Friday, 29 July 2016

Why my wife is not interested in personal finance

My recent posts have been less about the numerical aspects and more about the psychological aspects of personal finance. It gives me a broader range of topics to write about than just providing financial updates on our net worth, asset portfolio and investment income. Plus it's more fun that way!

I also realised my wife is starting to feature a lot more on my blog despite her not having contributed a post yet. Maybe one of these days, I might get her to write a guest post about her perspective on personal finance and my attempts at managing it.

Actually, I'm not sure whether that's ever going to happen. You see, I don't think my wife is reading this blog as much as she says she does. And I reckon it comes down to her just not being interested in personal finance. I'm going to try and explore why this is the case in this day and age.
This is not going to be one of those articles about the differences between men and women financially. There is a lot of online material about this topic and I doubt there's anything useful I can add to the general debate.

What I can write about is my observations on the relationship between my wife and personal finance. It will be more personal and not a generalisation of the relationships between women and finance. After all, it's the specifics that are unique to each situation that can change the dynamic of such relationships.

Before I go any further, I should introduce my wife. FYI, the above picture is a representation of her and it's not intended to be a sexist illustration of what I'm about to discuss. The next best thing I could do is to have an actual picture of her but that's not happening since I do not intend to reveal our identities.

My wife grew up in a family where both her dad and mum worked. My father-in-law did well in his career (he had a demanding but well-paid job) and stopped working in his 40s due to certain circumstances. My mother-in-law's career (her job was less demanding with decent pay) plateaued when my wife and her brother were young but subsequently picked up as they got older. She's basically at the top of her game now.

I can't emphasize enough the importance of the upbringing of my wife and the role model she had in my mother-in-law. As much as a child has his/her character and personality traits, much of his/her interests and behavioural traits are picked up from young. These are difficult to change when you grow up and usually ends up being reinforced.

From my observations, these are some of the life lessons my mother-in-law may have inadvertently passed down to my wife growing up. As a career woman, the first lesson my mother-in-law taught my wife was that she should earn her own money. This is possible even with children but it really depends on how demanding the industry and job position you work in.

However, my mother-in-law also managed more of the family matters despite my father-in-law being at home most of the time. On top of being tired from work, my mother-in-law gets even more exhausted from dealing with the emotional stress of family matters. Lesson number 2 - Men still see women (even if they have jobs) as the primary caretaker in the family.

Here comes the kicker. My mother-in-law ends up with a limited amount of time to do everything else and she spends it on leisure activities like travel, personal care appointments and shopping. Although my mother-in-law makes her own money, my father-in-law manages the credit card payments, bank accounts and investments. Lesson number 3 - Men should manage more of the financial matters of the family.

In this environment, you can see how my wife has grown up to manage her own life in reaction to these lessons. My wife has built a career but is willing to let it plateau (not give it up) if we have children. She prefers to let me manage our finances as long as I update her on the progress. However, she expects me to be a lot more involved in family matters (for now - housework, grocery shopping, cooking etc).

I read a lot of blogs and websites focused on helping women succeed financially. This is important when you consider the financial requirements of women can differ significantly from men due to personal circumstances. But my wife rarely reads any of those blogs & websites and you would think she belongs to the targeted demographic.

If my wife is not interested in personal finance, why would she read the online material in the first place? She rather click on gossip, personal care and shopping websites than on personal finance ones. That's not to say my wife doesn't care about our personal finance situation and is happy to track it but won't do any more than necessary to manage it.

I really think you have to trace back to the upbringing to pin point the origins of these personal finance behavioural traits. They might only change in the event of significant life events but bear in mind that without first developing the interest in personal finance, there aren't likely to be any major changes.

I'm not saying this is a bad thing and it's just a matter of what we have to work with. In fact, this simple approach to personal finance where my wife focuses on her job but understands the need to have a growing investment portfolio is the main reason I set up the ETF portfolio for her. Much less research and maintenance are required compared to a Share portfolio. In fact, my wife's savings are solely channelled towards building her ETF portfolio on a DCA approach.

Anyway, I can't seem to get my wife any more interested in personal finance other than her periodic checks on whether her savings, ETF portfolio and retirement funds are growing. Ultimately, I reckon this simple approach to personal finance works for my wife and she prefers doing all the other more interesting things that make her happy.

Tuesday, 26 July 2016

The roles of privilege, luck and adversity

Have you noticed I have been posting more frequently lately? That's because my team has been completing the various tax advisory projects recently and we are at the proposals stage for the next wave of work.

The good thing is that it's less busy in the office and I have more time to produce higher quality tax advice or do my own research. The bad thing is that time passes more slowly and you get nervous about not having enough work to keep you busy. Just one of the many interesting aspects of having a job in the office.

Although I have more time on my hands, I find myself doing less with our asset allocation. The whole process of increasing savings & investments while reducing expenses gets quite automated after a while. We make the adjustments in our actions and wait for their effects to determine whether further changes are required.

This leaves us with more time to spend with each other and with our families & friends. It also got me thinking about how we got ourselves into this position. It definitely wasn't just because we worked hard because that wouldn't have been enough.

