Finance Smiths

Personal finance apprentices-in-training

My first negative cash on hand month

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I was updating my Google Sheet expected net worth, income and expense numbers for Sep 2017 this morning. Was surprised to see the saving rate % as a negative figure. Which means I have run into my very first negative cash on hand month. Good news is that it’s not a negative cashflow month. That would have been disastrous.

What does negative cash on hand mean?

I know we can be relatively high spending at times. Hence the reason for setting up automated savings and investments functions in our portfolio. Every month, one fixed portion of our salary income is automatically invested in monthly investment plans and robo-advisor accounts. Another fixed portion of our salary income is automatically transferred into a high interest savings account.

In our Google Sheet, the former is recorded as an investment expense and the latter is recorded as a savings expense. I’m fully aware these are not actually expenses in the accounting sense since they are not cash outflows. However, I have already mentioned before this is our own accounting treatment. It’s less about balancing the numbers but more about putting in a framework that encourages us to invest and save.

By treating them as cash outflows in our Google Sheet, we leave ourselves with the remaining portion to spend on items such as housing loan, travel, dining, entertainment etc. It’s usually more than sufficient to cover all of those actual expenses. So we end up with cash that is leftover that has been’t invested or saved. I call it cash on hand and the amount usually gets rolled forward to the next month.

We developed this cash management system over time after returning to Singapore and having more disposable income. It was our attempt (with limited success) at managing lifestyle inflation, which has continued to creep up. For the first time in 3.5 years, we will have no cash on hand at the end of this month. Sep 2017 has become a crucial month for all the wrong reasons.

What to do in a negative cash on hand month?

This is when I know it’s time to step in to make sure negative cash on hand doesn’t become a trend. I immediately start looking for the expense items that have caused this. The increase in monthly automated investments after setting up our robo-advisor accounts is one of the contributing factors. However, the main reason is the recent pickup in travel and personal care expenses. Upfront spending on flight tickets, hotels, gym membership and personal training is behind it.

Nothing alarming but I probably should have staggered these expenses out via interest-free instalments or the type of credit cards to charge them to. Credit cards usually allow me to delay the cash outflow necessary to pay for the spending by up to 1 or 2 months. This depends on how well you time the charge according to the credit card’s statement and payment cycles. Somehow, I must have lost track of these cycles because all the cash outflows are happening this month.

It’s too late to do anything about it at this stage except put in place mechanisms to ensure such a negative cash on hand month doesn’t happen again. What’s interesting is that I find myself feeling annoyed and fearful at the same time. You may think it’s not logical because we have sufficient cash savings to manage our expenses for years to come.

But it’s easy to see how this can quickly escalate to become a negative cashflow month. Meaning we actually have no cash to invest and save with more cash outflows than inflows. One job loss, medical emergency or unexpected spending event and we can be out of pocket for several months. Fear can be a useful hedge against being overconfident and overoptimistic. Not a bad time to start feeling it now. As for Sep 2017, I will probably update the savings rate as 0% just to make myself feel better.

StashAway Referral Programme as an incentive

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I have mentioned in my previous posts about setting up StashAway and Smartly Singapore robo-advisor accounts for my wife. But I didn’t set any up for myself. My plan was to be a spectator and just monitor how those accounts performed. It was tempting to set one up for myself just so that I don’t feel left out by our venture into FinTech personal investment management.

Then my wife received an email about the StashAway Referral Programme. It makes sense for these relatively new robo-advisors to offer referral incentives to encourage more customers to sign up and open accounts with them. After all, it’s essential they capture as much market share as possible since new entrants may eventually come in to compete with them.

By the way, this is not a sponsored post. I’m not going to even provide my wife’s StashAway referral link in this post or on my Resources blogpage. But it’s always fun to have a closer look at a Referral Programme since we only get to participate in a few of them such as Uber and Grab.

For the StashAway Referral Programme, this is how it works for my wife. For every friend she refers and who funds their account by at least S$1, both of them are entitled to a 6 month platform fee waiver for up to S$10,000 of Assets Under Management (AUM). If a 2nd friend is referred, it goes up to S$20,000 of AUM for my wife. There’s no limit on the number of referrals.

This is a decent starter Referral Program by StashAway but it definitely has room for improvement. My wife only has less than S$1,000 in her StashAway account that is still expected to be less than S$10,000 in 6 months time. Hence, there’s no incentive for her to referral multiple friends. In fact, one friend is sufficient and that’s me! So I used her referral link to sign myself up and open a StashAway account with S$100 initial deposit and S$100 monthly transfer.

The fee savings tipped me over the edge but wasn’t actually the main reason behind me opening the account. I have always been a big supporter of retail consumer FinTech developments and believe that the growth of viable savings and investments alternatives should be encouraged. I know the most efficient approach is to contribute the additional S$100 to my wife’s StashAway account to achieve lower fees sooner. But it’s a small monthly amount and I’m willing to accept the higher costs as a show of support. More importantly, I’m interested to see what Smartly’s response will be!

