Category: Max Finance

Budget 2017 | Personal tax rebate made me lost $98

Just before end of 2016, Max did a voluntary cash top up of $7k to his CPF-SA savings. As you can see from the dates of transfer, the transfer was a decision at the eleventh-hour. The transfer is split into two transaction ($3.8k + $3.2k) due to t…

Understanding the Financial Independence Model | part 1

Followers of this financial blog would know that Max has been working on the Financial Independence Model (FIM) since the beginning of 2017. In a nutshell, the FIM is designed to help individuals compute their personalized FI age, based on basic financ…

Do you have a plan for early retirement?

Achieving financial independence (FI) is the dream of many working adults. We dream of lying on the bahamas beach sipping watermelon juice. We plan to devote our time to charitable acts. We want to chase our passion, to do the things we love, instead o…

Should I transfer money from OA to SA account?

One of the key aspect to achieving early Financial Independence is to optimise the returns of your wealth. However, many people focuses primarily on building up their cash bags and neglect the other bulk of their savings, the CPF.Although our CPF savin…

Are you neglecting your wealth: you have more CPF savings than you think

Let me start this post by the following statement:

At least 31% of your wealth are in CPF
Rub your eyes, stare at the statement again. <No, this is not a typo> If your only source of income is your full-time employment, then a whooping 31% of your income goes to CPF, and the remaining 69% are the cold hard cash you receive as monthly take-home pay. 

Are you kidding me? 31%?

For readers who are convinced, you may skip to the next section. Otherwise, read on for a quick explanation. 
For employee below 55, 20% of your wage will be contributed towards CPF, while your employer contribute an additional 17%. This means that for a person earning $1k per month, take-home pay is only $800, and total CPF contribution adds up to $370; this equates to 69% and 31% respectively. 

In fact, you (very likely) have more CPF than cash savings

Unless you save more than half of your income, I would bet a burger that your total current CPF* saving is more than your cash savings (including cash-equivalent asset such as investment portfolio). 
*Include CPF savings for other purposes (such as property, investment etc.)
This fact may be surprising, but is actually a highly probable situation for many of us, especially for young working adults like Max.
Using the same guy with $1k gross income as example: By saving half of his take-home pay, his total saving is only $400 ($800/2), as compared to $370 of CPF saving. With interest rate of 2.5% and 4% for OA and SA savings, it is not unlikely for CPF savings to exceed total cash savings.
A quick check: as of today, Max’s CPF total saving is double of his total cash savings. How does your CPF savings compare with your cash saving? Why not have a quick check? 😎

So, how does that affect me?

With a significant portion of wealth in CPF savings, it is worth putting extra emphasis towards growing our CPF savings.
After all, unless you are able to build up a portfolio huge enough to generate passive income for a comfortable retirement lifestyle, the CPF scheme has to be tap upon to cover the gap.
There are many people (including myself) who can better utilize the relevant schemes to optimize our CPF growth. Some of these (non-exhaustive) are:
  1. CPF investment scheme: investing OA and SA account
  2. Transfer savings from OA to SA account
  3. Voluntary cash top up to SA account

Better don’t touch my CPF leh

I am sure many people are not actively trying to maximize their CPF savings due to a lack of financial know-how to evaluate their needs. This is especially true as these decisions made are irreversible. Indeed, careful considerations have to be made before ant actions on your CPF savings, your retirement nest.
Personally, I have transferred some of the OA savings to the SA account, and have top up SA account with cash. Will be elaborating on this in later posts as a case study for reference.

Ending note

For now, remember that 31% of your wealth are in CPF. Don’t just live with it; rather, embrace and optimise it to put it to your advantage.
Are your CPF money reaching it’s fullest growth potential? Are you neglecting the other significant half of your wealth?
I hope you are not.

Upcoming posts

1. More about myself – posted on 6 Jan 2017
2. Do you have a plan for early retirement – posted on 21 Jan 2017
3. My financial philosophy
4. Review of my 2016 stock investing performance
5. Why do I top up my CPF SA using cash
6. Big spending – Invisalign

1 year closer to financial independence: analysis of 2016 savings

2016 will be a critical year in my life as I began to take a more active approach to achieving my financial goals. Let’s analyse evaluate how I fare for savings and set new goals for 2017.

Income – Evaluating my source of money

Total income (after CPF deduction) for 2016 is broken down into 4 main categories:
  • Salary – 67.4%
  • Bonus – 30.5%
  • Benefits – 0.9%
  • Others – 1.1%
Benefits are subsidies which I received from my company for qualified spending on my well-being, such as insurance, air ticket, dental etc. As I am tracking these spending under my ‘expenses’, the corresponding subsidies have to be tracked under ‘income’ so that my ‘savings’ (income – expense) will tally.
Others are additional ad hoc income from special events, such as doing paid survey, red packets and IPPT award.