The purpose of this blog is to document our journey to financial independence (if we ever get there). As readers, you might not identify with some or most of our personal circumstances. That doesn't mean there is nothing to learn from what we do. I frequently read the posts of local and international personal finance bloggers at various stages of their lives and with very different personal circumstances.

The key is to find motivation and learning experiences that are relevant to you. Or you can choose not to read about us at all. But being upfront and honest about the circumstances of our journey should only make this blog more useful.

There is a reason why I will not be discussing the importance of attitude, humility and working hard & smart in this post. It's because these are behavioural characteristics that we should work on and strive towards but the positive changes can be made every day.

The interaction of privilege, luck and adversity is less tangible and understanding their roles in our journey should give us a better understanding of where we are now and where we should be headed.
Privilege

I'm going to write about the privilege we have enjoyed so far first because I reckon it played the most important part in getting us the headstart we had. The opportunity to study overseas in Melbourne without student loans, the initial financial assistance with living costs when we just started work, the support we had when moving from Melbourne to Sydney and Sydney to Singapore etc.

These are just a few of the many examples of privilege that we have been provided with in the last decade. They allowed us to reduce the stress of making it on our own as young adults and gave us valuable time to adjust to being working adults. This is especially so at the start of the journey, which is always the most difficult and when you are prone to making big mistakes.

We had the luxury to focus on building our careers overseas in the desired direction in the knowledge that failure won't result in the end of anything. We could make plans and take the next steps effectively because we only had to worry about ourselves.

Don't waste the headstart privilege has afforded you but don't let it define you as well. Not having to deal with financial problems does not excuse us from developing sound financial planning skills. Having financial support does not mean we don't work hard on a wealth-building plan.

Luck

This is the most elusive factor in our journey but is responsible for much of what we have today. In fact, when we look back, many of our achievements were made possible by tracing to a few events where luck was on our side.

I made a last-minute decision to study in Australia instead of UK. Met my wife who took a chance on getting together with me after I had just come out of a bad break-up in the first year of university. Been together ever since.

My wife landing a graduate role with the last firm to interview her in the final year of university that gave us the reason to stay on in Australia. Really glad we got to enjoy our initial years of work in a less stressful and happier environment.

Both of us finding jobs in Singapore with decent bosses and colleagues. Even though the hours are worse than Australia, they are better than comparative jobs elsewhere and helped us to adjust back to life here.

I often hear the saying that luck is when hard work meets preparation. It's true. But having the privilege to wait for luck to happen is just as important. Don't underestimate the impact luck can have on your life and make sure you put yourself in a position to let it happen.

Adversity

The problem with adversity is that you have to overcome it for the impact on your life to be beneficial. If not, it can crush your dreams and wipe out everything you have achieved in a much shorter time than you can imagine.

In Singapore, we have been taught to avoid making mistakes and take the safe approach to life. You can reduce the possibility of adversity that way but not taking risks in life is something we don't recommend to anyone because it's going to work against you in the long run.

We all have our own stories when it comes to overcoming adversity but the key is to get through them whatever they are and come out on top. That's easier said than done because it can get really bad and punishing sometimes.

We got lucky with adversity and its role in our life. There was enough to challenge us, make us mature more quickly as young working adults, allowed us to learn & thrive as a married couple and maybe even prepared us for having kids somewhat. We haven't been knocked down so hard that we can't climb back up on our feet yet.

The issue is that the effort to overcome adversity increases over time as you get older. Even now, just thinking about going overseas to another country to work & live or even returning to Australia makes us hesitate. The idea of having to do it all over again knowing how difficult it can be scares us. Plus raising children by ourselves without help looks really tough after seeing how our friends are doing it.

Don't be afraid of adversity but get ready for it. It comes for everyone and I find myself wondering what we will be like in the face of adversity again.

Sunday, 24 July 2016

What I do on pay day

I wish I could say I am one of those people that are just focused on spending time with family & friends, developing my own interests and getting stuff done at work such that I don't even notice its pay day. But I'm not.

That being said. I do enjoy engaging in all these various activities but I'm acutely aware of when its pay day for my wife and I. As our salary is paid monthly, pay day is usually at the end of the month for both of us.

This is the day when our monthly salary gets credited into our designated bank accounts for getting through the month of work. For our office jobs in accounting, the month of work could range from getting slammed with multiple deadlines to having not much to do depending on the time in the year.

We get paid the same amount either way since Singapore is not big on overtime pay. On a side note, annual performance bonus is quite a big thing here and it does give employees something to look forward to at the end of each year. In bad times, salary freezes and no annual performance bonus could mean you take on more work for the same pay for quite a while.

That's a short insight into why pay day is an important day for us. However, it is more significant to me because of what I have to do on pay day. My wife just wants to know the pay has been credited so she can do fun things with the money she has earned. I actually have a list of personal finance management tasks to get through. Lucky her.
1. Ensure the correct monthly salary amount is credited

I log into the internet banking designated accounts to check that the correct monthly salary amounts have been credited. These should usually be the same as the previous month unless there are any reimbursements for work expenses incurred.

