Investing in... what?

So, I have yet to take my first step into investing.

At the moment, everything is more or less set up. I have a broker account, a CDP account, and the money ready.

Due to a simple oversight, I forgot to bring along my security token and as a result, I am unable to make my first step into investing today before the long weekend.

Therefore, I will make a theoretical timeline of how I am intending to invest. Hopefully, this will serve as a reminder and guide for my wife and myself as we progress along.

We currently have a sum of $80k to start off with. With this, I am intending to put $50k into the STI ETF to start off with.

Therefore, we intend to begin with this:

1. STI ETF: 100%
2. Warchest $30k

Thereafter, with our regular savings, I intend to purchase in batches till I achieve this:

1. STI ETF 40%-60%
2. REITS 0-20%
3. Bonds ETF 40%
4. Warchest $30k

I am still deciding how much to put into REITS, seeing as it is more defensive in nature. Should I take the allocation for REITS from the bonds portion instead of taking it from the STI ETF portion?

Saving for a rainy day

So we previously talked about savings for wealth growth.

However, having a sum set aside for unexpected events is at least as important, if not more so.

Surprisingly, many Singaporeans don't save, as reported a few years ago.

Why is having a sum of money for emergencies important? I'd like to give a few reasons:

1. Emergencies are probably unexpected and urgent. It can be sudden ill health, accidents, fire, unemployment etc. In such a time, the need for ready cash is sudden and substantial, and dipping into the remaining cashflow for the month is probably not going to be sufficient. Therefore, having a sufficient stash put away for such situations is necessary.
2. Having a sum saved for unexpected events keeps monthly cashflow steady. Even during an emergency, there are still regular payments that needs to be paid, such as mortgage, bills and taxes. One would not wish to be a situation where he has to default on these payments which may lead to further problems
3. Most importantly, it steadies the mind. With an emergency stash, one does not need to worry so much about not being able to feed oneself during such unexpected events. This will allow him to be less inclined to make foolish decisions in times of crisis, as he will be less panicky, having the reassurance of a sum to tide him through.

In fact, due to the above reasons, there are many who would recommend saving for a reasonable emergency sum first before seeking to pay off all debts.

How much is enough?

Many recommend having six months of monthly salary locked away as the minimum sum, with a view of holding a one-year stash value in time to come when one is more secure. I believe that this is a reasonable value, but I will be modifying it slightly for my own context.

For myself, I will be keeping $30k for my initial emergency stash, which will be locked away as a deposit in the bank. This is not quite 6 month salary level for our family, but I believe it is sufficient for now.

Firstly, it is fortunate that my job is relatively stable. Despite the poorer upcoming economic outlook, I do not expect to be unemployed anytime in the near future, and this would allow a slightly riskier emergency stash for the moment.

Second, as we tighten our family spending, we are able to save more. For now, this savings will be going into investment purposes. However, in times of crises, I should be able to divert this sum into whatever emergency it may be.

Third, besides mortgage, we do not have any debt. Using our past savings, we were able to pay off our renovations, housing spendings and credit card bills without getting a loan. Hence, our liabilities are minimal and we are able to take more risk.

As we proceed on in our financial journey, I do aim to increase this amount slowly but surely. As it is easy to forget, I will have to keep reminding myself of this periodically.

Busy busy busy!

Today, we settled most of the remaining obstacles to completing our renovation. We decided on the design we want for our towel holder and toilet roll holder, and will purchase these probably tomorrow.

Such busy days recently getting the bits and pieces in place for our new apartment. I hope all this work will finally be rewarded when we can move in!

Meanwhile, we are still discussing how we will be splitting our cash assets into the various segments for different purposes. This is our first time doing it, and it is such a challenge to decide how to allocate everything appropriately!

HDB loan

Much ink has been spilt over our housing loan in Singapore, which is not surprising considering that the housing loan is probably the singular largest debt most Singaporeans will get into in their lifetimes. Most Singaporeans would simply max out the amount of CPF money they can draw on to pay for the house, leaving the OA basically near flat zero for thirty years. This includes yours truly.

There are also those that would question using CPF to pay for housing.

I was giving this some thought when I realized that this housing loan is not as cheap as commonly thought.

1. Considering that the HDB loan is currently pegged at 2.6%, the interest on the total loan is at minimum 2.6%.
2. By drawing the money out of CPF OA, this portion of money does not earn the baseline 2.5% (or 3.5% for the first $20k!) interest. Instead, at the point of selling the property, one would have to put back the principal + supposed accrued interest back into CPF. With the assumption that the money in CPF is still mine, and the money is safe, we can take it that the accrued interest paid is effectively paid to ourselves. However, this does not negate the fact that for this portion of money, I will have to pay the interest to myself instead of the government paying it for me.

