Thursday, 31 March 2016

How we manage our Retirement Funds

In my previous post, I wrote about how we distinguish between Financial Independence Funds and Retirement Funds. Although their purposes are not mutually exclusive, it's the timeline of drawdowns that differentiates the two. Before age 65 - 70, we intend to rely on our Financial Independence Funds heavily to enjoy "financial freedom". After age 65 - 70, we expect to rely more on our Retirement Funds to enjoy "retirement". As such, the management of our Retirement Funds is something we do in the background now for future use.

Weekend trip to Penang

By the way, I went to Penang for the long weekend with my wife and enjoyed the great food, street art, sights and sounds etc. I decided to go with one of the most famous street art piece in Penang as the picture in this post just for me to remember how much fun we had!
Monthly CPF contributions

Anyway, back to how we manage our Retirement Funds. Every month that we are employed, our employers contribute 17% and we contribute 20% of our salary (both compulsory) to our Central Provident Fund (CPF). As an introduction, CPF is a comprehensive social security system that enables Singaporeans to set aside funds for retirement and addresses healthcare, home ownership, family protection and asset enhancement. The contributions are allocated across the Ordinary Account (for housing, insurance, investment and education), Special Account (for old age and investment in retirement-related financial products) and Medisave Account (for hospitalisation expenses and approved medical insurance) in the percentages of 23%, 6% and 8% respectively. These percentage allocations of the contributions change over time.

As you can see, the Ordinary Account (OA) and Special Account (SA) receives about 29% of our monthly salary and that is a significant amount. This means that our Retirement Funds grow consistently as long as we remain employed, which continues to be a working assumption for now. If unemployment ever happens to us, the duration will determine the extent of the impact to our Retirement Funds and we will continue to monitor this.

Drawdown of OA

We use some of our OA for our housing loan i.e. we pay the monthly mortgage amount in cash and OA. The percentage split changes once in a while depending on the asset allocation. Our target asset allocation for Retirement Funds is 20%. When the asset allocation starts to differ significantly from 20%, the main mechanism we use to bring it back to 20% is to increase or decrease the withdrawal from the OA for the housing loan. That being said, we only make the adjustment when the differential percentage is big and this does not happen often.

Cash top-up to SA

We contribute cash to our SA as a top-up and this qualifies for tax relief. There are many valid arguments for and against contributing cash to our SA. Increasing our Retirement Funds and decreasing our tax liability are the main benefits of making the cash top-up. Losing liquidity especially in bad economic conditions like now can be damaging since there is a higher risk of retrenchment and we might need the cash if it happens. As such, the way we do it is to make a monthly contribution of S$100 each to our SA at the end of each month of work.

This still increases our Retirement Funds (albeit at a slower pace) and the tax relief is applicable since we are only doing the cash top-up for every month of work. Most importantly, we don't lose as much liquidity since the monthly contribution is small compared to our monthly salaries and it will stop if retrenchment is to happen. This is another mechanism we use to keep the asset allocation for Retirement Funds to 20% since we can increase or decrease the monthly cash contribution to our SA. However, this is usually our last resort since any changes to the cash top-ups to the SA is permanent and we try not to adjust the monthly cash contribution.

Transfer from OA to SA

Our target asset allocation for Retirement Funds is 20%. Once it starts to exceed 20% significantly, we transfer a certain amount of funds in our OA to SA to lock them in as Retirement Funds. The interest rate on the SA is higher than the OA, which means the effect of compounding on the SA is greater than the OA. However, we can't access the SA for any other purpose and we only do the transfer when we can confirm that the excess OA can be locked in as Retirement Funds in the SA.

This transfer from our OA to SA is irreversible. It doesn't change our asset allocation for Retirement Funds and is not one of the mechanisms we use to keep the asset allocation to 20%. It doesn't happen often and the transfers are not big amounts given that we are still young and depend on our OA for the housing loan. However, I anticipate these transfers to increase in frequency and size as we get closer to age 65 - 70.

Saturday, 26 March 2016

What are Retirement Funds

As an accountant, I find the P&L approach towards my Income & Expenses and the BS approach towards my Assets & Liabilities to be an effective way to approach my personal finances. After all, the numbers don't lie and are less open to interpretation. Every month, some of our income goes towards managing our expenses and reducing our liabilities, while the remainder of our income goes towards increasing our assets. However, there is a portion of our monthly income that we never receive as cash and this refers to the Central Provident Fund (CPF) contributions from our employers and us. These contributions get allocated directly to the Ordinary Account (OA), Special Account (SA) and Medisave Account (MA).
CPF is one of those topics that is almost always going to be mentioned in a personal finance blog. There is plenty of online content discussing CPF's merits and demerits. I reckon it is more useful for me to write about how CPF fits into our asset portfolio. This is important for us to understand considering how a significant portion of our monthly income is allocated as CPF contributions.

