Finance Smiths

Personal finance apprentices-in-training

Bad remuneration outcome

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I got my letter today about my pay increase and bonus. It’s bad and worse than last year. Looks like banks did cut the salary raises and bonuses of their staff after all in response to the worsening virus situation. They just didn’t announce it because their view is that it’s still better than salary reductions and no bonuses. Which is not wrong.

I don’t blame my bank for taking the initiative to cut costs because it is trying to preserve the jobs in the event of a long and drawn out recession. But I’m still upset with the hard work and effort I had put in last year not amounting to much. It’s a disappointing outcome and I feel angry & frustrated at how I was undone by something entirely out of my control.

Yes, I know it could have been worse and I should be happy that I still got a salary increase & bonus. But people are just trying to make me feel better about a shitty situation that I feel cheated by. Sigh, I should have known there was going to be a negative impact from Covid-19 and managed my expectations downwards. But I held out hope and it got crushed.

I took my time at work today to mourn the last big opportunity I might have in a while to raise my base salary. I’m not sure when it will come around again with the economy going down the drain. Anyway, I had chats with my manager and senior manager about this. At least they bothered to make me feel better about it. The same thing happened to them as well so we are all feeling down.

Anyway, I discussed it extensively with my wife over dinner and we both agreed to focus on the positives. Given how badly the year is going so far, we have to prioritise the stability of our careers over taking risks for higher pay and bonus. If either or both of us get retrenched at this stage with so much uncertainty going on, we are going to struggle to get any traction with our careers for the next few years.

I used my salary for this month to recharge our investment cash. But I’m not doing the same with my wife’s salary and my bonus to be credited this week. Given how Covid-19’s negative impact to the economy is escalating so quickly, it would make sense to start taking some defensive action now while we still have jobs. Taking on too much risk and being so eager with investing can blow up our personal finances.

I’m going to build a separate pool of cash funds as a defence against a long and drawn out recession. Not just rely on our monthly salary income for expenses anymore in case we lose our jobs. This has become a much more serious situation than I had initially anticipated. And I should react accordingly to manage our risks as it develops.

Having a career strategy and preparing our CPF Ordinary Accounts

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My wife and I went out for lunch today by ourselves. It’s been a while since we got some alone time so it’s nice to catch up with each other. She’s going back to work in 3 weeks’ time so I wanted to check in on her head space leading up to her return.

Understandably, my wife is worried about leaving our baby at home with the helper and her parents. While they are getting better at taking care of him, there’s still many issues to work through. We just had a big argument with them about different approaches to handling a suspected health issue with the baby.

It’s a work in progress as all of us try to find a middle ground. Where we somewhat agree on how to tackle matters relating to taking care of the baby. To be honest, I rather we fight and try to resolve these issues now. Rather than have them surface later on when my wife goes back to work and it becomes more difficult to manage.

Anyway, my wife and I got to discussing what is our career strategy in the next 3 years. Taking into account the worsening virus situation and upcoming restructuring at her workplace. We have to admit it’s a tough period of time to navigate and there are no good options.

As a start, we have to go into job preservation mode while adjusting to being working parents. This means more networking internally and externally to get ahead of job cuts by maintaining professional and personal relationships while exploring job opportunities.

In a crisis, when banks decide to cut jobs, it’s not evenly spread across all divisions and departments. There’s assessments on benefits versus costs of all the jobs roles and decisions to be made on what positions they can do without. Often, a strong professional and personal internal network is our 1st line of defence against retrenchment.

Because if you know the right people, you can get early warning signs of what’s coming for you. And you can start to navigate to other available internal roles through recommendations. Remember, this is the corporate world and it’s not fair. To get blindsided by a job cut in a bank usually means you haven’t done enough to be plugged into the grapevine.

Which is essentially an informal communication network often misunderstood as office gossip. While consisting of part rumours and part truths, it can be critical in bridging the gaps between what you find out officially and what’s actually happening on the ground.

A strong professional and personal external network means knowing recruiters and friends that works at other firms. People that can recommend you for jobs elsewhere. This is our 2nd line of defence against retrenchment. It takes a long time to build up these 2 lines of defences to be useful and ready for deployment when needed.

It doesn’t happen overnight because strong professional relationships take time to form. Especially when it involves job recommendations since their personal reputations are at stake if things go wrong. You will only stick your neck out for someone you trust at a personal and professional level.

Our plan is to buckle down for the next 3 years to stablise our careers with no risky moves. And spend more time with each other and our baby as a family at home. Perhaps even have another kid during this time. Pushing hard in our jobs now might not translate into any substantial monetary reward and promotion.

If the local and global economies go into a long and drawn-out recession because of the worsening virus situation, it could last for years. Banks are going to respond by reducing headcount, freezing promotions, salary and bonus. Even if we do put in hard work and effort to go above and beyond in our job role, no one is going to care. And it’s not going to amount to any financial reward.

You could say we are being lazy but I reckon we are choosing this time to cruise. A career is like a marathon and you need to know how to pace yourself. Our jobs still allow us to do this for now and we are going to take advantage of it. We need to use this time to build the foundation of our family while our careers are going to plateau.

In the meantime, we are also making preparations for job loss and the consequent reduced or no salary income. We may be investing cash into the markets now but we know things can take a turn for the worse. Having a lot of debt in such a situation will always make things worse.

