Finance Smiths

Target S$500,000 Asset Portfolio

07.19.2016 by Finance Smiths //

I had a busy weekend that left my wife and I quite exhausted when we went in to work on Mon. We had a wine-tasting & dinner event at our friend’s apartment on Fri night, dropped by another friend’s apartment after dinner together for a Sat movie night before having an extended family dinner on Sun night.

It was great fun but we felt like having a rest after running around over the weekend. Nothing like going in to the office on Mon and sitting/working at your desk to make you feel like you aren’t going to be moving much for the day. Not a bad way to recharge when you think about it.

Anyway, this is going to be more of a financial update since it’s mid July. I usually do the end of month financial updates in more detail with all the net worth, asset portfolio and passive income figures updated. But I sometimes do mid month financial updates with less detail when I’m in the mood just to see how we are tracking.

Asset Portfolio

Other than the manual purchase of ETFs on Day 1 and Day 2 of Brexit in end June and the automatic POSB Invest-Saver purchase of the Nikko AM STI ETF in mid July, we haven’t done anything else. There has been quite a run-up in the equity markets and we see no reason to invest any more of our cash funds.

Even though I still think we are holding too much cash compared to the rest of our asset portfolio, we are happy to let the funds build in times like these. We will probably have to invest a bigger chunk of the cash than we usually do when the opportunity arises again but won’t use it unnecessarily.

Besides, things are getting dicey in the banking industry and there has been a few rounds of retrenchments at my wife’s bank. She has survived them so far but it’s a wait and see approach at the moment. No point making a move when the rest of the banks are cutting even more people.

The accounting industry gets impacted next with reduced revenue from client compliance and advisory work. We try not to cut headcount but usually implement salary and promotion freezes while reducing graduate hires.

It’s not a good time for anyone because this just means an increased workload at the same pay. In any case, we will continue to save a portion of our monthly salary as long as we have jobs. This means our retirement funds (CPF) are increasing as well from the employer and employee contributions.

As much as I would like us to be less dependant on our jobs and have more sources of income, I can’t deny that our jobs have been the main driver of the growth in our asset portfolio. Which is why I still think focusing on getting yourself into jobs that have decent pay while spending less, using the spare time to invest, developing side hustles/business for other sources of income is a good approach to financial independence.

This is especially so in Singapore with its low personal income tax rates and current availability of such jobs in our industries (for now). Things can change really quickly and the approach might no longer work in a few years time. It’s important to take advantage of the characteristics of your local environment to build your wealth while you still can.

S$500,000 Target

We have given ourselves a target for the asset portfolio to reach S$500,000 by the end of the year. Based on how it has been growing for the past 6 months, we seem on track to hit the target in the absence of any significant events other than the high level of spending we expect to incur during our trip to Italy in October.

This target is important also because we will have more flexibility in planning our future after hitting it. When we returned to Singapore in 2014, we weren’t sure how long we will be staying to work and live here. We renewed our Australia PR until 2020 and will have to be back there by then for the next renewal.

We have managed to build a life here in Singapore despite us having to adjust to working longer hours and living in close proximity to our parents. We also have a social circle that we enjoy hanging out with and this was fortunate for us despite being away from Singapore for a number of years.

When we left Australia, our finances were in decent shape but we have to admit that we have achieved much more financially over the 2.5 years of working here in Singapore compared to the 4 years of working there. If we stay in Singapore, chances are we might reach financial independence earlier than if we move back to Australia.

But we are getting restless with our jobs and way of life in Singapore. Returning to Australia seems to be taking a step backwards rather than forwards. Starting over in another country sounds exciting but scary as we get older.

The S$500,000 target was always going to be a milestone for us. Reaching it will mean we are in the financial position to decide the next phase of our lives. Should we call Singapore or Australia our home and raise a family or should we go off for another adventure to a different country?