How do we view our CPF and Investment Portfolio?

We view the OA and SA as retirement funds (focus of this post) and the MA as medical funds. The purpose of our investment portfolio consisting of the ETF, Share and Other portfolios has always been to be a tool for us to achieve financial independence. This should allow us to focus on work activities that are rewarding & fulfilling and leisure activities that are fun & enjoyable without having to worry about money. This means that the investment portfolio should really be considered as financial independence funds. We tend to view this separately from the retirement funds.

What are Retirement Funds (OA and SA)?

If you think about it on a timeline basis, the financial independence funds are likely to be used more heavily until we are age 65 - 70, since we can still be active in our work and travel. After that, the level of work and leisure activities are likely to start dropping off. Although we expect the remaining financial independence funds to still have a key role to play in our retirement after age 65 - 70, this is where the retirement funds (OA and SA) really step up. In our view, retirement funds (OA and SA) offer a basic standard of living i.e. they should cover our monthly fixed and variable (discretionary) expenses. The rest of our monthly variable (non-discretionary) expenses should be covered by our remaining financial independence funds.

How we allocate funds to the OA and SA?

I have added an additional page (Asset Allocation) to the blog that should provide a good overview of our current asset allocations. The target percentage for the retirement funds (OA and SA) is 20% and the current percentage is about 17%. Since there are monthly contributions to the OA and SA as long as we work, these balances should increase gradually over time in tandem with the rest of our assets. The main considerations are for us to manage the draw down of the OA for our housing, the cash top-ups to the SA for tax relief and the transfers between the OA and SA. I will discuss these issues in the next post. 

Thursday, 24 March 2016

Global Bond ETFs

This is going to be a short update about actions I'm taking with our ETF Portfolio. The comment on my post about Choice of ETFs from Heidi Chua at Money Never Enough got me thinking about including a global bond ETF in our portfolio.
Although I considered her recommendation on the Vanguard Total Bond Market ETF (BND) trading on the NYSE, I decided to go with the following Vanguard Bond ETFs trading on the LSE instead:
For your information, VETY and VDTY were just listed for trading on the LSE a few weeks ago. I had to call Stan Chart Online Trading to inform them about these new ETFs as my orders for them were rejected. Once this issue is addressed and trading of VETY and VDTY are allowed for on Stan Chart Online Trading, I will start to purchase them as part of the global bond component of the ETF Portfolio. I have already started to include VGOV as this ETF was released a while back.

According to the 2016 estimated ETF distribution schedule, the distribution frequency is monthly and in GBP, EUR and USD. Having gone through the volatility in the equity markets the past year, I'm starting to have a new appreciation of diversified bond ETFs in the investment portfolio. Their returns may be lower than equity ETFs but they stabilise the portfolio and offer peace of mind in unstable times.  

Sunday, 20 March 2016

Overpaying for rent

Picking up from my previous post about blogging on the personal finance mistakes we have made, I was discussing how we graduated in 2009 in Melbourne. One of the most important decisions we made then was that we should move in together after graduation. This decision was borne out of necessity as it would have helped to reduce our cost of living in Melbourne when we started working.

That being said, we enjoyed each other's company and wanted to take the first serious step in our relationship by moving in together officially. I will walk through how we came to the decision to rent a relatively new 2 bedroom unfurnished apartment in the city close to our workplaces and paid more than 30% of our net monthly income in rent. I will write this post as a series of questions just to make it more interesting and you can draw your own conclusions.
Where did we choose to stay?

We were staying in student accommodation close to the university during our undergraduate days and wanted to move out to a "proper" apartment in the city. Since we didn't have family in Melbourne, we chose to stay in the city to be closer to our friends and to make it easier to go for a night out with them and our colleagues after work. Taking my unemployment at that time into consideration, I also thought it would facilitate going for interviews for job roles in the city. Although I did end up working in the city, I really should have considered job roles in the city fringe or suburbs close to the city.

The problem with staying in the city is that the rental cost will be higher than if you are to stay in the city fringe or suburbs. Yes, you save on transport costs from having to travel into the city but it still doesn't add up to the higher rent you will be paying. The savings on "transport time" was a big factor for us since we didn't want to spend too much time travelling to and from work.

Should we stay in a 1 or 2 bedroom apartment?

We wanted more space since we were both staying in small student accommodation apartments previously. We also wanted to be able to host our family, friends and colleagues at our place. This was despite the fact that we will probably be using the spare bedroom as a storage space for most of the time. We ended up paying quite a bit more in monthly rent for having that 2nd bedroom.

Should we stay in an older or newer apartment?

Our preference was to stay in a newer apartment although that would increase the monthly rent. The older apartments would have been fine but we wanted a nice place with a good view. This  was coming from a couple who has barely started working and with one half unemployed.

Should we rent the apartment furnished or unfurnished?

