of adults to be anxious about money? kids are only there to spend money)
After NS*, graduating from university around 23-24 years old, we'll turn 30 at the blink of an eye (not so much of a blink, but for this time period the amount of things to do is highly in-proportionate.)
* for non-Sg readers, Singapore has conscripted army for all boys. It mostly occurs between their first tertiary education (junior college/polytechnic/ITE ) and their university education. It typically lasts 2 years.
For girls: after you've completed tertiary education, you can start your university studies
For boys: after you complete tertiary education, you take two years to serve NS before resuming university or starting to work.
Kids these days don't have it easy just like how our parents. Although it's a different kind of hardship, it is still difficult nonetheless. In the past, the struggles might be about poverty and low income related. But now, it's mostly about keeping up with others.
Our parents are always asking us to save up save up, it's a good concept but the rate of savings is always not enough. You need to learn to earn more money using your own money.
Out there, there's a lot of get rich schemes, short cuts to money, windfalls, etc.. But as some people say, as easy as you can get it, you also can lose it just as easily.
As far as making extra money goes, I think everyone should follow these few rules, most of them are quite self-explanatory:
- don't do anything illegal
- don't hunt people around you (for sales esp)
- you must be able to sleep well at night
- you must be able to sleep well at night
- you must be able to sleep well at night
- don't believe in rumours and do not buy on rumours
- don't believe in get-rich-quick scams
- do your homework when you are investing in anything
- always keep track of the money/expenditure for long term
- do not get into a lot of debt (some debt to free up cash flow is useful), even personal finances also require certain leveraging.
Although the saying: to buy the rumours and sell the news. But this only works when you position yourself ahead of retail stock investors and your position is able to make use of herd mentality to drive up prices.
Are you able to drop 10k on a share and wait for it to rise overnight? High returns also means high risk, there is no two ways about this, otherwise no one will be hedging.
But if you look at yourself, you are more likely unable to position yourself as such. Hence you should read up on value investing and really do some homework to generate the yields long term. Instead of studying what Warren Buffett buys today, you should see how he accumulates his wealth over time. He and Walter Schloss study a certain investment through and through. He know when will the shares of a wonderful company be truly cheap (under priced) and buys them to keep for long time. Think Coca-cola company, Gillette and IBM. That's what value investing is. He realised that Coke will be in business for a long long time.
Famous investors say a lot of things. But the one thing they all repeat and repeat and practise themselves without fail is: sleep well at night. Don't invest till you are so afraid and keep yourself awake at night. Its not worth it most of the time.
Cost of living will carry on to go up there is no doubt about it. Always remember your end goal. Your financial health at old age. You do not want to be working after retirement age.
Photo credits: draken from club snap
The contents are largely derivative, acting is bad (I do not blame actors, I blame the fact that acting in Singapore isn't quite what it is overseas), the actors just have a pretty face (most of the actors are from talent searches where looks are initially very important).
For the longest time, there hasn't been anything scripted on local tv that is quote worthy, however, recently a TV show changed that quite abit. I am still not watching the show, but I do feel that the quote more or less touches hard on the subject. It is basis of this blog.
The acting still sucks especially from Chow Chor Meng (sorry bro, I liked you when you were in Don't Worry, Be Happy, but I felt your acting seriously declined, but what do I know about acting eh?)
