Update on Progress / Key Financial Moves Taken

The last time I took stock of my financial position was about 2 months ago, towards the end of 2016 here. I was actually planning to take stock every 6-monthly, but because I did quite a couple of things in the first 2 months of 2017, I thought it might be useful for me to keep track of them in my blog.

1. Top up my mum's CPF

As a promise I made to myself, I contributed yet another $7000 to my mum's CPF Special Account sometime in Jan this year. As CPF interests are computed monthly, I made a deliberate decision to put in the entire sum right at the beginning of the year to maximise the amount of interest I (or rather, my mum) can receive. It wasn't as hard this time round since I've very much prepared myself emotionally for it.

2. Made multiple investments in stocks.

I built up my stocks portfolio quite substantially in the last few months, taking advantage of price weakness whenever they surface. I am just starting out on this journey of investing for the long term, and the hardest part is controlling my own emotions. I used to trade a lot with very bad results. Lost a sizeable amount of my savings. Hopefully I will learn to be become a more skillful master of my own emotions.

Specifically, I bought the following:

a. Asian Pay Tv @ $0.38
b. FIRST REIT @ $1.255
c. AA REIT @ $1.275
d. DBS @ $15 [But I sold it off too early at 16.35. Another hard reminder to myself not to meddle with my positions unnecessarily.]
e. M1 @ $2.39 and $2.16

I made a deliberate decision to divert some of my funds for foreign stocks to reduce geographical risk. I didn't like US because of the high taxes, choosing Hong Kong instead. I bought the following:

f. TVB @ $25.70 and $26.90
g. SJM @ $6.02

3. Made a partial capital repayment of $2665 for my HDB mortgage loan (by mistake).

I am receiving about $2500 monthly from renting out my HDB. For the first 8 months, the cash just goes straight into my savings account. However, the amount of cash I am holding has reached a point where I find it hard to generate decent returns. I've used up all my options already: UOB ONE, OCBC 360, and BOC SmartSaver. Any additional cash that I continue to accumulate will have to go straight to CIMB Fastsaver, which only earns 1% p.a. To be fair, it's a good rate given that there are no hurdles to jump through. However, as compared to the 2.6% which I am paying for my mortgage, earning 1% on my cash will mean that the cost of holding that amount of cash is actually 1.6%, which to me, is rather high.

So I am left with 2 choices. First, I can use those accumulated rental income to make a one-off partial capital repayment of my loan, hence saving me on interest. However, this will mean that my income tax will increase as my rental income less interest paid will increase. Or, second, I can use the monthly income to pay the mortgage installments, so the money in my CPF will be left untouched and can start to build up and earn the 2.5% interest. When I eventually stop renting, I can then have the option of using the entire sum in my OA to pay down my loan. The cost of holding "cash" in OA as compared to paying off the loan straight off is only a mere 0.1% (ignoring the additional 1% to be earned on the first $20k in OA for simplicity).

Mathematically, the second option is better, as money in OA is a form of buffer to continue servicing the mortgage loan should I lose my job. I will also be better off as the amount of additional tax I would have needed to pay is more than the 0.1% holding cost. Hence, given all these reasons, I tried to find ways to pay my outstanding monthly mortgage in cash before deductions are made from my CPF accounts. To cut the long story short, I made the cash payment, but the CPF deduction still happened. I emailed HDB to ask them how can I change the default payment method from CPF to bank GIRO. Waiting eagerly to hear from them.

Conclusion

So that's it! These are the few things I've done in the last few months. My personal cash savings is still at $110k, and joint savings with my wife is still $50k. Nothing else has changed much besides the above.

Passive Income Update

HAPPY NEW YEAR

Happy New Year everyone! 2016 seemed to have flown by don't you think? It's true that as one grow older, time seems to speed up. It's rather scary because a year can just pass us by while we are playing Candy Crush or Pokemon Go. It is timely, on the first day of 2017, to remind myself that time is a precious limited resource, and I should be more deliberate and intentional in the way I use it.

As a continuation to the update on my networth, and before I start living out my 2017, I shall take stock of the passive income I received in 2016.

In 2016, I received passive income from the following sources:

1. Rental Income from my DBSS flat.
2. Interest Income on my Cash Holding.
3. Dividends from my Investment Portfolio.

Let's go through each of them in turn.

RENTAL INCOME FROM DBSS FLAT

For the uninitiated, after the arrival of our daughter, we had to seek waiver from HDB to allow us to rent out our newly-acquired DBSS flat (read more about it here). It is unlikely to be a long term arrangement as we still have to move back to serve our MOP. Nonetheless, the passive income from rental really helped boost our monthly cashflow. We have been saving up the entire amount to pay down our huge mortgage.

Rental Income: $25,000 after deducting all the associated fees (I assumed expenses are 2 months worth of rental).

This works out to be $2083.33 per month.

INTEREST INCOME ON CASH HOLDING

Throughout the year, I earned interest from a combination of (1) OCBC 360 account, (2) UOB ONE account, (3) BOC SmartSaver account, (4) Standard Chartered eSaver account, and (5) CIMB Fastsaver account, depending on the promotion available and what suited me more.

