Tuesday, 30 August 2016

Making a claim against an employer

I ran into a good friend from my NS days last weekend whom I have not caught up with in a while. I really should make more of an effort to keep in contact with friends especially when it's so easy to get sucked into your own life of wants and needs. We chatted briefly and will be meeting up for lunch or dinner next week.

However, what we discussed got stuck in my head over the weekend because I never imagined it would have happened to him. He had completed his undergraduate & postgraduate studies overseas and returned to Singapore to work in a small financial services firm around the same time as me.

I found out he had resigned from the firm recently because it failed to pay his salary for 1 month. On top of being jobless and applying for new roles, he has to try and claim back the 1 month of unpaid salary from the firm.

Since he lives at home with his parents, the financial consequences are not severe because his expenses are not high. However, it's hard enough trying to find a new job in this economy and still attempt to work things out with the previous firm about the 1 month of unpaid salary.

This got me thinking about what resources or avenues do a Professional, Manager and Executive (PMET) have to resolve salary-related claims and how should he even approach this. It's usually not something we consider until we are in the situation of having to make the claims i.e. got screwed by our employers. What would I do in his situation?
1. Making a claim against an employer on the Ministry of Manpower (MOM) website

First thing, I googled "salary claim employer MOM". This useful search result on making a claim against an employer comes up on the MOM website. I clicked on the link and one of the first things the webpage says is you need to be covered under the Employment Act to make a claim against your employer.

WTF is the Employment Act? Okay, I'm thinking I should be covered since I work as a PMET in a full-time job. I click on the link to the Employment Act and this catches my eye:

You are not covered if you are employed as a manager or executive with monthly basic salary of more than S$4,500.

OMG. So I'm not covered by the Employment Act. Quick check with my friend and he was earning S$4,800 monthly (slightly above S$4,500) so he's not covered too. Why in the world is there a threshold of S$4,500? Do these people never have to worry about making salary claims?

2. File claim with the civil courts

I'm stuck now. Can't seem to find any useful information on these MOM webpages about what happens if you are not covered by the Employment Act and can't make the claim via MOM. There is something about tripartite mediation for PMEs. Again, you have to be earning a monthly basic salary of up to S$4,500 to be eligible for this. Useless to me or my friend.

I go back to my Google search results and see something about the Employment Claims Tribunal (ECT). In the background provided, it says that the Labour Court currently provides adjudication services to resolve salary-related claims between employers and employees covered under the Employment Act. However, those who are not covered by the Employment Act would have to file their claims with the civil courts, which can be a lengthy and costly process.

WHAT? I have no idea how to file a claim with the civil courts and it sounds expensive. I keep reading the webpage and find out that MOM announced the plans to set up the ECT in 2014. It is to be established as a Tribunal under the State Courts, similar to the Small Claims Tribunal. Did you understand that? I didn't. Plus it's been 2 years and the ECT hasn't been set up yet. You would think this is a high priority item.

I try to find something on the Small Claims Tribunal and the webpage mentions how to file the claim and something about employing mediation extensively in their proceedings. They seem to really like this idea of mediation and I have seen it mentioned so many times. Does it even work?

Even just writing this post is getting me frustrated. Because I seem to be reaching the conclusion that my friend will have to spend quite a bit of time and money to force his ex-employer to do the right thing and pay him the 1 month of salary owed. This is if the mediation fails, which is likely even if he spends a lot of time in the negotiations with his ex-employer.

There is not much I can do other than to offer support, help and my limited knowledge on making a claim against an employer. This post is for you my friend and I hope everything works out.

Sunday, 28 August 2016

Average monthly passive income hits S$1,000

I have decided to sneak this post in before it gets to Sep. After all, this is a long journey to financial independence and it's important to celebrate milestones to keep ourselves going. Our average monthly passive income for the year has finally crossed S$1,000 at the time of writing. FYI, it's going to drop below S$1,000 once Sep comes around but oh well. A win is a win.

Just thinking about what that means is putting a smile on my face! Somehow, our investment and cash management strategies are starting to work out after plugging away at them for so many years. We have been slowly increasing our interest and dividend income earned but it's hard to see the progress on a month to month basis.

It becomes significant when you make the comparison on a 2 year basis from the time we spent working in Melbourne, Sydney then Singapore. In 6 years, we have committed several errors, learnt many lessons and made much progress financially.

Which is why our advice has always been not to be afraid of taking risks and making mistakes. They come hand in hand with moving forward in your life because you can't make progress otherwise. We should also try to encourage each other because financial freedom is a goal we can all achieve in our own way.
Anyway, May and August are our big dividend months due to us owning a lot more Singapore Exchange (SGX)-listed semi-annual dividend paying stocks. It results in spikes in our average monthly passive income thus allowing me to write self-congratulatory posts like this.

We have been trying to smooth out our dividend income by investing in some SGX-listed quarterly dividend paying stocks and London Stock Exchange (LSE)-listed quarterly distribution index ETFs. We would prefer the dividend income to be more regular and it's already starting to show with a small jump in passive income every alternate month.