你以为着急赚钱的人只有我一个吗？
你去问一下其他的年轻人，有谁不着急？
你去问一下其他的年轻人，有谁不着急？
服完兵役，念完大学23，24岁，一转眼30岁就到了。
在这短短几年时间，要结婚，要买房子，要生孩子，没钱行吗？
现在一间组屋至少30，40万。就拿最基本的开销来说，如果你在市区工作，一天来回地铁两三趟，偶尔赶时间搭个德士 ，光是交通费每天就要$6 - $7块钱 。吃顿午餐，最省最省$5-$6块钱。去个连锁咖啡店喝杯咖啡$6-$7块钱，$6、$7块。
这还不说，为了响应政府号召，早结婚、早生孩子，那我得赶紧去交个女朋友。如果不陪吃、陪喝、陪看戏、偶尔陪出国，外加送一点名牌礼物，就算我长一副明星脸也未必有女孩子要跟我。
有一些人还要读大学，贷款、分担家里的开销呢？等到要结婚的时候，摆一桌酒席$1000块开始起跳，拍个婚纱特辑$3000-$4000块钱，这都是钱钱钱啊！
我们这代年轻人不追求什么生活品质，就算是维持最起码的生活，不去赚一点钱行吗？你们也不想养一个儿子，等到结婚的时候跟你要钱摆喜酒，等要建立家庭的时候跟你们要钱买房子。
在这短短几年时间，要结婚，要买房子，要生孩子，没钱行吗？
现在一间组屋至少30，40万。就拿最基本的开销来说，如果你在市区工作，一天来回地铁两三趟，偶尔赶时间搭个德士 ，光是交通费每天就要$6 - $7块钱 。吃顿午餐，最省最省$5-$6块钱。去个连锁咖啡店喝杯咖啡$6-$7块钱，$6、$7块。
这还不说，为了响应政府号召，早结婚、早生孩子，那我得赶紧去交个女朋友。如果不陪吃、陪喝、陪看戏、偶尔陪出国，外加送一点名牌礼物，就算我长一副明星脸也未必有女孩子要跟我。
有一些人还要读大学，贷款、分担家里的开销呢？等到要结婚的时候，摆一桌酒席$1000块开始起跳，拍个婚纱特辑$3000-$4000块钱，这都是钱钱钱啊！
我们这代年轻人不追求什么生活品质，就算是维持最起码的生活，不去赚一点钱行吗？你们也不想养一个儿子，等到结婚的时候跟你要钱摆喜酒，等要建立家庭的时候跟你们要钱买房子。
是，我承认我的手法是有一点极端，我有错，但是我的错是因为这个社会造成的！
You (the kid's dad) think I'm the only one anxious about earning money? Why not you ask the youngsters today, who isn't anxious? (you mean its the prerogative of adults to be anxious about money? kids are only there to spend money)
After NS*, graduating from university around 23-24 years old, we'll turn 30 at the blink of an eye (not so much of a blink, but for this time period the amount of things to do is highly in-proportionate.)
During this short period of time, we have to get married, get a house, have baby(babies), can we do all of these without money? (this right here is the basis of this blog.
The cost for a HDB is at least $300K-$400K now. ( now a 4 room hdb costs about $280k-$600k depending on location and grants). But its actually much more if you factor in HDB loans and CPF Accrued interest
Let's talk about the most basic need for spending, if we were to work in the city(town), a trip back and forth via MRT is $5-$6. (I live in the west and a train trip towards the city is about S$1.80 - S$2.00 one way)
Occasionally, we take a taxi when we rush for time is $6-$7. ($6-7 for about a 10 min journey, not to mention the nonsensical surcharges, and the fact that they are raising fares due to taxi companies being unable to rent out their taxis fully)
For lunch, we need at least $5-$6. (I can swing the lowest of $2 if I want)
Drinking cup of coffee from a franchised cafe is $5-$7 (Starbucks/Coffeebean? Why would a kid who is so concerned about savings buy $6 coffee when he can get the same at $1.10 each)
As if that's not enough, we have to follow what the government's campaigns, get married early to have babies young. (govt have been doing that for awhile now, but the cost of living is not helping. Funny thing is last time they were pushing stop at two, which they quickly found to be detrimental in the long run.)
I have to get a girlfriend first. And with that we will incur expenses from meals, drinks, movies and go overseas occasionally, plus gifting a few branded goods. If not even with the face of a superstar, no girl will want to be with me. (this is also some what of a social problem these days, guys who spoil girls and girls who likes to be spoilt are at fault.)
Some of us still want to further our studies, what about loans, mortgages and helping out with the family's finances? (at a certain point, you have to reduce your contributions to your family, your new family is important too right?)
And when it's time to get married, it cost at least $1000 per table. (its actually $1,200 now assuming 4 star hotel banquets, remember to pre-plan this 2 years in advance!!)
A wedding photo shoot will cost at least $3000-$4000 ($3k is the basic ones, mostly a size-able wedding photo shoot album costs about $4500 and up)
And all of these requires money, money and MONEY!!! (actually its whats afterwards that requires money.)
My generation of young adults don't demand a quality lifestyle. Is it even possible to not earn some money now, even if we were to live a life of the absolute basic? (this is not true, youths these days do not know the true value of money including myself. Otherwise, thrifty-ness shouldn't come as a challenge to them, kids these days are all about brands and it is also very accessible to own them. For eg, plenty of 0% installment plans for luxury watches and jewelry that do not cripple you right away but eat you like a slow disease).