Our mortgage is the biggest concern even if we could cut down on everything else. Housing loan repayments don’t stop unless you want to be forced to sell your property. Which is why we have refrained from making any transfers from our CPF Ordinary Accounts to the CPF Special Accounts. We have also not invested the balances in our CPF Ordinary Accounts and are willing to accept the lower interest rate returns on them.

The most important attribute of our CPF Ordinary Accounts is that it can be used for mortgage payments. As corporate employees with decent salaries above the ordinary wage ceiling, our employers’ and own CPF contributions can build the balances up rather quickly. We have taken a lot of care to do this and the result has been a 2 year buffer for housing loan repayments.

It’s not much because we do carry a large mortgage. But being able to use my wife’s CPF Ordinary Account to pay for 2 years worth of monthly mortgage instalments without using cash could prove crucial in surviving a recession that has resulted in job loss. 2 years is likely to be the time taken for us to find new jobs.

We don’t plan to use my CPF Ordinary Account balance as a buffer because it is meant for the bigger property purchase. To house our expanded family in the future. Even in times of stress, we must position ourselves well for the recovery. Because things eventually do get better and we just have to wait it out. Survive now to thrive later.

Invested additional S$30,000 into the markets

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As the markets continued to fall these few days, I kept averaging down as long as my price levels were triggered. This time round, a bigger proportion of the S$30,000 invested went into the local markets compared to global markets. Probably because of the severe impact on Singapore of Malaysia closing its borders.

The descent of global markets has been at a slower rate so a smaller proportion of the S$30,000 invested went into them. There is a slight rebound in global markets today so I have taken the opportunity to do an investing cash balance check.

  • 1st batch of S$100,000 invested last week
  • S$60,000 of 2nd batch of S$100,000 invested this week
  • 3rd batch of S$100,000 remaining
  • 4th batch of S$100,000 as spare A
  • 5th batch of S$100,000 as spare B

As you can see, I have re-designated the S$200,000 of spending cash as investing cash and allocated them as 2 spare batches – A and B. This will be in place for as long as I have a job. If I lose my job, I will change my allocation accordingly.

I have been repeatedly told over the course of these 2 weeks that I’m investing my cash too quickly. You are right, which is why I have slowed down my investing rate by opening the gaps between trigger price levels. However, I have designed this strategy using my limited investing experience because it suits my risk appetite and personal circumstances.

Besides, the market falls have been steep, hence triggering a rapid deployment of my investing cash. I did have to fine-tune my strategy because it wasn’t built for such high rates of market declines. It’s a learning experience for me as well.

I have spent the last 5 years in Singapore building up a large cash balance (50% of my asset portfolio) for this reason. I have to use this bear market or even market crash opportunity to build up the equities proportion of my asset portfolio.

Because this is my first big opportunity to build up a decent investment portfolio in the 1st decade of my career. When my wife is still working and our baby is just 4.5 months old. After this is over, we will go back to focusing on advancing in our careers and doing better in our jobs. Maybe even expand our family with another kid.

Even with ever increasing family expenses, we can re-build our cash balance as long as we have our jobs. Which is why we are staying in the banking sector for now and not taking risks elsewhere in other industries. While we take on more risk in our investments to build up the portfolio, we de-risk by doing everything we can to preserve our jobs as the main source of income.

Banks are very susceptible to recession and can cut jobs just as easily as other industries. However, when it’s not a financial crisis like the last big one in 2007/2008, banks’ nature of business as intermediaries can help them protect jobs if they want to. Because banks are plugged into almost every sector of the economy.

It’s unlikely all sectors of the economy will destabilise and do badly at the same time. Possible but it’s more likely that some parts will do better than others and some parts will do worse than others. The worsening virus situation and low oil prices do present contagion risk in that every part of the economy could be negatively affected. But it would be a global catastrophe scenario and we will not be looking at that yet.

More importantly, banks have built up reserves from the past several years of profitability after learning their lesson from the Global Financial Crisis of 2007/2008. They have the most excess capacity to cut among their staff i.e. contract staff, low-performing and unproductive staff. They also have the highest capacity to automate their processes hence lowering staff costs in general or even shift operations to countries that are low cost centres.

We have done what we can to lower our retrenchment risks by positioning ourselves in jobs that are less likely to be cut in banks. Taking less career risks means we can take on more investment risks. Which is why we are sticking to our strategy of averaging down by investing our cash balance as long as the price levels are triggered.

In time, we will know whether we made the right call. If we did, we would have built a strong foundation for our family wealth to grow in the next decade. If we did not, we will use the next decade to repair our family finances and still grow the wealth slightly. And wait for the next big opportunity to try again.

Lastly, we acknowledge that this is a global health crisis and it’s painful for so many people. However, this is a personal finance blog and I write extensively about how I manage my money at different times. Not writing about the virus does not mean that I don’t care. It’s just not the purpose of why I write on this blog and I apologise if this offends anyone.

We do our part to practise personal hygience, social distancing and no overseas travel. We follow our banks’ BCP split operations plans and listen to the advice provided by the Singapore government/authorities. And we remind our family and friends to keep safe. We empathise with the people who are suffering and we hope that the virus situation improves so that things can get better for everyone.