Thursday, July 28, 2016

4 Money Lessons From The California Fitness Closure In Singapore


Customers lost thousands of dollars when California Fitness closed its branches in Singapore. Avoid making the same mistake by learning these money lessons. California Fitness, once the icon of mega gyms in Singapore, closed all its branches last week. It left hundreds of angry customers in its wake, who now face the loss of several thousand dollars from expensive prepaid packages. Could this have been prevented? We think so, and we’d like to help SingSaver.com.sg readers avoid similar predicaments:
 
Lesson 1: Limit the Amount Spent on Prepaid Packages
Several customers of California Fitness paid for training packages. Some purchased as many as 50 to 100 sessions in advance. There’s no real reason to do this. Consider a more familiar business, such a music lessons (typically S$120 per hour). If you asked to purchase 100 sessions in advance for S$12,000, would you do it? Or how about subscribing to a magazine for five years at a time? If you wouldn’t do it for other services, don’t do it for gyms or spas either. If you must buy a prepaid package, try to keep it to a reasonable size – perhaps a month or two in advance at most. There is no need to buy sessions to last an entire year. Note that, as far as services go, we would advise you not to prepay at all if possible. It is always safest to pay for services after they are rendered. But if you trust the service provider, or they give you no alternative, then at least limit how much you buy in advance.
 
Lesson 2: Don’t Be Blinded By a Fancy Brand
Many Singaporeans who bought California Fitness packages assumed it was a reliable company that wouldn’t leave them in the lurch. What had them convinced? Glitz and glamour, for the most part. California Fitness had high profile locations in places like Raffles and Bugis. They even had endorsements from Jackie Chan. This gave the impression that they are big, reputable company, which would fulfil its contract with clients. Time and again, we’ve seen scams that use a nice front office to fool people. Even real Ponzi schemes, such as Sunshine Empire, used a facade of size and reliability. The biggest lesson from this is to not judge a company by its brand and promises. Don’t assume that a bigger service provider is necessarily more reliable or stable.
 
Lesson 3: Use Credit Card Instalment Plans for Items, Not Services
Many customers misunderstood how credit card instalment plans work. They were offered interest-free instalments on their package and assumed they would be charged for each separate instalment. That is incorrect. Say you sign up for a S$5,000 gym package. The interest-free repayments are around S$417 per month for a year. When you charge this to your card, you are not charged only S$417. The entire S$5,000 is charged to your card at once. Effectively, the bank pays the full sum for you first, and you later repay them in instalments. So what does this mean? It means that even if the gym shuts down, you still need to keep making repayments. The entire sum has already been paid by your bank. For the same reason, you cannot “block payments” to the gym – the gym has already been paid in full. This is why you should restrict the use of credit card instalment plans to physical items like laptops or TVs. Avoid using instalment plans for prepaid services. Do note that the full amount charged counts toward your credit ceiling.
 
Lesson 4: Don’t Expect to Recoup Your Losses if the Service Provider Shuts Down
If a service provider shuts down, it is highly improbable that you will get your money back. Once bankruptcy is declared, the company is systematically liquidated. Major creditors like the landlord, or the company leasing them the gym equipment, are paid long before you. By the time it’s the customers’ turn, there may not be much money left. You usually cannot recoup the money from the owners either. Without going into corporate law, suffice it to say that the company is considered a separate legal entity from its owners. The owners probably do not have to make good on the company’s losses. Bear this risk in mind if you must sign up for a prepaid package.   

Friday, July 22, 2016

How Age Changes The Way You Think About Money


Your perception and use of money will change with age. Here’s what you can expect as you enter your 20s, 30s, 40s, 50s, and 60s. Why do many Singaporeans regret not saving money after a certain age? Why is budgeting actually harder as you get older? One of the strange facts about money is that your perception of it changes as you grow older.  In many cases, we would benefit from some foresight. The following will prepare you for common shifts in mentalities as you grow older:
 
Money in Your Late Teens (17 to 19)
At this age, money often used to socialise. It is not so much about getting clothes, bags, or gadgets (although that may be the case with some); it is more about being able to hang out with friends. Being able to eat out with friends or go on a long weekend trip to Malaysia with them consumes most of the limited income we have. The most money guzzling activity is often clubbing. When it comes to issues like saving or buying insurance, this is often still relegated to our parents.
 
The Major Hazard: At this early stage, we often don’t want to think of issues like buying a house or retiring. “I’m a teenager, I shouldn’t be thinking about it,” is a common, stressed out cry of protest. And unless you’re very mature, that’s often true. It’s a stretch to look that far ahead. But what can be useful at this stage is to start using credit in small, manageable amounts to learn responsibility. A $500 student credit card, for example, can be used to build up a credit score, while at the same time being a learning tool (e.g. learning how quickly we really spend money). Those undergoing National Service, if they have a great degree of discipline and maturity, should also consider saving up 80 per cent of their NS allowance. Over two years, this will help offset your university costs.
 
Money in Your Early 20s (20 to 24)
Money at this point is not just about having a good time. Money becomes conflated with social standing. When we are younger, we tend to be more open about not having enough money (e.g. I can’t hang out with you this week, I am broke). In our early 20s however, many of start to find this embarrassing.
 