We didn't know how long we will be staying in Melbourne but decided on an unfurnished apartment anyway. We bought most of our furniture from Ikea but still ended up spending a lot of money on the TV, bed, sofa etc. The monthly rent on an unfurnished apartment is lower and it makes more sense to buy your own furniture only if you are planning to stay in the place for a long time. Although we ended up using our furniture for 4 years (moved most of them from Melbourne to Sydney but held to sell some of them off cheaply), it probably wasn't as much savings as we thought.

What was our budget for rent?

Notice how this most important question comes after those above? That's how we approached it then. As I was unemployed at the time of making this decision, the monthly rent for a relatively new 2 bedroom unfurnished apartment in the city would have been more than 50% of our monthly income (based on my wife's salary alone). This was where I made one of the biggest mistakes of projecting my income. I didn't think it would take a long time for me to find a job in accounting and I was anticipating a certain income level when I do find one. That way, we will be able to stick to the conventional 30% rule on rent i.e. monthly rent should not exceed 30% of our monthly income.

The problem was that projected income doesn't count as actual income and it took me 6 months to find a full-time job that could meet the required income level. Another problem was that Australia's personal income tax rates are higher than Singapore's and it runs on a Pay As You Go (PAYG) withholding tax system. This means that a certain portion of your monthly income is withheld for tax purposes. You can see how this reduced monthly cashflow will have an immediate impact on our budget especially when we didn't factor this in at the start.

Anyway, as part of my commitment to staying on in Melbourne, I brought over most of my savings from Singapore to Melbourne and told myself that if it runs out, I might have to head back to Singapore to find work. When I landed the full-time job after 6 months in Melbourne, I had A$300 left in my bank account. I only told my wife about this years after that.

Lessons learned

In Singapore, most young couples don't rent an apartment before moving out together but this tends to be the norm overseas. Having to find a rental apartment and budgeting for the monthly rent taught us about what we look for when finding a place and what we can afford. For example, we were willing to pay more to live in or close to the city to save on travelling time but didn't need to pay extra for a bedroom we weren't using. In fact, buying the furniture together made us aware of our design asthetics early on in the relationship!

We realised we have to budget based on our existing and not anticipated income. This sounds like common sense but you will be surprised how hard it is to keep an objective perspective when you see an apartment you like. We got better with managing out rental situation when moving to Sydney but still ended up paying more simply because rental costs in Sydney are higher than in Melbourne.

During our lease renewal negotiations after one year, we found out that the owner was selling the apartment. The new owner was initially planning to stay in the apartment but decided to allow us to continue to rent the apartment. However, the new owner was raising the monthly rent by quite a bit. We went with a 2 year lease to minimise the next rent increase and prevent us from getting kicked out anytime soon. As you can imagine, we incurred higher break-lease costs when we decided to move to Sydney after one year. Sometimes, it's better not to jump the gun and just let things play out.

Ultimately, managing our rental costs helped us to improve our budgeting skills. It's funny how overpaying for rent made us better at managing all the other monthly expenses like utilities, broadband, groceries, entertainment etc. That's how it works in real life, as long as you keep trying and learning, you will continue to build up your life experience and end up with having something to share even when you make a ton of mistakes like us!

Friday, 18 March 2016

Looking back at the mistakes we made

I just realised I have written 3 consecutive posts on bank accounts for expense, emergency and investment funds. Goes to show how much I value taking the time to sort out your bank accounts. I actually went through this exercise with my sister. Her monthly salary was being credited into a POSB eSavings Account that was earning 0.05% pa. My sister submitted a form to HR to change the bank account to the OCBC 360 Account and now earns 1.2% pa just from the salary credit. It was easy enough to make 3 monthly bill payments online or through GIRO since she just had to change from the POSB eSavings Account that she was already making bill payments from for income tax and credit cards. That got her another 0.5% pa. My sister is now earning S$50 more per month from doing exactly the same things she was doing before, just with a different bank account.

Why write about Personal Finance?

I wonder how many people there are in the same situation, with the potential to earn higher interest income just by organising your bank accounts. Always start with the low-hanging fruit and focus on the basics of passive income before you start to think about investing!

This is the whole point of me writing about personal finance. I was one of those people! I made the mistake of not looking into my bank accounts after returning to Singapore from Australia in 2014 and went through a year of working with my salary being credited into the POSB eSavings Account. It just never occurred to me that I should review my bank accounts to earn a higher interest income. By making these mistakes and writing about what to do with your personal finances, I hope to shorten your learning curve so you won't make the same mistakes.

This post is harder to write than I thought. The thing is, I want to write about the positive actions that you can take to improve your situation. With personal finance, it's easy for me to write about the "good" things that I have done which is working out but leave out the "bad" stuff that I did which have or continue to impact my life negatively. Here's to a series of posts (not consecutive cause I might want to stop writing permanently if I do it that way) about the mistakes we have made in our life. You can draw your own personal finance lessons from our experience. For me, it works more like a flashback to our past and a walk down memory lane. Who doesn't like to reminisce?