I also realised our monthly interest income is starting to increase slightly. This makes sense as we have been building up our cash positions from consistently saving a portion of our monthly salary income. The Singapore and global equity markets have been quite flat recently and there aren't many buying opportunities.

The same goes for the Singapore property market. Rents have fallen but prices are sticky downwards. Although the employment market is worsening in Singapore, there are still enough jobs around to provide people with holding power to support the prices for now.

This actually works out for us. With each month, the overexposure to real estate (real property and REITs) gets corrected slightly from the allocation of our savings to cash and ETFs. Our housing loan is tied to the 3-month SOR, which has fallen slightly and the payments continue to remain manageable.

By the way, we track our entire net worth (all of our assets, liabilities, income, expenses and associated website links to pull in relevant information) on Google Sheets. Essentially, we have one spreadsheet with many tabs full of data, charts and analysis that is maintained online. That's how we track our overall financial progress in case you are wondering.

I just remembered I started a series on why you should use Google Sheets and how you should use Google Sheets for personal finance management. Really should get back to working on it. Anyway, it's a fine balancing act now and we just have to wait for time to pass for rebalancing to happen. I hope everyone had a good weekend and is ready for the new work week!

Thursday, 25 August 2016

Is it easier to build wealth in Singapore?

Since August is a big dividend month, our average monthly passive income has been inching close to S$1,000. We might get there just for August before it falls back below S$1,000 in September. I'm not sure whether this counts as meeting my goal since it will only be for a brief period of time.

Anyway, it's still something to be excited about and I'm patiently waiting for the last week of August to pass before doing the monthly financial update to see how we fared. After all, we should be receiving some distributions/dividends this week that might make all the difference.

Recently, I had a chat with my wife about how fast time has passed since we moved back to Singapore in Jan 2014. Between getting married, adjusting to working & living in Singapore and making new friends, I can't believe it's been 2.5 years.

What triggered the conversation was that my wife's colleagues/friends from Australia are starting to plan for their move back there. They are usually families with young kids or couples looking to settle down. We have gotten close to some of them since we all get along well and have similar interests.

Talking to them about their job, money and lifestyle concerns from making the move back to Australia was reminiscent of the same discussions we had with our colleagues/friends in Sydney when planning our move back to Singapore.

Although it's nice to have some stability in our life and not have to worry about these things, this also made us wonder whether this means we are not likely to make such a move anytime soon. I can't deny that we have made more financial and career progress in the past 2.5 years in Singapore compared to the 4 years before that in Sydney/Melbourne.

I want to see for myself why this is the case and hence the motivation for this post. Is it really easier to build wealth in Singapore and will greater financial progress make our life better off here? I must stress that this is written from the perspective of a dual-income couple with no kids for now and this could change drastically in the future.
1. Low personal income tax rates in Singapore

If you don't already know, Singapore has one of the lowest personal income tax rates for a tax resident here. For illustration purposes, a Singapore tax resident individual with S$80,000 of taxable income (assessable income - allowable tax reliefs/deductions) has a tax payable of S$3,350 i.e. a personal income tax rate of about 4.2%. The tax payable can even be paid in twelve interest-free monthly instalments to the Singapore Tax Authority after the year of assessment.

The personal income tax return can be easily filed electronically using the online portal with most of the data automatically pre-filled or rolled over from the prior year. The assessable income and allowable tax reliefs/deductions are also more easily understood and identified. Hence, it becomes a much less costly and painful annual process to go through than filing a personal income tax return in Australia.

Most importantly, low personal income tax rates provide us with the incentive and motivation to work hard at increasing our salary income. This facilitates the journey to financial independence for salaried employees like us and makes it a more viable wealth-building route to take.

2. Singapore-sourced dividend and interest income are not taxable

Dividends paid by a Singapore resident company and interest paid by approved banks/finance companies & debt securities are not taxable in the hands of a Singapore tax resident individual. Can you imagine how useful this is to wealth-building by investing in shares, funds, REITs, Business Trusts and bonds in Singapore?

By constructing a large enough investment portfolio of such equity & bond instruments in Singapore, it's possible to live off the non-taxable passive income and capital withdrawals for the rest of your life. If you are worried about concentration risk, you can diversify into global financial assets but they will have more complex tax considerations.

3. Costs of living can be low or high

This is a lot less straightforward. It's actually possible to keep your costs of living low in Singapore, especially for a couple, if you follow these steps:
  • Buy a 4-room HDB BTO flat in a non-mature estate for housing
  • Don't buy a car and take public transport
  • Cook at home
  • Eat out at coffeeshops & hawker centres instead of cafes & restaurants
  • Don't drink alcohol or smoke
  • Travel to Asia-Pacific destinations for leisure instead of Europe or US
Reasons are simple:
  • Affordable housing loan payments from CPF without using cash
  • A new Toyota sedan car can cost S$110,000 and you can get to most places using train, bus or taxi/Uber/Grab
  • Having home-cooked meals can be cheaper than eating out depending on the dishes you cook and the number of people you are cooking for (impacts the type and amount of groceries bought)
  • It's possible to eat a meal (rice, 1 meat dish and 1 veggie dish) for S$3 or less at coffeeshops & hawker centres but you are going to pay a lot more at cafes & restaurants. This is how eating out can sometimes be cheaper than cooking at home
  • Wines, beers and cigarettes cost 1.5x to 2x as much here
  • Due to Singapore's geographical location, travel trips to Asia-Pacific destinations are less expensive than Europe or US due to the availability of budget flights. Shorter trips with stays at budget hotels during off-peak periods are more feasible that way too
Sounds easy yeah? The problem is having to do the above consistently here in Singapore. Just using us as an example, we failed to complete most of the steps because of a higher propensity to spend here compared to Australia.

