Why I started contributing to SRS

My annual income tax ranges from ~$700 - $2000 since I started working 5 yrs ago. The big range is due to my rapid salary increment and tax breaks given by the government earlier on.

The following tax reliefs are applicable to me:

• Earned income
• NSman
• Parents care
• CPF mandatory contribution

After all the tax reliefs above which sum up to at least $40k, my highest income bracket is still in the 7% range.

Supplementary Retirement Scheme (SRS) encourages Singaporeans to put more into retirement savings with their money locked away until they reach the statutory retirement age. Withdrawing before the retirement age will incur a penalty.

I thought hard about it and realised that since I could invest the SRS money and save $15,300 x 7% = $1071 worth of tax annually at the same time, why not? $1071 compounded at 9% annually can give you ~$14,000 at the end of 30 years!

I most likely will not touch the $15,300 (SRS contribution limit) in the near foreseeable future hence I am alright with it being locked away invested in stocks for the next 3 decades. I have more than sufficient cash and insurance to tide any emergency.

There's really no difference investing for the long-term between using an SRS and non-SRS account.

My only regret is that I did not start SRS contribution a few yrs back... And also unlike the parents care relief, it's not possible to backdate your SRS contribution to save on taxes in previous years.

If the government allowed optional contribution to CPF OA as a tax relief, I would have done it instead, as CPF monies can always be withdrawn tax-free when you retire and be used to pay for housing. I feel that it is safer to contribute to CPF than SRS as there may be adverse changes to SRS policies 30 years later.

How much to contribute?

Based current stats, one can withdraw an annual amount of $40,000 for a max of 10 years tax-free from an SRS account upon retirement. Withdrawing $40,000 is tax-free as only 50% of the withdrawn amount, which is $20,000, is taxable and this $20,000 in turn falls below the threshold for taxable income. Hence one can afford to accumulate a max of $400,000 in his SRS account without incurring any taxes. This is also assuming the person does not have any other income when he retires.

Assuming an annual return of 9% for 30 years, one will only need about $30,000 in his account today for compounding to $400,000. With a lower annual return of 5%, one will need about $92,000 instead.

With this in mind, it is important that we do not over-contribute as we may end up eroding the tax savings in the future. This also brings to mind the usefulness of an SRS account. Based on a decent annual return, one can only make 2 to 6 annual contributions at the current limit of $15,3000. Any further contributions in one's lifetime may cause him to exceed $400,000, thus eroding the tax savings.

The above calculations should serve as a guideline only as the personal income tax rate will change over time. One has to review his SRS account annually and make any necessary adjustments to achieve an optimal outcome.

Affordable car ownership

A recent video by Talking Point got me thinking.

by gov.sg

Car ownership in Singapore is certainly one of the most expensive in the world. You can easily buy the same car in the US for only half or third of the price. Yet many of us here in Singapore across the income levels still own cars.

Data from the Singapore Department of Statistics (Singstat) show that on average, 16.3% of households earning a monthly income of S$3,000 own at least one car.

I am sure a lot more people can buy cars as they can afford to do so but they chose not to.

Many people buy cars for the following reasons: necessity, convenience, "status", "show off", and having too much disposable income.

Why I drive

My reason was that I became weary of the daily commuting experience to/fro work. Thus, I wanted to improve my quality of life in this aspect. 

You see, I live in one of the most easily accessible places that boosts a large residential population (heartlanders). 

Everyday, I had to squeeze into buses with a beehive of people during the peak period of 7-9pm when I am getting home. Whenever a bus arrived, the huge-ass crowd would flock immediately to it. 

I was always disgusted by the "kiasu-ness" and ungracious behaviour of these people. Over time, I succumbed to crowd pressure and followed suit and hence I became disgusted at myself as well for doing so but I simply had no other choice. I told myself this is not me; I shouldn't become yet another kiasu person. This brings up another point about how kiasu-ness came to be in Singapore which I may touch on in the future. 

I also enjoy driving and over time I require less mental concentration as it becomes more intuitive and "sub-conscious" requiring less active concentration so I could still drive home safely after a long day at work. 

Anyway, back to the main point. What got me sharing this post is how the costs in the infographics are somewhat exaggerated. I think the costs are based on the driver's workplace being in the land-scarce Central Business District  (CBD) where he/she has to navigate through the ERP minefield and pay for  pricy season parking and higher consumption of petrol due to traffic congestion. 

Therefore, it sucks if your workplace is in the CBD.