Where we stayed in Melbourne
Where we stayed in Sydney

Can you guess where we stayed in Melbourne and Sydney from the pictures above? The 4 years we spent working and living in Melbourne and Sydney have taught us the most about money so far. We have so many good and bad experiences from our time there that I might actually write about all of that eventually. Although we spent 3 years studying in Melbourne before that, it was more about having fun, meeting new friends, attending lectures & tutorials and having even more fun! Life as a working adult overseas sure is different from life as an undergraduate studying overseas. Let's start from the beginning...


When we graduated from university in 2009 in Melbourne, I was unemployed and trying to find work in 2010.  I underestimated how difficult it would be for an international student to find work in a foreign country right after the 2007/2008 Global Financial Crisis. Long story short, I found work as a professional training course sales consultant, administrative assistant before landing a full-time job as a tax accountant at an accounting firm. This was over a period of 6 months and it's probably worth a post just on my take about graduate unemployment and underemployment. My wife found a full-time role as an accountant at a bank earlier than me.

We were both struggling with being away from our families on a much more permanent basis, having to learn how to live together after just graduating, and adjusting to the working couple life. You can see how this makes for an environment to make plenty of mistakes in. I will write about the first big personal finance mistake we made on rental costs in another post!

Sunday, 13 March 2016

Which Bank Account - Investment Funds

This should be my last post on the bank account series for now. Previously, I had blogged about accounts for expense funds and emergency funds. This post will be about investment funds i.e. cash holdings held for the purpose of investing in ETFs, shares and bonds. The account housing these investment funds should have more banking activity than the one for emergency funds but less banking activity than the one for expense funds.

Ideally, there should be no link to a credit card since it's only going to encourage you to spend more to meet the requirements to obtain the higher interest. In our case, we already have the OCBC 360 account linked to the OCBC Robinsons and OCBC 365 credit cards as well as the UOB One account linked to the UOB One credit card. I might blog about the POSB Everyday and Citibank Premiermiles credit cards we use for public transport, overseas spending etc in another post. They capture most of our monthly spending and I must point out that it does require a high level of discipline to manage these accounts and credit cards.
Investment Funds

I started out using one bank account to store the investment funds - CIMB FastSaver Account. I could open this account online (i.e. no trip to the CIMB branch) and the interest rate of 1% pa is earned on the entire account balance as long as it is above S$1,000. There are no conditions attached (i.e. no credit card spend, salary crediting or online banking transactions etc) and no fall below fee.

Think about the nature of investment funds and you can see why this account is a good fit. At times, I can draw down on the balance significantly when I'm investing during a bear market. Other times, the balance stays the same or increases slightly when I'm not investing and just add cash holdings to it. However, the balance should almost never increase excessively since my investment plan (especially with the ETF portfolio) requires us to stay vested in the market for a long time. I also don't spend these funds on anything else because I try to maintain separation from the expense and emergency funds. With the CIMB FastSaver account, I get the 1% pa on the account balance, which is not the highest interest rate achievable but it's higher than most savings accounts. In exchange, I get quite a bit of flexibility when managing this account.

Why not just the CIMB FastSaver Account?

As part of setting up my Stan Chart online trading account, I had to set up a Stan Chart e$aver Account. Over time, I started noticing Bonus Interest promotions like this. When you transfer fresh funds into the e$aver account, you earn bonus interest (above 1% pa) on the incremental balance for a 2 month period. There are similar Bonus Interest promotions on other accounts such as the UOB Uniplus Account with a slightly different 2 month period. I realised that by rotating the investment funds between the CIMB FastSaver, Stan Chart e$aver and UOB Uniplus accounts, I could increase the average interest earned above 1% pa. The funds transfers between the accounts can be done using Fast and Secure Transfers (FAST) and I can move the funds around on internet banking in one or two online transactions. This requires more active management of the investment funds but I have been doing it for a while now and it's just a matter of getting used to it. Anyway, it really does make a difference on the interest earned especially when you have a significant balance. After all, more effort is required to translate to a higher return.       

Thursday, 10 March 2016

Which Bank Account - Emergency Funds

This post is a continuation of my previous post on which bank account to use for expense funds. As I have mentioned previously, a good starting point for your personal finances is to sort out your bank accounts to maximise the interest earned. It's a one-time exercise to work this out and you get rewarded with subsequent higher monthly interest earned as long as you meet the requirements of the bank account. In Singapore, there tends to be a link between your bank account and credit card to earn the higher interest. For example, our OCBC 360 bank account third bonus interest of 0.50% pa is linked to the spending on our OCBC Robinsons and OCBC 365 credit cards.
Emergency Funds

I have been trying to insert basic images to illustrate my point, just so that the post won't be filled entirely with words. Hope this makes it more interesting to read and remember! Anyway, the bank account housing your emergency funds should be quite dormant i.e. minimal banking activity. If you can automate the transactions required to meet the higher interest rate requirements, do it just so that you can reduce the level of monitoring required for this account. Again, I will use my UOB One bank account as an example. You can refer to the UOB One Account website for more information and there are many articles on the internet comparing this account with the OCBC 360 bank account. For this to be useful, I will write about how I structure the UOB One account so you can apply the same logic when choosing your emergency funds account.