The Major Hazard: Many purchases made are often done so to fit in with peers. This can cause some of us to overextend ourselves by eating in places we can’t afford, or buying shoes that max out a credit card. Social anxiety compounds financial difficulty. Sometimes we can’t afford to keep up with our peers, but we don’t want to show it either. This is especially lethal, because our early 20s is when some of us first qualify for credit cards. So while many consider the 30s to be a critical age, we actually feel this is the most perilous time. It is possible to inflict financial damage that can last a decade, due the combination of (1) having credit, (2) getting the first serious pay cheques, and (3) feeling significant pressure to spend. It is important, in your early 20s, to develop a thick skin. The sooner you can say “Sorry I can’t afford that”, the sooner you will feel relief from all the pressure.
 
Money in Your Late Twenties and Early Thirties (25 to 32)
This is when most people get serious about money. They are forced to by changing circumstances. Often, they are facing marriage, a first child, or having to buy their first house. Suddenly, the details of index funds and variable rate property loans become interesting. As do products like endowment insurance plans or balance transfers. This is the age of worry and panic – at this point, financial considerations often eclipse worries about what our friends are buying. This is also the age at which we start to earn more, but it’s also the age where serious debts appear.
 
The Major Hazard: Panic sets in, causing us to go along with the first strong voice we hear. At this age, we are dealing with debts that we never imagined possible before. Numbers like S$20,000 (wedding), or S$400,000 (home loan) seem downright surreal.
 
How could we ever pay that?
This is why many “scaminars” – seminars that sell you trading courses, gold buyback schemes, or multi-level marketing gibberish – target this group. They know people at this age range are facing critical money decisions, and most have had little preparation. At the same time, those at this age often earn significantly more than young students or entry level workers. They’re a goldmine waiting to be ripped off. Get rich quick schemes, along with false financial gurus, will clamour for your attention at this age. The key is to take a deep breath, and stop chasing a quick buck. Calm yourself by realising that millions of people have paid for their homes or sent their children through university. There is no reason you won’t be able to as well. Next, remember that money is very simple. It is about spending less than you earn, and saving at least 20 per cent of your income (until you have six months of your income). The rest is noise.
 
Money at the Peak of Your Career (33 to 45)
This is the age at which many of us hit our peak earning capacity (note: many, not all). At this point many of us are calmer about dealing with big numbers, and may even the concept of aS$1.5 million condo may not phase us. This is the age at which many start to worry about their health, and their outstanding debts. Many also start to worry about retirement at this point – which is unfortunate, since it’s best to start thinking about it in your mid-twenties. Many of us start to support our parents financially, or have raised children into their teens. As such, we may actually have less disposable income despite earning much more. Certain financial realities, such as the rate of inflation or the cost of healthcare for aging parents, will now factor into a more mature approach.
 
The Major Hazard: Complacency is the major hazard here. Most of us will be at the peak of our careers, and too busy to even contemplate skills upgrading courses or running a side-business. At this point, you are often managing departments or major projects; everyone and everything demands your time. The thought of doing a second degree, or running a company on the side, can be almost laughable. It shouldn’t be. One of the worst things that can happen is to be retrenched in your 40s, a fate that faced many of our PMETs in 2015 (15,000 layoffs took place). Do not allow complacency to get in the way of skills upgrading. In fact, you should be even more aggressive in seeking new income sources. Remember that your salary may only decline past this point, and the phase of life will not go on forever. Make the time to upgrade, and find alternative income streams.
 
Money in Your Mid-40s to 50s (46 to 55)
By this point, worries about outstanding debts (if any) are actually lessened. Most have children who can earn their own money, or who have already gone through school. Long term plans, such as endowment plans or investment products purchased in our 30s, would have come to fruition. Work-wise, income may remain unchanged. But some of us, such as those in senior management or running successful businesses, may reach the category of high net worth individuals (e.g. $5 million or more in net worth). This will require a different level of wealth management. Many people start to think about their legacy, such as their will, at this point.
 
The Major Hazard: Those who have not planned for retirement are, by now, counting on their house as a retirement fund. Or else they have decided not to even think about it, because it’s “too late” and they’ll surrender to fate. Neither are good options. Regardless of whether you should have started earlier, it’s not too late to take drastic measures. You should still talk to a financial advisor – you will have a degree of maturity you did not have earlier, and may have an income that is much higher. Something can still be done. If you have planned for retirement, it is important to rethink your portfolio. Be less aggressive, and allocate more toward protecting your wealth than growing it. You should be hesitant to take big risks at this point.
 
Money Towards Retirement and Beyond (55 to 65 and Beyond)
At this point, your concern is often either toward children and grandchildren, or toward enjoying the last of your twilight years. Healthcare costs will be at the forefront of your mind, as is your legacy.
 
The Major Hazard: Stop worrying so much about your children and grandchildren. Do not sell your flat and move in with them, in order to give them money. Come to terms with the fact that you’ve done all you can, and it is now their turn to look after themselves (and you). For the sake of personal comfort, have your will formalised. And go ahead and do all the things that you wanted to do, while you’re still able.

Wednesday, July 20, 2016

5 Emergency Expenses You're Probably Not Prepared For


If you don’t have savings, these emergencies might tempt you to take a cash advance on your credit card. Nothing is an emergency if you have the cash to deal with it. In fact, not having the cash is what makes it as emergency expenses. Now we all have a human tendency to underestimate the potential for disaster. Here are some emergencies that will catch us off-guard and tempt us to take a cash advance on a credit card.
 