My expenses

Mine is not hence my costs are as such:

1. For ERP, I only pay $1 per workday as I go:

• KPE -> MCE to work every morning (ERP@MCE shut down at 9 am). I try my best to leave home in the early morning at the right time so it would be 9 or slightly after when I reach the ERP gantry.
• MCE -> KPE after 7pm to home ($1 only). If I wait til 7.30pm, it will be free.
• I hardly drive to town areas as it is an ERP minefield.
  
• I top up my petrol tank only 3 times a month on average for about $55 each time after credit card and station discount. 
• I drive daily including weekends but I optimise my driving style to save petrol, i.e., I drive smoothly by accelerating and decelerating gradually. 
• Also the moment I see a red light I would immediately stop acceleration, i.e., don't rush to wait. 
• Make use of expressways as much as possible and go by the rightmost lane to exploit the speed limit. 
• My daily route is pretty smooth as I chose MCE & KPE (rather than Lornie Road) hence I am able to achieve high fuel economy. The $1 ERP fee (and longer distance) more than compensates for the petrol required.
• Pump only the minimum petrol grading your car needs. For e.g., my car only needs RON 95.
  
• I pay about $2000 for insurance this year which is 2-3 times higher than what experienced drivers pay for as I just got my license and had a minor incident last year. However, over the next few years I would expect this to drop to less than $1000 due to No-claim discount (NCD) and more years in driving.
  
• I top up my cash card once a month on average for $50. I generally avoid parking in expensive places and go for flat entry-fees after 5/6 pm such as Suntec, Plaza Singapura. My workplace season parking price is tagged to HDB's rate.
  
• Servicing cost is also exaggerated. The first few years you should have free servicing from the car dealer. If maintained properly, you shouldn't need much repairs in the first 3-5 years. Scratches are common and you can accumulate them for repaint every few years. Even when repainting you can choose to do for certain parts of the car only.
  
• I wash my car on average bi-weekly for $8 (at Esso) even though it does gets dusty often when parked in my home's unsheltered carpark. I don't vacuum the floor mats as I can tolerate the dried grass accumulation. I generally let them be cleaned up once a year when servicing. Lol, gross right?
  
• For loans, you have to find the optimal balance between the amount to borrow and pay upfront. Think about your near-term need for cash and the opportunity cost for paying too much cash upfront. If you think you can make more dividends from REITs and stocks than the loan interest, you should pay less cash upfront. 

So in total the annual expense (excluding loan) for me is about $8000 only which may stay the same or go down in the years to come as the insurance becomes cheaper.

Compared to taking taxis

The total car ownership cost is about $18,000 for an entry-level car including the depreciation. That's about $50 worth of taxi fare per day on average. So which do you think is better?

CPF Portfolio Update Nov

Here's a partial update of my CPF Portfolio invested using OA funds as at 2017-11-16:

Aberdeen SP Thailand Eq SGD	$3,642.945	6.99%
First State Regional China	$3,203.480	14.30%
PineBridge Singapore Bond	$1,408.099	0.34%

All three of them can be considered as indexes of their respective markets. I think major indices around the world are rising in tandem.

The portfolio is small now but the yield is already 7-14% (after the fees) since I started a few months ago. I'm approaching cautiously as it doesn't smell right for the market to keep on rising for so long when we're nearing a potential downturn based on the 10-year crash cycle.

I have already stopped the PineBridge fund Regular Savings Plan (RSP) as the yield is really low in a bull market.

I chose the unit trusts based on their stellar past performance.

The good thing about unit trusts is that you only incur an initial sales fee of 2.5-5% and after that recurrent purchase is commission-free.

Saving money on clothes

I am a typical man (geek) who doesn't care much about fashion.

My wardrobe is full of free stuff from events, hand-me-downs, out-of-fashion stuff, oversized clothes from unknown sources, etc.

Recently when I was tidying up my wardrobe (for the 1st time in years), I got quite a shock when 10+ pieces of them had gone mouldy and yellowish! Most of them are cheapo stuff bought at sales and free stuff from events, from several years ago. So luckily, I didn't lose much $.

My ancient-looking wardrobe probably from the Qing dynasty.

Unsightly yellow stains on a white shirt.

That was the moment when I realised I need to take good care of my clothes so that I can save $ (or rather, not lose $ buying replacement).

