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Stronger personal balance sheet and cash flow statement.

Saturday, April 28, 2018

Reader says...
I need to spend more time to learn more about investment and not wait till it's too late.

I find it inspirational to read your blog and it motivates me to invest more to be like you.

I have some savings every month and would like to seek your advice on how I can manage it to optimize the very little amount and still be able to grow it further.

1) Reduce my housing loan with the bank in Jan 2020

2) Transfer money to SRS to reduce my income tax contribution for 2018

3) Put aside for my savings account

4) Put aside money for trading

Should I divide my savings evenly among the 4? And since the money in SRS cannot be withdrawn, do you think I should use it to trade?

AK says...
Welcome to my blog. :)

I am glad that you have realised the importance of investing for income.

I believe that you will thank yourself in your golden years. :)

For sure, unless we are born with a spoon made of some precious metal in our mouths, we need to save money in order to have money to invest with.

OK, I know we can also borrow money to invest with but not everyone can sleep well investing with borrowed money.

Indeed, I have a blog on how to have peace of mind as an investor and you might want to read the related posts at the end of this blog.

You have to know that I am not a financial adviser and I am not allowed to give specific advice to anyone.

As a blogger, however, it should be safe enough for me to talk about things in general and you have to make your own decisions.

1. If interest rates go much higher and is even higher than the 2.5% we earn on our savings in the CPF-OA, it makes sense for us to pay down our home loan, especially, if we don't know how to safely invest our savings for much higher returns.

2. Use the SRS to reduce income tax payable only if you have maxed out your CPF-SA. With the CPF-SA, you earn 4% to 5% per annum. 

If you decide to do this, remember, only the first $7K of top up (per year) to the SA will enjoy income tax relief. 

If you have more to contribute, let it flow into your SRS and you could use the SRS savings to invest for income (but dividends cannot be withdrawn until age 62 together with the SRS savings).

See: SRS: e-book and analysis.

3. We always need an emergency fund and a war chest. Having more money saved up is a good idea.

4. Of course, you should think about investing for income.

Which one you do and in what proportion depends on what is more important to you.

If you feel that some measure of financial security is more important while retaining flexibility, then, you should concentrate on #3 first, for example.

It doesn't take much to have a stronger personal balance sheet and cash flow statement.

It does, however, require a lot of discipline.

Related posts:
1. Peace of mind as investors.
2. Top Up SA, MA or SRS?
3. How much in Emergency Fund?


Henry said...

I would prefer to pay off the housing loan first before investing. Maybe I am too kiasi because I think there is no guarantee to make money for every investment. By paying of the housing loan first, I get one big burden off my mind. I did this before I reached 45. The sense of relief...I don't know how to describe.

foolish chameleon said...

AK, can you elaborate more..
"Use the SRS to reduce income tax payable only if you have maxed out your CPF-SA. With the CPF-SA, you earn 4% to 5% per annum. "
you mean to hit the FRS (160+k) first, before contributing to SRS?
why is this so?

AK71 said...

Hi Henry,

Peace of mind is priceless, definitely. :D

I repaid my last housing loan fully because the interest rate hit 5.1% per annum.

Interest rate rose 1% each year for 3 years in a row back then. -.-"

AK71 said...

Hi FC,

I have said that I look at my CPF money as the bond component of my portfolio before.

With 4% to 5% per annum, CPF-SA offers a very attractive "coupon" for an "investment grade sovereign bond".

This helps to smooth out any bumps in our investments in equities over time.

If we are confident we know how to invest our SRS money safely to beat 4% to 5% per annum consistently, then, ignore what I just said. ;)

Just have to hope Singapore doesn't suffer a lost decade or two...

See also:

AK71 said...

See also:

AK71 said...

Jimmy Ng said...

A friend proudly declared at a gathering that he has "paid up the loan" with CPF OA $.

Hate to pour cold water but... I asked him what was his bank loan interest (was like <1.7%...) and if he is aware of the OA interest rate (2.5%) & the housing loan accrual interest rate (2.6%).

The mid 30s couple called CPF on the spot to check and face change color faster than a chameleon.


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