2. Funds transfers to other bank accounts

On the same login, I make online funds transfers to other bank accounts. I have to top up the accounts where I set up automatic payments for the monthly credit card bills. Or where there has been drawdowns for investment purposes and withdrawals for spending purposes. The reason being there are usually required minimum average daily balances to avoid being charged a fee.

For low interest bank accounts (< 1% p.a.), I maintain them at only S$500 above the required minimum average daily balances. This is a sufficient cash buffer since I don't like our funds idling in such low interest bank accounts. Hence the need to manage them in a lean but efficient manner.

For high interest bank accounts (> 1% p.a.), I maintain them at the maximum average daily balance to qualify for the higher interest. There is no point having more funds than this balance amount since the excess cash reverts to earning a low interest (< 1% p.a.).

All excess funds are transferred to a single normal interest residual bank account (1% p.a.). This is where I keep the cash to allocate for savings, investment and spending purposes.

3. Review cash allocation for current month

I don't update our Google Sheet of assets, liabilities, income and expenses on pay day. This usually happens on the first or second day of each month so I can better capture the movements and balances for the previous month. Besides, I try to coincide this with the updating of the pages on my blog so they can happen concurrently to save time.

What I actually do on pay day is to conduct a cash review. It's a good time to look at how much cash we have been spending on expenses for the current month. This is especially useful in picking up on spikes in our non-discretionary spending and identifying areas for reduction.

We also work out how much cash we have invested and leftover as savings. Cash deployment monitoring for investing in a downturn is critical since this period of time usually coincides with an increased risk of retrenchment. As long as we can increase our cash on hand savings by S$2,000 each month (after investment cash allocation of S$2,000), we are happy with the progress.

These three steps take about 30 minutes to complete on pay day but gives us a better idea of how we can approach our cash budget for the next month. That way, we don't have to go through the month worrying about our cash allocation and whether we have sufficient cash savings.

Thursday, 21 July 2016

Are my parents ready for retirement?

I read an interesting post from this US personal finance blogger (Broke Millenial) - Are You Your Parent's Retirement Plan? It sets out conversation topics on insurance, retirement funds, mortgage and debt that adult children can consider having with their parents to better understand their retirement plans.

This got me thinking about my parent's retirement plans and whether they are financially fit for retirement. I have had conversations with my parents about this before to see where I can assist them in their financial planning for retirement.

We usually end up discussing the sufficiency of the CPF Life payouts after taking into account the other factors of insurance, active & passive income and debt. That might be how I will write this post for a more complete financial analysis of my parents' retirement plans.
1. Insurance

My parents have health insurance plans that cover for hospital and surgical expenses. Although these health insurance plans are not the most comprehensive, the annual premiums to be deducted from their Central Provident Fund (CPF) - Medisave Account (MA) are quite high due to their age (60+).

In fact, the annual premiums are expected to increase as my parents get older and my siblings & I might have to top up their CPF - MAs or have the withdrawals come from our CPF - MAs instead. Medical costs from hospitalisations and emergencies can be a significant drain on the family finances when not managed well. My parents are relatively healthy for now due to their active lifestyles but we will continue to budget for their medical expenses.

My parents used to have term life insurance policies but they have since expired. I'm not sure how useful life insurance policies will be for my parents now that they no longer have any dependants. My siblings & I can take care of ourselves and will look after them financially as well.

2. Active Income

My dad stopped working a few years ago and has since moved to Malaysia. He built a house on top of a small piece of family farmland that we have and grows a variety of fruits & vegetables while rearing a few chickens. He also catches fish from the farm drainage canals and ponds when there is heavy rain.

Having lived for a number of years on a farm in Malaysia when he was young, my dad really likes this lifestyle and I'm glad he gets to enjoy it in his retirement. Although my dad no longer has any active income, his expenses are low since he only spends on necessities (i.e. items that he can't grow on the farm like rice and other meat produce).

Since the cost of living in Malaysia is much lower than Singapore and my dad is a lot happier and healthier from the manual labour tending to the farm, his expenses have gone down over the years. He comes out to Singapore to visit us or we go in to Malaysia to stay with him on the farm once in a while.

My mum works as a retail promoter a few days each week and is paid monthly based on the number of hours worked. It's not a strenuous job and she gets to interact with her colleagues and customers. The active income helps to pay for the travel trips my mum goes on with us or her friends.

I have to admit that this is not a normal or common living arrangement for most families out there. However, it has worked out well for my parents because both of them get to enjoy doing the things they like. This is especially so when you have adult children living their own lives so everyone gets to spend quality time with each other when we get together.

3. Passive Income

My parents own a residential apartment in Malaysia that is about to be completed and leased out. Since they did not take out a mortgage to pay for the apartment and had enough cash to purchase it, the rental income net of rental expenses will constitute passive income to sustain my dad's lifestyle on top of their savings in Malaysia.

If money gets tight due to unforeseen circumstances, my mum can rent out a room in the family apartment in Singapore (where the housing loan has been paid off) for additional rental income on top of their savings in Singapore.

Since my parents do not have an investment portfolio of equities and bonds, they rely a lot on the CPF Life payouts as their main source of passive income. I never realised the importance of CPF Life until I see its payouts sustaining my parent's retirement.