It could also be because we tried to replicate aspects of our lifestyle in Melbourne/Sydney but the fact is our costs of living are higher here. Essentially, necessities cost less but luxuries cost more and it's how you differentiate the two that makes all the difference.

4. Lower childcare/helper/nanny costs

We hear this often from our colleagues with kids who have lived in Australia, UK and US. The childcare/helper/nanny costs are lower here and this allows for both parents to work full-time jobs. The secondary income can sometimes accelerate wealth-building more than investing can ever do so. However, this might not be as feasible in those countries due to the high childcare/helper/nanny costs and personal income taxes there.

5. Healthcare costs can be low or high

This is a tricky one. If you have medical insurance at your full-time job and only fall sick with minor but not major illnesses that don't require hospitalisations, it's possible to see a doctor at the clinic and get the medicine for free i.e. costs are borne by your employer. Without medical insurance, the medical costs are still reasonable for the quality of healthcare you receive.

The problem is when you require hospitalisations. Even with subsidised healthcare available (e.g. visit public instead of private hospitals), the costs can quickly escalate. This is made worse by the lack of a universal public health insurance scheme and you have to bear these costs yourself. However, it is possible to rely on your CPF - MA and external medical insurance to defray the costs.

For your information, this is a useful article from MoneySmart on how Singaporeans should make sure they don't get crippled by healthcare costs. Which means it is possible to keep your healthcare costs affordable.

These are just some of the factors that have contributed to our greater financial progress on wealth-building in Singapore. And it does look like we have a higher chance of attaining financial independence here if we stay on our current path. That being said, living in Singapore is not without its compromises and trade-offs, which is something we deal with every day.

Things can always change and it might be that our financial goals become less important over time. The pursuit of financial freedom should never come at the expense of our happiness and personal well-being. We just have to keep working on balancing these objectives in our lives.

Monday, 22 August 2016

Distribution/Dividend Reinvestment Plans (DRPs)

I know I have been slow with this but better late than never. Congrats to Joseph Schooling for winning Singapore's first Olympic gold medal. It's a fantastic achievement and something to be proud of for Singapore!

On the other hand, I feel both happy and sad for the Malaysian badminton players in the Olympics. They came so close to winning their first Olympic gold medal for Malaysia and I hope their hard work & efforts will pay off in Olympics 2020.

Sigh. It hurts to watch Lee Chong Wei lose his third consecutive Olympic badminton final and receive a silver medal. I reckon he is the most deserving Malaysian athlete to win the first Olympic gold medal for Malaysia but it is not to be this time round.

Anyway, that's enough of a sporting update from me and I'm going to write about how August is a big distribution/dividend month for me instead. I noticed this after looking at the Dividends Upcoming and Collected sections of my SGXcafe portfolio. Always nice to see passive income flowing in.

As the amount of distributions/dividends received increase with the size of my portfolio, I have started to consider whether it's worth participating in the available Distribution/Dividend Reinvestment Plans (DRPs). These refer to plans that allow unitholders/shareholders to automatically reinvest distributions/dividends to accumulate more stock without paying brokerage fees.
Especially with the recent changes to the brokerage fees of the Standard Chartered Online Equities Trading Platform in Singapore. In summary, there are now minimum brokerage fees to be charged for each trade and they are SGD/USD/GBP 10 on the SGX and LSE markets for Personal Banking Clients (i.e. Non Priority Banking Clients) like me.

Considering how aggressively Standard Chartered Bank (SCB) had been marketing this Online Equities Trading Platform as the only one with no minimum brokerage fees in Singapore, this turnabout was disappointing at best.

To implement a Dollar-Cost Averaging (DCA) approach with index ETFs effectively, it's important that brokerage fees are as low as possible. Where I could invest small cash amounts previously to take advantage of market dips in times of uncertainty, I'm now forced to use larger cash amounts and have to wait for bigger market drops. It's annoying but I will just have to adjust my investing strategy.

This also means that picking up small numbers of units/shares via the DRPs is a more viable approach now and definitely something worth considering. There seems to be no easy way to find out which of the stocks I invest in offer such DRPs other than monitoring the actual distribution/dividend corporate announcements or waiting for SCB to inform me about them. 

Generally, REITs and Business Trusts usually offer DRPs and I reckon this is a good way to increase their asset allocations slowly in my share portfolio without actually using my investment cash. The problem is that my asset portfolio is over weighted on real estate now and I'm hesitant to add to my positions. Maybe when it's more balanced in the future?