You don't want to have a son to have to ask you to pay for his wedding and his house, do you? (Although no choice really, we need our parents help as much as we can get right now to do these things).
Yes, I admit that what I did to earn money is a little extreme (I don't know what he did).
I've made mistakes and I'm at fault, but my fault is because of what this society has made it to be! (I didn't watch the show to see what he actually did, so can't comment)
* for non-Sg readers, Singapore has conscripted army for all boys. It mostly occurs between their first tertiary education (junior college/polytechnic/ITE ) and their university education. It typically lasts 2 years.
For girls: after you've completed tertiary education, you can start your university studies
For boys: after you complete tertiary education, you take two years to serve NS before resuming university or starting to work.
Kids these days don't have it easy just like how our parents. Although it's a different kind of hardship, it is still difficult nonetheless. In the past, the struggles might be about poverty and low income related. But now, it's mostly about keeping up with others.
Our parents are always asking us to save up save up, it's a good concept but the rate of savings is always not enough. You need to learn to earn more money using your own money.
Out there, there's a lot of get rich schemes, short cuts to money, windfalls, etc.. But as some people say, as easy as you can get it, you also can lose it just as easily.
As far as making extra money goes, I think everyone should follow these few rules, most of them are quite self-explanatory:
- don't do anything illegal
- don't hunt people around you (for sales esp)
- you must be able to sleep well at night
- you must be able to sleep well at night
- you must be able to sleep well at night
- don't believe in rumours and do not buy on rumours
- don't believe in get-rich-quick scams
- do your homework when you are investing in anything
- always keep track of the money/expenditure for long term
- do not get into a lot of debt (some debt to free up cash flow is useful), even personal finances also require certain leveraging.
Although the saying: to buy the rumours and sell the news. But this only works when you position yourself ahead of retail stock investors and your position is able to make use of herd mentality to drive up prices.
Are you able to drop 10k on a share and wait for it to rise overnight? High returns also means high risk, there is no two ways about this, otherwise no one will be hedging.
But if you look at yourself, you are more likely unable to position yourself as such. Hence you should read up on value investing and really do some homework to generate the yields long term. Instead of studying what Warren Buffett buys today, you should see how he accumulates his wealth over time. He and Walter Schloss study a certain investment through and through. He know when will the shares of a wonderful company be truly cheap (under priced) and buys them to keep for long time. Think Coca-cola company, Gillette and IBM. That's what value investing is. He realised that Coke will be in business for a long long time.
Famous investors say a lot of things. But the one thing they all repeat and repeat and practise themselves without fail is: sleep well at night. Don't invest till you are so afraid and keep yourself awake at night. Its not worth it most of the time.
Cost of living will carry on to go up there is no doubt about it. Always remember your end goal. Your financial health at old age. You do not want to be working after retirement age.
Monday, January 26, 2015
Don't call us poor
I was watching this show the other day. You could catch on Toggle (disclaimer: not affiliated), you need to sign up to their account and also for some computers might need to download microsoft silverlight which is just a web based player (guess they hate quicktime, apple owned).
This documentary series delve into lives of various Singaporeans with low income and their lives in one of the most expensive cities to live in according to BBC, Singapore.
You can follow the lives of various people.
The one that gave me the deepest impression is Hong Chuan Chuan.
I am not here to judge her, but I feel that her children are suffering the worst. I do not believe giving her money will aid her situation in anyway and if anything, worsen the situation.
For good or for bad, everyone should give this a watch to get another perspective in life not seen often.
This documentary series delve into lives of various Singaporeans with low income and their lives in one of the most expensive cities to live in according to BBC, Singapore.
You can follow the lives of various people.
The one that gave me the deepest impression is Hong Chuan Chuan.
I am not here to judge her, but I feel that her children are suffering the worst. I do not believe giving her money will aid her situation in anyway and if anything, worsen the situation.
For good or for bad, everyone should give this a watch to get another perspective in life not seen often.
Thursday, January 22, 2015
Wednesday, January 21, 2015
Housing your goals
This post is assuming you know the rough idea of CPF repayment and interest rates.
This post is not about investing, studying markets like them gurus, although it involves investing your CPF money, but you do not need to do anything. Or provide any money, the risks involved is only based on govt ruling.