Practical Tips

1. Overcome humidity: 
• As Singapore weather is extremely humid, it is best to completely dry your washed clothes before putting them away in the wardrobe. 
• Try not to stack them as this tends to trap moisture. I hang up most of them using clothes hangers (also because I'm lazy to fold).
• Use a dehumidifier such as Thirsty Hippo. I just bought a pack of 8 at $11.95 from Sheng Siong (on promotion). Each box can last for 2-3 months or when it cannot absorb any more moisture. 
• Once in a week, if you have the time, unfold and fold your stacked clothes in the darkest corner of your wardrobe, to remove trapped moisture. 
2. Buy prudently:
• Review your wardrobe regularly. Many people buy clothes frequently and end up don't wear most of what they bought. They keep wearing those favorite few of the hundreds they own. Know what you have and rotate so you get to wear each of them eventually.
• Control your urge to buy when you encounter sales. I buy 2-3 pieces of clothing every 2-3 years on average. 
• Wear your clothes until they become not wearable anymore and by that I mean they have holes or have turned yellowish. Some people may say yucks! 
3. Rid old stuff:
• Sell those old and infrequently worn ones on sites like Carousel. Alternatively, donate to the salvation army or hand down to your younger siblings. 
• Wear at home as "comfy" clothes (nobody cares what you wear at home anyways).
• Use as "wash cloths" or rags.

CPF portfolio update

Here's a partial update of my CPF Portfolio invested using OA funds as at 2017-10-19:

Aberdeen SP Thailand Eq SGD	$3,621.570	7.03%
First State Regional China	$3,012.709	8.23%
PineBridge Singapore Bond	$1,415.751	1.02%

All three of them can be considered as indexes of their respective markets. I think major indices around the world are rising in tandem.

The portfolio is small now but the yield is already 7-8% (after the fees) since I started a few months ago. I'm approaching cautiously as it doesn't smell right for the market to keep on rising for so long when we're nearing a potential downturn based on the 10-year crash cycle.

I will stop the PineBridge fund RSP as the yield is really low in a raging bull market.

I chose the unit trusts based on their stellar past performance.

I use POEMS Unit Trust Regular Savings Plan which offers one of the lowest fees.

How to calculate savings interest

I'm sure many people out there don't know how the interest is calculated. They are contented so long they see the amount is roughly correct.

Below is taken from the UOB website as at 2017-10-18:

Many may be fooled by the 3.33% p.a. rate at first sight as the actual effective rate is only 2.43% p.a. if you fulfil the spending and crediting criteria.

Effective rate for 50k = (10k * 1.5% + 20k * 2% + 20k * 3.33%) / 50k = 2.43% which is shown in the fine print at the bottom of the page.

How to calculate the monthly interest?

Monthly interest = Effective interest rate * savings amount * (N / Y) where N is the number of days in the month. Y is the number of days in the year.

There may be some rounding differences.

The savings amount may be the daily average balance in the month depending on the definition used by the bank.

Maximising cash interest rates

My cash savings are deposited in high-yield accounts, and by that I mean the interest rates are significantly more than the pathetic 0.1% base rate and the 1.x% fixed-deposit rate.

All my cash savings are earning at least 1% interest p.a. with most of them at least 2% p.a.

This is how I do it:

1. UOB One Account:
• I currently max this out with $50k at 2.4% p.a. interest rate by spending $500 on the One Card and making 3 GIRO transactions monthly.
• One tip is to charge whatever you can to the credit card but be mindful of certain exclusions such as interest-free instalments, ezlink top-ups, etc.
2. Maybank SaveUp:
• I max this out with $60k  at 3.0% p.a. interest rate by depositing my salary, paying for my One Card through GIRO, and investing the bare requirement of $300 in unit trusts monthly.  I am compelled to invest in unit trusts as I don't fulfil any other criteria.
3. CIMB FastSaver:
• The remaining funds is deposited here to earn 1% p.a. (up to $50k).
4. Singapore Savings Bond:
• This is a good alternative to CIMB FastSaver as it is highly liquid (redeemable without any penalty within a month), has an annual yield of 1-2.x%, and ultra-safe (backed by the Singapore Government). 

All my cash is pretty much protected by SDIC and the Singapore Government. 

One way to hit the credit card min spending is to consolidate expenses into one credit card and use it to pay for bills such as:

1. Telco bills
2. Utilities
3. Use CardUp to convert GIRO payments to credit card payments for a small fee of 2.x%
4. HDB season parking
5. Petrol
6. Town council fee
7. Insurance (certain types only)
8. and more...

However, do also check the credit card terms and conditions to ensure the payment type can be counted towards the min spend. 

Early Retirement

I just came across this blog http://earlyretirementsg.weebly.com/ (and many others) and am glad to find fellow Singaporeans who are embarking on the same mission as me.

I aim to retire by 35. Currently I am 30. Still 5 more years to go :(

Based on current income trajectory, my net worth would be 1 million by then (not including my significant other half's), the majority of which I would probably invest in stocks earning myself at least 5% dividends overall. That would give me a passive income of about $20-50k annually depending on the actual performance of the stocks and how much I actually put in.

