Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Sunday, 27 September 2015

5 things that you need to start doing to improve your financials during your early 20s

Most people in the early 20s would think that they still have a long way before retirement and financial planning is too "kewl" for them. Contrary to that, early financial planning can go a long way. This is especially due to the power of compounding. Well, here are 5 things that you NEED to start doing to improve your financials during your early 20s.

MORE LINKS
GE Effect on STI
Raising of Re-Employment Age to 67
Singapore Finance Minister on Personal Finance Part 1
Singapore Finance Minister on Personal Finance Part 2
Getting out of CPF Retirement Sum

1. Tracking your expenses

This is one of the most important things that you should do as part of a personal finance regime. Without tracking where your money is flowing to, you can never find excess money that is going to redundant spendings. It is also a good habit to have is when you are constantly tracking your expenses, it creates a conscious psychological mental note that you should be spending within your budget. You will also feel the pinch.

There are multiple expense manager apps out in the market which provides lots of functions such as visual display of your spending. It is also extremely convenient as you can just log an expense in it anytime. 

2. Using automated recurring transfer for savings

I was discussing the topic of savings with a friend and there were some interesting pointers that I wish to share. Initially, I was using a model where "Income - Expenses = Savings". My reasoning was to keep the savings as high as possible while maintaining expenses low. However, the other side of it is to maintain a fixed amount of savings. This is to ensure that there is a minimum amount kept for savings.

With technology, this is now increasingly easy. You can use Internet Banking to set up the automatic transfer at specific times of the month. So simple!

3. Making use of credit card rebates and various promotions

Many people seem to take credit cards as a finance taboo. It is one of the best tools that you can use to increase your savings and even earn rewards. However, this requires some discipline whereby you must pay the bills promptly at the end of the month or the interest when compounded could be hefty.

Based on your income and age group, there are several credit cards out there in the market which you can apply for. Anyway, this could be potentially a whole new topic on which credit card offers the best rewards, but for more information, here is a site which you can visit: https://www.moneysmart.sg/credit-cards

4. Reading up to increase your financial literacy

It is extremely important to increase your financial literacy. Heard of the saying that knowledge is omnipotent? It not only opens you up to the different tools which you can use for investment but you can also adjust it accordingly to suit your risk tolerance. Most importantly, you get to have choices.

As suggested previously, here is a book which we recommend reading:

              

5. Get out of debt

As cliche as this might get, the fastest and fool-proof way to get returns on your money is to repay your debts and your returns will be the interest that is owing to your debt.

Debt management is critically important for financial success. Besides the cost of an education and a primary residence, if you can't pay cash don't make the purchase. As far as education and the home, pay off the education before you buy the home.

As for the home, do not stretch your budget. Buy what you can easily afford and pay it off. Luckily for Singaporeans, there is a robust system in place in terms of CPF and the housing loans are carefully structured. Source for one that suits you in terms of its repayment schedule and are within your payment means.

Bottom line

Having the right mindset and attitude is the most important. Once you have these, you will be well on your way to building a secure financial future. While the journey is long and the road not always easy, be sure to take the time to appreciate what you have. It is also crucial to savor the small victories which will help you stay on your long-term course. After all, you earned it.


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Tuesday, 22 September 2015

Singapore Finance Minister on Personal Finance - Part2


Following up to our previous post on Singapore Finance Minister on Personal Finance
We decided to do some statistics on how effective the method of prudent financial planning was.
He mentioned using Government Assets to generate Investment Income, and that income can be used to pay for anything as required by the country - a never-ending stream of cash inflow.
We think the same would work for financial planning - using your cash/savings, invest long-term, and use the cash inflow to pay for your lifestyle.

OTHER LINKS:
GE Effect on STI
Raising of Re-Employment Age to 67


Setting
Investment in: Singapore Straits Time Index (STI)
Time frame: 26 Years, 1988 January to 2013 December (we did this research last year actually)
Investment Amount: $50 every month
Invest during the last trading day of the month
Assuming 2% annual dividend rate distributed every half-yearly
Dividends: Re-Invested into the STI

Conclusion:
Over the period of 26 years, $50 dollars investment into the STI every month, at the end of the period, would produce a sum of $33840.46, providing an average annual dividend payout $676 (and growing).
That's an average annual growth rate of 4.08%, excluding the subsequent annual dividend yield of an average 2%!

