Finance Smiths

Personal finance apprentices-in-training

Sep 2016 Net Worth Update

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I didn’t post an Aug 2016 Financial Update last month. Besides, you can refer to the figures that I update regularly on the Net Worth, Asset Portfolio, Passive Income and Spending Multiple & Savings Rate blog pages as a reference. I have also included the numerical and percentage changes from month to month for easier tracking of our progress. Nevertheless, I have decided to do a Sep 2016 Net Worth Update. Before I go into the details on our financial progress from Aug 2016, I’m going to write about other related topics first. Just to make it interesting to have some of my current thoughts and views in this post.

Would we ever pursue self-employment?

I have been debating this issue with my wife and we are coming to the conclusion that we probably won’t do it unless we are forced into it. We are relatively young and still have decent job prospects and earning capabilities. We might as well make the most of our careers for now by expanding our professional & social network and gaining more work experience & skill sets. Besides, we have limited self-employment options at this stage.

Given the way things are going, technological advancements, outsourcing and structural changes to the economy & industries might put us out of work in the next decade or less. Even if we are willing to move countries to pursue jobs, it would only delay the inevitable by another decade at most. Or we will just decide to stop work early from getting burnt out, tired and disillusioned.

Which is why our approach is to keep going in our full-time jobs while we still can and keep a look out for self-employment options at the same time. And we will have to develop the required skills, experience and contacts on the side to prepare for them. This works out financially for us since our salary income can continue to drive our savings and investments forward the longer we remain in the workforce. Our self-employment options increase the less we rely on them to fund our living expenses.

What about the value of time?

I honestly don’t know what we will do even if we become financially independent, pursue early retirement and stop work now. I know it’s a stupid thing to say because I’m sure there are many ways to occupy my time each day other than going to work. Maybe we can travel more frequently, spend more time with family and friends, exercise more etc. But we can do that now even with full-time work since our jobs are not as demanding with reasonable hours. It’s just a matter of motivating ourselves to be more effective and efficient at managing our time.

It’s not that we like working. We just enjoy the daily interaction and engagement we get from going into work and dealing with colleagues and bosses. The positive and negative experiences help to improve us professionally and personally. That’s how my wife & I have grown up and matured over the years since graduating. Self-development is one of the main reasons for our relationship to keep evolving so we will always be adapting and changing to stay together.

Our time is already well-spent by having all these influences in our lives. Unless we can find something else that offers an equivalent level of interaction and engagement, our time doesn’t become better spent from not working. Essentially, time doesn’t become more or less valuable from whether we have full-time jobs but from the choices we make each day. Maybe this might change when we have kids and we no longer consider the utility of time from our perspectives but from theirs as well.

Anyway, that’s enough of a non-financial update and I should get back to the net worth figures. I should also mention that this is probably my last post for a while as I will be leaving for a 2 week holiday to Europe soon. And I will be busy settling in to my new job when I get back. Which translates to less time for blogging.

Net Worth – S$145,808 (+ S$14,946 and + 11.42%)

There are small increases in our ETF and Share Portfolios even though equity markets stayed relatively flat. These are due to POSB Invest-Saver contributions to Nikko AM Singapore STI ETF (G3B) and ABF Singapore Bond Index Fund (A35) as well as averaging down on some oil & gas stocks.

The Maybank Monthly Investment Plan for SPDR Straits Times Index ETF (ES3) and SPDR Gold Shares (O87) have been set up for this month onwards. This should accelerate the rate of increase in our ETF Portfolio going forward. The increases in our Other Portfolio and Cash on hand came from cash injections and savings. Same for the increase in our Central Provident Fund (CPF) balances and decrease in our mortgage liability. These should be regular as long as we stay employed with no major expenses or investments made during the month.

There was a big drop in dividend income as the reporting season is over and should remain low until the end of the year. Interest income is increasing slightly from cash build up and corporate bond coupons. Good to know the annual spending multiple has risen too.

A few of the blog figures are proxies of actual numbers

I have been getting questions and comments that the math on my blog doesn’t seem right. I’m going to address this issue now and say that you are correct. This blog is meant to be a public and personal space to chart our financial freedom journey. Take away whatever you reckon is applicable and relevant but understand that I have already revealed quite a bit of personal and financial information.

The only way I could have done that is by cloaking myself in anonymity. I have tried not to abuse it but admit that I have sometimes been too straightforward and inconsiderate in my opinions, views and comments. Besides, some of our family and good friends are already aware of the existence of this blog. As much as I trust them, I will never reveal all of our personal and financial information on this blog.