Although as of posting HDB loan interest rates is 2.6%, I consider it to be 0.1% more than the prevailing CPF Ordinary Account (OA) interest rate (currently 2.5%).
Flat price basis $300,000.00 (before grants).
Now, I was talking to my friend about getting HDB loans vs Bank loans, given the risk averse nature between me and my future wife, we would prefer the HDB loan rates and seeing the extra paid for interest versus the bank loans to be considered as for covering the risks of the ever changing market interest rates, which we have no way of keeping abreast of as neither of us are into finance and investment related.
My goal in future is to do achieve the following:
- pay for HDB with as little interest as possible
- meeting the minimum sum so that I'll be able to withdraw my CPF money timely
- really retire and enjoy life like they show in TV shows rather than be working at an old age
Firstly, basis assumptions on only owning one flat and the interest rates on all accounts remains the same or adjusted slightly.
CPF minimum sum requirement is adjusted to be less than 4% annually.
- pay for HDB with as little interest as possible
Assuming we do not get any help from parents, although if cash rich enough, its better to owe parents money than govt bodies.
Although you can have a loan tenure of 30 years, its still not worth it considering the extra interest rates. If your house is less than $400k, we current PMET salaries, it is not that difficult to scrimp and save for 10 years to repay everything.
Its not as daunting as it sounds, various things will help you get through,
Firstly is to first gather some cash aid from parents, as mentioned before, you would rather owe parents than owe bank or owe govt bodies. And also with HDB loans, you are able to make early payments and it is also some what less complicated.
Secondly, you have to set aside some cash and start early payments by 2nd year onward. The main aim is to help you minimise your money that is gone into the HDB loans and CPF and other nonsense that we do not understand like accrued interest.
- meeting the minimum sum so that I'll be able to withdraw my CPF money timely
A lot of people think that reaching the minimum sum is the end goal, but that's not it. Minimum sum is just sort of a major checkpoint in your CPF money.
However much the minimum sum is, you have to keep ahead of it as much as you can. The more you do that the more you can withdraw from your CPF accounts before the minimum sum is transferred to your Retirement Account.
The main thing you have to do is grow your CPF money to the point where at 50 years old (assuming you are working with monthly contributions) you have more money than the minimum sum. Here's how.
1) Before paying for your HDB, you take all the investible CPF money to buy some investments (more on that in future). Remaining $20k will be in your account (combine with spouse, you will have $40k). This money, will be used to pay your HDB down payments and a few early payments that you are comfortable with.
2) After that, once your HDB down payment is made, sell your whatever CPF investment and bring the money back or you could wait for it to mature if the returns is more than 2.5%
3) Now with this extra money back into your CPF, you can use your monthly CPF contributions + some of your cash to pay for the house monthly repayments. (For money completely set aside for interest rate growth, you can transfer this into your Special Account (SA), not a bad deal for risk free 4% annual interest rate.
4) with this plan, you can get quite a handsome sum due to compound interest by the time you are 50 years old.
Quick Maths for Basic 25 year old PMET; salary of $3000-$4000 per month
Sum in SA: S$27,000.00 (after this plan, this sum quite attainable at the age of 28-30)
Annual contribution: $2700 (easily attainable in by 28-30, and surely will increase, but assume $2700 for every year)
With the 4% in SA, you do not need to do anything, just your pay alone and with the magic of compound interest, you will have $184k.
This is not inclusive of your increased contribution due to pay increase, self top ups and the additional 1% for the first 50k in your combined CPF accounts.
Now assuming you keep this up for another 10 years, you will have more than $300,000!!! By working another 10 years. assuming you still have the same pay, you will gain $100k just on compounded interest. It seems magical but its not.
For this to work, you must understand that you must reduce some cash flow/get help from parents to pay up your HDB flat asap in order to reduce interest on your HDB loans as well as the confusing accrued interest.
General rule of the thumb, for your money to grow, your own money must have higher interest rates than your loans.
CPF OA - 2.5%
HDB loan - 2.6% (OA + 0.1%)
CPF SA - 4.0%
As you can see, so long your money surpasses or is equal to the prevailing minimum sum, you are able to beat any minimum sum adjustments (which is increases) with no effort on your part.