This amount should be able to cover my annual expenses adequately based on a comfy lifestyle.

Why retire early?

I guess this is due to my lazy yet greedy nature. I think most people want to be rich yet they are not that motivated, crazy nor hungry enough to work for it. 

By the way, having experienced much shit and politics in my corporate job for 5 years now.. I know it is certainly not easy to achieve wealth, let alone striving out on your own doing business. 

Also I realised a 9-to-6 regime is certainly not for me. Everyday to the office feels like a chore over and over again -- doing the same uninteresting shit over and over .. I think I'd rather stay at home, do nothing and drink beer all day long. 

How much do you need to survive in Singapore?

This is just a thought experiment to determine roughly how much is required per month to survive in Singapore for a young working adult with 3 proper meals, shelter over head and basic health insurance. I'm doing this exercise so I can compare my expenditure to this hypothetical example.

I just guesstimate some of the costs below as I think it should be pretty accurate based on my past experiences and I'm too lazy to do research.

1. Meals: 
• Breakfast: Say you buy a jar of jam and loaf of bread which last you for a week ($5 in total). So that's about $0.70 for a breakfast. Let's round it up to $1. With a cup of home-made or hawker coffee, it will be another $1 so total $2. 
• Lunch: Economical rice at a hawker centre ($3).
• Dinner: Again, economical rice or equivalent (for god's sake).. $3. 
• In a month, that's $8 times 30 days = $240 per month (and this is without buying any drinks!)
2. Shelter (or parents' allowance):
• Rent a small room for $500 with utilities and WiFi included (but no air-con). I think it can even be cheaper if you stay in a remote location such as Woodlands or Jurong. 
• -Or- Live with parents either for free or give them some allowance. 
3. Transport:
• $100 for ez-link per month (based on my expenditure before I bought a car).
• No private transport.
4. Healthcare:
• Referring to the premium table here, the Medishield Life premium is only $6 monthly for a young adult in the lower-middle income group. 
• I also assume here you get illnesses and ailments such as headaches, fever,  and cold occasionally, so another $5 per month on average to buy pills (DIY cure). 
• Dental checkup every 6 months: For a typical polyclinic visit, it costs $45 so that's ~$8 per month.
• $10 haircut in one of those express shops every 2 months, so that's $5 per month.
5. Phone plan:
• I will just include this since in this modern age, almost everyone needs a smartphone in a developed country. How can you not own one when the workers and aunties own one each?
• Say $20 for a SIM-only plan with 3 GB data.
6. Gadgets:
• Say you need a laptop and mobile phone and you can only use them for 4 years max. 
• Assume $2000 per 4 years so that's about $42 per month. 
7. Clothes:
• Say you spend $120 a year on clothes on average so that's $10 per month amortised. You'd need at least some decent clothes in this judgmental and superficial world, especially in certain industries. 
8. Entertainment:
• Assume all the entertainment is derived from your mobile phone and laptop.
9. Groceries and necessities:
• Assume $5 per month for shampoo, toothpaste, etc. (amortised)

So in total you'd need $941 per month for a really frugal and financially disciplined lifestyle! Wow! I thought it'd be even lower.

One can probably even reduce this further by cooking meals yourself, DIY haircut, etc.

Mine is 250-300% of this inclusive of owning a car. 

Additional things to sweeten your life that were left out above:

1. Vacations
2. Better entertainment such as movies
3. Occasional splurges on food and transport

How do YOU compare to this?

Do you need a Will?

For ordinary folks like us with few assets, a will is not necessary.

Many would say having a will is beneficial for making allocating assets easy in the event of a sudden death.

However, how likely it is for one to encounter a sudden death?

Using my late father as an example, he only had shares in the CDP, money in bank accounts and of course, in the CPF as well.

He made a will back in 1994 and a nomination for CPF. His bank accounts and HDB flat are jointly owned by him and my mum. So when he passed away, we only had to apply for a Grant of Probate to claim his shares in the CDP (even this can be avoided).

I would suggest saving the money for making a will ($100-$200) and making everything jointly owned and nominated if possible. Further, CPF monies are not covered by wills.

Exceptions:

1. you cannot provide a nomination for CDP shares and one way is to transfer when the person is still alive. When the person is gone, you'd need to apply for a Grant of Probate (if there's a will) or a Grant of Administration with the engagement of a lawyer, which costs $1200-$2000. It'd be cheaper if you do it yourself although the process can be quite daunting for most people like us. Yet another alternative is to go through the Public Trustee but it charges fees for doing so. 

What do you think?

My expenses

I have upgraded this post to a page due to the popularity. Click on "My expenses" on the top or right side of the page.