Compared to person A who uses his current capital to pay off the mortgage, I am effectively paying a minimum of 2.6% + 2.5% = 5.1% additional interest! If I take into account the addition 1% for the first $20k of CPF, this percentage would go even higher!

In order to avoid making a huge loss here, whatever I invest in will need to grow by a minimum of 5.1% in order for me to simply break even!

Since signing the papers on the fateful day last year, I have the impression that the loan was only 2.6% interest rate!

Of course, there are advantages to keeping cash on hand. Appropriate investment will grow in a compounded manner while the interest on the debt will not as long as payment is made regularly.

Oh dear...

On a side note, I started on the book "The Intelligent Investor" by Benjamin Graham. It is proving to be an interesting read.

Financial goals in life

Everyone knows that goals are important. Without goals, one loses purpose in their daily activities. Without goals, there is no focus, no energy, no drive.

This applies to the financial dimension as well. I'm surprised that not too long ago, my financial goals were so limited in scope. To be sure, I was servicing a significant debt, and I gave minimal thought to my money except to repay that loan.

So, what are my financial goals?

I come from humble origins, staying in a simple HDB flat from young. Coming from a single income family, we live comfortably, but not extravagantly. Meals are home-cooked food, and overseas holidays usually once every few years.

Upon graduating, I saw myself simply working to make ends meet. In my mind, work was absolutely necessary to bring food to the table, and this will need to continue as long as possible till retirement or even after.

Therefore, even today, my financial goals are simple:

1. To live thriftily, and save amply (how much to save?)
2. To invest my savings wisely into instruments (what instruments?)
3. To save enough for retirement (how much is enough?)
4. To have sufficient to support my children in future if possible

To be frank, I am just beginning my journey. All I have is a stable job, a small amount of cash and zero investment vehicle.

But I have something so many do not, from past and present - the ability to find information at my fingertips, at the click of a few buttons.

As such, I seek to share my journey with you. There may be some of you who are also just starting out, and wondering where to go. Not to fret, I am in THAT situation right now. Join me as we strive for a better future.

Savings

In my previous post, I learnt that having substantial savings is key to financial stability. Having looked at my family’s finances, I am starting to work out a budget that is sustainable and will achieve my goals.

So firstly, looking at cash inflows:

My wife and I have a combined monthly income of $8.5k, and after deducting CPF contributions, a take-home pay of $6.8k. According to this article, this puts us just under the median household income in Singapore in 2015. I am thankful that we have stable jobs to put food on the table.

Now, for expenditure, I’d be the first to admit that we were rather profligate with our spending for the longest time. Having regular dine-outs and travelling appear to be our biggest weaknesses. No doubt, travelling keeps us together as a family, where we get to spend time together without any work distractions or pressure, and eating out together is enjoyable, especially after stressful days.

Understanding this, we discussed and are now striving to keep spending to a more sustainable level. What are some of the changes we made?

1. We choose to eat at cheaper dine-out areas more regularly, such as hawker centres, where previously, we would frequent restaurants whenever we desire.
2. We have not made plans for the next holiday overseas, unlike previously when we would plan for the next holiday immediately after the previous one comes to an end.
3. We are striving to take the taxi less often if unnecessary, opting for public transport.
4. We record our spending so that we are aware of where our money go to monthly.

We are hoping that with the above changes, we will be able to reduce unnecessary consumption and save the unneeded spending. These are early days still, and we are only just beginning our journey!

Asset growing

As mentioned in a previous post, I want to grow my assets and pay off my liabilities as best as I can. How would I go about it?

What are some get-rich-quick schemes that are popular ?

Gambling?
Stock market?
Buy and sell property?
Throw a coin into the wishing well?

I must be thankful that one of the earlier reads I did was this post from SG Young Investment. In it, he convincingly argued for saving with a purpose. Namely, if one can save 75% of his income and invest it for 4% dividend yield, the dividends generated would be able to cover his expenditure in 7 years time.

Hence, the key to financial stability lies in consistent and substantial savings!

Analysing other get-rich schemes, they are unreliable and fluctuating, and should not form the backbone of my financial future. In other words, it is not wise to depend on them for something as important as my financial future.

And I don't advocate gambling!

Saving aside a portion of my salary regularly is something that can be done with good budgeting and planning. It is generally reliable and it promotes a good habit of not squandering wealth, and there are times I am surprised where the money all went to every month.

