What One Year of Tracking My Spending Showed Me

After reading several financial blogs, a common theme I realised was that most of them advocated tracking your daily spendings, both as a way to keep to a budget, as well as to see what you were spending on, and to see if reductions could be made. So on October 2017, I started to do just that, and here's a summary of the results.

1) Spending came in at 59% of income, aka a savings rate of 41% was achieved, a healthy rate above what is generally recommended (10-20%). This was achieved without factoring capital gains/interest/dividends obtained from bank accounts and investments. However, keep in mind that I am still living with (leeching off) my parents, which leads to reduced spending on food, mortgage, groceries, utilities bills etc etc. Still, something to be happy about right off the bat.

2) Top spending has been the monthly allowance to my parents, which came in at 22% of overall spending (or 13% of income). This is a fixed cost that is unlikely to change in the near term, nothing much to comment on this.

3) Eating out came in a distant 2nd at 18% of overall spending (or 11% of income). Lots of casual restaurant lunches and dinners with colleagues and the gf, though the highest spending was in Sept for my dad's birthday treat. This can certainly be reduced further, maybe with more meals at hawker centres/food courts or even cooking and bringing my own lunch to work. This needs to be balanced with a healthy social life though, but a good aim could be to cut this to maybe 9-10% of income (measuring against spending is not ideal as it could just mean that I'm spending more in other areas).

4) Third was insurance premiums, coming in at 18% of spending (or 10% income). This amount is inflated as I'm paying for my mum's and brother's premiums as well, which I'm not sure is how much when broken down to individual figures. But for myself, I'm covered under a 100% hospitalisation plan, and a term plan that provides coverage of $500,000 until the age of 85 for Death and Critical Illness. This amount is likely to increase, as I'm mulling over an additional term life policy offered by my employer that could up my coverage to $1,000,000. This is subject to the increase in my salary as I want to keep this spending at 10% of income.

5) Surprisingly, gifts to people came in at 4th, amounting to 14% of spending (or 8% income). More than half of this was for wedding ang baos, which thankfully are one-time gifts and unlikely to be repeated year after year. Other than that, the more significant ones are from the monthly cash donations done through www.giving.sg, and again this is a fixed cost that wont change. Likely to see a big drop in this area for 2019.

6) HOLIDAYS. This comes in at 5th, at 12% spending (or 7% income). This includes a 5 day trip to Vietnam, 9 day trip to Japan, and assorted short trips to Malaysia and Bangkok all in. Every year I set aside a seperate budget for such trips, and total spending came in at 80% of this budget. Will not adjust this budget for 2019, since vacations are important for the body and soul to recover from the toil of working.

7) Shopping comes in at 6th, at 9% spending (or 5% income). Nothing much to comment, except that 75% of this came from buying a new desktop and a secondhand Nintendo Switch. Will probably see this drop to 1-2% of income next year.

8) Transport came in next at 5% spending (or 3% income). Mostly from Ezlink top ups, with the occasional Grab/Taxi rides. Unlikely to change much in 2019 unless the government wants to increase transport fares by 23410483640123721093%.

The rest includes my income tax, phone bills and other insignificant spendings and are either fixed costs or one time costs. In summary, my spending pattern tends towards food and vacations, and I'm happy with that. Will keep tracking my expenses for another year to see if I managed to cut out any fat from these.

OH NO THE MARKET IS CRASHING!!!

And I'm sitting here just chilling. No its not because I'm loaded with money and can afford to lose all my money. Nor am I an investor with the 'magic touch' and everything I buy turns to gold. In fact, my portfolio is down by about 10% so far. Though, to be fair, much of these losses were due to the speculative stocks I had bought previously trying to bank on capital gains. Accounting for these, the entire portfolio is about 3% in the red.

Still, these losses are bearable and I have not engaged in any panic selling so far. The key reason here is due to the investment thesis of "stable cashflow". Much of my holdings are either large stable blue chips (Singtel, ST Engineering), or high quality REITS (First Reit, Capitamall Trust, Keppel DC Reit). These provide stability and buffers in the event of a market decline, as they are able to provide good cashflow in dividends in both good and bad times. While the amount of dividends can vary in accordance to company performances, they are unlikely to stop, providing a much welcomed respite from the shock of the declining market. to put this into perspective, once dividends are accounted for, the portfolio is down only by 5%, a significant buffer from what we saw previously.