Even though my siblings & I make monthly contributions to my parents and manage their living expenses, these CPF Life payouts provide a strong layer of support. It's usually the dual impact of reduced income and increased expenses that cause financial problems in retirement. Hence the need to find ways to maintain the income while reducing expenses.

4. Debt

This section is going to be short because one of the best things my parents have done financially is not to have any type of debt in retirement. No mortgage, no student loan and no credit card debt.

Although my parents did not manage to build an investment portfolio of shares and bonds, they have put themselves in a strong financial position to retire by managing their income and expenses. Their lifestyle does not consist of luxury spending but they get to enjoy doing the activities that make them happy. That's all I can ask and wish for in my parent's retirement.

Tuesday, 19 July 2016

Target S$500,000 Asset Portfolio

I had a busy weekend that left my wife and I quite exhausted when we went in to work on Mon. We had a wine-tasting & dinner event at our friend's apartment on Fri night, dropped by another friend's apartment after dinner together for a Sat movie night before having an extended family dinner on Sun night.

It was great fun but we felt like having a rest after running around over the weekend. Nothing like going in to the office on Mon and sitting/working at your desk to make you feel like you aren't going to be moving much for the day. Not a bad way to recharge when you think about it.

Anyway, this is going to be more of a financial update since it's mid July. I usually do the end of month financial updates in more detail with all the net worth, asset portfolio and passive income figures updated. But I sometimes do mid month financial updates with less detail when I'm in the mood just to see how we are tracking.
Asset Portfolio

Other than the manual purchase of ETFs on Day 1 and Day 2 of Brexit in end June and the automatic POSB Invest-Saver purchase of the Nikko AM STI ETF in mid July, we haven't done anything else. There has been quite a run-up in the equity markets and we see no reason to invest any more of our cash funds.

Even though I still think we are holding too much cash compared to the rest of our asset portfolio, we are happy to let the funds build in times like these. We will probably have to invest a bigger chunk of the cash than we usually do when the opportunity arises again but won't use it unnecessarily.

Besides, things are getting dicey in the banking industry and there has been a few rounds of retrenchments at my wife's bank. She has survived them so far but it's a wait and see approach at the moment. No point making a move when the rest of the banks are cutting even more people.

The accounting industry gets impacted next with reduced revenue from client compliance and advisory work. We try not to cut headcount but usually implement salary and promotion freezes while reducing graduate hires.

It's not a good time for anyone because this just means an increased workload at the same pay. In any case, we will continue to save a portion of our monthly salary as long as we have jobs. This means our retirement funds (CPF) are increasing as well from the employer and employee contributions.

As much as I would like us to be less dependant on our jobs and have more sources of income, I can't deny that our jobs have been the main driver of the growth in our asset portfolio. Which is why I still think focusing on getting yourself into jobs that have decent pay while spending less, using the spare time to invest, developing side hustles/business for other sources of income is a good approach to financial independence.

This is especially so in Singapore with its low personal income tax rates and current availability of such jobs in our industries (for now). Things can change really quickly and the approach might no longer work in a few years time. It's important to take advantage of the characteristics of your local environment to build your wealth while you still can.

S$500,000 Target

We have given ourselves a target for the asset portfolio to reach S$500,000 by the end of the year. Based on how it has been growing for the past 6 months, we seem on track to hit the target in the absence of any significant events other than the high level of spending we expect to incur during our trip to Italy in October.

This target is important also because we will have more flexibility in planning our future after hitting it. When we returned to Singapore in 2014, we weren't sure how long we will be staying to work and live here. We renewed our Australia PR until 2020 and will have to be back there by then for the next renewal.

We have managed to build a life here in Singapore despite us having to adjust to working longer hours and living in close proximity to our parents. We also have a social circle that we enjoy hanging out with and this was fortunate for us despite being away from Singapore for a number of years.

When we left Australia, our finances were in decent shape but we have to admit that we have achieved much more financially over the 2.5 years of working here in Singapore compared to the 4 years of working there. If we stay in Singapore, chances are we might reach financial independence earlier than if we move back to Australia.

But we are getting restless with our jobs and way of life in Singapore. Returning to Australia seems to be taking a step backwards rather than forwards. Starting over in another country sounds exciting but scary as we get older.

The S$500,000 target was always going to be a milestone for us. Reaching it will mean we are in the financial position to decide the next phase of our lives. Should we call Singapore or Australia our home and raise a family or should we go off for another adventure to a different country?

Thursday, 14 July 2016

Financial advice for a new graduate

My wife's brother just had his SMU commencement ceremony on Wed at the Suntec Convention Centre. Since he has already started work as an audit associate at one of the accounting firms in Singapore, he had the day off to attend the ceremony. But he has to go back to work on Thurs.

Just like that, we have a new graduate in the family who has just finished his university education. Although my brother-in-law is three years younger than my wife, the impact of a 2 years National Service and 4 year SMU degree has resulted in my wife working for six years before he started work. It's a lag at the start line and he will have to work hard to make up for it.

This reminds me of the time I started as a tax associate six years ago in an accounting firm in Melbourne. I had a basic understanding of personal finance & investments and it took me a long time to learn the lessons I have now. This post is about the financial advice I would give to my wife's brother sprinkled with some personal and professional development anecdotes that he can learn from.

