I had an interesting conversation with a friend recently over a lunch gathering during the weekend. It was about all the effort required to manage the multiple high interest bank accounts and associated cash rebate credit cards. Whether it was worth the time monitoring the bank account balances and credit card spending to ensure we maximise the interest earned and cash rebates received.

She gave a good argument on how you should be spending that time and effort more efficiently e.g. trading to earn higher investment income, deriving side hustle income, etc. A case of not seeing the forest for the trees. Which makes sense when you think about the situation she is in. Both her husband and her work while their kids are still young and it takes up so much of their time bringing them up well. This leaves them with a limited attention span to focus on what’s important financially.

And it’s not these high interest bank accounts and cash rebate credit cards that have limited upside since there’s a cap on how much you can earn from them. Let’s not forget she is a decent trader with a track record of earning investment income consistently and has good business ideas that she plans to execute on soon. So their approach is to have 2 banks account and 2 credit cards in total between the husband and her, easy to monitor and manage. As a comparison, we have 10 bank accounts and 10 credit cards in total between my wife and I.

I must admit that I have never thought about the opportunity cost of managing so many bank accounts and credit cards. It just didn’t occur to me that simplification could be a possible way to approach this. However, our personal circumstances are different since we have no kids, no trading ability to generate investment income and no business ideas to execute on. By now, the process of monitoring the bank account balances and credit card spending has become so natural that we just execute the actions without thinking. This is taking into account the initial time and effort needed to set up the entire personal banking system.

That was the argument I floated across to her. In terms of time and effort, the initial setup costs are high but the ongoing maintenance costs are low. Doesn’t she want to optimise her idle spending, emergency and investment cash funds? Another good answer from her. She doesn’t keep excessive spending, emergency and investment cash funds like us since they are usually deployed in the markets for higher returns. She only holds sufficient levels as insurance against job loss but doesn’t see the need to hold beyond that since both of them are still working and drawing high salary income. My wife and I always have a tendency to keep large cash balances in bank accounts. Call it peace of mind, sense of security. But it makes us feel safe. Though it’s not efficient from an investing perspective.

I enjoyed having that conversation very much. It’s not often I get to debate on various financial approaches. The point is not about who’s right and wrong. Everyone has a different strategy. Yes, over time, some may prove more effective than others. But it’s more important to find out what works for you personally. I probably should start attending more talks and seminars to meet like-minded people. The good thing for my wife and I is that we have a close circle of friends that are older than us with kids and more life experience. We are the youngest in that group and continue to learn as much as possible from them.

I took some time off the blog for about a week. Was posting consecutively for a few days and ran out of topics I was interested to write about. We took last Friday off work to take a break and had a busy schedule of meeting up with friends for lunches and dinners over the long weekend. By the time Sunday came around, we were tired from all the meetups. We became even more exhausted after forcing ourselves to hit the gym for our weekly exercise session and cooking dinner afterwards.

We don’t often have such a packed weekend social calendar and it’s easy to see why we prefer to spread out the events. Oh well, can’t be helped that everyone else is only free to meet up over the weekend as well since nobody is in the mood to gather after work on weekdays. This has taken its toll and my wife has turned in early. Sound asleep. I just checked.

Which gives me time to write a blogpost. This is when I sometimes do research on personal finance, investments stuff and update our Google Sheet & blog numbers. It’s also my alone time, where I get to think and plan about our financial independence/freedom strategy. Tonight, I read about Kyith’s post at InvestmentMoats: No Matter How Much You Earn, If You Spend Too Much, You Cannot Retire.

Very useful and relevant content to us. I found myself agreeing with every point he made. It’s true that there are a large number of Singaporeans earning upwards of S$80,000 per year. This is possible in several industries depending on the years of experience, although you will probably find the largest number in the finance (banking, asset/fund management, private equity and trust group), accounting and legal sectors.

The low personal income tax rates in Singapore have allowed for high levels of discretionary spending by this group of people. Having worked in Australia (a country with high personal income tax rates) and knowing friends/colleagues that have come over to work in Singapore, all of our spending power has gone up significantly. It’s not just the difference in taxes. The fact that basic living expenses such as food, utilities, internet, cable TV and public transport are less expensive here have also helped.

I’m not sure whether Singaporeans know how fortunate they are in this aspect. By the way, I’m not arguing that paying more taxes to fund social spending is a bad thing. But when you find yourself paying a lot more taxes and most of the benefit goes to other people. It’s not going to go down well with you even if they are the less fortunate and deserve our help. No need to criticise me on this point. I have never seen a middle, upper middle or upper income employee be happy to pay the high taxes in Australia. Or even a similar person being happy to pay the low taxes in Singapore.

Anyway, we fit right into that high income, high spending family profile outlined in Kyith’s article. The challenges we face according to him are:

• Unable to drastically reduce our retirement expenses due to inability to change our spending patterns significantly.
• Potential cash flow hits after 35 years old due to the increasing volatility of our job nature.

I always get worried when I read stuff like that. Because I do actually think we are going to get screwed by the above 2 points. By my calculations, if my wife loses her job now, we will be cash flow negative every month. If I lose my job now, we will still be slightly cash flow positive every month. And you wonder why I support and encourage my wife to work?

Besides, we already have friends that are several years older and facing those challenges. Their pay has stagnated, jobs are at risk but cannot reduce the expenses sufficiently to manage the cash flow issues. Makes me wonder how many times we have to get reminded before taking tangible steps to address this eventuality.

I want to say it’s not for lack of effort. But I would be lying somewhat. Yes, we have taken steps to lower our expenses. At first, I attributed the lack of results to it taking time for the effects to flow through. Then I realise we have just been using that extra cash flow on our travel spending (supposedly for richer life experience) i.e. reallocation instead of long-term reduction.