Financial advice for a new graduate

07.14.2016 by Finance Smiths //

My wife’s brother just had his SMU commencement ceremony on Wed at the Suntec Convention Centre. Since he has already started work as an audit associate at one of the accounting firms in Singapore, he had the day off to attend the ceremony. But he has to go back to work on Thurs.

Just like that, we have a new graduate in the family who has just finished his university education. Although my brother-in-law is three years younger than my wife, the impact of a 2 years National Service and 4 year SMU degree has resulted in my wife working for six years before he started work. It’s a lag at the start line and he will have to work hard to make up for it.

This reminds me of the time I started as a tax associate six years ago in an accounting firm in Melbourne. I had a basic understanding of personal finance & investments and it took me a long time to learn the lessons I have now. This post is about the financial advice I would give to my wife’s brother sprinkled with some personal and professional development anecdotes that he can learn from.

Since this is based on our life experience, whether the advice is practical and applicable to you might vary greatly. Take away the lessons that you find useful and amuse yourself with the rest that you find irrelevant. I just hope my brother-in-law finds this post and read it!=)

1. Starting from Square One

Now that you have graduated and started work at your first job, you are officially starting from square one in the real world. It doesn’t matter how hard or little you studied at university because not much of your academic experience and performance will be relevant at work.

If you have accumulated financial experience by investing your savings in the equity or bond markets during university, that is one of the few useful things you can bring with you upon starting work. Then again, you wouldn’t have had much funds to invest with and plenty of time to do your research on the shares, ETFs and bonds you were planning to buy. Besides, it’s much easier to learn from your mistakes when you don’t have much at stake.

Since I know the family upbringing you had, I can safely say you have very little financial experience at this stage. Your parents have done well not to let you worry about financial matters by taking care of everything. It’s time you step up and learn how to handle your own financial issues.

2. Find a new bank account

You are probably still using the POSB savings account that your parents set up for you two decades ago. The interest rate on that POSB savings account is ridiculously low and it’s time to find a new savings account with a higher interest rate.

You have to start doing your own research on the savings accounts offered by the different banks in Singapore. It’s not difficult and there is plenty of material online about the benefits and cons of the variety of savings accounts on the market.

Since you are not working at a bank and there is no restriction on the bank you have to open a savings account with, find one that offers you a higher interest just by crediting your salary into it. Your sister and I use the OCBC 360 and UOB One Accounts, which is something you can consider first if you really have no idea where to start looking.

3. Apply for a main credit card

You have a supplementary credit card for certain expenses incurred at university. I understand you were using your debit card for most expenses and that is a good financial habit to have. Your spending was generally quite low, which is why your bank account balance is larger than your sister’s when she first started work.

If you open a new higher interest savings account, you will find that one way to increase the interest you earn on the balance is by spending on an associated credit card. Do not be afraid. Managing debt is a skill you will eventually have to learn and I rather you do it now than later in your life.

Read up on how a credit card operates. Basically, you charge an expense (e.g. lunch at McDonald’s with your colleagues) to the credit card where you would previously have paid cash or used your debit card to pay for it. Repeat the process for other expenses you would have incurred with cash or debit card previously.

At the end of the monthly billing cycle of the credit card, you will be sent a statement with all these charges as an outstanding amount due by a certain date. Make sure you pay off the full outstanding amount by the due date.

At this stage, you only need one credit card associated with the bank that you open the higher interest savings account with. The whole point of having the credit card is to earn reward points or cash rebate from those expenses.

With more experience, you might find that there are many ways to optimise the reward points or cash rebate by having additional high interest savings accounts and credit cards. You are not there yet.

4. Budget your salary by percentage

I can see you are tired every day now. That’s normal at your first job because you have not adjusted to working so many hours in an office each weekday. I’m sorry to be the bearer of bad news but it’s going to get worse before it gets better.

Your first peak period as an audit associate is coming up and you will find yourself struggling to keep your head above water. Your sister and I had it better in Australia where we didn’t have to work as long hours in our graduate roles. Life is not fair and you have to learn how to deal with it.