1. Being Injured Overseas
Most Singaporeans assume nothing will go wrong on vacation – or that if it does, our travel insurance will take care of it. Most of the time, the “disasters” we have in mind are lost luggage, cancelled flights, or smelly coach buses. Not many realise how expensive a medical emergency gets. In most developed countries, health care programmes subsidise anywhere from 50% – 70% of medical costs. In Singapore, for example, schemes like MediSave subsidise as much as 80% from hospitalisation bills. If you’re a tourist however, you won’t get any of those subsidies. In a country like the United States, a single day of hospitalisation (private hospital) currently costs between S$2,500 to S$3,100. This does not factor the costs of medication, surgery, the ambulance ride, consultations, etc. In the event of critical emergencies (e.g. you need to be medically evacuated to a hospital by air, during a skiing injury), even travel insurance of S$50,000 can be wiped out many times over. For this reason, wiser travellers are alright with the idea of buying more than one travel insurance policy. It’s especially worth considering if you engage in sporting activities such as scuba diving, rock climbing, etc.
 
2. Sudden Retrenchment
The free market is a cruel place, and even established businesses can fall apart in as little as a year to a month. Most Singaporeans don’t expect this, as we assume it is a slow process: first we will see the sales drop, and then management will have tense discussions behind close doors, and then in the year long process of the company undergoing its death throes, we will have time to send out resumes and find a new job. However, this is not always the case. During the 2008 global financial crisis, and the Asian economic recession in ‘97, companies did downsize on short notice. Many employees were given as little as a month’s notice before being severed. As you can imagine, this was a disaster for those who lived paycheck to paycheck. No matter how secure you think your job is, always keep emergency savings of about six months of your income. This will ensure that, even if you are suddenly downsized, your life will not become a series of canned beans and re-used coffee powder before your next job.
 
3. Credit Card Fraud
No one expects credit card fraud, but when it does happen the cost can be astronomical. Remember that most credit cards have limits set at twice or four times your income – if a thief maxes out your cards, and your bank holds you liable, you can face a debt that takes years to repay. Assume, for example, that you earn S$3,500 a month. A stolen credit card could be maxed out at S$7,000, growing at an interest rate of around 2% per month. In three years, this is about S$13,000+. Now the good news is that, according to Monetary Authority of Singapore (MAS) guidelines, the maximum liability on credit card fraud is just S$100. However, there are cases where people have been held liable for the full amount due to negligence, or due to certain technicalities (e.g. the bank decides that you were late in reporting the situation. Note that the bank defines what amount of time is reasonable). For these reasons, always keep your credit card secure. Do not give the card details to anyone, especially over the phone, and avoid pre-saving the details on websites. You can also buy insurance against credit card fraud. As an alternative (if somewhat inconvenient) safety measure, some people choose to purposely set a lower spending limit on their credit card. This controls their shopping habits, and places a cap on the maximum possible loss in the event of theft.
 
4. Urgent Home Repairs
This is a cost that catches many Singaporeans off-guard, and often ends up in expensive credit card debt. The two biggest home maintenance emergencies are related to plumbing and electricity. When your pipes are not working (or even worse, they burst and flood the toilet or kitchen), you will probably not be picky about price. There’s no time to compare the best plumbing rates when your living room is doing a good impression of an indoor pool. Even after it’s fixed, many homeowners are stunned by the damage inflicted. Carpets may need to be dried out (around a S$300 service, not including delivery), antique wood furniture can be ruined, paintings might be trashed, and wet electronics may need replacement. Even after it’s fixed, many homeowners are stunned by the damage inflicted – carpets may need to be dried out (around a S$300 service, not including delivery), antique wood furniture can be ruined, paintings might be trashed, and wet electronics may need replacement. The second big emergency is power failure. The concern is not that you can’t watch television or use your air conditioning, those are minor quirks. The issue is that the food in your refrigerator will go bad – chicken or fish is a dangerous meal after six to seven hours in our tropic heat. Again, you often won’t have time to compare prices and be picky. Home insurance is your best bet against these emergencies, but you should always have cash on hand to deal with them fast. These kinds of damage tend to “spread”, as the rest of your belongings will be affected.
 
5. Dental Problems
The occasional toothache isn’t a huge problem. But every now and then, we get hit by a huge bill for things like a root canal. These can seldom wait, due to the pain and discomfort involved. People are seldom prepared for this, due to the suddenness of the pain – if you’ve had a toothache before, you probably know how quickly it happens; you can be fine one minute, and in agony the next. Most major dental costs range from S$700 and up. It won’t destroy you financially, but it can be serious disruption to your plans on short notice. This is why it’s important to have an emergency fund saved up, or at the very least access to a personal loan or line of credit that has fast approval. Choosing to suffer a bad tooth for a few days is one of the experiences you will happy to live without. This is why it’s important to have an emergency fund saved up, or at the very least access to a personal loan or line of credit that has fast approval. Choosing to suffer a bad tooth for a few days is one of the experiences you will happy to live without.

Tuesday, July 19, 2016

Are Singaporeans Financially Ready For Marriage?