Since this is based on our life experience, whether the advice is practical and applicable to you might vary greatly. Take away the lessons that you find useful and amuse yourself with the rest that you find irrelevant. I just hope my brother-in-law finds this post and read it!=)
1. Starting from Square One

Now that you have graduated and started work at your first job, you are officially starting from square one in the real world. It doesn't matter how hard or little you studied at university because not much of your academic experience and performance will be relevant at work.

If you have accumulated financial experience by investing your savings in the equity or bond markets during university, that is one of the few useful things you can bring with you upon starting work. Then again, you wouldn't have had much funds to invest with and plenty of time to do your research on the shares, ETFs and bonds you were planning to buy. Besides, it's much easier to learn from your mistakes when you don't have much at stake.

Since I know the family upbringing you had, I can safely say you have very little financial experience at this stage. Your parents have done well not to let you worry about financial matters by taking care of everything. It's time you step up and learn how to handle your own financial issues.

2. Find a new bank account

You are probably still using the POSB savings account that your parents set up for you two decades ago. The interest rate on that POSB savings account is ridiculously low and it's time to find a new savings account with a higher interest rate.

You have to start doing your own research on the savings accounts offered by the different banks in Singapore. It's not difficult and there is plenty of material online about the benefits and cons of the variety of savings accounts on the market.

Since you are not working at a bank and there is no restriction on the bank you have to open a savings account with, find one that offers you a higher interest just by crediting your salary into it. Your sister and I use the OCBC 360 and UOB One Accounts, which is something you can consider first if you really have no idea where to start looking.

3. Apply for a main credit card

You have a supplementary credit card for certain expenses incurred at university. I understand you were using your debit card for most expenses and that is a good financial habit to have. Your spending was generally quite low, which is why your bank account balance is larger than your sister's when she first started work.

If you open a new higher interest savings account, you will find that one way to increase the interest you earn on the balance is by spending on an associated credit card. Do not be afraid. Managing debt is a skill you will eventually have to learn and I rather you do it now than later in your life.

Read up on how a credit card operates. Basically, you charge an expense (e.g. lunch at McDonald's with your colleagues) to the credit card where you would previously have paid cash or used your debit card to pay for it. Repeat the process for other expenses you would have incurred with cash or debit card previously.

At the end of the monthly billing cycle of the credit card, you will be sent a statement with all these charges as an outstanding amount due by a certain date. Make sure you pay off the full outstanding amount by the due date.

At this stage, you only need one credit card associated with the bank that you open the higher interest savings account with. The whole point of having the credit card is to earn reward points or cash rebate from those expenses.

With more experience, you might find that there are many ways to optimise the reward points or cash rebate by having additional high interest savings accounts and credit cards. You are not there yet.

4. Budget your salary by percentage

I can see you are tired every day now. That's normal at your first job because you have not adjusted to working so many hours in an office each weekday. I'm sorry to be the bearer of bad news but it's going to get worse before it gets better.

Your first peak period as an audit associate is coming up and you will find yourself struggling to keep your head above water. Your sister and I had it better in Australia where we didn't have to work as long hours in our graduate roles. Life is not fair and you have to learn how to deal with it.

It's unlikely you will have the time and energy to track all of your expenses. That doesn't mean you don't do any budgeting with your salary. Use a percentage budget approach for now. Since you live at home and don't incur rental/mortgage and groceries expenses, this is a good time to save. Your transport costs are low as well since you mostly carpool with your mother, sister and I when going in to work.

Compared to your friends working in banks, your salary will be lower than them. Trust me, I know. Don't be disheartened because you will learn a lot in an accounting firm. But you should know that it is still a decent salary compared to the many other industries out there.

However, you have to save more aggressively to make up for the lower salary. Since you are still single and have sensible colleagues & friends that don't overspend, you should aim to save 80% of your net salary. You don't have to track all of your expenses but only need to ensure they don't exceed 20% of your net salary.

Calculate this once at the end of each month and make your lifestyle adjustments in the next month. This approach should work for you since you have a low spending lifestyle and are less inclined to inflate it like your sister and I.

5. Read up on the Central Provident Fund (CPF)

You will notice that 20% of your monthly salary is automatically deducted as contributions by you as an employee to your CPF. This is the national retirement fund scheme and you need to know what the Ordinary Account (OA), Special Account (SA) and Medical Account (MA) can be used for.

You can learn about the fancy CPF moves you can do such as topping up your SA for tax relief, transferring amounts from OA to SA etc. Before you do any of them, think about whether they make sense for you first. Your situation is unique to you and what works for others might not work for you. For now, just watch these balances grow.

6. Understand your income tax return

You should know that the personal income tax rates in Singapore are low. The Inland Revenue Authority of Singapore (IRAS) also makes it convenient for you to file your income tax returns at the end of each year.

Although your tax payable for this year is expected to be nil or very low, you should try to understand your income tax return even if IRAS has pre-filled your salary and tax reliefs data. Your sister had me to navigate the complex personal income tax returns in Australia since she fell asleep the first time I went through her first tax return with her.