Bonus Interest

The bonus interest rates available for the UOB One bank account are different depending on the amount of funds you have in the account. In our case, we have S$50,000 of emergency funds, which means we get to the highest tier of bonus interest rate. Any excess amount above S$50,000 earns 0.05% pa so you are better off depositing the excess amount in another account that earns more than 0.05% pa (of which there are plenty).

UOB One Credit Card S$500 Calendar Month Spending

If your salary is already being credited into another bank account (like the OCBC 360 account in my case), you no longer have the option of crediting your monthly salary of minimum S$2,000 into the UOB One account. Unless you have a partner that can meet this salary crediting requirement (in which case he/she will manage the emergency funds), the alternative is to spend S$500 on your UOB One Credit Card each calendar month. How this UOB One credit card works can be quite complicated and I recommend reading the website to understand this. Essentially, you need to have at least 3 transactions for each billing monthly cycle where the total amounts exceed S$500, S$1,000 or S$2,000 over a period of 3 billing monthly cycles to enjoy S$50, S$100 or S$300 of quarterly rebate. Confused yet? Go read the website because it helps!

Notice how I put calendar month and billing monthly cycle in bold? This is important because the timing of the S$500 spending can impact either the bonus interest earned on the UOB One account or the quarterly rebate earned on the UOB One credit card. I will use my recent personal experience for Feb 2016 as an example. I spent S$500 on the UOB One credit card but did not get the bonus interest on the UOB One account. The reason was that my billing monthly cycle (13 Feb 2016 to 12 Mar 2016) is not the same as the calendar month (1 Feb 2016 to 29 Feb 2016). Hence, some of my transactions between 1 Mar 2016 to 12 Mar 2016 were not counted as the Feb 2016 calendar month spending. As such, my spending for the Feb 2016 calendar month was below S$500 and I didn't get the bonus interest on the UOB One account. Makes you wonder why I still stick to the UOB One account and credit card yeah? I hope I can convince myself by the end of this post.

The biggest benefit of the UOB One credit card is that it counts most transactions towards the S$500 billing monthly cycle spending to get the 3.33% quarterly rebate. Unlike the OCBC 360 credit card that mainly offers 3% - 6% rebates on dining, groceries and certain online spending (excludes telco bills), you can see how the UOB One credit card can soak up other types of spending such as telco bills, shopping and personal care appointments. Usually, we charge our monthly telco bills (Singtel and Starhub), groceries, shopping and dining expenses to the UOB One credit card first to meet the S$500 calendar month spending requirement. This allows us to get the bonus interest on our emergency funds in the UOB One account, which is more important to us than the OCBC 360 bank account third bonus interest of 0.50% pa from meeting the OCBC credit card spending requirement.

Pay 3 bills monthly via GIRO

Currently, we paying our UOB One credit card bill monthly using GIRO from the UOB One bank account. Note that this has to be set up by submitting a GIRO application form to UOB. We are also paying our IRAS income tax and property tax bills via monthly interest-free instalments from the UOB One account. This can be applied for online using UOB internet banking.

Why the UOB One Account?

As you can see from the above, other than the S$500 calendar month spending on the UOB One credit card, there is minimal monitoring required of the UOB One bank account. After all the GIRO deductions have been made for the monthly bills, we just top up the UOB One account balance back up to S$50,000 at the end of each month. Less effort but more interest! 

Wednesday, 9 March 2016

Which Bank Account - Expense Funds

When we were in Australia, the bank accounts to be opened were quite straightforward. We opened transaction accounts with the major banks and the interest rate on these accounts is about 0.01% pa. To get a higher interest rate,  we opened online saver or isaver accounts and put most of our savings there and the interest rate on these accounts vary according to the cash rate set by the Reserve Bank of Australia. In the current low interest rate environment in Australia, the interest rate on these online accounts is about 2.50% pa.