OCBC Bank offers DRPs and I'm kicking myself for not participating in it earlier in the year. I'm planning to increase my exposure to the Financial Services industry in my share portfolio as I believe it will continue to be one of the main drivers of economic growth in Singapore. And this goes beyond just the banking sector.

Given the increasing demand for healthcare services due to an aging population and general decline in health from the modern lifestyle, it was good to know that Raffles Medical Group offers DRPs as well. I only have a small portion of healthcare stocks in my share portfolio and I would like to grow this more aggressively.

I know what I'm saying sounds counterintuitive to my focus on index ETF investing. It's just that index ETFs don't offer DRPs and I can't get excited about nothing. After all, this discussion is more in the context of DRPs and less about the utilisation of my investment cash. 

Saturday, 20 August 2016

What is Our Millennial Way?

As I have mentioned a few times on my blog, I'm an avid reader of international personal finance blogs and websites. They offer unique perspectives on how to get out of debt, reduce expenses, earn more money, invest and achieve financial independence in different parts of the world.

Their experiences and writing styles are amazing and I constantly learn from what they have to offer. Once in a while, I find a blogger who I really connect with after reading their posts and I try to write about these inspirations of mine.

This 30-something couple's story of reaching financial independence in Canada on CBC caught my eye one day as I was browsing international news. I was pleased to find out they are personal finance bloggers and explored their website in detail: Millennial Revolution

I binged read all their posts once I started reading because there was so much I could identify with as my wife and I are only a few years younger and we are trying to achieve the same thing! It could be the way they write as FIRECracker and Wanderer but I find myself agreeing with many of the things they are saying.

Even though their story of achieving financial freedom as Millennials is in Canada, there is much we can learn from as Millennials here in Singapore. How applicable are their life lessons to us and what is Our Millennial Way?

1. The Boomers screwed over the Millennials

One of the main points that came up was how the Boomers' advice of getting a stable job, buying a house, be a loyal employee and retire with a pension do not work for Millennials. I don't think the Boomers screwed us over as Millennials here in Singapore. However, I must admit that the same advice has been provided by our parents and we are starting to realise it's no longer relevant in our generation.

More volatile economic cycles, outsourcing, increased competition, disruptive innovations and robotic technologies will lead to ever shortening job lifecycles in Singapore. I would say no industry is safe from an overhaul with the way things are going, which means jobs will never be stable and safe for our generation.  Depending only on a job for income and retirement will not work for us.

Home-ownership is high in Singapore and the property market has been sky-rocketing in recent years. However, well-built & decent subsidised public housing continues to be available to Millennials and is a good way to avoid getting burnt in the property market. It still does not change the fact that Boomers will probably profit the most from rising housing prices as they downsize while Millennials upsize.

This point about being a loyal employee struck a chord with me. It's been my father's advice to me consistently since I started work in 2010 despite his experience of getting retrenched multiple times in his career as a general manager of various manufacturing plants while working in China.

Every time my father gets hired to fix the major problems in the factories, he gets fired by senior management once they are running smoothly. That's his reward for being loyal, hardworking, value-adding, not corrupt and treating the workers well.

Yet he tells me to use the same approach even now!? I respect my father highly for his work ethic but I reckon even great employees now are increasingly being treated like crap. Reason is simple - companies will always care more about profits than people.

You can feel the anger and distrust with CPF on the ground. It could be the high mandatory contributions, the way they keep pushing back the age you can access your money for retirement, or forcing you to receive a monthly sum like an annuity instead of allow you to withdraw the entire amount upon retirement. Even if we find ways to utilise CPF well, it sometimes feels like you might never get to use some of your money in it even after retiring.

2. Significance of high salary incomes

Something else that stood out was the fact that the couple had a high combined income and put in effort to lower expenses to increase their savings rate. Coupled with investment growth, they built a seven figure portfolio and retired in less than 10 years.

This goes to show how effective it can be for a salaried employee to achieve financial independence by focusing on increasing income and reducing expenses. I suspect this works even better in Singapore where personal taxes are low and dividend & interest income are generally not taxable.

Although we have achieved an above average salary income and a small investment income, the main problem is with finding ways to lower expenses and this continues to be a challenge for us. The good thing is that our work hours are decent, which leaves us with sufficient time and energy to focus on this aspect.

What's also becoming evident is the need to have different sources of income. A high salary income can evaporate quickly nowadays when it's so easy to lose your job. However, it takes a lot of time and effort to develop side hustles that can become your full-time jobs. Although the income is more sustainable in the long run, it's usually lower for a long time as well. Either your partner has a high salary income to cover for you or both of you are in for a rough time.

3. Do not buy an expensive property

Sigh. This one hurts because I just wrote about buying an expensive private condo being a bad financial decision. I totally agree with the points raised about not buying overpriced property and how renting can work out better financially.

What makes this worse is that the public housing in Singapore is fantastic and subsidised. Which means we actually have viable alternatives to renting a private property especially for a young couple.