(Click to enlarge image)

Data from the Social and Family Development Ministry show that Singaporeans value families and want to get married. So why did the number of single 20-something Singaporeans increase over the last 5 years? Personal finance comparison site SingSaver.com.sg and local dating app Paktor ran a survey to find out what’s keeping Singaporeans from tying the knot, and how they plan to spend for their big day. The survey reached out to 544 Singaporeans aged 18 years and older, with a near even split between genders (45% women and 55% men). Their answers revealed that couples who are emotionally ready for marriage are not always financially prepared for the next big step. Meanwhile, nearly a quarter of Singaporeans who aren’t looking to tie the knot say it’s because they cannot afford to get married at the moment. It’s not surprising that costs are a big deterrent, with Singaporeans anticipating to spend at least 10 months’ worth of income, or S$35,000, for their wedding and honeymoon. They hope to get financial assistance through their parents or through bank loans to fund their big day.


Of the 544 respondents, 38% said they were ready for marriage, while 62% say they were “unsure” or not ready at all. Nearly half of those who want to get married say they have found the love of their lives. Despite this, 63% think they are financially unprepared to marry their life partners. Meanwhile, 65% of respondents who were not ready for marriage say it is because they haven’t found the right partner. Another 20% said it was because they cannot afford to get married at the moment. In terms of describing their ideal spouses, Singaporean men and women place similar importance on good looks and a great personality. However, both groups have gendered expectations regarding income and property ownership. In general, Singaporeans think beauty is only skin deep. Good looks were rated as just “somewhat important” by 70% of the respondents, while 86% think it’s “very important” for their ideal spouse to have a great personality. When it comes to financial stability, Singaporean men expect little from women. Only 27% of men think their partner should be financially stable, as compared to 58% of women who think financial stability is “very important”. Similarly, 78% of men think property ownership is not essential for their future wives, versus 49% of women who think it’s “very important” for potential husbands to own property. Both genders agree that they can live with a spouse who doesn’t own a car, with 73% of respondents declaring car ownership as “not important”. 


On average, Singaporeans expect to spend 10 months’ worth of income, or approximately S$35,000, on their wedding. In terms of allocating their budget, they think spending on their honeymoon and wedding jewellery is more important than spending for the banquet or wedding outfits. When asked which wedding expenses they would like to prioritise, 70% of respondents considered their honeymoon “very important”, while 66% added that the wedding or engagement ring was just as important. Other wedding garb is not considered a priority, with only 55.6% rating the wedding dress or suit as “very important”. Singaporeans don’t seem keen on spending much for the wedding festivities itself, either. An overwhelming 70% thought spending for the banquet was “not important”, while only 52% thought it was important to pay top dollar on wedding photography and videography. If they cannot fund their wedding costs up-front, 30% of Singaporeans will be seeking financial assistance for the wedding (or honeymoon) of their dreams. Of these, 75% will turn to their parents for help, while 40% may consider using personal loans for wedding expenses. 


Currently, banks in Singapore do not have wedding-themed loans, and 48% of those surveyed think they should offer this option. Yet Singaporeans seem to have mixed feelings about taking a loan to nance their wedding. 86% of the respondents also stated that they’d rather not get married if it meant being in debt. 

Saturday, July 16, 2016

Dividend Is Not A Magic Bullet In Investing

Investing in a dividend stock is like seeing someone blowing a balloon. Then once awhile he will rest and stop blowing to let out some air, before continue his blowing. This become a never-ending process. Those dividend-investing zealots will think that dividend is an 'extra' income but to a non-believer, dividends is just returning a percentage of the capital invested.
 
I would prefer a company either working hard to boost their earnings per share or giving bonus issue or scrip instead of giving out dividends as cash.

Friday, July 15, 2016

How Free Mobile Games Like Pokemon GO Make You Spend


Every hobby is expensive in its own way, and the release of Pokemon Go in Singapore might burn a major hole in your pocket. Free apps are harmless to the wallet right? Sure, on the surface. But the reality is, “pay to play” is a factor that can ramp up costs. After all, mobile gaming is a multi-billion dollar industry, and titles like Pokemon Go have ways to make money off its fans. Here’s how mobile games cunningly empty out your bank account:
 
Playing “Free” Games Involve Jaw-Dropping Large Sums of Money
How much money is really involved in a free game? Well, consider one of the typical (not even the most popular) free games, the Game of War. You’ve probably seen this advertised in cinemas or on YouTube – the ad campaign features Kate Upton, and cost about S$53 million to produce. To put it into perspective, a 99-year leasehold bungalow in Sentosa Cove costs around S$23 million; less than half the price of those video clips. Can they possibly recover that cost? Yes, because there are people who spend something like S$12,000 on the game (that’s a single user). Remember, the game is theoretically free. But what about a popular free game, like Candy Crush? Well, we know for a fact that Candy Crush makes around S$11.6 million. Per day. Now these are games that have been made in the West. Japanese made mobile games, like Pokemon Go, are even more aggressive in getting you to buy. They start you off with few resources, and want you to make big purchases right away. The earning potential of Pokemon Go is so significant, Nintendo shares rose 24 per cent in one hour when the game was launched. In dollars, this adds approximately $10.7 billion to Nintendo’s value. Free games, in short, are a huge business. And they make you spend money in a number of ways:
 
1. The Skinner Box Effect
The Skinner Box refers to a famous science experiment, in which rats in a box are encouraged to push a button for a food pellet. Yes, that’s literally how game designers see you, and it’s sadly accurate for most of us. You can read the entire description from a Microsoft game developer, but we’ll summarise for you: levelling up. Every time you perform an activity repeatedly, you level up. With each level, the amount of times you must repeat an activity increases before you get the next reward. You may recognise this as being a perfect description of subscription-based games, such as Diablo and World of Warcraft. But free mobile games do it too. When you are tapping away like crazy on Farmville, what else do you think you’re doing? You are being psychologically driven to repeat a particular motion, and spend more and more time on the game. And the longer you spend on the game, the more likely you are to give in to temptation, and buy power-ups, level-ups, etc. Part of the reason you end up spending on free games is the way they lure you back again and again, giving them endless amounts of time to tempt you.
 