It’s unlikely you will have the time and energy to track all of your expenses. That doesn’t mean you don’t do any budgeting with your salary. Use a percentage budget approach for now. Since you live at home and don’t incur rental/mortgage and groceries expenses, this is a good time to save. Your transport costs are low as well since you mostly carpool with your mother, sister and I when going in to work.

Compared to your friends working in banks, your salary will be lower than them. Trust me, I know. Don’t be disheartened because you will learn a lot in an accounting firm. But you should know that it is still a decent salary compared to the many other industries out there.

However, you have to save more aggressively to make up for the lower salary. Since you are still single and have sensible colleagues & friends that don’t overspend, you should aim to save 80% of your net salary. You don’t have to track all of your expenses but only need to ensure they don’t exceed 20% of your net salary.

Calculate this once at the end of each month and make your lifestyle adjustments in the next month. This approach should work for you since you have a low spending lifestyle and are less inclined to inflate it like your sister and I.

5. Read up on the Central Provident Fund (CPF)

You will notice that 20% of your monthly salary is automatically deducted as contributions by you as an employee to your CPF. This is the national retirement fund scheme and you need to know what the Ordinary Account (OA), Special Account (SA) and Medical Account (MA) can be used for.

You can learn about the fancy CPF moves you can do such as topping up your SA for tax relief, transferring amounts from OA to SA etc. Before you do any of them, think about whether they make sense for you first. Your situation is unique to you and what works for others might not work for you. For now, just watch these balances grow.

6. Understand your income tax return

You should know that the personal income tax rates in Singapore are low. The Inland Revenue Authority of Singapore (IRAS) also makes it convenient for you to file your income tax returns at the end of each year.

Although your tax payable for this year is expected to be nil or very low, you should try to understand your income tax return even if IRAS has pre-filled your salary and tax reliefs data. Your sister had me to navigate the complex personal income tax returns in Australia since she fell asleep the first time I went through her first tax return with her.

Your tax return and the filing process in Singapore are much simpler but that does not excuse you from understanding its components and ensuring all the data is correctly captured. If you don’t understand something, ask me.

That’s about it from me for now. Notice how I didn’t mention anything about investments? That’s because I reckon it’s too early for you to learn about it at this stage. Given your limited savings and time, there are few investment options available to you.

That’s not to say you can’t start reading about shares, ETFs, bonds etc. But don’t get too hung up about them. You are better off developing your career by improving your job skills, professional and social networks. Work hard at increasing your salary and savings but know that your human capital has the potential to grow much faster than your financial capital in the early stages of your career.

Besides, you first have to work on the basics of personal finance before you advance to actually investing your money. The self-discipline, research skills and ability to learn from your mistakes will be critical to your success as an investor.

It might take a few years for you to establish your foundation before you start investing and that’s okay. Your colleagues and friends might have started earlier because they are better prepared and thus have a few years of head start. No matter, you are young and a slow & steady approach should suit you well.

In any case, I might have another post on this blog for you then about how to invest when you are ready. By then, I hope your sister and I are more experienced and in a stronger financial position ourselves to be able to guide you so you can avoid the mistakes we have made.

How and why my wife earns more than me

07.11.2016 by Finance Smiths //

I’m writing this post for myself just as much as for my wife, who might actually read this one since it has less numbers and figures compared to some of my previous posts. This is going to be a fun and interesting one to write about.

It starts with a confession: In our past six years of full-time work, my wife has always out earned me when it comes to our salaries. Not only have I never earned more than my wife, the wage gap has increased over time.

This is why I totally get the debate about gender wage gap – equal pay for men and women. Haha.

One of the biggest benefits of meeting your wife during university before going on to work and build your career is that you get the opportunity to make the transitions together. We got together at a time when money mattered less and we are moving towards a future where money matters more.

