A big loan to buy a condo and CPF not enough.

The focus should be on the CPF but I cannot help but wonder if Kelly has little money, why is she spending it on dogs and cats?
Shouldn't she use the money to better prepare for her old age?
(Credit goes to Raymond Ng for sharing the above with me. )

Reader (not Kelly):
I came to know of your blog recently and find it to be full of useful information.I regret that I did not know what you know and had not done what you've done in terms of CPF voluntary contributions when I first started working.

I've recently bought a condo and borrowed serious money from a bank to do so ,so much so that I can only pay off the housing loan at the age of 65.:(

I've attended trading courses/read up on trading for the past few years and through my experience,have some confidence in generating returns of 10-20% /annum

If you were me and have some confidence in beating the CPF rates,would you still consider contributing voluntarily to CPF or try to 'frontload' and payoff the housing loan first as the loan amount is much much more than what I currently have in my CPF?

I'm also conflicted towards contributing to CPF as it will still eventually go towards paying off (at least the OA portion) the loan and I may be able to generate more( in terms of %) on my own through trading.

Hopefully you can shed some light on what you would do if you were on a similar situation financially (short of selling the condo).



"...higher income ceilings for new HDB flats..."

AK:
We are all made differently. So, we will look at things differently.

However, I think we should be able to agree that there is a place for risk free and volatility free savings instruments in our life, especially one that rewards us relatively well like the CPF.

We can be confident as an investor or a trader. Confidence is a good thing but we should also be sensitive to the fact that things do go wrong and sometimes very badly wrong.

I am reasonably confident in my ability as an investor and I used to trade quite a bit as well but I did not chuck CPF in the back seat and I am still contributing to my CPF account in my retirement.

What would I do if I were in your shoes? I don't really know because I would not ever put myself in such a position.

I don't know if you have read my blogs on how our homes are really consumption items. Something that costs more than $1 million, which does not generate income and which requires me to borrow hundreds of thousands of dollars to purchase is mind boggling to me.

I can only say don't discount the importance of the CPF in your life especially if you believe in having a risk free and volatility free bond component in your investment portfolio.

Best wishes,
AK

Why do we buy insurance? To transfer risk because bad things do sometimes happen in life.

What about the CPF? 

I told friends and family years ago that if all my investments failed, I would still have my CPF money.

I am sure Dr. Lee Wei Ling would agree with me. To recapt,

Related posts:
1. 4 ideas on housing loan repayment.
2. We need a home but a condo?
3. $1.2m in my CPF acount by age 65.

Borrow $100,000 to buy a car in Singapore?

Hi AK, 

When I get back to Sg next year, i'm planning on getting a car (depreciating asset boohoo!)

Now, on my previous car purchase, I felt i made a mistake of buying too early and had to take a full car loan. It ate up a lot of my monthly pay. So this time round, I wanted to do my sums right before diving in. 

I do have enough to pay upfront for a car (eg 100k). But could you talk to yourself if paying upfront for a car is a good idea? 

My alternative could be taking this 100k and throwing it into the Sg savings bonds/safer type of bonds, and earning the interest. As long as this "bond interest" is more than the "car loan interest", this would make it worthwhile? Am I missing a blind spot here? 

Can I just compare a 2% car loan interest vs a 3% interest earned from bonds and conclude that I will earn 1% interest? 

Could you talk to yourself on this issue? I will be eavesdropping!

thank you!!!

Hi,

You have to understand that when they say your car loan interest rate is X.X%, it is really more than that:

http://singaporeanstocksinvestor.blogspot.sg/2014/04/a-car-loan-is-different-from-home-loan.html

I don't like the idea of borrowing money to fund consumption and if we have to borrow money to buy a car, keep the loan quantum as small as possible:

http://singaporeanstocksinvestor.blogspot.sg/2016/05/what-new-mas-rules-for-car-loans-mean.html

Welcome back to the land of expensive cars!

Best wishes,
AK

Free money from the government is good.

Reader:

I don't know if this is the correct avenue to ask you a question. I'm hoping that you can give your insights if you're faced with this situation.