2. One-Hand Gaming
The phenomenon known as “one-hand gaming” just means mobile games are accessible everywhere. Unlike a game that requires a console or computer, a mobile game is almost always on hand. It is ready, at every single moment of weakness, to sell you an in-game purchase. You may also be distracted while playing the game (e.g. waiting for your bus and playing). This peripheral attention causes you to let your guard down and make in-game purchase without even thinking. It can be likened to the way you snack when talking or watching TV: your hand keeps reaching out, and you’re barely conscious of how much you’re eating. By the time you look down the whole packet of chips is finished.
 
3. Payment is Easy
Payment can be done with a single tap. The less effort you use to pay, the more likely you are to buy. When you need to pull the actual money out of your wallet or write a cheque, you tend to at least pause and reconsider. Several taps of a S$0.99 purchase later, you could end up facing amounts that range into the hundreds or even thousands. In at least one case in Singapore, that amount came to S$15,000.
 
4. Wait Times Build Craving
The longer you wait for a reward, the bigger the high you get from it. Think of how when you’re starving, almost anything tastes good. This is why free mobile games often impose long waiting periods when you are “out of energy” or need to wait for things to be built. They also know that at some point, you will get impatient and “buy” time by shortening the wait.
 
5. Sunk Cost Fallacy
Why don’t people quit once they realise they’ve spent thousands? Well the answer is because they’ve spent thousands. Most people are hesitant to stop playing when they’ve already made such a large investment in the game. The only solution then is to keep playing, and invest even more in it. The invested money is just a small part of it. With games like Pokemon Go, time is a factor too: if you’ve spent hours climbing fences and going into people’s houses to “catch ‘em all”, then you’re not likely to quit after a whole year of effort. You see where this going: the entire game becomes a black hole, into which your money and time disappear, and the more time and money you sink into it, the more you get sucked in.
 
Does That Mean You Shouldn’t Play?
Every hobby is expensive in its own way, and we’re not going to dictate what you should or shouldn’t do for fun. But we will say this: Implement a strict budget for your game, and stick to it. If you feel it’s getting out of control, don’t subscribe to the sunk cost fallacy. Take a deep breath and delete it. After a few days away from it, we assure you any lingering regrets will vanish.

Tuesday, July 12, 2016

Should You Become A Landlord In Singapore?


Becoming a landlord in Singapore isn’t as easy as owning property. Be ready for the following costs. Property is often regarded as the crown jewel of investing in Singapore. Ask the average Singaporean, and they’ll tell you this asset can do no wrong. So it’s not surprising that a flat is the first big-ticket purchase many of us aim for. But if you’re buying to become a landlord, be sure you’re financially prepared to take on the costs. Here are some things to be aware of.
 
1. Do Have Enough Holding Power?
This is the most important question for any would-be landlord. You cannot assume that there will always be rental income to cover the cost of the mortgage. What happens if your monthly loan repayments are S$3,000, but the rental income (remember that the rental market can strengthen or weaken) is only $2,000? Do you have the capacity to service the loan? Even worse, what if there is a period of vacancy? For example, there may be a month or two of vacancy when you are renovating the house, or when demand is low. Can you then pay the full mortgage amount without distress? Do not assume you can sell the house “at any time” and still see a good return. If you cannot service the mortgage, and are forced to sell during a downturn, you may end up making a losing investment. In general, we advise that you have sufficient funds to pay the mortgage for six months, before you buy the house.
 
2. Are You Prepared for Property Taxes and Maintenance Costs?
You should be prepared to pay additional costs like property taxes and maintenance. Most private condos have a monthly maintenance fee charged by the management committee, for costs such as cleaning the swimming pool or repainting buildings. Maintenance costs for a condo are determined by your share value. You can check the cost in the Building and Construction Authority (BCA) guide. Property taxes are progressive, and based on the Annual Value (AV) of your home. The AV is the estimated gross rental income of the property per year (e.g. If the rental income is S$2,000, the AV is S$24,000.) The AV is determined by a valuation from the Inland Revenue Authority Service (IRAS). The first $30,000 in AV has a tax rate of 10 per cent. For every increment of $15,000, the tax rate increases by two per cent, to a maximum of 20 per cent. For example, if your home has an AV of S$48,000 (gross rental income of S$4,000 per month), the tax rate is 14 per cent (S$6,720 per annum, or the equivalent of another $560 per month). Remember to add these costs to the monthly loan repayments.
 
3. Do You Understand What is Claimable?
The interest rate on a mortgage loan is tax deductible. Likewise, maintenance costs for the property are tax deductible, as are the property agent’s commissions on the tenants beyond the first. You can check the list of deductibles at the IRAS website. As a landlord, you should have a thorough understanding of what you can and cannot claim. If you are uncertain, you can ask a property agent, or query a wealth manager. Being able to make these claims can save significant amounts in taxes.
 