New Net Worth Update Aug 2017

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I’m aware that I haven’t written anything in a while. As it turns out, it was a busy week at work and let’s just say I’m glad it’s a long weekend. You would also have noticed I removed quite a bit of personal financial information from the blog pages. After my wife raised some concerns with me about revealing too much personal and financial information on the online public space, we agreed to pull back on the amount and extent of numbers shown.

Yes, I know it’s still possible to work backwards using my previous posts to figure out the missing information. Going forward, my new posts will start to hide more identity and financial markers in the content. Looks like I will have to try a new style of writing but that’s something I can work with. After all, it’s our lives that I’m sharing information about online and there are boundaries that I should respect.

Repricing of housing loan

Before I try my hand at a new format of net worth update for August 2017, there are just a few things I wanted to highlight. We are still in the process of repricing our housing loan. Although our interest rate is expected to drop by a bit, we can’t get the repricing fee waived. Which is a ridiculous amount given how little work the bank has to do in repricing our housing loan.

I have to say that banks deserve to have their businesses eaten up by competition and technology if they continue to think such high fees for little effort are justifiable and sustainable. It’s only a matter of time before these businesses get targeted and replaced. I just hope banks can evolve and innovate fast enough to survive in this ever-changing new environment. If not, I will be out of a job sooner than I think.

DBS BYOB Promotion and PAYE Account

I have written about the DBS BYOB Promotion and PAYE Account before. I still think it’s a good deal despite the fact that I haven’t been able to understand exactly how much interest gets credited into which DBS accounts. This is the case even though I have read the Terms & Conditions and online material (including other bloggers’ posts) multiple times. I don’t think I’m a slow learner. Which means there really is a big problem with the setup of the entire structure of the DBS BYOB Promotion and PAYE Account as well as how it is explained to the public. What’s the point of a good deal if nobody understands why?

Anyway, I wouldn’t recommend only having the DBS PAYE Account. It’s good for setting aside a monthly savings amount from your salary to earn higher interest provided that’s what you were going to do with it anyway. Just a matter of putting it into a different account. You could channel some of your existing savings into the DBS PAYE Account via the monthly transfer. But the cap of S$3,000 monthly restricts your ability to utilise it efficiently and effectively. Especially when you are forced into withdrawing cash funds from the DBS PAYE Account for whatever reason.

You can consider pairing it with the UOB One Account, which doesn’t have a monthly salary crediting requirement but has credit card spending and GIRO transactions requirements. I reckon it’s a better product than the OCBC 360 Account to put your existing savings into.

New Net Worth August 2017

Cash has gone up by 1.04%. Main reason is that I have increased the automated monthly investment amount due to the addition of StashAway and Smartly robo-advisor accounts to our portfolio.

Investments has gone up by about 0.60%. Stagnating markets caused this despite us investing more cash than before.

Retirement & Medical has gone up by 1.24%. Steady Central Provident Fund (CPF) contributions with the monthly withdrawal from the Ordinary Account (OA) for the housing loan.

Net Worth has gone up by 4.39%. Due to the above plus the monthly reduction in mortgage from the housing loan payment.

Build a bigger ship and prepare it for tough times ahead

I’m looking at our Google Sheet Cash, Investments, Retirement & Medical, Net Worth and Total Assets Growth Chart now. It has largely been trending in an upward direction and it has been this way for the past few years ever since we returned to Singapore. I have always imagined our entire financial world as an ocean with us on a ship navigating through it. Helps to keep me patient and motivated when I think of it like that.

When we just graduated, we were on a sail boat. Easy enough to sail around financial storms by changing directions because we didn’t carry a lot of weight with us. Although it’s even easier to capsize with rough weather, recovery is not difficult.

We kept building a bigger boat for ourselves by working in Australia until we we were on our first ship by the time we returned to Singapore. A Frigate. Not so easy to avoid financial storms since we held more investments. It can take more damage but if it sinks, recovery is tough.

We were lucky enough to stay mostly employed the entire time we were in Australia and Singapore. Which means we could focus on upgrading our ship. Yes, sometimes we get lazy and don’t do anything with it. But more often than not, we are almost always working on it. Even if just a little at a time. I would like to think we are on a Destroyer now. A fast, maneuverable, long-endurance warship. Designed to take a hit and dish out damage.

If you are wondering what is the point of all the naval terminology, this is it. Tough times are always ahead of us. Nobody navigates an ocean and not expect to run into a storm. But you can choose what ship you are in when the storm comes. It’s calm weather now – bright and sunny with low unemployment rate, high stock and property markets levels. Take the time to improve your ship in terms of its quality and grade. I always hope I never have to face a storm but I understand that’s how captains gain experience. The time will come when my ship is tested. Would I survive or capsize?