Keeping all conditions the same, if we increase the monthly invest from $50 to $100, the sum of money at the end of the period would be $68,319.85, producing a possible annual dividend of $1366!
The growth rate increases to an annual 4.17%!

Of course, past performances do not guarantee the same future performance, but it does serve as a good gauge on how the future will be like!
So start investing your savings young, keep it consistent, and watch it grow over time to provide you with a money cash inflow!
Stay Tune to Part3 of our post where we will discuss how we can increase the cash inflow from this strategy!


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Wednesday, 16 September 2015

Rate Hike = 9.5% Return


The 2-day Fed meeting is beginning today, with its focus on whether the Fed will raise interest rates or not!

LINKS
S&P500 Statistical Investment Opportunity
STI 3rd Year Investment Trend
Singapore Finance Minister on Personal Finance

While the markets are reacting negatively to the potential interest rates raise, believing that it will cause markets to drop; the reality is that markets actually do better when interest rates go up!

This is statistics from CNBC:
http://www.cnbc.com/2015/09/08/risk-parity-trading-is-causing-volatility-and-scaring-the-public-leon-cooperman.html

From the article, we can see that after every rate hike
1) Markets are usually up for the next 30 months
2) Markets are up 9.5% a year after the rate hike

So keep a lookout for those interest rates!
A hike might be a buying opportunity! - Especially if it brings with it a short-term drop of several percentage points!


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Saturday, 12 September 2015

Singapore Finance Minister on Personal Finance

On a recent rally speech, Singapore's Finance Minister Tharman Shanmugaratnam gave a talk about how important prudent budgeting is for the country.
We felt that his point was suitable not only for managing of the country's finance, but also for everyone's finance!
As such, we will be elaborating how it can be used for our personal benefits.

OTHER LINKS:
GE Effect on STI
Raising of Re-Employment Age to 67
Singapore Finance Minister on Personal Finance Part 2
VIDEO LINK:
https://www.facebook.com/ChannelNewsAsiaSingapore/videos/10153132279632934/

First 3 Minutes of Video: Prudent Budgeting & Asset Management
Last 3 Minutes of Video: Explaining CPF (government retirement fund) returns
We will be talking about the First 3 Minutes in this post

In the video, the minister mentioned that in Singapore,
1) We've had more than 30 years of the budget surplus being saved away in reserves
2) We sold land for money and kept the money also in reserves
3) The reserves are then invested, which allows us to draw continuously on the reserves every year by using the income on reserves
4) Half the returns generated from the investments are used to spend for many different purposes (education, infrastructure, medical etc)
5) The other half is kept away in reserves, re-invested to create future cash in-flows


Translating this to a personal level,
1) When we are working, we should always save away a portion of our income (a budget surplus).
2) If we have additional income (ang baos, bonus, etc), try to save most of it also
3) Your savings should be invested. Only then, will it be able to generate income every year, allowing you to draw on it continuously for many years
4) You can choose to spend half of your annual returns from investment on things you need or want (an overseas trip, a new laptop, renovating your house etc)
5) The other half of your annual returns should be saved and re-invested to generate even more income in the future


Our Views:
1) We think that if you are young, if and when possible, try to re-invest as much of your annual investment returns back and draw it when you are older/retired. Grow your future income while you still have a stable monthly income. Although this is rarely possible (it is always tempting to spend, I totally agree!), try to save and invest as much as you can.

2) Singapore saved vast reserves, invested them and thus have huge annual investment incomes that can be spent for many different purposes. You too can do that for your future generations. Save and Invest CONTINUOUSLY! IF you end up spending only your annual investment returns for retirement, you can pass your "vast reserves" to your kids. If they too follow this prudent budgeting, they can add their savings to your "reservers", benefiting them and their future generations even more!