- really retire and enjoy life like they show in TV shows rather than be working at an old age
Alot of people sees the minimum sum to be the end point in accumulating money in CPF. But that should not be the case if you are earning 3-4k in your twenties, 5-7k in your thirties and so on. You should aim to have a substantial amount in your CPF above the minimum sum. That way, when the time comes, you are able to take out a bunch of money till only the minimum sum is left. This minimum sum will then go into your CPF life or whatever scheme for your retirement account.
The key indicator is find out based on your current contributions annually, how much will your end figure be at 50 years old. This should give you a good gauge of how much you need to contribute towards achieving the figure you want. Yes, use cash to top up CPF is foolish (for now), but when you are old and no energy, you definitely wished you had work harder when you were young.
Last point
This is a long windy post, perhaps the main takeaway is this, learn the formulas for loan payment and concept of compound interest. You can take your time with accrued interest concept (although this is never to your advantage since you are loaning/using money from elsewhere). For loan payment and compound interest, time is of essence. Mai tu liao. But just make sure you are very sure with what you are doing. My method may work due to my circumstances but may not work for you. So better use excel and work it out in actual dollars to put yourself in the real perspective. You maybe paying lesser now, but at the end of the day, these numbers really do add up.
This post is not about investing, studying markets like them gurus, although it involves investing your CPF money, but you do not need to do anything. Or provide any money, the risks involved is only based on govt ruling.
Although as of posting HDB loan interest rates is 2.6%, I consider it to be 0.1% more than the prevailing CPF Ordinary Account (OA) interest rate (currently 2.5%).
Flat price basis $300,000.00 (before grants).
Now, I was talking to my friend about getting HDB loans vs Bank loans, given the risk averse nature between me and my future wife, we would prefer the HDB loan rates and seeing the extra paid for interest versus the bank loans to be considered as for covering the risks of the ever changing market interest rates, which we have no way of keeping abreast of as neither of us are into finance and investment related.
My goal in future is to do achieve the following:
- pay for HDB with as little interest as possible
- meeting the minimum sum so that I'll be able to withdraw my CPF money timely
- really retire and enjoy life like they show in TV shows rather than be working at an old age
Firstly, basis assumptions on only owning one flat and the interest rates on all accounts remains the same or adjusted slightly.
CPF minimum sum requirement is adjusted to be less than 4% annually.
- pay for HDB with as little interest as possible
Assuming we do not get any help from parents, although if cash rich enough, its better to owe parents money than govt bodies.
Although you can have a loan tenure of 30 years, its still not worth it considering the extra interest rates. If your house is less than $400k, we current PMET salaries, it is not that difficult to scrimp and save for 10 years to repay everything.
What about the kids? From getting flat, the kid will come about 2-3 years living in, you will only have to live frugally for 8 years of the child's life from birth. I believe, these are the times where the kid spends the least of your money compared to when we are talking about puberty clothes, increase in materialism, social events your kid goes to is on you, tertiary education, vacations will be more frequent and costly as your child ages.Now that you have taken on the life of suffer-first-enjoy-later, you still cannot give HDB every single dollar you have every month. You have to keep some for yourself in rainy days and still have a loan, so the cost for striking a balance is now transferred to your HDB loan interest rate. How much are you willing to pay to keep yourself cash rich for this period of time till you complete payments of the HDB flat.
Its not as daunting as it sounds, various things will help you get through,
Firstly is to first gather some cash aid from parents, as mentioned before, you would rather owe parents than owe bank or owe govt bodies. And also with HDB loans, you are able to make early payments and it is also some what less complicated.
Secondly, you have to set aside some cash and start early payments by 2nd year onward. The main aim is to help you minimise your money that is gone into the HDB loans and CPF and other nonsense that we do not understand like accrued interest.
- meeting the minimum sum so that I'll be able to withdraw my CPF money timely
A lot of people think that reaching the minimum sum is the end goal, but that's not it. Minimum sum is just sort of a major checkpoint in your CPF money.
However much the minimum sum is, you have to keep ahead of it as much as you can. The more you do that the more you can withdraw from your CPF accounts before the minimum sum is transferred to your Retirement Account.
The main thing you have to do is grow your CPF money to the point where at 50 years old (assuming you are working with monthly contributions) you have more money than the minimum sum. Here's how.