In Singapore, the process gets more complex if you want to earn a higher interest rate on your savings. Generally, the interest rate on most transaction accounts here is about 0.05% pa. Fixed deposit accounts tend to be a popular way to earn higher interest but the cash gets locked up for a period of time. What I will write about in this post and the next few posts is how you can set up your bank accounts to earn higher interest without relying on fixed deposits. I will also write about the bank accounts I use as suggestions on how to structure these accounts for the 3 main purposes of cash holdings - Expense, Emergency  and Investment. Ideally, you separate these 3 groups of cash holdings in different bank accounts but it's possible to mix them in the same bank account if you are disciplined enough.
Expense Funds

Since this is your main transaction account, you need to look for a bank account that rewards a higher level of banking activity. If you work in a retail bank, you are often required to credit your salary in a bank account with the same retail bank. Hence, that might be a good place to have a look first but do remember that there are a number of options out there. For illustration, I will use my OCBC 360 account as an example. You can refer to the OCBC 360 Account website for more information and the many articles on the internet about the benefits and cons of the account. I will write this from my perspective so you can see how you can apply the same logic in choosing your expense funds bank account.

Bonus Interest
  1. For you to even consider the OCBC 360 account, you must be able to credit your monthly salary of at least S$2,000 through GIRO and that gives you the first bonus interest of 1.20% pa. If you don't have this option to credit your monthly salary into the OCBC 360 account, you are better off searching for another bank account.
  2. To get the second bonus interest of 0.50% pa, you have to pay 3 unique bills online or through GIRO. Unlike the UOB One account whereby the bill payments have to be through GIRO, you have the option to pay these 3 bills online for the OCBC 360 account. This makes it useful for the payment of credit card bills with different banks.
  3. For the third bonus interest of 0.50% pa, you have to spend at least S$500 on your OCBC credit cards monthly. We use the OCBC Robinsons and OCBC 365 credit cards to meet this requirement. Basically, if you shop at Robinsons & certain retails stores, buy groceries, dine out and do online shopping, you should be able to meet this requirement.
  4. The fourth bonus interest of 1% pa is on incremental account balances from month to month.
  5. The fifth bonus interest of 1% pa for 12 months is only relevant if you purchase a new insurance or investment product from OCBC.
Why the OCBC 360 account?

Given the link between the OCBC 360 account and your salary, credit cards and bill payments, the number of monthly transactions will require more monitoring of this account. This makes it useful as a bank account to store your expense funds. Since you will be drawing down this account to fund your expenses on travel, dining, entertainment etc, it helps to have the salary credited into this account so you won't have to keep topping it up. The account also rewards you for not spending since the fourth bonus interest of 1% pa on incremental account balances is like a benefit for any build up of your expense funds. Since any amounts above S$60,000 do not earn the bonus interest, that should be the limit for this bank account. In any case, you really shouldn't have S$60,000 of expense funds unless you have mixed in emergency funds as mentioned above. You will have to be more disciplined when it comes to tracking your spending and managing this account if you have a mix of expense and emergency funds.

Instead of mixing in emergency funds, you can allow for the build up to S$60,000 and call any excess amounts above the required level of expense funds as "Joker funds". You see, the way I view savings is any unspent cash in my bank accounts i.e. cash holdings. However, there has to be an objective for these savings and my 3 main purposes are  - Expense, Emergency and Investment. The reason why I have Joker funds is when I have met my target asset allocations for the 3 groups of cash holdings and there is excess cash. These Joker funds can essentially take on the nature of any of the 3 groups of cash holdings. Although it seldom happens, it's a good feeling when I realise I have Joker funds since that's like having a trump card up my sleeve. Most of the time, I use these Joker funds to invest into the ETF and Share portfolios. For the rest of the time, it gets used on special trips like our first ski holiday in Niseko last Christmas. That's how we keep motivating ourselves to work hard on this journey to Financial Independence!

Monday, 7 March 2016

Other and Investment Portfolio

I have decided to take a break from writing about Google Sheets. I should go back to it eventually since there is a lot of material to cover but I might write about other topics in the meantime. Previously, I didn't think I was going to disclose any more personal finance information as I had written about our ETF and Share Portfolios as well as the passive income received. However, I reckon it would be good to show the Other Portfolio to have a better illustration of our Investment Portfolio.
 What does the Other Portfolio consist of?


We hold corporate bonds instead of Singapore Savings Bonds (SSBs) to have a higher yield on our investment. After all, these bonds form part of our investment portfolio and the SSBs are a more suitable vehicle for our emergency funds. We try to keep a lookout for retail bond issuances and allocate small sums to different corporate bonds.

Wholesale Life Insurance Policies

These are essentially life insurance policies with cash values (i.e. surrender values) that grow over time. Our parents bought these wholesale life insurance policies for us when we were young and we have taken over the payments now that we are working. Since these policies are what I call legacy assets, we have opted to retain them in our investment portfolio.

Investment Cash Holdings

We hold cash for investment purposes, to be used especially during market dips and bear markets. We try to consistently invest some of these cash holdings every month since we try not to time the market. However, it really only gets drained during bear markets and we just used a chunk of it in Jan and Feb 2016. As discussed in my previous post about asset allocation, we try to allocate a percentage of our savings each month to this component.

