Saving for income: SSB and T-bills in April 2023.

In my 1Q 2023 passive income update, I reminded myself that my portfolio was able to generate more income because I continued to put money to work.

Specifically, money was put to work in bona fide income generating assets.

I was also saving more money as it has become a more rewarding asset to hold.

Using 6 months T-bills to save money rewards me immediately as the "interest" is paid at the start of the tenure.

Although T-bills accounted for a very modest portion of passive income in 1Q 2023, this component was missing in 1Q 2022.

Having another source of meaningful passive income is not only pleasing, it makes for a more resilient portfolio.

There is also a very high degree of reliability as T-bills are not only risk free, they are volatility free if we hold them to maturity.

Indeed, we don't have to be investing for income all the time as saving for income is also a viable alternative.

Although it could not generate any income for me in 1Q 2023, I applied for Singapore Savings Bond (SSB) last month and my $16,000 application was fully allotted.

I did not apply for the latest T-bill as I had decided to prioritize the SSB towards the end of the month in March.

That T-bill had a cut-off yield of 3.85% p.a. which was higher than the cut-off yield of 3.65% p.a. in the preceding auction.

The plan is to continue applying for T-bills this month as a cut-off yield of 3.65% p.a. to 3.85% p.a. would still be relatively attractive.

The plan is also to apply for this month's SSB if it should offer a 10 year average yield of greater than 3% p.a.

I think the Monetary Authority of Singapore read my blog.

It seems like I will be applying for the SSB.

I should be able to set aside $10,000 for the SSB and also $5,000 per T-bill application this month.

Although some experts feel that interest rates have peaked, now, with OPEC cutting back on production to prop up the price of crude oil, the outlook could change.

I have been very consistent in saying that I cannot predict what might happen in the future but I know for sure I can prepare for the future.

As an investor for income, this means putting money to work in income producing assets while building a war chest for in case Mr. Market goes into a depression.

I am happy that cash is no longer trash and that there is another way for me to be paid while I wait.

Saving for income has become more rewarding and it certainly gives me peace of mind.

For a more a complete picture of how I have been generating passive income, please read the related post below, especially if you are a new reader.

Related post:
1Q 2023 passive income.

Bankrupt before 30. Is this a trend? Don't let it happen!

This blog is just some stuff for my pensieve.

I know that being on the verge of bankruptcy is not fun. 

I am talking from experience. 

Becoming bankrupt must be a lot worse. 

The combination of high inflation and very high interest rates is expected to send many economies into a tailspin. 

Bankruptcies are expected to increase. 

Allianz Trade estimates that bankruptcies will increase globally by 19% in 2023. 

Bankruptcies in Australia increased to 238 Companies in February 2023 from 175 Companies in January of 2023. 

The US is expected to experience a 40% rebound with 18,900 bankruptcies. 

If we think this is only happening in places like the USA and Australia, consider this. 

In Singapore, we already saw bankruptcies rose last year in 2022. 

Although the Covid-19 pandemic hurt Singapore's economy, the number of people who were made bankrupt in 2021 sank to the lowest in five years! 

Ministry of Law data shows that 3,648 people filed for bankruptcy last year in 2022. 

That was fifteen per cent higher than the 3,160 applications filed in 2021. 

This comes amid much higher cost of living, rapidly rising interest rates and the loss of pandemic support measures. 

The number of bankruptcies is expected to increase this year in 2023. 

Property auctions and mortgagee sales are, therefore, expected to rise in 2023 on the back of increasing number of bankruptcies. 

I always say that it is not a bad thing to have a crisis mentality. 

Always think of what might go wrong. 

Even though it might not look like it could happen, things do go wrong when we least expect them to. 

Take precautionary measures. 

Limit your exposure. 

If you run a business, evaluate credit limits and terms extended to customers. 

This is especially so for customers who are at risk for bankruptcy or already struggling to pay.

Businesses could be made bankrupt because too many debtors could not pay up.

Don't let other people's problem become our problem.

What I did when I was working as a business manager back in the day was to ask for larger upfront payments and allowing a smaller amount on credit. 

As an individual, although it is important to make sure to have an adequate emergency fund, to avoid bankruptcy, it is more important to make sure we are not over-leveraged. 

An emergency fund is unlikely to save us if we are excessively leveraged when things do go wrong. 

If we are using 60% or more of our earned income to service debt and if we do not have any meaningful passive income, then, we should seriously consider deleveraging.

If we must have leverage, how much is prudent?

Well, I don't know exactly how much leverage we should limit ourselves to in order to be considered prudent.

However, if 20% or less of our earned income is used to service debt, I feel that is relatively comfortable.

It will give us the option to put aside more money, and in an environment where money has a much higher cost, it is not a bad asset to hold.

Why not use all our money to pay down debt?

Well, for most of us, if we do that and if we become unemployed, we are in trouble.

With global recession a greater possibility now, be very careful.

Of course, having less leverage will also give us the option of investing more money when Mr. Market goes into a depression.

We must remember that it is pretty easy to sink into bankruptcy if we are careless. 

In Singapore, bankruptcy is a legal process involving an individual or firm that is unable to repay any outstanding debt of at least $15,000.

Only $15,000.

Don't Y.O.L.O. 

Don't be like an ostrich sticking its head in the ground. 

There is no automatic way to be released from bankruptcy in Singapore. 

The good news is that bankruptcy is avoidable. 

How? 

To me, it is simply being careful and not to do anything financially irresponsible. 

I saw in the news that the young in Singapore are increasingly relying on credit card debt. 

There is also a growing "buy now, pay later" culture. 

These generate sounds of ticking time bombs to me. 

This is the story of a young person who was declared bankrupt before turning 30 years old. 

He got his first credit card soon after graduating. 

He was excited when he got the card and took it as a sign that he had arrived. 

Soon, he found how easy it was to spend money or, more accurately, future money. 

Scratch that. 

It was simply money he didn't have. 

Then, came the interest free repayment offers. 

No interest for 12 months? Really? 

He maxed out that card and applied for a line of credit. 

Rinse and repeat. 

Before long, he had a mountain of debt. 

How does one who is making $2,500 a month get out of a $50,000 debt pile? 

Warren Buffett famously said the following to people, especially those with credit card debt. 

"I think people should avoid using credit cards as a piggy bank to be raided." 

We have to be financially prudent before we can work towards financial freedom.

Recently published:
1Q 2023 passive income.

Reference:
Survivability and opportunity.