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I visited a friend recently and he mentioned that he would be taking a couple of vacations from next week.
Going to Japan, Spain and France!
I know he just bought a second property a few months ago and he even said his savings, including money in his CPF account, was totally depleted after the down-payment.
So, I asked him why wasn't he saving money to pay for that second property?
AK:
"Wow! Really living the good life. Haha. Thought you saving hard to pay for XXXXXX payment."
Friend:
"It's just a trip. How much can u save?"
I don't know.
How much do you think he could save?
$6,000?
$8,000?
$10,000?
Enough to pay 1% of the loan for that investment property?
1% so little?
Keep thinking that way and we would be sabotaging our finances.
Do you believe me?
Don't think and grow rich.
Also, do you know that a housing loan could be an "evil" instalment scheme in disguise:
The evil instalment scheme and their minions.
Who threw a shoe at me?
Who? Who?
Related posts:
1. A dollar saved is a dollar earned.
2. Think you cannot reduce spending?
Bloggy Award
22 comments:
AK,
I think we both have a masochistic streak in us.
I like to "poke"; while you like to write posts that invite others to want to throw shoes at you ;)
You shoe business at Sungei Road must be roaring!
is good, is good.
if EVERYONE saves like U & i...
1. how lar our businesses (stocks we own) make $?
2. higher competition for value prices in good businesses
3. aiya.. just not good lar, harder to make a living
:P
AK,
Haha, timely reminder. Back in 1990 just before I bought my first condo, I blew $6k on my first holiday, thinking I deserved it after saving for 5 years.
Little did I know that I would be buying a condo 3 months later. After I put my downpayment for the condo, I really regreted spending the money for the holiday. The $6k was almost 2% of the condo price. I took a personal loan and still had to borrow under a good friend's name to make up the difference after taking a $250k mortgage. Interest was at 7%pa in those days.
As long as you still have a mortgage or some other loan outstanding, money is never enough. Delayed gratification is such a rare practice nowadays.
Matt
Hi SMOL,
I don't mind if people throw relatively new LV or Gucci shoes at me. ;p
Hi MK,
Hmmm... You make me feel like taking down all my blog posts on saving money... -.-"
Hi Matt,
Y.O.L.O. reigns supreme with many people.
Some things are best taught by the School of Hard Knocks.
Sounds masochistic?
SMOL would approve! ;p
I choose to think of holidays as an investment - an investment into relationships and memories with family. These things money can't buy. Having said that i normally fund it with passive income and clearly budget for it at the start of the year.
Hi Adrian,
I am sure that holidays are good to have if the money spent on them is not money that could be needed elsewhere or should be used elsewhere. ;)
AK,
He mention 2nd property so for him to be able to afford 2nd property, i assume the family salary job pays at least 15-20k+++ combined due to tdsr? If so most of his cpf can easily cover his monthly installment + some topup from his salary if need be.2nd property usually means they also rent it out for $3k a month on a 1M condo.In this scenario, for him to be truly in trouble,2 things have to happen at the same time.Him losing his job and then economy is so bad that hes not able to rent his condo at even $2000 a month. The risk is min if we assume hes making 15-20k+ a month.
Hi Toriko,
I know for a fact that he makes $5k to $7k a month, depending on commission. Single income. 1st property is fully paid.
By my estimate, this 2nd property which is a $700K one bedroom RCR apartment is probably able to fetch a monthly rent of $2,200 now. This is likely to decline when the TOP is obtained 3 years down the road.
hi
ak,
If his 1st property is fully paid, his risk level is extremely low.His installment a month is roughly $1900+- on a 30 yrs loan.Since he will be using cpf for his installment every month.He can spend 100% of his salary every month yoloing for the rest of his life and the risk for that is still low.
For people with more than 1M networth such as yourself.What do you think the value of money is? Doesnt money only have value if you can spend it?If you cant/wont spend it, isnt money somewhat meaningless?I know you've mentioned plenty of time that you find it to be a waste to indulge in the true luxury that life has to offer and you have cultivated these saving habit over the years.Also when you are old, are you taking them to the grave or are you donating all the millions to a charity which a very very small % of the your networth actually goes to the needy? Sorry if i sound rude but im curious on what your response would be.
I like your blog and i know your blog helped many people and THAT is actually contributing to society despite that you are retired? (refering to your recent post that your friend claim ur not contributing to society)
Hi Toriko,
I shared this on FB just now:
"(This second property) is more speculation than investment, imo.