Your tax return and the filing process in Singapore are much simpler but that does not excuse you from understanding its components and ensuring all the data is correctly captured. If you don't understand something, ask me.

That's about it from me for now. Notice how I didn't mention anything about investments? That's because I reckon it's too early for you to learn about it at this stage. Given your limited savings and time, there are few investment options available to you.

That's not to say you can't start reading about shares, ETFs, bonds etc. But don't get too hung up about them. You are better off developing your career by improving your job skills, professional and social networks. Work hard at increasing your salary and savings but know that your human capital has the potential to grow much faster than your financial capital in the early stages of your career.

Besides, you first have to work on the basics of personal finance before you advance to actually investing your money. The self-discipline, research skills and ability to learn from your mistakes will be critical to your success as an investor.

It might take a few years for you to establish your foundation before you start investing and that's okay. Your colleagues and friends might have started earlier because they are better prepared and thus have a few years of head start. No matter, you are young and a slow & steady approach should suit you well.

In any case, I might have another post on this blog for you then about how to invest when you are ready. By then, I hope your sister and I are more experienced and in a stronger financial position ourselves to be able to guide you so you can avoid the mistakes we have made.

Tuesday, 12 July 2016

How and why my wife earns more than me

I'm writing this post for myself just as much as for my wife, who might actually read this one since it has less numbers and figures compared to some of my previous posts. This is going to be a fun and interesting one to write about.

It starts with a confession: In our past six years of full-time work, my wife has always out earned me when it comes to our salaries. Not only have I never earned more than my wife, the wage gap has increased over time.

This is why I totally get the debate about gender wage gap - equal pay for men and women. Haha.

One of the biggest benefits of meeting your wife during university before going on to work and build your career is that you get the opportunity to make the transitions together. We got together at a time when money mattered less and we are moving towards a future where money matters more.

It gives me perspective when I look back at how far we have come together and especially so on how much we have progressed individually. In this aspect, I have to say my wife has grown and matured much more than I could have imagined.

As such, this post is my view on how and why my wife earns more than me. It will have my honest thoughts and feelings on the journey we have travelled together on so far to be able to achieve this. And yes, I do see it as an achievement that my wife is out earning me and this should let you understand why it is the case.
More complete skill set

Having studied in Singapore, a place where academic excellence is generally rewarded with better career prospects, studying in Melbourne was a new experience for both of us. You see, the focus in Australia tends to be more on your overall skill set and less on your academic performance.

Even though I am more academically inclined than my wife, she was performing better during the graduate job interviews in our final year. It actually took me a while then to admit this (I was young after all) but I realised it when my wife landed the graduate job role at one of the big domestic banks in Melbourne. She had much stronger corporate skills in teamwork, communication, presentation etc.

Although I was able to subsequently land a graduate job role at one of the mid-tier accounting firms in Melbourne (albeit much later), there was an observable difference in starting salaries. The truth is that as much as a couple would like to go through life at the same pace and enjoy the same success, it almost never happens in reality. What's more important is that you find a way to work together and contribute to the relationship and to each other's success.

Higher starting salary

Although we both studied accounting at university, the different industries we work in meant that there can be significant differences in the growth of our salaries. In short, a bank will almost always pay more than an accounting firm even if you end up working more hours at the latter.

Stronger professional network

In the four years of work in Melbourne and Sydney, it became obvious that my wife was able to better navigate the corporate world  as well. Let's put it this way. Career promotion and job opportunities rely on your ability to network professionally & socially as much as your technical knowledge and capability.

Never underestimate the importance of having drinks with your colleagues because that's just how you get access to information sometimes. To be honest, I never understood it, which is why I didn't hang out with my colleagues as much. I only started to do it more when I was in Sydney, a good three years after my wife took to it within six months. That's how my wife was able to seek out a position in Sydney after having done a six month rotation there earlier.

Better pay negotiation when changing jobs

At some point in time during those first two years in Melbourne, I accepted that there was a good chance my wife was probably going to be earning more than me for the rest of my life. I can either do my best to support my wife's career development or focus on mine and risk limiting her potential. That's why I transferred to the Sydney office from Melbourne to be with her.

Besides, the attempt at a long-distance relationship during the six month rotation was terrible. It continues to be one of the lowest points of our relationship having to be away from each other. We ended up spending a bucket load of money on flights to visit each other every weekend. 23 weekends & flights to be exact and I can still remember the number to this day.

A combination of career manoeuvres and opportunistic timing put my wife in a decent position to be relocated to Singapore. Naturally, I had to quit my job and find another role in an accounting firm in Singapore. Haha. I know this sounds bad to some people. You know, after a while, you just want to see how far your wife can go in her career.

What was even more fascinating was how my wife negotiated for a higher salary each time she had to move. Even with the relocation benefits, my wife felt she deserved a higher pay and asked for it. Does this just come naturally to her!? I have to remember to ask her that one day.

So here we are with my wife's salary significantly higher than mine. I'm sure you are asking yourself what is the point of this post. In any relationship, true equality is almost never going to exist because the two people are going to have different strengths and weaknesses. Progress is also almost always going to be uneven and even one-sided at times.