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Wednesday, 9 September 2015

Singapore Market's Growing ETF Choices

Today, we have more Exchange Traded Fund (ETFs) option than we did 5 years before.
The number of ETFs that grew during these 5 years was more than 100%!
With a growing number of ETFs to choose from, this makes an investment for the average person much easier!
ETFs are great investment tool/vehicle for both the amateur, the average, and the professional investor.
A wide range of strategies and purpose can be used with ETFs!

LINKS
ETFs are the New King
ETF Strategies
Key Take-Away from The Edge ETF Forum 2015
Using CPF to Invest in ETFs
https://sgx.com/wps/portal/sgxweb/home/products/securities/etfs

87 ETFs listed on the SGX available for trading
The bulk of it was listed in the last 5 years.
It ranges from individual countries' ETFs, to Regional ETFs and to Fixed Income ETFs.

Individual Countries ETFs:

  • Australia
  • Bangladesh
  • Brazil
  • China
  • India
  • Indonesian
  • Japan
  • Korea
  • Malaysia
  • Pakistan
  • Philippines
  • Russia
  • Singapore
  • Taiwan
  • Thailand
  • USA
  • Vietnam
Regional ETFs:
  • Asia-Pacific
  • Emerging Markets
  • Europe
  • Global
Sector ETFs:
  • Asia Pacific Consumer Staples
  • Asia Pacific Information Technology
  • Asia Pacific Real Estate
Commodities ETFs:
  • Precious Metals
  • Broad
Fixed Income ETFs:
  • Bonds
  • Money Market

For more information on the available trading ETFs and their ticker, click on the link below:
https://sgx.com/wps/wcm/connect/cfb2a4004983d70bb8befb2574a59187/ETF+Summary+Info+Jun+2015.pdf?MOD=AJPERES&CACHEID=cfb2a4004983d70bb8befb2574a59187

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Wednesday, 2 September 2015

How to Escape the Retirement Sum?

Today's post is on how to avoid the Retirement/Minimum sum in your CPF when you reach age 55.

LINKS:
3 Types of CPF Retirement Sums
Disadvantages of Private Annuity Fund
CPF Life VS Annuity Fund
What is an Annuity Plan/Fund?
What is CPF LIFE?

There are currently 2 ways to avoid having to set aside a minimum sum.
Today, we will be sharing about one of it: Buy a Life Annuity Plan

Buy a Life Annuity Plan.
A life annuity plan is an insurance plan that is set to pay you a fixed amount of money each month/year in the future (usually when you retire) for as long as you live.

Buying an Annuity Plan
1) Buy an annuity insurance plan using your own cash (out of your pocket)
2) Buy an annuity insurance plan via the CPF Investment Scheme - using your CPF money.

Avoiding Retirement Sum
1) You must be 55 years old when you are trying to apply for this exemption.
2) When you cancel your annuity plan after withdrawing out your CPF Retirement Sum, CPF has the right to claim your annuity plan's cash surrender value and top it up to your CPF Retirement Account.

3) You can avoid the Full Retirement Sum (FRS) or you can partial avoid the FRS.

Avoid Full Retirement Sum
If your annuity's monthly payout meets or exceeds the monthly payout given by CPF, you can apply for an exemption from FRS. CPF upon approving the request will return you your FRS.

Partial Avoid Full Retirement Sum
If your annuity's monthly payout is below the monthly payout given by CPF, you can apply for a partial exemption from FRS. CPF will base on your annuity's monthly payout and determine the amount that will be "refunded" to you from your FRS.

Disadvantages of Annuity Plans
1) Most annuity plan pays you a fixed amount for as long as you live.
If you live long enough, chances are you are bound to benefit from this scheme.
However, if you, unfortunately, do not live too long, say you live till only 80 instead of the projected 90, the "cash value" left in your annuity plan is usually not returned to your dependents.

This is different from the CPF LIFE scheme, which is an annuity insurance plan, but has a feature that if the amount you paid (your minimum sum) is not used up by your monthly payouts when you pass away, the remainder will be passed to your dependents.

2) You are unable to know the monthly payout you will get in the future - the numbers are only disclosed in the year you reached age 55. This creates uncertainty in what size an annuity plan you should take up, which might lead you to over or under-size your annuity plan.

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