Investment Portfolio

The ETF, Share and Other Portfolios form our Investment Portfolio. I won't be disclosing the figures and percentages of our other cash holdings for emergencies & expenses and retirement funds. That gives too complete a picture of our Total Portfolio i.e. our entire assets. Maybe at a later time when we are more advanced in our journey to Financial Independence but we shall see.

For now, I should only track our Investment Portfolio on this blog. It's important to understand the relationship between the ETF, Share and Other Portfolios with reference to your asset allocation strategy. The main reason why I decided to disclose our Other Portfolio was because I felt there were gaps when I was explaining our investment approach. You see, although we try to invest every month, it really depends on how the market is like for the month. If it's trending upwards, we invest less and if it's trending downwards, we invest more i.e. gradually increase our ETF and Share Portfolios over time.

The point I wanted to highlight is that this does not mean we force ourselves to invest all the time. Any cash not invested just increases our investment cash holdings. Yes, the ETF and Share Portfolios can grow very slowly in some months but that's okay, because it means your Other Portfolio is growing more quickly. The key is that your Investment Portfolio in its entirety is still increasing. Sometimes, we focus so much on trying to increase our ETF and Share Portfolios that we forget it's okay not to invest. This just means we have more cash holdings in our Investment Portfolio but it is also considered to be taking a position. By reflecting the Other Portfolio as well, we try to capture this concept when tracking our Investment Portfolio.

Thursday, 3 March 2016

Google Sheets - Assets - Cash and Stocks

As discussed in my previous post on why you should use Google Sheets for personal finances, I will outline how to use it in this post. I will be referring to my Google Sheet and how it is set up for illustration purposes. However, I recommend you take the time to prepare your own Google Sheet instead of using templates that are available online. By building your own Google Sheet one cell at a time, it will give you an insight into your personal finances since you have to work out why the information is in the Google Sheet and how best to illustrate it.

How to use Google Sheets?

Basically, it works like an online Excel spreadsheet but its functions are limited. You won't get the wide range of functions like Microsoft Excel but you will have enough for the purposes of your personal finances.

Why not Microsoft Excel?

Interesting question I have been asked quite a bit. You definitely can use a spreadsheet on Microsoft Excel to track your personal finances. The main reason I prefer to use Google Sheets is that it is better for online work as I pull data (e.g. prices from Yahoo Finance and Google Finance) into the sheet from other websites. The other reason is that Google Sheets is better for collaboration since my wife and I can work on the sheet simultaneously and update it online from anywhere.

The first tab in my Google Sheet is for my assets. I had mentioned in an earlier post about the importance of asset allocation. To be able to push funds into your various assets to reach your target asset allocation, you must first be able to track the value of the assets. I will describe the basic components of my Assets tab here to help you along. My wife and I have separate Assets tab which we combine into a total Assets tab.

Singapore Cash
  • Emergency Funds (Bank Account Name) - $ Amount - % Proportion of Total Cash
  • Spending Funds (Bank Account Name) - $ Amount - % Proportion of Total Cash
  • Investment Funds (Bank Account Name) - $ Amount - % Proportion of Total Cash
The bullet point represents a different row and the hyphen represents a different column. I group my cash into 3 categories per my asset allocation and each category serves a different purpose. You can have more than the 3 categories but they are sufficient for me. Each category of cash can be held in more than 1 bank account but the key is to separate the different categories of cash. I usually update the figures at the end of each week to see how my cash levels are from income earned and expenses incurred for the week. I also try to add hyperlinks to the internet banking websites of the various bank accounts so I can click into them and login to access my online banking information.

Overseas Cash
  • Overseas Funds (Bank Account Name) - $ Amount - % Proportion of Total Cash
Yes, you can split this into the 3 categories if you want. For me, I prefer to see it in one line because of the nature of these funds. I hold cash in Australia because I studied, worked and lived in Melbourne and Sydney. It's a country I return to often and makes sense for me to leave some of my savings behind when I left Australia and returned to Singapore. It functions as Spending and Emergency Funds.

Since the funds are in A$, I use this formula to pull the AUD:SGD exchange rate from Google Finance to convert the A$ into S$:

Since I am now living and working in Singapore, it makes sense for me to do this foreign currency conversion on my Google Sheet since I am viewing my assets from a S$ perspective.

Singapore Stocks
  • Name of Share (Ticker Code) - Number of Shares - $ Sell Price or $ Last Traded Price - $ Value - % Proportion of Total Stocks Value 
I prefer to have an overview of the value of the stocks and a more real-time update of the share portfolio in my Google Sheet. When I first set up my Google Sheet, I was updating the price of each share manually at the end of the week. You can imagine the amount of work that went into this. Subsequently, I realised you could use a formula to pull price data into the sheet. Despite working in accounting in an office and being relatively proficient in Microsoft Excel, I still have no idea to this day why it took me such a long time to realise there had to be a formula to replicate what I was doing manually!