I bought a HDB flat and took a bank loan plus used a bit of my OA to pay for it. I have about $240k of bank loan left and now I 'owe' my OA $85k.

Since the market is kinda 'overvalued' now, so nothing to invest in. What would you do if you have some spare cash. Would you pay off the Bank loan or CPF loan?

Actually, I have enough money in my OA to fully pay off the Bank loan, but I decided that 'free money' from the government is good. Besides, the interest of 2.5% in OA is higher than 2% Bank loan.

Or I can use the money to invest if Mr Market gets very depressed.

What would you do?

Best regards,

AK:
I am not allowed to give advice. I am only talking to myself in my blog.

From your email, I get the impression that you have been reading my blog. So, you know about the accrued interest we owe when we use our OA money to pay for our home.





I am not saying anything new when I say that we should avoid using OA money to pay for our home unless we don't have a choice. CPF money is primarily for retirement funding purpose and not to fund consumption.

Since you already decided that 'free money' from the government is good, act on that belief. ;)





I say frequently enough that I treat my CPF savings as the investment grade bond component of my portfolio, generating relatively good returns. That is good enough for me.

We can never have our cake and eat it too.




Related post:
How to stop accrued interest from growing?

Lending money to family and friends?

Reader:

Dear AK,

What do you do when people borrow money from you?

Everytime a friend called to borrow some money, I will always remind myself that many years ago I also seek help, a friend lend me a few thousands dollars. I worked hard and repay. So whenever friends seek help, I help them.

After a while, I found that most are unable to pay back... Actually, one of them even bought a few property investments later but did not return money he borrowed from me. It has become difficult for me.

Last week, a friend want to borrow 1K. He is fed up that for only 1K, I ask this ask that... So, I told him that I am financially tight and unable to lend him money.

AK replies:

Hi,

I can understand your situation and this is something that I have blogged about too.

"I was taught that if we should lend someone money, we must do it with the mindset of a donor."
See:
http://singaporeanstocksinvestor.blogspot.sg/2013/01/the-difference-between-lending-and.html

Of course, there are always reasons which I find more acceptable and in those instances, I am prepared to part with some money. Yes, the operative word here is "part".

"Imagine that the money has vaporised and gone to a better place. If it should come back one day, well, go celebrate!"
See:
http://singaporeanstocksinvestor.blogspot.sg/2013/10/lending-money-to-someone-you-care-about.html

Sometimes, for legitimate reasons, people need a helping hand and if they are people who matter to me, I will help. :)

Best wishes,
AK

Structural Unemployment. (Having face more important than having food?)

Someone told me a friend of his has been unemployed for more than a year and recently approached him for a loan. 

Apparently, the kind of work his friend was doing is increasingly hard to find.

It sounds to me like another case of structural unemployment.





It brings to mind a comment I made not too long ago here in my blog:

"The world has been disrupted and will continue to be disrupted by technology.

"It is happening faster than ever.

"If we were to go to sleep and wake up 5 or 10 years later, we might get a shock.

"Many will lose their jobs because of the disruption.

"The old economy is under siege.

"I know because I belong to the old economy.

"If I am not financially healthy today, I would be very worried."




Being financially literate is important but being financially savvy is even more important. 

However, there is an even more important point of this blog post. 

We should be pragmatic.




This person has been offered a job in a different industry but he rejected. 

It is a "dirty" job, apparently, and doesn't pay as well as his old job.

Is having face more important than having food on the table?





Related posts:
1. Be a plumber or be unemployed?
2. Compared to anger, shame is worse.

Take home loan from bank and buy unit trusts!

For fun and laughter only. LOL.
Hi AK,

I'm new to your site, saw quite a few interesting post from you.. Wonder if I can get some advise and directions to investment...

Have $50k spare cash, now searching for what to invest...

I have a $500k HDB housing loan.

Some financial advisors asked me to switch to bank loan. Instead of using my spare cash to clear my housing loan, look for an investment product which is stable and has a good interest rate which is above the bank loan interest like JPMorgan Funds - Asia Pacific Income and First State Dividend Advantage.