Oh well. That's what making mistakes are for. I reckon it will set us back by a number of years but we can still recover from it. It sucks thinking about the time that will get lost but there's no point wallowing in self pity. Just got to keep moving forward.

4. Index investing on a Dollar-Cost Averaging (DCA) approach and don't forget to rebalance

Although we have a dividend share portfolio, we only allocate a small amount of our investment cash to it for averaging down on our current holdings. Most of it now goes to investing in our ETF portfolio although it's been slow lately due to the run up in the equity markets.

We try to purchase both stock and bond index ETFs regularly on a DCA approach but must admit that we do market time by purchasing much more during bear markets and much less during bull markets.  Hence, the amounts invested are not as consistent as in a traditional DCA approach.

We have an asset allocation strategy for our cash, investment and retirement portfolios. However, we don't favour rebalancing by selling the outperforming asset and buying the underperforming asset. We prefer to keep a larger cash portfolio and rebalance by buying the underperforming asset without selling the outperforming asset.

This does drag the returns on our portfolios downwards since we might have too much investment cash and end up not utilising it well. However, peace of mind and being able to sleep at night are important to us and we accept lower returns as a consequence.

5. Have a dream and work towards it

To be honest, I don't have anything grand as a dream for now. I just want to be able to work a 3 day work week with minimal responsibilities and spend the rest of my time travelling & having fun with my wife, family, friends and possibly kids (in the future).

I also want to improve my personal finance writing skills and develop this blog. I don't have any ambition of being a published author but would like to educate people on financial matters. This is how I see myself giving back to society. Maybe I will do more eventually but I have no idea what it would be until I actually have more time on my hands.

6. Believe in yourself

This was inherent in all of the messages the couple were sending and the lessons they were teaching in their blog posts. You must have a strong belief in yourself to achieve your goals. People might doubt & question your every move and you might make mistakes every step of the way. But the will to succeed and the not giving up matter more than anything else. We have already been shown The Millennial Way and we are going to get there with ours. 

Thursday, 18 August 2016

Should we have bought a private condo?

I was inspired by My 15 HWW's post - Is buying a more expensive home always a bad financial decision? The main reason is that my wife and I are one of those couples that bought a more expensive home i.e. Private Condominium (PC). Reading his post got me interested in whether we made a bad financial decision.

Why did we purchase a PC?

The year was 2011 and we were still working in Melbourne while planning for a move to Sydney. It became apparent that while we enjoyed working in Australia, chances are we might return to Singapore to work eventually. The centres of business activities were shifting to Asia and it made sense for us to have work exposure there in our accounting and banking fields.

If we moved back to Singapore, we anticipated a preference to stay together and not with our parents. We also took into account the possibility that we will get married then in view of the number of years my wife and I have been together.

As such, we enquired with the Housing & Development Board (HDB) on our eligibility to purchase a Build-to-Order (BTO) flat based on the qualifying monthly income ceiling of S$8,000 then. We were informed that we were not eligible due to the way they calculated the S$ equivalent of our gross A$ monthly income. Basically, it exceeded the S$8,000 because HDB included the high monthly PAYG withholding tax and the A$ was stronger than the S$ at that time.

In fact, we were also not eligible to purchase an Executive Condominium (EC) since it exceeded the qualifying monthly income ceiling of S$10,000 then as well. As the Singapore property market was picking up, we made the decision to purchase an off-plan PC in the east close to my parents-in-law's house. We were young, impulsive, overconfident and figured the high purchase price was worth it for the following reasons:
  • Increased flexibility with the purpose as an investment or owner-occupied property from not having to meet a Minimum Occupation Period (MOP).
  • Proximity to my parents-in-law will translate into lower living costs, better support infrastructure and access to greater resources.
  • Interest rates were expected to remain low for a number of years and this will keep the monthly housing loan payment to 30% of our combined monthly income.
  • Salaries were expected to increase and the mortgage payments will become more manageable going forward.
  • Property prices should still increase slowly over time and we can sell by the time we returned to Singapore if we can't afford the monthly housing loan payments.

How have we fared financially so far with the PC?

This is what happened over the next five years from 2011 to 2016 for each of the reasons we considered:
  • The qualifying income thresholds for purchasing a BTO flat or an EC were subsequently raised. This had little impact because our Australian salaries had increased as well and we would still have been ineligible since their method of calculation had not changed.
  • We moved back to Singapore in 2014, which was earlier than expected and the increased flexibility helped because the PC was completed soon after our return.
  • Living close to my parents-in-law has its trade-offs. While we appreciate the benefits of home-cooked meals, access to the family car and carpooling, this has translated into a greater level of involvement of my parents-in-law in our life. However, we must admit that the benefits outweigh the costs and probably more so if we decide to have kids.
  • Interest rates have climbed recently and the increase was rather quick over a short period of time. Although the monthly housing loan payment is still within 30% of our combined monthly income, there might be problems if the interest rates rise much further and/or our income drops significantly.
  • Although our salaries have increased over the years, lifestyle inflation means the housing loan payments have not become more manageable. Nevertheless, we have always tried to keep our housing expenses (whether rent or mortgage payments) to within 30% of our combined monthly income.
  • The market value of our PC is only slightly higher than our purchase price and it's not easy to sell in a depressed market.
As you can see, we were really fortunate not to have this financial decision of buying a PC blow up in our faces. We made decent money in our jobs and have not yet been retrenched over the years. Our efforts to maintain a savings rate of 30% - 40% have translated into a respectable asset portfolio with time despite lifestyle inflation. However, the large mortgage and potential for exponential increase in monthly housing loan payments continue to be a cause of concern.