However, it does take a lot of discipline to record my spending diligently. There are also hiccups and unplanned-for spending that does make the budget record look awry. For example, as mentioned before, I will be moving to my new apartment soon, and am in the process of purchasing household appliances. This has easily wiped out all of my salary and savings for this month, and made a sizable dent in my savings.

The difficulties of keeping to a budget!

PS: The place I mentioned in my last blog post here is Nemuiro Hanamaru, located in KITTE at Tokyo main station. This and the aforementioned post are NOT sponsored posts.

Yay, weekend!

It's a beautiful Saturday morning!

Since it is the weekend, let us talk about cheery stuff!

As a true-blue Singaporean, one of my greatest passion is food! When it comes to gastronomic matters, I am always thankful to be here, as the variety of food here is amazing.

My favourite cuisine has to be Japanese though. Sushi, sashimi, ramen, tsukemen, bento... the list goes on. It is impressive how something as simple as a slice of raw fish over vinegared rice can be so awesome, and yet the same cuisine encompasses complex aroma and taste of the broth in a wonderful bowl of ramen.

Before I leave you, here's some pictures of a delicious yet reasonably affordable sushi that my family and I ate recently. Can you guess where it is?

Shock! I have negative networth!

Hi all!

It wasn't too long ago that I read an interesting article from BULLy the BEAR about calculating his overall networth. He seemed elated that he reached an overall networth of 0!

Naturally, I took up a pencil and did some back-of-the-envelope calculations...

Shock and horror!

A simple breakdown of my assets would be:

1. Estimated amount of cash I am holding
2. Estimate of all my bank accounts
3. All of my CPF

Coming up to a grand total of $56k!

And my liabilities:

1. HDB loan of $520k!!!

And my personal networth would therefore be $520k-$56k = -$464k!!!

Oh dear :( Now I can see why LP was so ecstatic to achieve 0 networth.

Deciding to try to cheer myself up somewhat, I did a brief estimate of my wife's networth. Her total assets would come up to roughly $100k, which would give our family an overall networth of about -$364k!

Since I was young, I have always strived to be debt-free. This has been ingrained in me since I was young. Hence, to suddenly realise I am actually in significant debt still comes as a rude shock.

Come to think of it, I did sign on the papers to take on the HDB loan. Hence, this debt is not new or foreign. It is just that during our day-to-day life, the thought of owning HDB a huge sum of money just does not come to mind easily.

Which brings us to the point: How many of us are acutely aware of the financial state we are actually in?

Indeed, while most of us are familiar with our current assets, there are many of us who do not give a second thought to our current debts. At most, we give it a fleeting thought, and it seems uncomfortable to even concentrate on it. 

We are surrounded by debt. The most commonly talked about would be credit card debt. However, there are many insidious forms of debt that we do not usually recognize.

Did you purchase any items recently on an "interest-free" instalment plan? That is a form of debt.

Do you have a current handphone/tv subscription with any of the telcos? It is effectively a form of debt, a sum of money that we have to pony up monthly unless we pay an early termination fee. In terms of payment plan, the subscription fee is effectively like the monthly housing mortgage. Yet, we do not usually think of it as such due to the smaller amount of money involved, and it seems easier on our account books to treat it as a rolling expense.

And of course, not forgetting the usual housing/car loan.

I am thankful that I just recently paid off my student loan based on advice from my wife. This has significantly reduced my liabilities, and relieved me of a significant portion of debt-stress. 

In view of the still-very-significant debt burden that I have, I want to grow my assets and pay off my liabilities to the best of my abilities. With this, I wish that we will all hang in tight and travel with me as we seek a brighter future ahead.

Hello World!

Hi all. welcome to this blog.

I am Shokus, currently living in the tiny island of Singapore. A short introduction to myself: I am in my early thirties, married, with a young daughter. Employed full-time, I am struggling along in life, together with many others in our age group.

What is the purpose of this blog?

In the recent months, my eyes were opened as I realised how important it is to get my act together. There was no real triggering event, no momentous incident that shocked me. Rather, it was the cumulative effect of the pressures of life, health, time and finance that woke me up. Of these, financial challenges would be the easiest to talk about. In this blog, I wish to record my motivations, thoughts and actions as I tackle these problems so that should I lose heart some day, I will have these posts to keep me reminded of why I am doing this. A diary of sorts, I guess.

Anyway, it's getting late. Thanks for reading, and I hope to see you again. Bye for now!