Analysis of income

A significant portion of the income comes from bonus, which depends on the company and individual performance. This is something I am worried about (a good problem thou), as this stream of income as bonus is not guaranteed. In fact, about 15% of my monthly salary is also performance-based, which can be taken away if my performance standard is not maintained <booooo, need to work like a donkey…>.
A quick scenario analysis: Assuming status quo for other income, a 50% reduction of my bonus will bring my total income down by 15%. To put that into context, this reduction is about half of my annual expenses <Wow!>.
I am fortunate enough to receive an attractive remuneration package after 3 years of working, but this privilege should not be treated as granted.

Quick reminder to self is to maintain a positive working attitude and to grab opportunities as they come along.

At the same time, I should really start seeking alternate income to supplement this main income stream. One area is my investment journey which I have embarked on in 2016.

2017 goals for income – increase by 5%

As my income is not directly within my control, the target is more of a milestone rather than a goal.

Possible source of additional income to hit this milestone are from the annual increment (est. 2-3%), hopefully higher bonus from better work performance, and from new sources of income (no concrete plans yet ><).

Expenses – Where did my money go?

Total expenses for 2016 is broken down into 4 main types:
  • Fixed – 35%
  • Lifestyle – 30%
  • Subsistence – 23%
  • Others – 12%
Fixed expenses, as the name suggest, are spending which are (almost) fixed every year. These include interest on my study loan, taxes, insurances and monthly household contribution.

Subsistence expenses includes the ‘must-have’, like lunch/ dinner, groceries, hand phone bills, transportation, and Wifi + cabled TV subscription (I know some of us may not agree that cabled TV is a subsistence expenses).

Lifestyle expenses, on the other hand are the ‘good-to-have’, including spending due to personal expectation in certain quality of life (e.g. dining at restaurant) and possession (e.g. to have the newest phone model).

The rest of the spending are collectively classified under Others, such as contribution of wishing (e.g. wedding red packet), donations, treats for friends and families, etc. 

Analysis of expenses

The majority portion (58%) of my 2016 expenses are towards the fixed expenses and subsistence expenses. While the fixed spending cannot be removed nor reduced, the subsistence spending can be reduced with some effort. For example, I can cut down on my food spending by packing food to work once in a while, or taking fewer taxi rides. 
The other area to focus on this year will be the lifestyle expenses which accounted for 30% of total expenses. But with a big spending expected for my invisalign coming up, I foresee that my lifestyle expenses next year will not be any lower than 2016. 

2017 goals for expenses – reduce by 5%

I am taking a more conservative approach to controlling my expenses this year. As there are not much extravagant expenses in 2016, it will take a change in habit and lifestyle to be able to reduce my expenses significantly. So, a realistic goal of reducing expenses by 10% is set for this year.

Did I hit my 2016 goals?

One of my financial goals for 2016 is to save $50k within the year. I fall short slightly with the final number sitting at $49.1k, below is a graph I used to track my progress <so close!>, sudden increase in May is due to bonus payout, not because I strike the lottery.

This year, the plan is to do a quarterly review of my progress to have a more active approach to achieving my goal of saving $54.5k, based on the 2017 income and expense goal set for myself.

If you have read this far, please do not be absorbed into my figures. More importantly, have you done your 2016 evaluation and goal setting for 2017? Also, these annual financial goals set for oneself should be align to the ultimate financial goal you intend to achieve. For example, if you want to retire by 40 years old with $1 million of cash, it is not realistic to save only $10k per year (that will take 100 years btw). 
For myself, my financial goals are below. <Don’t copy mine, do your own>
  • Semi-financial independence by age 35;
  • Financial independence by age 40

I will write on my investment goals as a separate post to evaluate how I performed as a first year newbie investor in stocks. 

Ending Note

Have you set your realistic financial goals for 2017? If you have any good ways to manage expenses, drop your comments below to let me know, I would love to learn a tip or two from you. 😊
If you like my posts, do subscribe to my blog on the left. Thanks for reading!

Upcoming posts

1. More about myself – posted on 6 Jan 2017
2. Do you have a plan for early retirement – posted on 21 Jan 2017
3. My financial philosophy
4. Review of my 2016 stock investing performance
5. Why do I top up my CPF SA using cash
6. Big spending – Invisalign