And Going Forward…

One consequence I didn’t really foresee when I took my long break from work was that I would have no income history for 2014.

How is that important?

Well, it just so happens that I may need to look into refinancing for the condo this year.

I am in a bit of a dilemma here, because I cannot really predict the rates of increase. At the moment, I am paying about 1.2% interest, and fixed rates are at around 2+% if I am not wrong (haven’t done my due diligence yet).

The rest of the world is printing money like crazy, but the US has eased off its QE, so I can’t really predict the way interest rates are going to go.

However, the whole thing might be moot if I can’t show a healthy income sheet for 2014. And that is just one headache I have come back to.

My condo lease is up again this coming April, and the rental market is pretty soft right now, so I am not optimistic for the coming year. It is also not a great time to sell, so I have to hang in there for a couple of years more.

I have a small idea though. The condo layout is such that I can cordon off a small part of the place and make it my own tiny studio with my own entrance, while continuing to rent out the rest of the place. If my current tenant decides not to continue the lease, I might just take a couple of months and turn this into reality. The condo is much nearer to my place of work and I would finally be done with the 5.30 am wake up calls and daily 3 hr commutes. And I would finally have a place of my own.

The next most urgent thing is to just work, replenish my coffers, and throw the excess into stocks. This is the year for stocks, I think, given all the liquidity floating around the globe. However, I have to confess that it has been a little hard to adjust to working life after bumming around for so long; I must be really suited to the life of a wastrel. I miss not having to get up to the sound of the alarm clock. Oh well, it’s just nine more years…

Oh, and more money saving! The new company gym had been completed in my absence, and now I can go cancel my gym membership. There is even a free personal trainer at the company gym, and I don’t have to travel anywhere! There is also now a massage service at the company, at the cheap, cheap price of $38 an hour, so that’s probably where some of those saving’s going to go. They certainly are making it hard for me to think about resigning…

And that is the plan for this year. Earn as much as I can, save as much as I can and lose some weight in the process. Let’s just hope the doing is as simple as the planning.

Meeting with the Financial Planner – Some Conclusions

I have a lot to update. So there will probably be a few posts from here out, if I can get off my lazy ass to write.

I had a meeting with the financial planner again last week to go through the completed financial plan to meet my goal of retirement in ten years’ time.

The main conclusions of the meeting were:

–          Retirement at 45 is possible, but it would be very, very tough.

–          I will have very little margin for error if I really retire fully based on this plan at the end of ten years, hence the planner does              not advice that. However, taking up a lower paying job is definitely possible after 45.

The main thrust of the plan is to retire the bulk of my 1-million-plus mortgage on my condo in ten years instead of the original forty years tenure. The plan calls for additional mortgage payments of close to half a million on top of my normal mortgage payments in the next ten years. At the end of those ten years, I will have some existing savings endowments mature, which will take care of the balance. Once the mortgage is fully paid off, I will have access to the full rental income for my living expenses and hence can retire if I want.

The case remains even if I change properties midway, provided that the value of the properties remain the same. It also means I can say goodbye to any plans of moving out of my parents’ house for the next ten years.

I will also have pretty much nothing else in other savings and investments at the end of ten years since I will be throwing every cent available at the mortgage during the ten years. This is the reason why the advisor advised me to continue working and investing for at least five to ten years after 45 to build up my non-real estate investment portfolio. However, I can achieve this with a much lower paying (and less stressful) job.

I won’t go into the numbers in detail but it essentially means that I have to find about $50K to invest every year on top of my various existing savings vehicle. Bonuses and share options will contribute most of that. I’ll have to find the rest of it somewhere, somehow.

I had some reservations that I’ll be extremely undiversified at the end of ten years, with everything in the property, but unfortunately my pie is not large enough to try and distribute otherwise if I insist on so ambitious a plan. It will be somewhat scary for a year or two until I build up my reserves after paying off the large mortgage.

There is some buffer built into the plan though, since the planner used very conservative mortgage interest rates and investment returns to do the calculations.

The $50K a year will be invested in a short term portfolio of a mix of equity and bond funds as well as money market deposits. The portfolio will be liquidated every three years to pay off the mortgage.

The issue with investing the money myself is that I failed the CKA (Customer Knowledge Assessment) so I cannot invest in most ETFs on the stock exchange. I think the whole demarcation is a little stupid (I can buy individual stocks but not most index funds?), but it is what it is. So I’ll have to do my investment through others, and pay for the privilege as well.