Considering the US situation with the new president, USD is likely to rise with the promising policies to come. Then with the increase value of USD and decreasing value of SGD, would USD linked investments be good. Any recommendation?

I am only talking to myself here.

Hi C,
I don't recommend stuff. I am only talking to myself in my blog.

I like to tell myself not to ask barbers if we need a haircut. Switch from HDB loan to bank loan? These financial advisers work for HDB or for the banks har? Interest rates are going up, then, bank loan interest rates will go up or not?

Financial advisers ask me to buy income focused unit trusts which are likely to be more rewarding than using the money to pay down my mortgage? What are the underlying assets of these unit trusts? Bonds, income generating stocks or REITs, probably. Why they never ask me to invest in these directly har?

I don't know what Donald Trump is going to do to the USA or the US$. I am not very good at speculation. I did a few times before and fell into longkang. Shhh...
Best wishes,
AK

Related posts:
1. Fixed rates, SIBOR, FHR18 or HDB Housing Loans.

2. Nobody cares more about our money than we do.

3. Don't do silly things and we can retire smart too.

Best credit cards for large purchases in Singapore.

How to be ahead of the game?

Please don't believe everything bloggers tell you. Sometimes, bloggers can also be minions of wealth destruction.

A personal finance blog says if a designer bag you want arrived earlier than expected and you haven't saved enough for it, there are some credit cards with benefits which you can consider using. OMG!

It doesn't matter what they say after that because that is just so wrong in more ways than one. 

Ask why the blogger said something like that? What was that blog trying to do? The blog says "We compare, you save." I find that ironic.

I think they are comparing the wrong things lah.

I compare for you and you save some money. Why this bag cannot use? This bag $50 only. Why must get a $500 bag? What? $500 is not designer? $500 is mass market? $10,000 then designer? OMG!

OK, you might not like this but if you must save money to buy a designer bag, obviously, that bag is not for you. 

Sorry if it hurts. 

Often, the truth does.

Remember, to someone with $1,000,000 in savings, $10,000 is like $100 to someone with $10,000 in savings. 

If you only have $10,000 in savings and you spend it on a $10,000 designer bag, you have nothing left. Zilch! 

That millionaire might no longer be a millionaire after buying the same designer bag but $990,000 is still a lot more money than zero.

What? Not enough money, use credit card? Who say one? Oh, that blogger say one.

Saw the video? AK even has the weight of the MAS behind him hor. Which MAS? You say leh?

AK got slogan or not?

"AK nags, you save." 

Alamak! Who threw a shoe at me?
----------------------
From my FB wall:

Related post:
Wealth and habits.

Minions of wealth destruction.

I have warned against the evil installment plans and their minions. Don't remember? See related post at the end of this blog post.

Minions can be in your face or minions can be in disguise. One way or another, they will lead to wealth destruction.

What? Pay for a purchase using interest free installment plan offered by your credit card is not wealth destructive? Aiyoh, they will take money from you in another way lor. Don't believe me?

Reader:
AK, did you blog about how having a lot of credit cards and debit cards will insidiously suck annual fees out from you when you least expect it? Recently i have been hit with quite a number of those and some banks refused to waive the fees. And i couldn't cancel the card as i have a on-going installment payment. Hopefully can warn others reading your blog not to charge those 12 or 36 months payments anyhow to your credit cards, later you kena those banks don't want to waive your annual fees and you can't do anything about it. I'm cancelling all my credit and debit cards save the 365 credit card and two ATM cards. Thoroughly disgusted :( $192 down the drain.

AK
Oh, I never use installment plans de. That is consumption debt. I dun like. I buy, I pay one time and that's it.
I can cut and paste your experience in my blog. Can?

Reader:
sure, just hope others will learn from my mistake

See? I never bluff you.

Related post:
Evil installment schemes and minions.

Average income workers have a choice to be rich!

I went out to lunch with my mom before sending her to the hospital. 

I went to a supermarket nearby to buy some chocolate which was on special offer before going to a bank to enjoy a cup of tea while waiting for her to call when she was done.

I like buying things at knocked down prices (i.e. the chocolate) and I like free (i.e. the tea). 