High quality defensive companies are also more likely to have a price support even in times of market decline, putting a lower bound on the drop in your portfolio value. Other than Singtel, which has seen a precipitous drop in the past 1 year, most of the defensive stocks I hold have actually increased in value since I bought them, proving the value of such an approach.

tldr: Buying high quality, defensive stocks which give stable dividends can buttress your portfolio in times of market decline, steeling your balls.

How To Adult #1: CPF

After talking with many friends and colleagues, I've come to a realisation that there are many people out there who for one reason or another have little to no knowledge of basic financial stuff like investing, high interest savings accounts, or even how to ask for a waiver of fees and charges.

And thus, a new segment is born!!! "How To Adult" will be weekly (hopefully) articles on basic knowledge that all adult Singaporeans should know of, and will be short and sweet so as not to bore everyone to sleep.

And what else to start the the ball rolling than the ubiquitous and somewhat mystifying thing called the CPF, otherwise known as the Central Provident Fund.

The CPF is officially billed as the national pension system, aka what you are meant to retire on. It is, however, slightly more complicated than that.

1. If you are working for an organisation and your salary is above $500, a percentage of your salary will be deducted into your CPF accounts. Your employer will also be required to pay a certain percentage of your wages to the account as well. That rate is different by age groups and income, but as an example a person below 50 years old and earning more than $750 a month will see a 20% deduction from their pay, as well as an additional 17% contribution from the employer, for a total of 37%.

2. The CPF is split into 3 accounts, Ordinary Account, Special Account, Medisave Account.

1. Ordinary Account is where most of the contributions will go to. It earns 2.5% interest per annum (3.5% for the first $20,000 in it), and can be used for a variety of purposes, the most commonly used of which is to buy a property, whether HDB or private.
2. Special Account is meant for pure retirement purposes, and earns 4% interest per annum (5% for the first $40,000). It can be used to buy a variety of investment/insurance products, however most who are knowledgeable in financial management agree that one should just leave the money in there given that the 4% is risk free and guaranteed.
3. Medisave account earns 4% interest per annum, and is used for medical purposes, such as hospital visits, consultations and payment for Medishield Life, a national healthcare policy.

3. As the national pension fund, there are two ways of getting your money out of CPF.

1. At age 55, you can withdraw money from your combined Ordinary and Special account, calculated as either $5,000 or any amount that is above a ceiling that is decided by the government (currently $166,000), whichever is more. The leftover money will then be combined into a new Retirement Account, which earns 4% interest per annum (5% for the first $60,000, 6% for the first $30,000)

2. The monies will then be used to buy an annuity plan known as CPF Life, which gives you a sum of money every month from the time you turn 65 years old till death. The money you receive each month will be proportionate to how much money was used to buy the annuity

4. Other than the monthly contributions, you can voluntarily top up your CPF account with cash, either to take advantage of the guaranteed interest rates, or to reduce your taxable income.

Whew, this post went longer than expected, and it barely scratches the surface of the labyrinth of schemes and rates of the CPF. But I believe much of the basics have already been captured here, and should suffice to help you understand what CPF is about. For more information, perhaps Google, or go to www.cpf.gov.sg to read up more. Or if you feel particularly lazy, just write a comment below and I’ll get back to you ASAP.

Money Tips #1: Check your bills

Received a rare letter from DBS the other day, normally I'd just chuck letters from banks as they're mostly bills or ads, but as I don't have an active card with DBS I opened it out of curiosity. To my surprise it was a letter saying I had negative $70+ on one of my deposit accounts with them, and that if I didn't bank in the required money my account would be deleted.

Called DBS up, and realised they were charging a fall-below fee, and after talking with customer service for a while I managed to get it waived off.

Moral of the long story: Always check your bills, be it credit card, telco, or whatever it is. Sometimes the companies will charge you for various fees (eg. late fees, fall-below fees, annual fees etc) which could easily be waived by either calling in or even just emailing the companies. This could save you hundreds a year, especially credit card annual fees, which is just a lazy way for banks to earn money from you.

Recycling Capital in a Downtrending Market

As everyone might know now, the market has been in a downtrend in the past two weeks, and most, if not all, investors have seen a steep drop in their portfolio values. It is my opinion that we are seeing a lot of panic selling right now, and this has lowered prices in many stocks to an attractive level. Usually in such a situation I'd activate my warchest for use, but in this case, where the fundamentals of the market might have changed, I decided a different way could be more suitable.