I also found out that a number of good financial products that are available to laymen in other countries have limited accessibility in Singapore. Some of them of only available to high net worth individuals (e.g. min $250K investment) or are only available through certain companies. In such cases, it does help to have the advice of fee-based financial planners who are not commission based.

We didn’t spend any time on cash flow and expenditure management, because he said he didn’t have any advice for me on that front. He couldn’t find anything to cut further. J I take that as a back-handed compliment. We also discussed tax planning and estate planning etc, and I had a lot of different thoughts on the property front. I will share some more in my upcoming posts.

My final bill for the whole process? Just over $5K ($250 per hour for 20hrs of work). I think my net worth and my ambitious goals made it borderline worth it to pay for the service, but I am not sure I will recommend it for anyone with less than a net worth of $750K, especially if there are no special circumstances to consider (estate planning, tax planning etc) and if the individual has a modicum of financial know-how.

I am pretty much fired up from the meeting and looking forward to the challenge. Even if I should fail to meet the ten year mortgage pay off challenge, I’ll definitely  be no worse off than if I had never tried -reaching for the moon and landing among the stars and all that. I just hope I can keep this optimistic frame of mind going forward.

Updates Feb 2014

Happy Chinese New Year to all.

This is the year of the horse, which happens to be my Chinese zodiac sign as well. You would think that you would have good luck in your own year, but that is not the case in Chinese geomancy. This is going to be a challenging year for me. Unfortunately I am still struggling mentally, and have just gone on medication to help with anxiety and insomnia.

Financially, it is going to be a tough year as well, with increased costs due to the therapy that I have to do, and looking at reduced income this year due to performance issues at work.

I have also gone ahead with the financial planner. The early retirement plan is tougher than I had expected. Basically, the planner does not feel that I will be able to achieve retirement at 45 in the way I wanted, or at least, not in a majorly risk-free way.

The reason for that is that most of my assets are locked in real estate and retirement funds. I have quite little in current liquidity by comparison. This is going to make investing a little more difficult in the coming couple of years. Basically I am woefully undiversified.

There are challenges in the insurance front as well. I just learnt that I have been mis-sold my hospitalization shield plan. So effectively, I am not covered on the medical front. For small claims, the insurance company might just not check, but I will be in trouble for larger claims. However, I have decided not to do anything just yet, as changes may be coming to medishield and maybe private insurance plans next year, so I’ll have some chance of coverage.

The silver lining is that I have substantial enough valid whole life insurance with critical illness coverage.

I have been trying to come to terms with all that, and modifying my various expectations for my retirement. Despite my preference for rental income forming a solid majority of my retirement income, I am rethinking my plan. With all the new limitations that has been put in place by the government on the rental of HDB flats, and the high cost of going with private property all the way, I may just have to find my passive income another way.

I also have to come to terms recently with some bad financial decisions that I made previously that have come home to roost. Whatever I may be able to save this year will probably go to pay for these decisions, and if my net worth does not decrease this year, I will be surprised.

I am definitely down now, but surprising do not feel beaten yet. Perhaps it is all the meds at work, 🙂 or the good rest I just had during the CNY holidays. Let’s hope that I don’t have more bad news after my next meeting with the financial planner.

Getting Expert Help

I have made an appointment to see a fee-based financial planner, and if nothing goes wrong, I will probably fork out a couple of thousand for him to do a comprehensive financial plan for me. I am also evaluating whether I will be handling over part of my assets for him to manage, specifically the equities portfolio, at a not-cheap fee, of course.

I actually had this idea a number of years back but didn’t execute because of the cost of engaging said planner, and more importantly…hubris.

Everyone around me, in both real life and virtual, was and still is advocating managing one’s own money. And here I was, university educated, with an engineering degree, no less. I’m not stupid; I can do maths. No reason that if everybody else could manage their own portfolios and various planning, why I couldn’t do the same.

It felt like if I succumbed to hiring out to a financial planner that I would be admitting that I am just too plain stupid to handle it all. That was really hard to swallow, so I didn’t.

And so I did the best I could. And I’ve got the basics covered, and my net worth is going in the correct direction at least. I’ve got a goal, and I think that I should be able to hit the target at the right time.