Anyway, there was a big screen TV right in front of me with ads flashing. 

One ad asked:

"When you have to stop working, can you afford to?"

It is a straight forward question that is also depressing because it suggests we don't have a choice as to when we stop working. 

We stop working when we have to. 

We stop working when we are told to. 

Wait a minute, that sounds like a prisoner in a labor camp serving time. Alamak!

Don't you hate the feeling of working because you don't have a choice? 

Yes, of course, you do. 

I would be surprised if you don't.

This is probably why you are reading my blog and others like it. 




You want to be financially free so that you do not have to exchange the most precious resource you have (i.e. time) for money anymore. 

You don't want to serve time. 

Time serves you.

So, instead, I would ask:

"If you want to stop working, can you afford to?"

I am going to be brutally honest. 

Not many people can. 

This is something only the rich can do. 

If you are not rich, continue to serve time. Ouch!

AK, you are terrible! 

Bad AK! Bad AK!

The truth hurts. 

So, what to do? 

Become rich lah!

I believe that even average income workers can become rich and I am not talking about "striking millions at TOTO" kind of rich. 




I am talking about "not having to exchange time for money anymore" kind of rich.

Why do many average income workers find this impossible? 

Do you believe me if I were to say it is not because they make an average income? 

The truth is many of them find this impossible because they can afford so many things in life and would get them in a heartbeat. 

This is why they cannot afford to stop working.

This is based on a true story:

Guy: "I think we should go to Europe on a vacation. The Euro is so cheap now."

Gal: "Wow! Good idea! I can buy all the branded goods there! So much cheaper than in Singapore!"

Guy: "I have $10,000 saved up this year. We can have a good time there."

Gal: "I am so happy! I think we deserve it."

Oh, they definitely deserve it! 

If this is the way they are going to live, year after year, they deserve to be destitute and get VIP (i.e. Very Impoverished Person) seats at Roy's next "RETURN OUR CPF" rally in Hong Lim Park.

This is based on a reality show I watched:

Guy: "I prefer Hawaii for our honeymoon. I don't want to go to Phuket."

Gal: "But we cannot afford it. We have a budget, remember?"

Guy: "I know we cannot afford it but I think we deserve it. We can take a loan."

OMG! That guy is an IDIOT! 

I probably exclaimed so loudly that my neighbors got a fright.

Hey, woman! Financial freedom gives us options but you don't need financial freedom to opt out of this relationship. 

I think you can afford to dump that fellow. 

Do it before your finances end up in the dumps and you cannot afford anything else!

Spend all the money we make, we will always be poor.

Borrow money to fund our lifestyle, we will be poorer than poor.

Don't let people ask you (and not at the bank):

"When you have to stop working, can you afford to?"

Ask instead:

"If you want to stop working, can you afford to?"




The difference between the two questions is one of choice. 

We have choices in life and if we want to continue having choices in life, choose carefully.

Yes, even average income workers have a choice to be rich!

Related posts:
1. Avoid financial ruin.

2. Save 100% of your pay.

3. Recession proof your life.

4. How much can you save?

5. Prepared for retrenchment.

Wife becomes "tai tai" because husband has high income.

Tai tai (太太) is a Chinese colloquial term for a wealthy married woman who does not work. (Source: Wikipedia.)

I don't know if it is surprising to you but I have seen so many such cases over the years. 





There are childless couples who decide to stay childless because they want to concentrate on their careers and have double income. 

DINK. Double income no kids.

The ones I am blogging about now are those who decide to stay childless too but with only one person bringing home the bacon. 

What does the other person do? 

Anything but being gainfully employed.

I have a good friend, several years younger than me, who is a doctor. 

His other half decided to stop working many years ago and when I remarked that it wasn't a wise decision, instead of agreeing, he said, "I make enough money to support both of us."

OK, end of conversation.

I know that my friend is not from a wealthy family and he also had a hefty study loan which he had to repay. 

He had a mortgage on a condo and he also bought a luxury car. 

While my friend has his job, he will have no problem paying for everything. I am sure. 

While he has his job.

His income is earned. 

It is not passive. 