The Asian cultural norm continues to learn towards the man being the main breadwinner and financial provider. This is proof that it can change and should change as long as both parties work together. Besides, there are many other ways for me to contribute and put my skill sets to use.

Since I do better in the research and management aspect of our funds, I'm responsible for asset allocation, investment and cash deployment to achieve higher returns and increase our passive income. As a tax accountant, I also implement strategies to reduce our income tax payable such as ensuring we claim the available tax reliefs and deductions.

Learning to draw on our individuals strengths contributed to our financial position as a couple. If anything, we have achieved much more together than we probably could have as individuals and this is something I continue to be happy and grateful about.

Saturday, 9 July 2016

Should we change our asset allocation?

We are planning a trip to Italy in Oct 2016 and should be flying into Florence and out from Rome. The last time we travelled to Italy was in Jun 2008 and it was part of a three week Europe trip. We really enjoyed our time in Italy and can't believe it's another 8 years before we go back!

This time round, we should be visiting the other areas such as Tuscany and Amalfi Coast instead of the major cities. It gives us something to look forward to so we can get through the next few months of work!
Anyway, after my end of Jun 2016 financial update, I started thinking about our asset allocation. At this stage, it consists of the following asset types in decreasing order by % value:
  • Domestic Real Estate (Singapore Apartment) - 25%
  • Domestic Equity (Singapore Shares and ETFs) - 20%
  • Domestic Cash (SGD) - 20%
  • Domestic Fixed Income (Singapore Bonds, Retirement Funds, Wholesale Life Policies) - 20%
  • Foreign Cash (AUD, USD, GBP and EUR) - 10%
  • Foreign Equity (Foreign Shares and ETFs) - 5%
    The Portfolios & Asset Allocation page on my blog only captures a portion of our total assets but not the entire amount. Besides, I only just worked our % asset allocation above and have never considered it from the perspective of asset classes distribution before.

    After doing the calculation, I realise a significant portion of our total assets is tied to the domestic markets. I guess this is normal in the initial stage of any wealth-building journey as you first accumulate assets in your country of living before you start thinking about investing overseas. In fact, our 15% of foreign markets exposure is mainly due to us having lived & worked in Australia for a few years and in a small way our recent efforts to invest in ETFs listed on the LSE.

    What's interesting for me is whether there is a need for us to diversify our asset classes and between domestic & foreign markets further? For a working couple like us that has only built up a bit of wealth, I'm not sure whether this is something we should even be considering now given how the current asset class distribution seems to address our needs sufficiently.

    I was thinking about foreign real estate but it might cause an overexposure to real estate since we already own REITs in addition to the apartment in Singapore. With interest rates expected to increase in the future, I might only consider adding more real estate exposure then.

    If we are to include other asset classes, what exactly should we be looking at? I could invest directly into gold and silver, which I presume is a form of alternative investments. To be honest, I have only ever considered investing in a Gold ETF and even decided against that. I have always hesitated against investing in precious metals due to my lack of knowledge but this might be a good opportunity and time to do so.

    Another option is private equity/fund investments but we don't have that kind of capital. Investing into crowdfunding for SMEs is a more possible option. However, I worry about the risks involved when investing through crowdfunding platforms such as the much higher possibility of the company defaulting on its payment.

    Perhaps we can contribute capital directly into small businesses set up by friends or family that have potential for growth but that's provided I can even find such opportunities. Alternatively, we can set up a small business and invest in ourselves but I have yet to come up with any ideas.

    Or we can just wait for a robo-advisor to set up shop in Singapore and invest in an alternative investments portfolio managed by them. I still have no idea why it's taking such a long time for robo-advisors to come to Singapore especially when we are trying to be a Fintech hub.

    This might be a premature discussion in our current situation and the best way forward for now is probably to build up our foreign markets asset exposure while adjusting the allocations. However, I reckon at some point in time in our future if we can continue to grow our asset portfolio, this issue will surface again. Hopefully I will have a better idea then!

    Tuesday, 5 July 2016

    Three Day Work Week?

    It's a public holiday tomorrow and it's a nice feeling to have a day off after working two days. I'm writing this post on the bus home while my wife is out having drinks with her colleagues. Random thought - If she is going be out late tonight, I might drop by my parent's place to visit them since I didn't see them last weekend.

    Anyway, this got me thinking about how great it would be not having to work a full week of five days. You just have more energy to do other stuff since you don't feel as wiped out by mid week. In fact, the ideal arrangement is that we can work a three day week. Either Mon, Wed and Fri so we won't have to go to work two days in a row or Mon to Wed so we always have a long weekend to go travelling.

    Wouldn't that be fantastic? Now we just have to find those jobs that allow for such an arrangement. The truth is that we like the professional and social engagement that office work offers especially when we have colleagues that we get along with. Self-employment seems to be quite isolating and I'm not sure whether we are suitable for it. But we don't see ourselves working full-time five days a week as well and not working at all is only possible if we find something interesting to keep ourselves busy with.
    Maybe the solution really is to have a three day work week. Sufficient engagement with the outside world to keep ourselves up to date and sufficient downtime to develop hobbies and enjoy leisure activities together as a couple or family if we decide to have children. The other reason for this coming up is that my manager has just returned from maternity leave and negotiated a three day work week at reduced pay. So it is possible!