But with time passing, and the need for more fine tuning increases, I’m starting to feel a bit lost, and unsure and overwhelmed. And the more I educate myself, the more I’m realising past mistakes made, and the more I’m wondering if I really know what I’m doing (probably not) and I’m now constantly second guessing my next decision.

Gosh I’m tired of it all. I still like to read about personal finance management…but I’m starting to miss my romance novels. I realise that my interest and abilities only go so far, and I’m throwing in the towel. And my net worth has increased to a point where it is not ridiculous to spend that kind of money. It’s time to bring in the experts, even though I feel like a such a fraud…

No, I am not going to sit on the beach with cocktail while somebody else is doing things with my money. I will still be fully involved, but now, there is will be hand-holding and another brain to help put the pieces together. And if that makes me stupid, then I’m resigned. As long as I get to retire at 45.

And I’m writing this because I think there might be people out there who are also thinking they need to do it all by themselves. And if you are happy with that and can do it, kudos. But if you can’t and need help, it’s okay too. So we’re stupid, but at least let’s not be stupid and poor. Get some good help.

Net Worth Update – April 2013

I don’t know why people who are not looking to withdraw their retirement funds are happy that the markets are up.

Because, even though my net worth has been boosted by the market upsurge, things are now expensive. I transferred another 10K to my brokerage account last Saturday, but I am now hesitant to buy anything, because all the stocks that are worth buying (and some which are not) are now freaking costly.

I will probably put in the order for two blue chip stocks later today. Blue chip stocks are not spectacular dividend payers actually (between 3% to 5% p.a.) due to their high costs, but they are stable. My portfolio is a bit heavy in the small and medium cap stocks at the moment.

Oh, I was also considering putting in orders for some ETFs, since we don’t have index funds in Singapore. I didn’t quite like the idea of ETFs, because I feel like I cannot control them as well as stocks (an illusion?), but reading Andrew Hallam’s blog gave me some confidence. The only problem was that the monetary authority considers ETFs derivatives, and I have to pass a special online test before I can trade them, which is pretty stupid in my opinion. Anyway, I haven’t had the inclination to take the online test yet, so investing in ETFs is still hanging in the air. My bad.

I also moved some cash last week. The fixed deposit rates are disgusting (0.5% p.a.), but Standard Chartered had a promotion where I can get 1.88% p.a. with a checking account as long as I keep charging $500 per month on an associated credit card. No problem – I will just move my savings endowment payment from another card to this one.

With that said, let’s move on with the actual net worth update for April – not too shabby at $730,750, approximately $8K increase from March, thanks mainly to the retirement accounts. The retirement contributions from last month’s bonuses have finally hit the CPF statements. I am also up about $87,000 since end of 2012.

The valuation for the rental condo is also holding up, though I am curious as to whether I’ll actually get any bites if I put it on the market down. From the feedback I am getting, the property market seems to be rather weak and there seem to be a lot of discounts out there for newly completed developments.

Taxes were filed this month – a ten minute exercise, thank goodness, because I totally forgot about it until quite the last minute. I had a rather large income last year due to the rental, but managed to pare that down quite a bit with all the rental expenses deductions (mortgage interest, agent fees, maintenance, repairs etc).

I think I’ll end up with 5K to 6K worth of income taxes for 2012’s income. That’s an effective rate of 3% after deductions. I cannot complain, especially after my mum came back from a visit with a Malaysian relative earning about the same as I do, and him having to pay 30K in taxes even after maximum deductions.

May will be a month of financial spring clean. I need to streamline my bank accounts and consolidate my credit card charging. The latter especially, is all over the place. It is going to be a PITA process to have to change most of my billing instructions, but the OCD part of me won’t let go.

May will also be the month when I reign in my spending a little bit, because I was kind of reckless in March and April. I didn’t do much damage, but only because I have plebeian tastes when it comes to life. Wants like this or this are actually pretty rare.

So, that’s all, folks. See ya next time.

Net Worth Update – Mar 2013

I know I missed the Net worth update for February, but it was such a short month anyway. So here is the picture at the end of March.