In conclusion, buying a PC was not a good financial decision but the costs were mitigated by factors within and beyond our control. We can't make too many of these bad financial decisions and we might not be so lucky the next time.

Friday, 12 August 2016

Support for SGXcafe

It's a Friday evening and I'm waiting for my wife to finish shopping and drinks with her girlfriends so we can go have dinner together. This is probably going to be a short post but it's something I have been wanting to do for a while i.e. show my support for SGXcafe.
As an active user of SGXcafe and subscriber to its emails, I have been monitoring the recent challenges faced by its creator - Evan Koh. This latest article - SGXcafe Needs You! goes to show how much Evan had to contribute in terms of time, effort and money to keep SGXcafe running.

Although I use Google Sheets to track my asset holdings, I can only see the live market value of my Singapore share and bond portfolios. However, SGXcafe allows me to monitor useful information such as dividends upcoming & collected, average prices and transaction dates & prices.

If you are an investor in the Singapore markets, I would recommend you set up an account with SGXcafe (which is free) to monitor your holdings. The SGXcafe iOS and Android apps were also just developed recently so you can access it more easily now on your mobile devices.

Other than sharing SGXcafe on this post, I have added it as a Singapore Finance Website on my Resource Library blog page as well. Considering how late I am in showing my support for SGXcafe, this is the least I can do for a finance website that has helped me greatly!

Thursday, 11 August 2016

Our ability to take risks

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

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

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

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

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

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

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

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

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

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

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

2. Stronger financial and emotional support infrastructure

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

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

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

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

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

3. Sufficient savings & investments for cashflow

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

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

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

4. Contingency plans to reduce expenses

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

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

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

Sunday, 7 August 2016

How we view our CPF

With the recent release of the Central Provident Fund (CPF) Advisory Committee proposals on the CPF Life Escalating Plan and CPF Lifetime Retirement Investment Scheme, CPF has now become the trending topic in Singapore.

There are a number of good news articles and analysis by personal finance bloggers and you should read them for a better understanding on these proposals. I was already planning to have a post about our views on CPF before their release and this seems like a good time to do so.

One interesting point I have noted the more I write on my blog is how my style of writing has developed over such a short period of time. I like writing about how we manage our personal finances and analyse issues from our perspective based on personal experiences. I don't like writing about generic actions that you can take as a reader to improve your personal finances.

This does mean that my blog is likely to reach a smaller audience especially if you can't identify with our circumstances. Maybe my writing style might evolve over a longer period of time but I would like to think this is a more useful approach to personal finance.

After all, managing personal finances is a very unique problem to each individual, couple or family. If I don't write about how we approach it and our various issues, actions taken and results, how are you going to see the effects of what we write about?
What is the purpose of CPF?

Anyway, back on the topic of CPF. I like how actions are being taken to improve its adequacy for our retirement needs. I'm just not sure whether adding to CPF's complexity by introducing another CPF Life Plan and CPF Investment Scheme is the way to go.

As we only have one national retirement fund scheme in Singapore, the probability of net outflows draining the CPF fully is low provided we can keep it well-funded by keeping the unemployment low.

CPF works well when you have full-time average paying jobs and can hold them from graduation to the age of 55 - 65 with minimal disruptions from retrenchments and medical emergencies. CPF works even better when you have full-time high paying jobs. Anything else, it will be a challenge to sufficiently fund your CPF.

Reason is simple - mandatory contributions of 17% by employer and 20% by employee up to a CPF salary ceiling of S$6,000. Even at an average monthly salary of S$4,000, that's about S$1,500 of compulsory contributions every month. I doubt there is another retirement fund scheme out there in the world that forces you to contribute this much to it.

You can see the various issues straight away. Shorter job life cycles mean that it will get more difficult to hold such jobs consistently for 30 - 40 years. Noticed how unemployment is affecting the middle-aged workers much more lately? That's us in 10 years time. Staying at home to take care of kids, part-time work and self-employment also means none to much lower contributions from both the employer and/or you over time.

Herein lies the problem. The message we are getting is that CPF is for retirement needs and people keep focusing on it as a retirement tool. It's not. Our view is that CPF is a financial planning tool and it can address more financial concerns than just retirement.

With any changes to CPF, it's important to understand which part of our financial plan is being impacted based on how we have designated the purpose of each account of the CPF. Of course, it's essential you are aware that we are looking at our CPF in the broader context of asset portfolio management. You still need to focus on building your cash savings, investment portfolio, real property and other holdings.