So yes. This is harder than you think in case you are wondering why we are just squandering the opportunity to be financially independent earlier than others. Because it’s true that not many can grasp it. We worked hard, smart and got lucky to get to this position. As grateful as we are to have the privilege, we always want to rewards ourselves for still being here. Navigating that conflict between gratification from keeping ourselves in this position and understanding it’s not going to last forever is a tough ask.

It would require both my wife and I to be on board for this to work. We may not be the worst offenders of being high income, high spending but enough to be a problem. The sad thing is I don’t see us changing until a major event happens. Forced changes can be a bitter pill to swallow but that might give us the push we need. I can only hope we are ready for it.

Happy National Day to Singapore! It’s a public holiday here today (Wed) and I didn’t do much at all. Cooked breakfast and lunch at home with my wife before heading over to my parents-in-law’s place for dinner. Nice and quiet mid-week break from work. Anyway, I have a full day of training tomorrow so I won’t be going into the office until Fri. It will be the weekend before you know it and I will have a wedding dinner to attend on Sat night!

I have been watching quite a bit of TV (Netflix and the National Day celebrations) today (Wed) so I thought I should do something more productive now. If you are wondering what triggered this post, it’s really just an observation more than anything. As I monitor the financial news & events less frequently in an effort to disassociate myself, there are still some key economic indicators that I focus on. Nothing complex and those that are simple & easy to understand.

Ministry of Manpower (MOM) Overall Unemployment Rate

I know people can be distrusting of this statistic. The most common criticism being it is often an understatement of the actual unemployment levels in Singapore. Another being it doesn’t reflect underemployment. However, this doesn’t change the fact that it is an important indicator of the labour market.

Have a look at the annual average overall unemployment rate (%) from the MOM website for the past several years:

You see that slight uptick in 2009, which coincided with the aftermath of the 2007/2008 Global Financial Crisis. I was surprised that it only went up to 3%. In Singapore, you could argue that almost everything is propped up by the employment market. Stocks, property, etc. This link is stronger than you think when you consider how our Central Provident Fund (CPF) Ordinary Account balances can be used to invest in stocks and property.

Singapore has one of the highest mandatory employer and employee retirement contributions and most flexible use of retirement funds in the world. It’s no wonder the health of the job market remains a primary concern for the Singapore Government. Once the unemployment rate starts to creep up, the repercussions for such a small country like us with no natural resources and a high dependency on human capital can be severe. In short, we can get screwed a lot worse than other countries.

Local Banks Profits

The performance of the 3 local banks in Singapore is a strong indicator of how well our economy in general is doing. Although certain industries and sectors can be underperforming, it is possible for other areas to more than make up for it. A significant portion of these local banks’ businesses is coming from Singapore firms. SMEs, MNCs, Funds, Asset Managers, etc.

As long as the local banks’ profits are holding up, it would suggest that the Singapore economy is still sufficiently healthy since their core business is as financial intermediaries. Which again ties to the unemployment rate and circles back to the stock market, property market, etc. It doesn’t matter what the media is writing about in relation to all of these topics. The statistics should drive your analysis.

What does it say about our holding power?

Let’s have a look at the combination of factors for Singapore in the past several years:

• Property prices have gone up significantly
• Birth rates have gone down to below replacement levels
• Unemployment rates have stayed at relatively low levels
• Personal taxes continue to remain low
• Wealth taxes have gone up slightly

These are prime wealth-building conditions and that’s exactly what has happened. The older generation may be suffering from a higher unemployment rate but they are able to monetise the increase in their property prices. By downsizing or moving in with their children. The younger generation may be suffering from higher property prices but they have been able to save up aggressively from staying with their parents before moving out. Besides, the children will more often than not be the beneficiaries of their parents’ wealth. In fact, when this transfer of wealth happens, it gets focused on to a smaller number of people because of the declining birth rate.

Have a look around. There are so many people all cashed up and waiting.

• Graduate couples below 25 years old that are staying with their parents while waiting for their subsidised flats to be ready. But saving for their wedding, downpayment, etc.
• Single/Dual-income couples between 25 and 35 years old living in their first subsidised flats that are waiting to have children or just started their families. Most of them can foot the entire monthly mortgage with their CPF OA balances without touching their cash.
• Single/Dual-income couples between 35 and 45 years old that have children and are waiting to move out to a bigger apartment. Most of them have benefited from the run-up in the property prices (because of their first property) and hold sufficient equity & cash to make their next purchase.
• Singles in any of these 3 age groups either still staying with their parents and saving aggressively or they have sufficient earning power to move out by themselves. For those above 35 years old, the availability of specific smaller subsidised flats helps to ensure some of those that move out do not financially overstretch themselves.

My wife and I know of extended family, friends, colleagues and acquaintances in every one of the above groups of people. Their purchasing and holding power is very real. If you reckon it’s because of our social and professional circles, I can assure you that’s not the case. When everyone you know has the ability to hold such a high level of cash savings and wait for the stock and property markets to crash before they invest, that’s how you know it’s not happening for a while. Not in such an obvious way when everyone’s waiting to capitalise.

One other thing to remember. The reason why banks have been competing to offer attractive high interest savings accounts is because there’s so much cash and liquidity sloshing around that can be utilised. If cash savings weren’t high, there would be no point in trying to capture any market share of such high interest savings accounts.

This is why I reckon bear markets and market crashes are difficult to predict and take advantage of. They happen when everyone is too afraid to step in to invest despite having sufficient cash holdings, which suggests a quick recovery cycle that’s difficult to time. Or they happen when everyone can’t step in to invest because they don’t have have sufficient cash holdings, which suggests a longer recovery cycle that’s difficult to stay invested in.