If he had to stop working for any reason, he would very likely be unable to keep up his lifestyle. 

Oops. Sorry, it should be their lifestyle.

The prudent thing to do is for both of them to have earned income. 

They should build wealth and invest in income producing assets. 

Only when they are able to depend on their passive income alone to have the lifestyle they want should the wife stop working. 

This is the wise thing to do.

To love is a fine thing but letting love blind us could be destructive and not just in terms of wealth.




I hope my friend does not regret in future.

"Your husband makes a lot of money. He doesn't have a lot of money. Wake up!" - AK

Related posts:

1. Pertinent questions in wealth building.

2. Financial freedom over home ownership.
"Your choices and your relationships are key indicators whether you are going to succeed financially." Dave Ramsey.

To pay down HDB housing loan faster or not?

Not only do all of us have different financial circumstances, we also have different capacities to stomach stress.

What works for one might not work for another (i.e. what might give someone peace of mind might be quite stressful for another).

So, listen to what others have to say but, ultimately, make our own decision, one that will not rob us of our precious sleep.



Chat with Reader #1

Reader:
 Hi there Ak. I have a question. I have a new bto flat that im staying in with abt 200k hdb loan spread over 25 years. It takes up abt half of my oa contribution every mth to pay it. Should i use the excess oa funds to channel it to sa or focus on paying off the house asap?

Like · Reply · 1 hr

Assi AK
I would max out my SA first. Money should go to where it is treated best. Doing so, I would maintain a buffer in my OA sufficient for 24 months of loan repayment in case something goes wrong.

Like · Reply · 2 · 33 mins

Chat with Reader #2

• 
  

  12:31pm
  

  
  

  Reader:
  

  Hi AK, do you think i should pay off 10k of hdb housing loan whenever my OA accumulates to 20k so that it stays below 20k to enjoy the additional 1% interest? i.e. 3.5% instead of 2.5%

  
  
• 
  
• 

  12:51pm
  

  
  

  Assi AK
  

  Earning more interest is always appealing to me. ;)

  
  

  
  
• 
  

  1:11pm
  

  
  

  Reader:
  

  Cos I have a friend who says it's more impt to pay off housing loan as the 0.1% on a big loan is more than 1.5% on the 10k transferred. I.e. It only makes sense if the housing loan is less than 150k, correct?

  
  

  
  
• 

  2:37pm
  

  
  

  Assi AK
  

  It depends on what you are after. :)

  
  

  
  
• 
  

  2:38pm
  

  
  

  Reader:
  

  Maximized returns lor

  
  

  
  
• 
  

  
  

  
  

  
  
• 

  2:41pm
  

  
  

  Assi AK
  

  You have to remember to compare like for like

  
  

  
  
• 
  

  2:41pm
  

  
  

  Reader
  

  Meaning?

  
  

  
  
• 

  2:41pm
  

  
  

  Assi AK
  

  Compare $10K with $10K, $150K with $150K

  
  

  It is meaningless to compare 0.1% on a $200K loan and 1.5% on a $10K savings

  
  

  
  
• 
  

  2:42pm
  

  
  

  Reader:
  

  Ah. So for 10k, where can it get maximum returns

  
  

  
  
• 

  2:43pm
  

  
  

  Assi AK
  

  By paying $10K of your loan, what are you saving? By putting $10K in your SA, what are you gaining?

  
  

  You will have your answer then

  
  

  
  
• 
  

  3:00pm
  

  
  

  Reader:
  

  Ok, I get it. Only that the SA monies cannot be used for other purposes in future.

  
  

  Thanks AK! 👍🏻

  
  

  
  
• 

  3:01pm
  

  
  

  Assi AK
  

  Yesh... ;)
  

  
  

  If you are saving for retirement, go for it. :)

  
  

  
  
• 
  

  3:02pm
  

  
  

  Reader:
  

  姜还是老的辣

Whenever we do something, it is important to be clear what our motivation is. Then, we will know if we are doing the right thing.

Related posts:
1. Pay off home loan and hit MS.
2. Related to housing loan repayment.
3. Fixed rates, SIBOR, FHR18 or HDB loan?