CPF - OA: Housing

Our CPF - OA is only to be used for making our housing loan payments. Since we have only been working in Singapore for the past few  years, we try to use a greater proportion of cash for these payments. This allows for the CPF - OA to build up as a future payment source for our mortgage.

Even though more than 50% of our monthly CPF contributions is allocated to the CPF - OA, we don't view it as retirement funds. Why would we use the CPF - OA for retirement in the future if we have the option to use it now for housing? Plus we earn interest of 2.5% p.a. on the CPF - OA balances and it's hard to even get such interest rates on bank account balances.

This is why we don't see any impact from the changes in the CPF Investment Schemes. There is little incentive for us to take on additional risk and participate in such CPF Investment Schemes even if they can achieve higher returns over time. We are happy to leave any excess balances in the CPF - OA knowing that our current and future housing needs will be taken care of.

CPF - SA: Retirement

Our CPF - SA is where we have designated the balances for retirement purposes. This is the true retirement account in our opinion since it can only be accessed from age 55 - 65. However, the CPF - SA has the smallest allocation of our monthly CPF contributions.

This should already be a red flag to anyone that the CPF - SA will be insufficient for retirement. Hence, we try to contribute cash to the CPF - SA for tax relief and transfer some of our excess CPF - OA to it where possible.

As our goal is to achieve financial independence before age 55 - 65, we have to put our cash to better uses for more returns. Besides, we earn interest of 4% p.a. on the CPF - SA balances not forgetting the additional 1% p.a. we also earn on a portion of these balances. There is even less incentive to participate in CPF Investment Schemes in this case.

As for the changes in the CPF Life Plans, that will only matter years later when we have to decide whether to receive lower, higher or increasing payouts. For now, our focus is to slowly build the CPF - SA over time and make sure we have a decent amount to work with by then.


The purpose of our CPF - MA is for paying the premiums on medical insurance and hospitalisation expenses. The less we use it now, the more we have for later when we get older. Which is why the best way to manage our CPF - MA is to exercise regularly and have a healthy diet. It's less financial management but more lifestyle management.

Besides, we earn interest of 4% p.a. on the CPF - MA balances and has a slightly bigger allocation of our monthly CPF contributions compared to the CPF - SA. This provides sufficient medical funding on top of the medical insurance we get at our jobs.

As you can see, we don't view our CPF as just for retirement but instead as a financial planning tool that we try to utilise as working adults. In fact, our advice would be to understand how CPF can work for you the moment you start working full-time. The earlier you begin to manage your CPF, the more prepared you are for changes later on in life.

Thursday, 4 August 2016

What I do with my performance bonus

This topic surfaces at the end of each financial year (30 Jun in my case) when firms start doing performance bonus and salary reviews. We wait for the letter that shows us the monetary value of the additional time & effort we have put into work for the past financial year and our worth for the next financial year.

This is the time where you get a higher than normal movement of staff due to employees resigning and/or changing jobs only after receiving the performance bonus. When I was working in an accounting firm in Australia, we did not receive any performance bonuses. However, my wife did receive annual performance incentive awards while working at a bank.

Upon our return to Singapore, I was pleasantly surprised to find that the accounting firm I was working at pays performance bonuses. Although it was nothing new to my wife, we found it fascinating how much of a phenomenon it is here. Where this topic is not mentioned much among staff and friends in Australia, it is discussed a lot more in Singapore.

At first, I was just happy to receive a monetary incentive at the end of each financial year. Now, it is something I anticipate & plan for and I have no idea whether this is a good or bad thing. It's not so much that I expect to receive a performance bonus but more to have planning structures around it in place. I will leave the topic of salary increases & negotiations for another day and just focus on performances bonuses for this post.

For the past few years of working in Singapore and Australia, our performance bonuses have averaged at about 1 to 2 months of pay. I'm sure there are many people out there with higher performance bonuses but these are decent amounts to us and sufficient for us to work with. Anyway, here are some of the things we have observed over the years.
1. Don't do anything stupid that can screw up the entitlement

When you are close to the end of the financial year, don't do anything stupid. This is not the time to pick fights and have conflicts with senior management. You have the rest of the year to do that.

You will be surprised at how easy it is for them to remove your entitlement to the performance bonus by giving you a bad grade for your performance review. One year of hard work & effort can amount to nothing if a bad incident happens during the last month of the financial year.

2. Don't resign before receiving your performance bonus

If you resign before or too soon after the end of the financial year, you lose your entitlement to the performance bonus. Even if you hate your job and bosses, hang in there if you are already so close to the end of the financial year. Don't quit in a fit of anger without thinking ahead.

As a personal anecdote, my brother has made both of the above mistakes before. He was passionate about his job and loved what he did but had tunnel vision and a hot temper at times. The problem is that these issues flared up at the worst times and have cost him financially.

3. Financial planning upon entitlement to performance bonus

Once I know the amount of performance bonus I am entitled to, I start doing my financial planning even before I receive it in my bank account. The reason is simple. I am more clear-headed before receiving the additional sum of money.