But I will try to summarise the explanations for some of the inconsistencies in the math:

  • We don’t include all of our savings, investments and retirement monies in Australia in our calculations. These are our lifeline funds for starting a new life in Australia if things don’t work out in Singapore. Far more important than expense and emergency funds and too critical to be disclosed publicly.
  • Our actual salary income is higher than the average figure we are showing now and that’s how we have enough cash for both savings and investments every month.
  • We have only included 50% of the value of our apartment (real property) and excluded some of our CPF balances in our net worth calculation.

Although most of the figures on the blog are accurate, a few of them are proxies of the actual numbers. This helps to protect our personal and financial information by maintaining a certain level of secrecy and anonymity. I’m signing off on this note for now but will be back eventually. Looking forward to writing my next post then!

What we learned from my unemployment

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I have to say that the previous post on our annual spending multiples has really put things into perspective. By the way, it also represents roughly the number of years we can last on the capital amounts of our savings and investments if both of us have to stop work involuntarily or by choice. The current rate of increase suggests our annual spending multiple should rise by 1x every year assuming there are no changes to our income and expenses. With the 10 year target to achieve financial independence, our annual spending multiple would have increased to 15x a decade later.

Our incomes might rise during that time as we hit our peak earning capabilities but our expenses would also increase correspondingly due to family obligations. Let’s say they net each other off i.e. back to the same scenario above of no changes. We would still get to the same annual spending multiple of 15x by then. Even if we both stop work at that time, we might have enough to get us to the retirement age to access our retirement funds. That’s when we get the next boost in our annual spending multiple from including these assets to last us to the end.

I’m hoping to accelerate the rate of increase of our annual spending multiple to either reach 15x before the 10 years are up or achieve 20x by the end of 10 years. I know the interest and dividend income will help but it still looks like our salary income is the main determinant. Which means the single biggest risk to us now is the loss of our jobs. How we manage that event if it happens will become the main factor that determines our ability to recover and get back on track. We don’t have any experience in dealing with retrenchment but we have some experience in managing my unemployment years ago. It’s not quite the same thing since the former is the cause (not the case in my situation) and the latter is the effect.

In our 6 years of working in Melbourne, Sydney and Singapore, learning how to deal with my unemployment after graduation remains our most important lesson as a working couple so far. Having to go through that at the start of our careers overseas has also shaped our work and relationship philosophies and dynamics greatly. These are some of the things we have learnt to better manage unemployment:

  • Take care of your mental and physical health. Give yourself time to recover from the inevitable blow to your self-confidence and self-esteem. As long as it doesn’t cripple your mind, you live to fight another day. One of the best ways to do that is exercise even more often than you used to. Better mental and physical health will usually translate to stronger performance in interviews.
  • Don’t just apply for jobs online at home the entire day. Get out of the apartment/house to meet your professional and social network. It will help you to feel better about yourself and you can access more opportunities that way. People are actually willing to help as long as you ask for it. Besides, there’s not that many relevant jobs posted online that will occupy your whole day to apply to them. Find and target roles that are not listed on job sites.
  • Understand that your partner will feel the increased stress and pressure. Nobody like to be the sole breadwinner in a household if they had a choice. It’s stressful knowing that your loved ones rely heavily on your income to survive. Going from a dual-income to single-income household requires getting used to and your partner is going to be under pressure to perform better at work to keep the job. Expect him/her to lash out no matter how well both of you manage this transition.
  • Work out whether the issue is a skills gap. Assess whether your job skills are sufficient and still relevant or no longer in demand. This is the time to decide whether you should keep sticking to your current field only to have the same problem later or move to a sustainable field with a brighter future. Be specific in your retraining and reskilling so you waste less of your dwindling time and energy reserves.
  • Be prepared to cut fixed & non-discretionary expenses and accept a lower salary. You have to be ready to reduce all fixed & non-discretionary expenses. The longer you stay unemployed, the more drastic your measures will have to be. Chances are your next job will also have a lower salary because you are not in any position to negotiate for a higher pay. It’s desperate times once you have to start drawing on your emergency fund no matter how large it is.
  • Communicate with your partner even more than you used to. It’s easy to forget your partner can be having a bad time at work when you are thinking he/she should be grateful to even have a job. Don’t shut down and go into your own world of thoughts and worries. This is the time for greater communication to avoid any misunderstandings and resentment.
  • Find other ways to contribute to the household. Earning money to pay for stuff is only one way to contribute to the household. There’s so many other ways you can contribute if you don’t have an income such as doing the laundry, buying groceries, cooking, cleaning the apartment/house, paying the bills etc.  This is on top of your job-hunting efforts since you still have to pull your weight at home.