At first, using OCBC Bank (Ticker Code on SGX is O39) as an example, I used this formula: =GoogleFinance("SGX:O39","price")

However, this formula no longer works because Google Finance does not support SGX anymore. Nevertheless, pulling last traded price data from Google Finance on Google Sheets works well and I use it for the other stock exchanges. I must point out that the search for another formula to pull Singapore share price data from another website was long and frustrating. I had to do quite a bit of research and tested multiple formulae I found from different websites before finding one that worked reasonably well.

To save you time, I will write out the formula I use now to pull Singapore share price data from Yahoo Finance:
=value(substitute(Index(ImportHTML(ʺʺ,ʺtableʺ,2), 4,2),ʺ*ʺ,ʺʺ))

One of the readers (Steven) commented that when you copy the formula into the Google Sheet, it doesn't work. I tried this and it really doesn't work. Yet somehow, the same formula is working on my Google Sheet. I was able to rectify this by retyping or replacing the quotation marks " " of the copied and pasted formula in the Google Sheet. This means that when you copy the formula into the Google Sheet, you have to retype or replace the quotation marks " " using your keyboard to activate the formula. It should work after that!

Notice the number "4" in the formula above? This pulls the sell price data of the Singapore share from Yahoo Finance. If you change it to "1", that's the previous closing price data. If you change it to "2", that's the opening price data. If you change it to "3", that's the buy price data. This formula updates the price of the Singapore share automatically and gives you a more real-time feed of the value of your stocks. Because I use the number "4", which pulls sell price data, it sometimes comes up with an error (#N/A or #REF!) because it's live data that changes and this fluctuation can cause problems when trying to retrieve the price from Yahoo Finance. Nevertheless, this does not happen often and it usually goes away by itself after a while, which means you just need to click into your Google Sheet at a later time for an error (#N/A or #REF!)-free update.

Overseas Stocks
  • Name of Share (Ticker Code) - Number of Shares - $ Sell Price or $ Last Traded Price - $ Value - % Proportion of Total Stocks Value 
Again, you can use the Google Finance currency formula to do the foreign currency conversion. It's likely that you can also use the Google Finance formula to retrieve last traded price data for overseas stocks.

Using ANZ Bank (Ticker Code on ASX is ANZ) as an example:

This formula is more stable than pulling price data from Yahoo Finance and is almost always error (#N/A or #REF!)-free.

There you have it - how I construct the basic cash and stocks components of my Assets tab. I will cover the other components in another post because there is already quite a bit of detail in this post. In any case,  you can use the above as a starting point and develop your own template with additional information. What's important is that it will become your own Assets tab and you will be more inclined to monitor and update it regularly!

Tuesday, 1 March 2016

Why you should use Google Sheets for personal finances

I only started tracking our net worth on Google Sheets in 2015. It's unbelievable how useful this tool is and I can never quite understand why I didn't do it earlier. It was only after the size of the investment portfolio becoming significant that triggered the need for me to have a better tracking system. That being said, I track our Singapore portfolio on SGXcafe and it's a great tool for monitoring the portfolio. I use Google Sheets to monitor our total assets, liabilities, income & expenses; so the market value of the Singapore portfolio is included but I rely on SGXcafe to track the average price, unrealised gains & losses etc of the various Singapore stocks. If you have no idea how and where to start with managing your personal finances, I would recommend getting all the relevant information down into a Google Spreadsheet as your first step.

What is a Google Sheet?

Firstly, you have to sign up for a Gmail account. After you have logged into your Gmail, you can click into the Google Apps on the top right hand corner and access your Google Drive. From there, you can create a new Google Sheet (the one with the green document icon beside it).

Basically, it works like an online Excel Spreadsheet and you can update it from anywhere as long as you have access to internet connection and Gmail.

Why Google Sheets?

In the US, there is a personal finance tool called Personal Capital. Many of the personal finance and investment bloggers recommend this tool as a good way to track your saving, investment, retirement accounts etc. Since it's a US-based personal finance tool, I tried searching for something similar in Singapore but realised we don't have an equivalent here yet. Hence, the alternative is to use Google Sheets to track my saving, investment, retirement accounts etc. Although you can update the information on the Google Sheet from anywhere, it's a manual process prone to error and can be time-consuming. However, this appears to be the best alternative until we have an equivalent of Personal Capital here in Singapore. In my next post, I will write about how to organise the sheets in your Google Sheet as a way to track your personal finances.

Why track your personal finances?

In my previous posts, I wrote about the Balance Sheet (BS) - Assets & Liabilities and Profit & Loss (P&L) - Income & Expenses statements. Understanding their relationships and how they impact each other is essential to your wealth-building journey. To do that, you must be able to track their actual and percentage figures. If not, you will have no idea whether you are making any progress at all. You can read my next few posts about how I organise our Google Sheet as a starting point. Definitely take the time to prepare your own BS and P&L on Google Sheets and you will be amazed at what you can find out!