4. Do You Know How Much to Pay Property Agents for Rentals?
Unless you are a full-time landlord or have been in the property market as a professional, you will probably need an agent. This is to help you find prospective tenants and to vet their background. As a general rule, the landlord pays one month of rent if the tenant signs a two-year lease. If the tenant signs a one-year lease, the landlord pays half of one month’s rent. Note that this happens whenever you find a new tenant. In short, don’t forget it also costs a substantial sum to find a tenant!
 
5. Do You Have an Emergency Fund?
Besides having six months of the mortgage saved up, you should have an emergency renovation fund of at least S$10,000. This is to deal with emergency repairs, from a non-functional air-conditioner to burst toilet pipes. It is also inevitable that you will have to bear renovation costs at least once in five years. You will have to repaint walls, replace cracked floor tiles, or change faucets and showeheads. At minimum, expect to pay at least S$2,000 for such maintenance every five years (that’s assuming nothing breaks). Remember that you have an obligation to the tenant, who can terminate the lease if you don’t fulfill your end of the bargain.
 
It’s Not as Easy as You Expect
On paper, the notion of a tenant who covers the cost of the mortgage is great. It makes owning property seem like an easy investment. In reality, you must be ready for the wide range of fees and taxes that plague every landlord. If you are not confident about handling this responsibility for 10-15 years, you may want to consider a less stressful investment.

Saturday, July 9, 2016

5 Types Of Singaporeans Who Attend Annual General Meetings


If you’re a shareholder who’s attended an Annual General Meeting, you’ve probably seen the Food Hoarder and the Door Gift Ninja. The Securities Investors Association of Singapore (Sias) has launched a new initiative to make Annual General Meetings (AGMs) more productive. This is much needed, as at present AGMs are not taken quite as seriously as they should be. It’s hard to, given that many shareholders think it is nothing more than a free buffet. 
 
Wait, What Are AGMs?
If you hold stocks for a particular company, you’re likely to be invited to an AGM. An AGM is an opportunity for shareholders to ask questions of a company’s management. Wise investors use this opportunity to ask how much they are getting paid in dividends, what the company’s prospects are, and whether expansion and profit goals are met. These are important to know, as they help you decide if you want to stay invested in the company. That’s the theory anyway. In reality, the average investor has no idea how any of that works. Many of us have no chance of working through a 300 page Annual Report, and figuring out what to ask. So we just go there for the free buffet. We’re quite thankful that this is set to change. From now, Sias will hire analysts to read the Annual Report for us. They will then ask the questions that highlight key issues, making it easier for us to decide whether we still want their shares. This will make it much easier for Singaporeans new to investing, or who want to get started. We’re also hoping it will change these five types of Singaporeans you always see at AGMs:
 
1. The Food Hoarder
There’s always one at every AGM. We all like to pack the leftovers from the free buffet, but this person takes it to an extreme. This food hoarder never just has her handbag. Instead, she has or multiple Sheng Siong plastic bags. Each one contains stacks of tupperware containers, into which she will put the leftover rice, bee hoon, sweet and sour chicken, spring rolls, etc. But this is not someone trying to make the best of a tight budget. We’ve seen some of these food hoarders do it while wearing Manolo Blahniks, and later struggling to get the containers the back of their BMW. It’s beyond us why someone who can afford to eat at a Marina Bay Sands restaurant every day feels a need to scavenge S$5-per-head food, but it happens. Maybe it’s that thrifty instinct that made them rich. Should there be no leftovers, the director, CEO, catering staff, you, and half the population of Singapore will hear her complaints. These complaints will be voiced over more trivial things, such as how much money the company is making, or IRAS demanding $12 million in unpaid taxes. What’s really important is that there wasn’t enough fried lemon chicken.
 
2. The Person Who Is More Qualified Than the Directors
Unless your shares come with a right to vote (not all shares do), you only have three decisions to make regarding the AGM: buy more shares, keep things the same, or sell them off. You can’t march into the company offices and run things as you like. There are, however, people who fail to grasp this concept. These people will interrupt the directors with various suggestions, which range from the occasionally plausible to the borderline insane. Some of their favourite questions include:
    Why don’t you pay yourselves less? (It’s important to look hardcore when you own 0.00001 per cent of the company)
    Why don’t you relocate all manufacturing to a third world country of my choice, because I want everyone to know I support slave labour?
    Why are you not expanding into China, America, Europe, or some other place with an economy I am an expert on, because I watched a YouTube video once?
    Why do you make (insert product), and not (insert irrelevant product)? For example, why does Seagate keeps making hard drives and not reusable diapers?
    Why don’t you put the (number of paperclips owned / average employee shoe size / other pointless piece of information) on your website? It is unprofessional not to do so.
Their questions are a perfect blend of irrelevant and impossible to answer. Any attempt to answer them will result in solutions that make everyone sorry for having heard them (e.g. If fuel costs are too high to ship to China, you should build a giant catapult with
two trees and…) We are thankful that Sias now has people asking questions that have some use. But we wonder if they could also provide cloth gags for this bunch.
 
3. The Witch Accuser
This person likes to invest in companies they hate, so they can show up at AGMs and insinuate that senior management is up to something. What exactly they don’t know, but their life is dull and needs to be spiced up with a conspiracy or two. These people like to keep asking if there is a side-benefit or commission to everything.
 
For example:
Director: Sorry we started late, I had trouble finding parking. Good thing the valet helped.
Witch Accuser: Do you run the valet parking service here? Are you trying to promote it?
Director: What? No, I…
Witch Accuser: Do you get a commission from them? Is that why you chose this building for the AGM?
 