It gives me perspective when I look back at how far we have come together and especially so on how much we have progressed individually. In this aspect, I have to say my wife has grown and matured much more than I could have imagined.

As such, this post is my view on how and why my wife earns more than me. It will have my honest thoughts and feelings on the journey we have travelled together on so far to be able to achieve this. And yes, I do see it as an achievement that my wife is out earning me and this should let you understand why it is the case.

More complete skill set

Having studied in Singapore, a place where academic excellence is generally rewarded with better career prospects, studying in Melbourne was a new experience for both of us. You see, the focus in Australia tends to be more on your overall skill set and less on your academic performance.

Even though I am more academically inclined than my wife, she was performing better during the graduate job interviews in our final year. It actually took me a while then to admit this (I was young after all) but I realised it when my wife landed the graduate job role at one of the big domestic banks in Melbourne. She had much stronger corporate skills in teamwork, communication, presentation etc.

Although I was able to subsequently land a graduate job role at one of the mid-tier accounting firms in Melbourne (albeit much later), there was an observable difference in starting salaries. The truth is that as much as a couple would like to go through life at the same pace and enjoy the same success, it almost never happens in reality. What’s more important is that you find a way to work together and contribute to the relationship and to each other’s success.

Higher starting salary

Although we both studied accounting at university, the different industries we work in meant that there can be significant differences in the growth of our salaries. In short, a bank will almost always pay more than an accounting firm even if you end up working more hours at the latter.

Stronger professional network

In the four years of work in Melbourne and Sydney, it became obvious that my wife was able to better navigate the corporate world as well. Let’s put it this way. Career promotion and job opportunities rely on your ability to network professionally & socially as much as your technical knowledge and capability.

Never underestimate the importance of having drinks with your colleagues because that’s just how you get access to information sometimes. To be honest, I never understood it, which is why I didn’t hang out with my colleagues as much. I only started to do it more when I was in Sydney, a good three years after my wife took to it within six months. That’s how my wife was able to seek out a position in Sydney after having done a six month rotation there earlier.

Better pay negotiation when changing jobs

At some point in time during those first two years in Melbourne, I accepted that there was a good chance my wife was probably going to be earning more than me for the rest of my life. I can either do my best to support my wife’s career development or focus on mine and risk limiting her potential. That’s why I transferred to the Sydney office from Melbourne to be with her.

Besides, the attempt at a long-distance relationship during the six month rotation was terrible. It continues to be one of the lowest points of our relationship having to be away from each other. We ended up spending a bucket load of money on flights to visit each other every weekend. 23 weekends & flights to be exact and I can still remember the number to this day.

A combination of career manoeuvres and opportunistic timing put my wife in a decent position to be relocated to Singapore. Naturally, I had to quit my job and find another role in an accounting firm in Singapore. Haha. I know this sounds bad to some people. You know, after a while, you just want to see how far your wife can go in her career.

What was even more fascinating was how my wife negotiated for a higher salary each time she had to move. Even with the relocation benefits, my wife felt she deserved a higher pay and asked for it. Does this just come naturally to her!? I have to remember to ask her that one day.

So here we are with my wife’s salary significantly higher than mine. I’m sure you are asking yourself what is the point of this post. In any relationship, true equality is almost never going to exist because the two people are going to have different strengths and weaknesses. Progress is also almost always going to be uneven and even one-sided at times.

The Asian cultural norm continues to learn towards the man being the main breadwinner and financial provider. This is proof that it can change and should change as long as both parties work together. Besides, there are many other ways for me to contribute and put my skill sets to use.

Since I do better in the research and management aspect of our funds, I’m responsible for asset allocation, investment and cash deployment to achieve higher returns and increase our passive income. As a tax accountant, I also implement strategies to reduce our income tax payable such as ensuring we claim the available tax reliefs and deductions.

Learning to draw on our individuals strengths contributed to our financial position as a couple. If anything, we have achieved much more together than we probably could have as individuals and this is something I continue to be happy and grateful about.