Jul 2016 Financial Update

I have updated the net worth, asset portfolio, passive income and savings rate pages on my blog. It’s a monthly exercise that takes about 30 minutes to complete and gives us a good financial snapshot.

What’s fascinating is that since we started tracking our finances in 2015 and showing them on the blog in 2016, all these monthly static financial data points are coming together to form financial data trends!

We start to observe the impact of lifestyle inflation, efforts to increase income & reduce expenses and changes in asset allocations. It’s difficult to pick up on such trends until you have sufficient financial data to work with. I highly recommend everyone to start tracking these four components monthly for a better financial picture. It’s amazing how much information you can glean!

Since I’m doing monthly financial updates, general comments will be provided on the progress of each component. There will be less detail but I will make sure to highlight any significant financial impact events.

Net Worth

Our net worth has finally crossed S$100,000. If you think getting to S$100,000 of asset portfolio value is tough, this one is harder from having to factor in your liabilities. For 2016, our net worth has been growing at about S$10,000 every month.

This can be attributed to three monthly factors – reduction in mortgage principal of S$2,000, cash on hand & investment cash growth of S$4,000 and retirement contributions of S$4,000.

After paying rent for a number of years in Australia, it’s nice to know we are now making monthly housing loan payments to our own apartment here in Singapore and building equity. This is especially the case when we have some flexibility in reducing these monthly housing loan payments if required.

In the event of job loss or medical emergency, it’s possible to draw down more or all of our CPF – OA to make these payments for a year. This is the most powerful feature of CPF – OA in my opinion and allows us to avoid cash drain during such a difficult time. This is also why we only view our CPF – RA as retirement funds and contribute additional cash to it whenever we can.

The monthly cash on hand and investment cash growth of S$4,000 has become more consistent due to the low investment activity. At a minimum, our cash on hand increases by S$2,000 if we end up using the S$2,000 of investment cash in the equity markets.

The monthly S$4,000 of retirement contributions from our employers and us as employees help to build up our CPF, which is technically a retirement fund scheme. However, this is how we view the allocations to and purpose of each account. CPF – OA for housing, CPF – RA for retirement and CPF – MA for healthcare. Think of CPF as a financial planning tool rather than a retirement tool and it will make more sense.

Asset Portfolio

There was a run-up in the equity markets and it has stayed quite flat recently. As you can see, the increase of S$8,000 from Jun 2016 is mostly from the S$4,000 of cash on hand & investment cash growth and S$4,000 of retirement contributions.

I have been hesitant to invest any more cash than necessary in the equity markets other than the small regular purchase of ETFs to keep us vested. It’s not a good time now to be aggressive with our investments but we don’t believe in keeping ourselves out of the equity markets as well.

As long as we can achieve gradual growth of the asset portfolio, it means our slow and steady approach is working. The strategy might change over time but we are okay to stick with it for the time being.

Passive Income

The average monthly dividend & interest income for 2016 so far is about S$800. The dividend income distribution is uneven due to most of the shares paying dividends semi-annually. The good thing is that the increasing size of the ETF portfolio (whereby dividends are paid quarterly) should help to balance things up.

The interest income distribution is more even with small spikes due to coupon payments from corporate bonds. The aim is to increase the average monthly passive income every year until it can cover our current average monthly expenses (everything included) of about S$8,000. It’s an ambitious goal and we have a very long way to go. Of course, the plan also includes reducing our average monthly expenses over time to make this goal achievable.

Savings Rate

Our monthly savings rate used to be 30+% but is now fairly consistent at about 40% from efforts to reduce expenses. Ideally, I would like this to be 50% but I don’t see this happening unless we make some long-term structural changes to our spending.

It might be possible if we can find ways to increase our salary and passive incomes but it’s probably more effective to work out how to reduce expenses further at this stage. Expense management is one of our weaknesses but we have to keep trying!