Rental yield is very low and even if we could get a loan with interest lower than the yield, it is not a good idea... But if he likes the property for some reason, having the funds to pay off ASAP is prudent."
To elaborate, I provided a link to an older blog post in the above blog post: "Don't think and grow rich."
I am not stopping people from enjoying their money.
If this friend of mine has ample savings or has certainty that he would never lose his job or has a strong passive income stream or is very sure that this second property will always generate a meaningful income, just a few things off the top of my head, then, there is nothing for my to be a kaypoh about. ;p
As for me, I am learning to be less tight fisted with money. I certainly could enjoy life a bit more. Thanks for the reminder. :)
hi
ak71,
he can use his cpf to pay for the monthly installment.If he ever get retrench, he can rent out the condo at $1200 (huge lowball) a month and work in macdonald or other instant job to fork out the extra $700 if need be while searching for a better job.Since he had his 1st property fully paid for, i agree this is more speculation.If we are talking about speculation, you like to talk about all things being equal.Now If hes able to tide through in this extreme worst case scenario, how would the average case or best case scenario be like?
Can you comment on the value of money?If money cant be used/spend,then shouldnt money theoretically has no value?
Hi Toriko,
I always say that we have to be careful with our CPF money. It is like a AAA rated bond that pays 2.5% per annum (for CPF-OA), risk free. If the plan involves using CPF-OA money, then, the rental yield must be much higher which is not the case here. Anyway, that is another topic.
I mentioned that my friend already depleted his CPF savings and money in his savings accounts in buying this second property. If he loses his job, there won't be much money in his CPF account to tide him over.
I know that my friend is considered highly paid for his job in his industry. I doubt that he would be able to find another position that pays as well. If he could find another job in the same industry, he must be prepared for a pay reduction. Of course, you didn't know this. :)
Money will always have value in our modern day world. Ideally, money should be spent only when necessary but, of course, if we want to be more frivolous and if we can afford to be, let no one stop us. ;)
hi
ak71,
if you were to make a guess, which group of businessman will end up with more money in this hypothetical scenario between 200 businessman who have a networth of 3-5million each and a yearly income of 400k where 100 businessman is extreme prudent and the other 100 enjoy spending 70% of his yearly income.(assuming both group never use any form of leverage)
Is it at all possible that the group of businessman that enjoy spending as much as he possibly could afford ,might have bigger appetite in wanting to make more money, is more hardworking and motivated that the odds of them outperforming the other 100 businessman that is prudent? Do you think the odds are too low for that?
Hi Toriko,
If I were to make a guess, I would say that things could go either way. ;)
We could be hungrier than others and have a bigger appetite but whether we would be able to find more food than others is harder to say.
Chinese have a saying:
Xiao(3) Xin(1) Shi(3) De(2) Wan(4) Nian(2) Chuan(2).
I would rather be prudent and what I have today is largely due to financial prudence. ;)
From my FB wall:
Tgie Tgie:
"There is a phase that says one will never think of why he never work harder on his death bed. I believe one will also never think of why he never save even more money on his death bed."
AK:
"My grandpa said exactly that to my grandma on his deathbed and apologised to her...(This was more than 40 years ago.)"
studies done on 100 elderly on their death bed.
https://www.youtube.com/watch?v=ja-n5qUNRi8
whether it is real or its just motivational video, i dont know .
You know AK I was thinking of going Europe. Then I thought that I should check China since they copy everything. So I was surfing the web and now am starting to plan my trip when I am visiting China at the end off the year. Cheaper. Just need some imagination. Ha ha.
Hi Disclaimer,
I used to enjoy taking flights but for many years now I have an aversion for flying. So, I don't fly as much as I used to. Fortunately for me, there is the Travel Channel on TV. ;p
Stay imaginative! ;)
It has been two years since I blogged about this.
He makes $5k to $7k a month, depending on commission. Single income.
This 2nd property which is a $700K one bedroom RCR apartment is only able to fetch a monthly gross rent of $2,100 now.
Raymond Ng says...
He has -ve cashflow???
AK says...
Even with the lower housing loan interest rate in the first 3 years, yes, negative cash flow.
Hogan Yeo says...
What happen to him nw?
AK says...
Now? Must work because he has to and not because he wants to.
Hogan Yeo says...
I believe majority sg ppl need to work too..
AK says...
But this case is a bit sad because he had the option and now he doesn't.
Raymond Ng says...
Maintenance and sinking fun easily $300 per month
AK says...
Yes. Easily.
He thought the tenant would pay.
He was surprised when he was told landlord must pay.
:o
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