Firstly, I allocate a portion of it to cover all of my discretionary and non-discretionary expenses for the next month. This intentionally allows me to save my entire salary for the month, which is how much I would have been getting normally. It's a reminder that the performance bonus is abnormal income.

Secondly, I allocate a portion of it to my savings & investments. This depends on how my savings & investments have been doing for the past year. I allocate more in a bad year and less in a good year. As long as it is showing an increase, I try not to over allocate since I make regular contributions from my monthly salary.

Thirdly, I top up the emergency fund if we had to tap into it for any reason. The amount allocated is usually small if there had been no significant drain and we still have jobs since the monthly salary can cover for such emergencies.

Fourthly, the remaining portion is for travel spending, especially the long overseas holiday trips that we take after receiving the performance bonus. We dip less into our savings that way and fund a greater portion of the trips using it.

4. Execute financial plan upon receiving performance bonus

I make time for and execute the financial plan the day I receive the performance bonus. It doesn't linger for a day longer than it has to because I have already made plans to use it all up. I don't usually celebrate this because it means I had to work hard for the past year to achieve it.

If we reach financial independence and I can work part-time (three-day work week anyone?) just to keep myself engaged but at the loss of the performance bonus, I will take this any day. As grateful and happy as I am to receive it, I will never forget why and what I have sacrificed for my job.  

Tuesday, 2 August 2016

Jul 2016 Financial Update

I have updated the net worth, asset portfolio, passive income and savings rate pages on my blog. It's a monthly exercise that takes about 30 minutes to complete and gives us a good financial snapshot.

What's fascinating is that since we started tracking our finances in 2015 and showing them on the blog in 2016, all these monthly static financial data points are coming together to form financial data trends!

We start to observe the impact of lifestyle inflation, efforts to increase income & reduce expenses and changes in asset allocations. It's difficult to pick up on such trends until you have sufficient financial data to work with. I highly recommend everyone to start tracking these four components monthly for a better financial picture. It's amazing how much information you can glean!

Since I'm doing monthly financial updates, general comments will be provided on the progress of each component. There will be less detail but I will make sure to highlight any significant financial impact events.
Net Worth

Our net worth has finally crossed S$100,000. If you think getting to S$100,000 of asset portfolio value is tough, this one is harder from having to factor in your liabilities. For 2016, our net worth has been growing at about S$10,000 every month.

This can be attributed to three monthly factors - reduction in mortgage principal of S$2,000, cash on hand & investment cash growth of S$4,000 and retirement contributions of S$4,000.

After paying rent for a number of years in Australia, it's nice to know we are now making monthly housing loan payments to our own apartment here in Singapore and building equity. This is especially the case when we have some flexibility in reducing these monthly housing loan payments if required.

In the event of job loss or medical emergency, it's possible to draw down more or all of our CPF - OA to make these payments for a year. This is the most powerful feature of CPF - OA in my opinion and allows us to avoid cash drain during such a difficult time. This is also why we only view our CPF - RA as retirement funds and contribute additional cash to it whenever we can.

The monthly cash on hand and investment cash growth of S$4,000 has become more consistent due to the low investment activity. At a minimum, our cash on hand increases by S$2,000 if we end up using the S$2,000 of investment cash in the equity markets.

The monthly S$4,000 of retirement contributions from our employers and us as employees help to build up our CPF, which is technically a retirement fund scheme. However, this is how we view the allocations to and purpose of each account. CPF - OA for housing, CPF - RA for retirement and CPF - MA for healthcare. Think of CPF as a financial planning tool rather than a retirement tool and it will make more sense.

Asset Portfolio

There was a run-up in the equity markets and it has stayed quite flat recently. As you can see, the increase of S$8,000 from Jun 2016 is mostly from the S$4,000 of cash on hand & investment cash growth and S$4,000 of retirement contributions.

I have been hesitant to invest any more cash than necessary in the equity markets other than the small regular purchase of ETFs to keep us vested. It's not a good time now to be aggressive with our investments but we don't believe in keeping ourselves out of the equity markets as well.

As long as we can achieve gradual growth of the asset portfolio, it means our slow and steady approach is working. The strategy might change over time but we are okay to stick with it for the time being.

Passive Income

The average monthly dividend & interest income for 2016 so far is about S$800. The dividend income distribution is uneven due to most of the shares paying dividends semi-annually. The good thing is that the increasing size of the ETF portfolio (whereby dividends are paid quarterly) should help to balance things up.

The interest income distribution is more even with small spikes due to coupon payments from corporate bonds. The aim is to increase the average monthly passive income every year until it can cover our current average monthly expenses (everything included) of about S$8,000. It's an ambitious goal and we have a very long way to go. Of course, the plan also includes reducing our average monthly expenses over time to make this goal achievable.

Savings Rate

Our monthly savings rate used to be 30+% but is now fairly consistent at about 40% from efforts to reduce expenses. Ideally, I would like this to be 50% but I don't see this happening unless we make some long-term structural changes to our spending.

It might be possible if we can find ways to increase our salary and passive incomes but it's probably more effective to work out how to reduce expenses further at this stage. Expense management is one of our weaknesses but we have to keep trying!