Net worth for March 2013 – $722,168.83 (+$49,616.23 since Jan 2013). Exciting things that contributed in February and March:

  • Garnered a few hundred bucks in Chinese New Year Red Packet Money in February.
  • My best dividend stock also turned out to be the one with the best capital appreciation. The stock doubled in price, so I sold all 15,000 shares. I made about $6,000 of pure profit from the sales. It didn’t make sense to keep the stock in my portfolio after it appreciated, because dividend yield went from 10% to 5%, but if it ever drops back to the previous levels, I’ll definitely stock up again. On a side note, my mentor also sold off the same stock. The difference was that he had about a million shares in hand. Suddenly, a $6,000 profit feels like nothing. Pfffttt…
  • Received annual variable bonus – 4.5 months = Approx $16K. By the way, this is supposed to be a bad year. We have had 9 months bonuses before.
  • Received employee share award – 4,915 shares. Market price for shares = $4.50 per share. Total value of stock received = approx. $22K

I also transferred $25K to my stock brokerage account in February because cash was accumulating pretty fast and I was sitting on too much of it. I bought five stocks, four of them speculative buys for potential capital gain, and one a blue chip dividend stock. Due to the bonus coming in, I have yet more cash that I have not decided what to do with. I would like to buy more dividend paying blue chips, especially those super expensive banking stocks, but the market is up, so I will probably wait a while for the price the die down.

Property prices appear to be on a downward trend, thanks to all the cooling measures put in place recently. It is now so expensive to buy a second property. My condo valuation seems to be holding steady, so that is a comfort.

It will probably be back to business as usual after March, unless any of my stock positions move. I wanted to try and achieve a $100K in networth increase this year, but it is only March, and I am at $78K increase already compared to Dec 2012. I think I should be able to attain a $120K to 130K increment this year if the stocks don’t plunge (God forbid!).

So that’s one more step in the direction of FIRE by 45. Surely, there can be no other woman who looks forward to her 45th year as much as I do!

Lessons Learnt in Property Purchase – Part 4 of the Series

Part 1 is here.

Part 2 is here.

Part 3 is here.

Master Bath

Master Bedroom Bath

So, I bought the condo unit. Our family friends are happy for us, my parents are happier, and the bank was probably the happiest. And everyone lived happily ever after.

But…

If I had to redo the process with the knowledge that I have now, I would do everything very differently. Everything happened in a pretty serendipitous manner, and while I did my sums, I didn’t consider a lot of things, the main thing being my goals and what I really want out of the investment. I let emotions and filial piety make most of the decisions.

Things I would do differently:

1)      I should have spent more time crystallizing my goals before I even thought about investing seriously. At the point of the purchase, early retirement was just a glimmer in my mind. I had thought about it, but dismissed it as impossible. And as it turns out, it is possible, and real estate will play a critical role, but it would probably not have been this particular condo, but something much cheaper.

2)      On hindsight, the condo purchase did not exactly fit into my early retirement goals. But as mentioned above, I wasn’t thinking about it seriously then, so I am just going to let it go for now.

Paula Pant of Afford Anything says it best here – the considerations for rental properties, versus properties for capital gains, or for personal living can be vastly different. If I had known then how I would feel about retiring early, I really should have made the rental returns the focus in my search for a property. I might have been lucky enough to find one that fits all three aspects, but that would have been a bonus.

As it was, my condo unit was positioned for capital gains, but not fantastic rental cash flow. I am only in a cash flow positive position because I had been incredibly lucky to secure my current tenant (thanks to my fantastic agent). I am not expecting to be so lucky every time.

3)      I would have crunched more numbers. The only sums I did before purchase was my total cost and whether I could realistically cover it with market rental rates, and the impact of interest rate increases. Nothing on cap rates, returns on investment, cash flow margins, and all the stuff Paula mentions in her post. I did those after the fact, and the numbers, while not too bad, were far from fantastic.

4)      There is nothing but ARMs available in Singapore. The only fixed rate deal I found was for a 5 year fixed only. People in the US should be grateful that 15 and 30 year fixed rate mortgages are still available to them. While I did check before the purchase the impact of interest rate increases on my monthly payment, it was hard to do any evaluation. Current interest rates are 1.1%. But what should I have used as the high point, 5%, 7%? Frankly, anything greater than 2% would probably have meant not buying or buying something much, much cheaper. But would that have been too conservative a decision? It is hard for me to evaluate even now.

Kitchen

Condo Kitchen

Considering all the above, I was really lucky that things turned out so well (at least for now). I have an excess cash flow of $1,600 per month from the rental unit and it has also appreciated close to half a million. My dream is really to make out like Paula, but with Singapore property prices being what they are, I’ll just be grateful if my early retirement plans pan out.