As mentioned previously, I had bought into some undervalued S-Chip stocks, and they have done fairly well, even with the massive sell off that everyone experienced. While the fundamentals of these companies are still sound, they remain a speculative part of my portfolio and thus I decided to liquidate them, earning myself a 100% profit on cost. This was then recycled into stable dividend distributing companies (Singtel and ST Engineering) to bolster the cashflow generation of my portfolio. 

This meant that my portfolio has now gone red, with about 3% in paper losses. However, with the diversified and stable stocks I'm holding, and the advantage of a long term view of my portfolio, I'm very comfortable even with the losses, and very confident that I'd come out of the market correction relatively unscathed and in fact stronger for the next 10-20 years.

Summary Dec 2017

A long overdue portfolio review. To put it simply, in a bid to boost my returns, I have turned to buying undervalued stocks (mostly S-chips) that look to have a good chance of turning things around. Having said that, good cashflow producing assets are still being bought as and when the prices make sense, and the portfolio has done satisfactorily well in 2017. Without further ado, my portfolio.

Name	Shares	APrice	Cost	Div	Div%
Jiutian Chemical	381,600	0.029	11,203.44	NA	NA
OCBC Bank	508	9.462	4,806.51	328.32	6.83%
SingTel	1,600	3.68	5,888.52	231.7	3.93%
First Reit	3,367	1.226	4,128.07	652.015	15.79%
Oxley	5,390	0.58	3,123.61	34.3	1.10%
SoilbuildBizReit	4,900	0.666	3,262.80	357.602	10.96%
China Star Food	30,500	0.112	3,431	NA	NA
HLH	400,000	0.008	3,212	NA	NA
Keppel DC Reit	1,900	1.04	1,976.50	223.97	11.33%
Omega Healthcare Investors Inc	70	33.38	2,336.58	117.68	5.04%
CapitaMall Trust	1,100	1.945	2,139.35	60.83	2.84%
Accordia Golf Tr	2,200	0.609	1,339.23	254.71	19.02%
Tai Sin Electric	2,000	0.326	651.51	79	12.13%
Lippo Malls Tr	1,800	0.341	614.07	117.71	19.17%
KingsmenCreative	1,200	0.792	950	71	7.47%
AIMSAMP Cap Reit	500	1.319	659.65	113.35	17.18%
ST Engineering	200	2.817	563.35	60	10.65%
IREIT Global	700	0.631	441.61	88.07	19.94%

Review of 2017

2017's been a year of two halves for me, the first bad, the second awesome. First half of the year saw a change in personal relationship, and a subsequent foray into the social game again. Coupled with a few disappointments at work, Jan to Jun 2017 was not a good place for myself to be in.

Thankfully, things picked up fairly quickly in the second part of the year, with social game bearing fruit in a shorter than anticipated amount of time, and pleasant surprises at work. Now that all the vague generalities are out of the way, lets get down to the nitty gritty details of how 2017 went.

Health-wise, I decided to start utilising the office gym more as well as bringing homemade meals for lunch. This meant that I could both eat a healthier lunch, as well as saving money from having lunch outside. While I'm not too sure about the money aspect, health-wise it did help, with me shedding a total of 6 kg, reduction of body fat by approx 5 percentage-points, and generally in better shape than ever before, with the exception of being a Tekong NSF.

Personal relationships wise, aside from the fruit bearing mentioned earlier, eating solo lunches in the office (due to my brought from home food) has led me to understand the importance of choosing the people I hang out with, and that I could pick and choose who I wanted to hang with, and when as well as where. And to be honest, that is something quite refreshing to finally realise.

Financial wise is where I felt most satisfied by, having achieved my first big financial goals 1 year early. $100,000 in liquid assets (cash + stocks only) in 3 years! Savings rate of 40-50% per month, constant investments in cashflow producing assets (mainly blue chip stocks and REITs), as well as fruitful punts in undervalued S-chip stocks. Returns would have been higher if more punts proved successful, but hey, I'm not greedy. 

Goals for 2018:

Given the upheaval in changes in 2017, my goals for 2018 are just simply, to stay the course. To maintain the new relationship, to maintain my work performances, maintain my health routine, and lastly, to maintain my increasing cashflow assets.

The only new thing would be aiming for an increase of assets by $35,000, a stretch by no means, as well as to increase my annual dividends to at least $2,000 (for context, 2017's dividends came in at about $1,600).

So there, a short review of 2017, happy 2018 everyone, and may everyone achieve financial independence asap!!