And so on. The Witch Accuser is also an expert accountant, who will raise issues such as “Why is the price of each printer cartridge not accounted for?” And then provide his or her answer. That answer will usually be that someone in the company is stealing money, not doing their job, or selling secrets to Russia. The Witch Accuser is the natural enemy of the food hoarder (see point 1), as even one Witch Accuser can delay the buffet by up to an hour.
 
4. The Door Gift Ninja
You will not see or hear from this person. They are like an empty breeze, arriving like the night to pocket their door gift. If they manage to remain faceless, they will come around for a second door gift. If the door gifts are on the seats, they will stuff two in their bags and take a third when no one is watching. When the door gift happens to actually be practical (e.g. expensive hair care products), they go into overdrive: they may get their spouse, children, relatives, bums hired off the street, and so on to come collect on their behalf. In the rare event they speak to you, they want to know whether you really need your door gift. We suspect they are building a giant pile of door gifts, like the pile of gold that dragon has in that Hobbit movie. The actual use of the door gift is not too important to them – whether it’s book marks, commemorative mugs, water tumblers, it’s all equally precious. These people then mysteriously vanish, often before the directors even start talking.
 
5. The Guerilla Marketer
This person has a passing interest in the AGM. But what he’s really interested is telling you about an incredible new investment opportunity. You’re an investor, so you must be interested in his new social networking start-up, Bitcoin website, or Multi-Level Marketing scheme. This person arrives with two boxes of name cards, and somehow manages to give them ALL away. Even to the catering staff, a passing German tourist, and the two cleaners who came into the room. This is the worst person to sit next to at the buffet. Every word out of his mouth is an advertisement, and he will physically take your phone and punch in his number, Facebook contact, Linked-In, etc. Once he has latched onto you, he’s like a bulldog with a bone. You can forget about listening to anyone else, because he will talk until his sales pitch is done. Our advice? Watch out for anyone handing out name cards, and sit far away from them. Try sitting next to the Witch Accuser, who will demand to know their ulterior motives and thus disarm them for you.

Friday, July 8, 2016

MAS Just Made Saving For Retirement A Lot Easier


The average Singaporean can now get corporate bonds for their retirement portfolio, which yield better returns than a fixed deposit. In a little-noticed Business Times page, it was reported that the Monetary Authority of Singapore (MAS) now allows retail investors to buy corporate bonds. The average Singaporean doesn’t know much about these, so it was ignored. But what you should realise is that financial planning for retirement became much easier now that you can purchase corporate bonds.
 
What is a Corporate Bond Anyway?
Companies need capital to run. Before they can start manufacturing, for example, they need to hire employees, buy factory equipment, and find warehouse space. There are two ways a company can get capital. The first is to sell shares in the company, and that’s what the stock market is about. However, they cannot sell too many shares, as they would lose ownership of the company to the shareholders. The second way is through debt (borrowing). Instead of getting money from a bank, a company can choose to borrow by issuing a bond. The bond is a promise to pay back the bond-holder a given sum, at a certain time. In return for loaning this money, the bondholder also gets paid interest, in the form of a coupon.
 
Why Are Corporate Bonds in Singapore a Big Deal?
Investment grade bonds (bonds issued by big companies that are highly unlikely to fail) are a favourite asset for older investors, for reasons we will describe below. Bonds can be an excellent alternative to just keeping your money in a bank. The interest rate in a corporate bond is much higher than that of any bank account (it’s easy to get five per cent per annum). Unlike stocks, the income they provide does not fluctuate. The company must pay you back, regardless of how well or how poorly they performed that year. For the longest time however, corporate bonds were the province of the rich. Many of these bonds require upward of S$200,000, which the average Singaporean could never afford.This has always been a little unfair, as it means richer people have access to a retirement asset that regular people don’t. Today however, MAS has a new system that makes it easier for corporations to sell bonds to the average Singaporean (retail investors), while still keeping us relatively safe from risks. Pretty soon, we may see corporate bonds that are available for just S$1,000 and up.
 
How Do You Get Money Out of a Bond?
The only bond types available to retail investors will be vanilla bonds. This is how they work: Say you buy a bond with a par value of S$1,000, and the coupon (interest rate) is five per cent. The bond is for five years. This means you will get five per cent of S$1,000 (S$50) a year for five years, after which you will be paid the par value (S$1,000). In essence, you are loaning the company S$1,000 now, and getting back S$1,250 in five years. Note that the coupon is often paid semi-annually. In the above example, you might get S$25 every six months. If you were to use a fixed deposit, with a typical interest rate of 0.8 per cent, then at the five years your S$1,000 will only grow to around S$1,035.
 
Why Are Bonds Great for Retirees and Older Investors?
Unlike mutual funds or picking stocks, bonds provide a reliable fixed income stream. Shares do not always pay out dividends, as it depends on how well the company is performing. Likewise, mutual funds have volatile returns. As we get older, it becomes more important to focus on protecting our wealth instead of growing it. Bonds are one of the most important ways to do this, and many financial advisors will rebalance a portfolio to include more bonds than stocks after retirement. On the flip side, note that most financial advisors do not recommend heavy use of vanilla bonds for younger investors, who are in their 20s. This is because vanilla bonds may not cope with the rate of inflation, and the returns are low compared to stocks.
 