1) Before paying for your HDB, you take all the investible CPF money to buy some investments (more on that in future). Remaining $20k will be in your account (combine with spouse, you will have $40k). This money, will be used to pay your HDB down payments and a few early payments that you are comfortable with.
2) After that, once your HDB down payment is made, sell your whatever CPF investment and bring the money back or you could wait for it to mature if the returns is more than 2.5%
3) Now with this extra money back into your CPF, you can use your monthly CPF contributions + some of your cash to pay for the house monthly repayments. (For money completely set aside for interest rate growth, you can transfer this into your Special Account (SA), not a bad deal for risk free 4% annual interest rate.
4) with this plan, you can get quite a handsome sum due to compound interest by the time you are 50 years old.
Quick Maths for Basic 25 year old PMET; salary of $3000-$4000 per month
Sum in SA: S$27,000.00 (after this plan, this sum quite attainable at the age of 28-30)
Annual contribution: $2700 (easily attainable in by 28-30, and surely will increase, but assume $2700 for every year)
With the 4% in SA, you do not need to do anything, just your pay alone and with the magic of compound interest, you will have $184k.
This is not inclusive of your increased contribution due to pay increase, self top ups and the additional 1% for the first 50k in your combined CPF accounts.
Now assuming you keep this up for another 10 years, you will have more than $300,000!!! By working another 10 years. assuming you still have the same pay, you will gain $100k just on compounded interest. It seems magical but its not.
“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.
-Albert Einstein
For this to work, you must understand that you must reduce some cash flow/get help from parents to pay up your HDB flat asap in order to reduce interest on your HDB loans as well as the confusing accrued interest.
General rule of the thumb, for your money to grow, your own money must have higher interest rates than your loans.
CPF OA - 2.5%
HDB loan - 2.6% (OA + 0.1%)
CPF SA - 4.0%
As you can see, so long your money surpasses or is equal to the prevailing minimum sum, you are able to beat any minimum sum adjustments (which is increases) with no effort on your part.
- really retire and enjoy life like they show in TV shows rather than be working at an old age
Alot of people sees the minimum sum to be the end point in accumulating money in CPF. But that should not be the case if you are earning 3-4k in your twenties, 5-7k in your thirties and so on. You should aim to have a substantial amount in your CPF above the minimum sum. That way, when the time comes, you are able to take out a bunch of money till only the minimum sum is left. This minimum sum will then go into your CPF life or whatever scheme for your retirement account.
The key indicator is find out based on your current contributions annually, how much will your end figure be at 50 years old. This should give you a good gauge of how much you need to contribute towards achieving the figure you want. Yes, use cash to top up CPF is foolish (for now), but when you are old and no energy, you definitely wished you had work harder when you were young.
Last point
This is a long windy post, perhaps the main takeaway is this, learn the formulas for loan payment and concept of compound interest. You can take your time with accrued interest concept (although this is never to your advantage since you are loaning/using money from elsewhere). For loan payment and compound interest, time is of essence. Mai tu liao. But just make sure you are very sure with what you are doing. My method may work due to my circumstances but may not work for you. So better use excel and work it out in actual dollars to put yourself in the real perspective. You maybe paying lesser now, but at the end of the day, these numbers really do add up.
Sunday, January 18, 2015
Weekly Budgeting
"Aiyo!"
Thats my reaction when I calculated how much I've spent for one week. For people who wants to make changes to their financial habits, instead of starting to look at stocks and shares trying to be the next oracle of tanjong pagar, I say you can...
Thats my reaction when I calculated how much I've spent for one week. For people who wants to make changes to their financial habits, instead of starting to look at stocks and shares trying to be the next oracle of tanjong pagar, I say you can...
Instead,if you follow me and carry a notebook around, you could start logging all your expenses. It includes everything you put money out for from your NETs and cash only. trip to trip doesn't count and items paid for using credit cards do not count.
After one week of logging, it puts alot of things into my prospective. I can now see what I spend on and perhaps try to cut on that one thing.
For this week, I spent a bit over $300!! Is quite high, but I spent $160 on valentine's day prep. Its costly but again, I'm not budget ken, I'm just cutting corners to afford for NICE THINGS in life. Although these nice things are for my girlfriend.
Feb and Mar are months which I bleed the most amount of money. Events include my girlfriend and mine's birthday, CNY, valentine's day, my mum's birthday.
Boomz...planning a sydney drive to melbourne trip. Fingers cross.
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