Finance Smiths

Personal finance apprentices-in-training

Moving past our mistakes

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I must admit that I felt a pang of regret/fear when I read Kyith’s (Investment Moats) post – Negative Cash on Cash Return Bites Single 45 Year Old with 6 Investment Properties. Although I am not in the same situation as the lady mentioned in The New Paper, Kyith’s analysis could just have easily been applied to my wife and I.

It’s a great read and important reminder for people not to get complacent and overstretch themselves on property investment even if you are a high income earner. In fact, I have applied Kyith’s analysis to our situation below.

We capitalised on our above average and more stable earnings power to purchase a 2-bedroom condominium in the East in 2011. Since it is for home ownership/investment, the apartment is definitely cash on cash negative for now since we receive no rental income. It would still be the case even if it is leased out in the current rental market in Singapore.

If we offload the apartment now, there might only be a small profit after taking into account the closing costs and interest paid on housing loan so far. Given we only own one property and built up some holding power from being employed with some level of job stability in the past few years, the real test will come during the next recession.

We relied on the low interest rates to keep our mortgage payments affordable. It also helped that the lack of business building and appropriate financial assets for investment meant there was an underlying price support for the property market.

If you consider Kyith’s factors in our situation above, you would be right to think we were one mistake away from being royally screwed. Was it just good luck and fortune that spared us that fate so far? Yes and No.

We were used to paying 30% of our salaries as rent when working overseas and we just made sure that we earned enough to ensure only 30% of our salaries was used for the mortgage. We already knew we were making a mistake of not purchasing a more affordable apartment because we could not qualify for those other options. We just didn’t realise how bad it was going to be.

The key thing is not to get stuck in your mistakes. We took advantage of job openings in Singapore and moved ourselves back in roles that have above average pay, are more stable and sustainable long-term. This required us to actively study the employment market in Singapore and see where the opportunities are. As well as taking calculated risks in changing roles.

Essentially, we pushed hard to increase our salaries to the point where the mortgage payment started to drop below 30% and hurts less. That’s how we move past our mistakes and we have had a lot of practice with this from living and working overseas.

Too often, couples are afraid to make mistakes whether financially or in life. Depending on the environment you live and work in, people can be cruel and judgmental when it comes to mistakes. Hence, couples take the safest approach, keep watching & learning from what other people are doing so as to make as little mistakes as possible.

This has never been the approach for my wife and I. We have a tendency to leap first after giving it some thought but not too much, work out the problems and pick up life lessons along the way. It can be a more painful approach when things are not going well and we find ourselves in difficult situations with few people to depend on.

All I can say is have a more positive attitude to the mistakes you have made. Always make sure you are learning from yourself and other people about tackling these mistakes. More importantly, don’t let anyone get you down & out and count on yourself to bounce back.

Average monthly passive income goal of S$1,500

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Back in Aug 2016, I wrote about our average monthly passive income hitting S$1,000 for the first time. However, I didn’t think I could keep it up until the end of the year. But I realised the average monthly passive income figure for the past 3 months has been staying above S$1,000.

In fact, based on the projected & received dividend & interest income for Dec 2016, the figure should be above S$1,000 by the end of the month too. I don’t show the progress of the growth in average monthly passive income on the blog but it’s been a grind to increase it (even so slowly) over the year.

Dividend cuts and reductions continue to cause problems with this strategy. Given my shift in focus away from dividend stocks and to ETFs, the dividend yield of the investment portfolio will actually decline. For the dollar amount of dividend income received to increase, I have to inject large amounts of cash into the ETF portfolio every year.

In turn, my interest income suffers since I no longer have as much cash balances in the bank accounts. Which is making me realise that growing the average monthly passive income is perhaps my toughest investment goal. Comparatively, all I need to do to ensure our portfolio balances are increasing (even by a bit) is to ensure we keep our jobs every month. not get retrenched and don’t spend everything.

There’s no point in setting an aggressive average monthly passive income goal. It will result in me over-investing in the short-term instead of spreading the cash funds out over market cycles. Screws up the asset allocations as well. The key is consistency in ensuring that it is actually increasing every year and the sustainability of the dividends.

Hence, my next target is for the average monthly passive income to hit S$1,500. I would be interested to see how long it takes for me to achieve this S$500 jump. Doesn’t look like much but it took me a number of years to reach S$1,000 in the first place. I’m hoping the rate of increase rises as I get more experienced with managing our portfolio and we maintain or increase our salary income.

There is something else I would like to say though. I have been getting criticisms on a number of points below:

  • Too conservative in my deployment of cash
  • Ineffective selection of dividend stocks and ETFs
  • Over reliance on the salary income
  • Expenses are too high relative to our salary income
  • Lack of experience with bull and bear market cycles

I agree with all of the above, hence my efforts to constantly tweak and improve my strategies. I have no idea what will and will not work in the long-term because does anyone know what’s going to happen in the next 50 years? Things sure have changed much in the most unexpected ways in the past 50 years.

This is why it’s called a journey to financial freedom/independence. We all have different starting points, skills, strengths and weaknesses. More importantly, we all have different financial and emotional support from our families and friends. Self-doubt is always present as we make our own mistakes and meet our own problems along the way.

But financial freedom/independence is not my only life goal. It’s an important one though because it makes my other life goals more achievable. However, they are much more intangible and require a lot more work. Things like happiness, satisfaction, fulfillment etc that have no easy way to track, difficult to meet and always evolving. Aren’t they worth striving for?

Changes to UOB One credit card in 2017

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It’s the weekend and I’m currently waiting for the Christmas tree that my wife ordered to arrive. Should be decorating it this weekend as well. Just something nice for us to get into the Christmas spirit!

This is going to be a short update on a SMS I received from UOB Cards notifying me of the below in relation to my UOB One credit card:

With effect from 1 Feb 2017,

1) Monthly instalments under 0% Instalment Payment Plan, SmartPay will not qualify as card transactions and such spend will not go towards the minimum spend and will not be awarded cash rebate.
2) A minimum of 5 transactions per month must be made to earn case rebate and will take effect on my new qualifying quarter.

I have written a few posts on the UOB One bank account and its relation to the UOB One credit card. You can find them here and there. I didn’t mention it then but one of the key components of my spending on the UOB One credit card is my wife’s personal care package costs split into 12 months via the 0% Instalment Payment Plan.

It essentially splits a once-off large expense into 12 smaller monthly expenses at 0% interest rate. This facilitates my cashflow management and conveniently contributes significantly to meeting the minimum spending thresholds of the UOB One credit card.

Given the upcoming change (1) above in 2017, I will have to redirect certain expenses from my other credit cards to the UOB One credit card to make up for it. It’s annoying that they have removed a major benefit of participating in the 0% Instalment Payment Plan in the first place if the spending no longer qualifies as UOB One credit card transactions.

Change (2) doesn’t hurt as much since I usually have more than 5 transactions per month on the UOB One credit card. It already exceeds the current requirement of a minimum of 3 transactions per month but I just have to do additional monitoring.

Which is why you should always do bank-shopping. Have a look around constantly on the savings & investment accounts and credit cards offered by the various banks here in Singapore. The terms & conditions change frequently but if you don’t like it, take your business to a different bank!

In this day and age of internet banking, new accounts can be opened and credit cards can be applied for online easily. Electronic funds transfer between the banks can be done instantly with high transaction limits. We no longer have to waste time and effort going to the bank branches to initiate transactions. Don’t let yourself be held hostage by any bank!