But Are Corporate Bonds Safe?
Under the new MAS framework, the bonds are only available to the public after they have been bought by institutional investors (e.g. an insurance company) or other accredited investors for six months. This means that more professional investors will take the initial risk to determine if it’s safe. The bonds available to the public are also investment grade bonds. They are rated and tested by Credit Rating Agencies (CRAs), and are not speculative in nature (what we call “junk bonds”). That said, there are two main risks inherent in bonds. The first is inflation rate risk. S$500 today is worth much less than S$500 in the year 2050, as the cost of goods always rises. But because the payout and par value of a vanilla bond do not change, they do not rise with inflation. You may not be making enough money to provide for your retirement if you just rely on bonds. The second risk is default risk. There is a chance that the bond-issuer may go bankrupt, or be unable to fulfill its loan repayments. The chances of this happening are small when it comes to investment grade bonds, far less than one per cent. Investment grade bonds tend to come from large, well-established companies. Also, a bondholder is in a safer position than a shareholder. If the bond-issuer declares bankruptcy and is liquidated (which means all its assets are sold off), bondholders are paid before shareholders. Overall, the low risk posed by investment grade corporate bonds, coupled with an interest rate that beats the banks, will be of interest to older investors. Once the new bonds start filling the market, it may be a good idea to call your financial advisor and ask about them.

Wednesday, July 6, 2016

How To Support Your Aging Parents Without Going Broke


With proper planning, helping your ageing parents shouldn’t put a strain on your own finances. A lot of personal finance advice revolves around how to prepare for your retirement. However, thinking about your parents’ retirement should also be a part of your long-term financial planning. If an emergency happens and your parents’ CPF proves to be insufficient, you and your siblings need to be their financial safety net. The last thing you want is to dig into your savings or take out loans to do so. With the right planning, helping your ageing parents shouldn’t put a strain on your own finances. Here are some easy ways for you to provide financial support to your parents without going broke.
 
1. Early Preparation
Preparing for your parents’ retirement is a cooperative effort, which means you have to sit down and discuss what needs to be done. Your parents must understand that while you want to give support, they too have to play their part. If you can afford it, taking out an endowment plan for them could accelerate the growth of their retirement fund. Over 10 to 20 years, compounding returns from an endowment policy can provide a lump sum that will supplement their CPF. In the event that they are forced to retire early (e.g. retrenchment), this can double as an emergency fund. Alternatively, if things go well, it can allow them to retire early by choice. Preparation is not only limited to making sure that their bank account is healthy. You can also keep your parents active and in good health, by getting them services such as gym memberships, enrolment in healthy lifestyle programmes, etc. Medical complications, such as cancer, diabetes, heart disease, etc. are some of the greatest challenges to any retirement plan.
 
2. Split the Bill
They say it takes a village to raise a child, but the same could be said about taking care of your parents. For those of you with siblings, work out a way to share the financial responsibility. This is not simply about being fair: if one party bears all the responsibility, any adversity affecting that party will also shut down your parents’ financial lifeline. By spreading the burden, you reduce the risks faced by your parents. Move into these responsibilities at a gradual pace. Not many 20-year-olds can immediately jump in and take over the mortgage. For those of you just starting out at work, take over the weekly grocery shopping or the monthly utility bills. If you have more to spare, you could top up your parents’ CPF so that they are able to reach the minimum retirement sum (around S$160,000). Once your income is high enough, consider helping with a portion of the mortgage repayments. This doubles as a way to learn how mortgages work, and about strategies such as refinancing. By taking over their regular payments, not only are you extending their savings but your working parents could also divert more to their retirement fund.
 
3. Proper Insurance Coverage
Accidents are inevitable, and you need to reduce the financial strain of these unfortunate events as much as possible. One way is by getting adequate insurance coverage for your parents. If your parents are in good health, then count your blessings and take advantage of that situation: buy an adequate policy now, because having pre-existing illnesses will raise the premium rates later. Children can also take over the liabilities of their parents’ Medishield Life premium payments (contact the CPF board for more details). You should do this if your parents are no longer working. It might be prudent to consider Critical Illness coverage beyond basic hospitalisation coverage, as this would allow you to pay off for prescription medication and alternative treatments. Also, there are insurance packages designed specifically for the elderly. For example, NTUC Silvercare Insurance is made for those above 50. Not only does it cover medical and home care; in case of an accident, it provides for rehabilitation and caregiver services.
 
4. Take Advantage of Discounts
Financial help doesn’t always mean that you have to provide for your parents out of your pocket. There are many schemes and discounts that cater for the elderly, and your parents can enjoy a lot of savings from their daily expenses. Once your parents reach their 60th birthdays, they are eligible for senior citizen concession that allows for discounted prices on buses, MRT and LRT rides. Aside from cheaper transport, cardholders can enjoy 2% off their total bill at NTUC Fairprice on Tuesdays. Some retailers just provide a discount for being a senior citizen. Giant provides a 3% discount on Tuesday as long as you are over 60. Ensure that your elderly parents are aware of these discounts. While authorities make efforts to inform them, there are still cases of senior citizens who do not retrieve the information (or necessary cards) from the mail. And if they get the grandchildren to run down to the store for them, they might be paying full price. Regular medical costs can put a large dent on your parent’s savings, but it doesn’t mean that you have to suffer the brunt of it. Medical and dental subsidies are now available for the Pioneer Generation regardless of monthly household income.

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