Every now and then, we go through and survive retrenchment exercises and keep in contact with friends/ex-colleagues  that are jobless. The tough times they face remind us of the hardships we went through and left behind but could be just around the corner for us again. It’s one of the reasons I started this blog. To develop a hobby or interest that can occupy my attention and thoughts when life gets difficult. I still remember being in the apartment by myself while my wife was out working and adjusting to her full-time role.

We had no family in Melbourne and most of our international friends went back to their home countries. It’s hard to relate to our local friends when you are the one without the requisite visa to allow you to work and you can’t stay with family to save costs. Plus 3 years at university just isn’t enough time to build good friendships when there’s so little common & shared experiences. It can get lonely & isolating and it would have been helpful to have a platform that I can share my thoughts and worries on. Not to say I wasn’t talking to my wife about it. She was already having a tough time at work with a difficult manager who didn’t particularly like an international student (with a lack of local work experience) in a graduate role.

This was on top of us screwing up our budget and not managing our expenses properly. My wife still had savings but I was running out of money even after transferring over most of my savings from Singapore. I sunk into a mild depression while my wife was trying to keep her head above water. You want to know where our perseverance and resilience came from? It’s from surviving shitty experiences like that. By the way, there are many people out there with much worse stories.

That’s how my wife and I learnt the most important thing about us – that ultimately, we can only depend on ourselves and each other. It’s okay to make mistakes as long as learn and move on from them. We believe strongly in helping our family and friends in times of need but we also actively encourage them to help themselves. We won’t apologise for the way we have developed and the values & ideas we stand for. Neither do we care much about how other people perceive us. This is just who we are now.

Our annual spending multiples

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I will be going on a 2 week holiday to Europe with my wife before starting my new job later this year. It’s always good to have a break in between jobs just to relax and refresh myself. After my probation ends mid next year, we will probably head to the West Coast USA for another 2 week holiday to reward myself if I clear it or to console myself if I fail it.

I have mentioned before on my blog that travelling for overseas holidays is one of our main expenditure items. We enjoy both short and long haul holidays and plan to travel more while we still can as a Dual Income No Kids couple in Singapore. Who knows how long this will last.

However, it’s not the fact that we just spent thousands of dollars on flights, accommodations and currency exchange that triggered this post. Admittedly, I was taken aback by how much our monthly expenses increased due to the travel spending.

Have you heard of the Wall Street Playboys blog? It’s informative and insightful yet divisive and depressing at the same time. The thought process, logic and math are sound but I doubt the majority of people can follow their suggested roadmap and actions. Me being one of them.

I’m not their target audience but I do read the blog posts sometimes to pick up insights on how we manage our careers and finances. Their latest post on why savings rates are worthless and what real net worth is brought my attention to our lack of focus on the annual spending multiples.

I have been calculating our savings rate and assumed an average fixed percentage savings of 40% will be sufficient. I should have realised the need to link our savings and investments to our spending to test whether this assumption will hold.

I’m going to take a conservative approach and exclude our retirement assets consisting of the Central Provident Fund (CPF) funds in Singapore and Superannuation funds in Australia. Reason being we can’t access the retirement monies now to manage any cash outflows and expenses. I know we can use the CPF – OA funds for housing expenses but will choose not to include it at this stage.

This is how I calculated our annual spending multiple at the end of each month: (Total savings and investments) / (Total expenses for the previous 11 and current months).

By the way, I have a new Spending Multiple & Savings Rate page on the blog to track the monthly annual spending multiples for 2016. This replaces the old Savings Rate only page.

According to the guidelines provided by Wall Street Playboys, 20x annual spending is rich, 10x annual spending is comfortable and 1x annual spending is disastrous. We are currently at 4.77x annual spending and it has increased from 4.20x at the start of the year. However, this suggests we are only at an average level of real net worth and not as comfortable as we thought.

Just when we think we are progressing. It still looks like we have a long way to go and our goal for now should be to get to 10x annual spending. At the very least, it will lower the possibility of a few significant negative events in our jobs and financial markets from wiping us out.