    The purpose of this post was really just to pen down this idea of a reduced work week while taking the bus home. At some point in time, our asset portfolio would reach what I call a critical size whereby the dividends and interest would form the investment contributions instead of savings from our monthly salaries. By then, we should be okay with a lower pay since the salary only needs to cover the expenses while the asset portfolio will keep growing by itself.

    This will be the penultimate stage to financial independence because the last stage would be for the dividends and interest to cover our expenses as well. Just something for us to look forward to while having a mid week break!   

    Sunday, 3 July 2016

    End of Jun 2016 Financial Update

    I have just updated my net worth, portfolios, dividend & interest income and savings rate pages for end of June 2016. Since the first half of the year is now over, this financial update is a good way to see how we are tracking with our goals that were set earlier in the year. This will be set out in order of how these pages appear in my blog for easier reference.
    Net Worth

    The goal is to reach S$100,000 by 31 Dec 2016. As at 30 Jun 2016, our net worth is S$98,408 and it should exceed S$100,000 by 31 Jul 2016. This is due to a combination of monthly payments to reduce the mortgage debt, cash savings, additional investments in ETFs & shares and contributions to CPF.

    We have understated our net worth by using a net mortgage debt calculation based on 50% of the value of our apartment and 100% of the housing loan liability. Unless our apartment starts generating rental income, we are not likely to increase the percentage of its value in our net worth calculation. However, this does mean that our net worth figure is not as accurate when compared to the proper or textbook method of calculation.

    We prefer for any increase in our net worth to be largely tied to having more liquid assets in our portfolio and less to do with the value of the apartment (an illiquid asset). There's no point in having a high net worth if we don't actually have much liquid funds to tap into.

    This is why our net worth figure also indicates our liquidity position and gives us an idea of how much liquid assets we have to redeploy when a significant event occurs. As long as our net worth figure trends upwards, that means we are managing both our BS and P&L in the right manner.

    ETF Portfolio

    The goal is to reach S$40,000 by 31 Dec 2016. As at 30 Jun 2016, the value of our ETF portfolio is S$44,377. This is mainly due to us investing quite a bit in the ETFs after the markets sell-off from Brexit.

    We are happy to see that the change in focus of our investing strategy to ETFs is starting to take effect. However, we have decided to reset the goal to reach S$50,000 by 31 Dec 2016. Always good to keep pushing ourselves to aim higher.

    Share Portfolio

    The goal is to reach S$120,000 by 31 Dec 2016. As at 30 Jun 2016, the value of our Share portfolio is S$115,788. We averaged down on some of our stocks due to price weaknesses and this accounted for most of the growth in the Share portfolio.

    We seem on track to meet our goal but don't plan on increasing the value of our Share Portfolio much going forward. If anything, our belief in ETFs has grown from the recent market volatility and find them to be a more effective financial instrument for wealth generation.

    Other Portfolio

    The goal is to reach S$150,000 by 31 Dec 2016. As at 30 Jun 2016, the value of our Other Portfolio is S$147,800. Cash savings has largely contributed to this increase from the previous month as we have not subscribed to any corporate bonds recently and wholesale life policies' surrender values grow really slowly. We might actually hit the target by 31 Jul 2016.

    Retirement Fund and Cash On Hand

    No goal was set for the 2016 year because they are functions of the monthly mandatory contributions to our CPF and cash savings. As long as we are employed, this asset component continues to grow and we are happy not to attach any targets to them. Our main aim is really just to stay employed until we figure out how to be self-employed (if ever) and try not to lose our jobs before that.

    Dividend Income

    The goal is to reach S$5,000 by 31 Dec 2016. As at 30 Jun 2016, we have received S$2,631 of dividend income. This is more than 50% of the target by half year and we should hit it by end of the year given how we have invested a bit after the ex-dividend dates in 2016 of some of the ETFs and shares.

    Interest Income

    The goal is to reach S$5,000 by 31 Dec 2016. As at 30 Jun 2016, we have received S$3,098 of interest income. We don't think there should be any issues in meeting the target by the end of the year. However, we are concerned that we are earning more interest income than dividend income.

    This means we have too much cash on hand and might not have allocated our asset portfolio efficiently. It's a nice problem to have but we still have to work on a solution. We are tempted to start investing even larger amounts of cash but the run-ups in the equity markets over the past few years is making us hesitate.

    Savings Rate

    No goal was set for the 2016 year because I only recently started tracking our savings rate on my blog. The good news is that the savings rate has been increasing slightly with each month. We have started to make small adjustments to our spending habits to try and lower the monthly expenses. It's difficult to make significant changes to our lifestyle at one time but we are taking baby steps towards it. Taking less cabs, having one less coffee/drink, eat out less etc.

    Overall, we are satisfied with the way things have gone financially for the first half of this year. Work has been tough and who knows what's going to happen in the next half of the year. But we have also enjoyed our time off by going on vacations, meeting family and friends etc.

    We have also started exercising more now, especially my wife who has been running after work on weekdays, and it always helps with our moods and stress levels. It can be overwhelming to deal with our personal, professional and financial lives at times but we try to manage them in the best way we can.