BOC SmartSaver Account.

Out of the list of accounts above, I think BOC SmartSaver is the least raved about one. I don't know why, but it offers one of the best rates when it first started out. Take a look at their interest rates:

Bonus interest rates for BOC SmartSaver account.

Prevailing savings interest rates for BOC SmartSaver account.

I rushed to open an account after reading a blogpost by scg8866t. Basically, to earn 3.55% interest, you have to fulfill the same 3 conditions as what's required of OCBC 360 account. But there was a hack. the $500 card spend can be fulfilled using their debit card. So.....this means that I could use AXS mobile and pay for my UOB ONE credit card bill using my BOC debit card. That's killing 2 birds with 1 stone! The Spend Bonus is a whopping 1.55%, and combine that with 3 Bill Payments of $5 each, and the base savings interest rates for balances of $50,000 and above, I could get an effective interest rates of 2.55% p.a. even without qualifying for the Salary Credit Bonus. This was awesome, until recently they closed the loophole and made a whole host of other changes. It's still worth checking it out though (here), because they made some attractive improvements to their Family Card.

Oops, sorry for digressing.

Here is my Interest Income for 2016: $3433.

This works out to be $286.08 per month.

DIVIDEND INCOME FROM INVESTMENT PORTFOLIO

I am looking for an elegant way to share my portfolio on this blog, but that's still work in progress. It's a small portfolio with a few legacy holdings from the times when I simply anyhow buy. But I've since learnt my lesson and am now trying to build up a quality, income generating portfolio.

Dividend Income: $745.73.

This works out to be $62.14 per month.

SUMMARY

Total Passive Income for 2016: $29,178.73

But if I were to remove rental income, total passive income will become: $4,178.33

This works out to be $348.22 per month.

Turning a Mistake into Opportunity, and Strengthening My Conviction in the Process!

Building streams of passive income - a hard but worthwhile goal.

THE MISTAKE

One of the biggest financial mistakes I've made is buying a 5-room DBSS flat in Tampines. I paid $722,000 for it, and even after $30,000 first-timer grant from the government, the flat still cost a princely $692,000. It is a lot of money for someone just fresh out of college. I must have been out of my mind when I bought the house, and AK's post (link) doesn't help me feel better.

Well, it's not that we don't have our reasons for buying the flat. As compared to balloting for a BTO, which will have us waiting for 4 years or so, the DBSS was a sale-of-balance exercise and will be ready in a year's time. My wife and I really wanted to start a family while we are young, and so we went ahead with the purchase. I know I know. We could have bought a resale flat in a non-mature estate and that would have cost us a fraction of what we paid for the DBSS, and possibly be able to move in even earlier as well. I concede that there can be no justification strong enough for the purchase, and that's why I started off by admitting that this is a financial mistake.

Have I regretted buying the flat then? I am not sure. I still like the house and the location very much, and I think good things have happened after we moved in. I got a small promotion at work and my wife gave birth to a beautiful daughter. I am a little Pan-Tang this way, and I think the house must have brought us some good luck.

THE OPPORTUNITY

After my wife's maternity leave, she has to return to the workforce because my single income cannot keep up with the mortgage payment and the household expenses. As we wanted to minimize the potential for conflict between ourselves and our parents-in-law, we got a helper to take care of the little girl as well. At first, we tried shuttling between our own house in Tampines and my in-laws' place in Serangoon, but that proved too cumbersome. We reckon that it's not beneficial for the baby in the long term as well, since we always got to wake her up early in the morning, disrupting her sleep. I thus suggested that we moved in with either my parents or my wife's. Of course, my wife chose the latter as expected.

Our house was newly renovated at this point. We only stayed there for about 15 months or so. When I suggested to my wife that we should rent out the house since we won't be staying there for at least a few years, my wife objected to it vehemently. She didn't want the tenant to spoil our furniture etc. I cant blame her for that, since it also took me a bit of self-psycho-ing to convince myself that this is the most sensible thing to do. After all, I really wished to reduce the "damage' that this "mistake" has caused us.

STRENGTHENING MY CONVICTION

It took a few more sessions of coo-ing and molly-coddling before my wife finally relented. Looking back now, it turned out to be a decision that both of us are thankful for making. We are now receiving $2,500 per month in rental income, and I insisted that we save up all of these monies to make early repayments for our mortgage loan. In 2 years' time, assuming that the cost of renting the house is about $5k a year (agent's fees, income tax, delta in property tax, and maintenance), we will be looking at an additional saving of about $50,000. This is amazing, as it takes little to no effort on our part to save this amount. Imagine if we can continue to rent out the house for a total of 5 years, we will be able to bring down our mortgage loan by $125k, and the cost of our house down from $692k to $567k. This figure is closer to what a 5-year-old, 5-room HDB in a mature estate will cost. Sounds less like a mistake now? Definitely!

Besides the financial benefits, this experience gave me a taste of what receiving passive income feels like and strengthen my commitment and desire of building a substantial steam of passive income!