A dollar saved is a dollar earned.

I was chatting with a fellow blogger recently on FB and he says he enjoys saving $1 coins:

Photo shared by the reader.

And I told him I do too. So, here are never seen before images of AK's pouch of $1 coins (and I only keep the old ones which I like more than the new ones):

Saving is a habit. No matter how little we save. If we do it regularly, it does add up.

"A journey of a thousand miles begins with a single step." - Lao Tzu.

Some friends were surprised at what I would do to save $1 before: Queue for S$1.00 parking fee redemption?

Remember what is the very first step to becoming richer? Clue.

Related post:
If we are not rich, don't act rich.
"I cannot save money because I don't make much."

Get income from investments to meet interest payments?

I remember when I paid off my housing loan many years ago, the interest rate that the loan attracted was 5.1%. That was pretty pricey. For a few years now, interest rates have been very low and, so, it has been pretty cheap for people to borrow money to help pay for their homes.

Personally, I am holding back from doing partial or full capital repayment on my current home loan because even with the sharp increase in the 3 months SIBOR in recent months, the effective interest rate on my home loan is still below 1.8%. The cost of having liquidity is not exhorbitant (yet).

Even if my investments are only able to generate a dividend yield of 4.0%, financially, I would still do OK. So, arbitrarily, an interest rate of 4% on my home loan could be the tipping point for me to want to pay it down at a faster clip.

Hi AK

I have been following your blog for about 4 months now and was rather impress with what you have.

I am in my early 40s and had just got a BTO which will be ready in 3 yrs time. When the house comes i will be down in loan by S$350k. Now i am with only S$50k in HDB Bank Loan with DBS Bank serving an interest of 1.6%. What i noticed is that out of my annual contribution to the Loan installment, about 60% will goes to the interest payment and only about 40% is paying up on my actual premium. That is alarming to me.

I had wanted to get a dividend income just like you, but if i were to have S$50k on hand, should i be paying up my loan or putting them into the dividend paying stock that gives about 6% return? Of course dividend stocks comes with value appreciation but no matter how we should not be thinking about stock price appreciation when talking about income generation.

One is for future payment and the other is for near term paying out of the housing loan. It seems that paying up on housing loan is the priority.

The next question for you is given two stock, A and B, A gives dividend yield of 6% and share price appreciation of about 4% and B gives Dividend yield of only 3% but has a share price appreciation of 10%, which would you consider for long term income?

Any advice from you will be most helpful.

Regards

M

Reply from AK:

Hi M,

A housing loan is amortising in nature. As we pay down the loan, the interest portion will shrink and the principal repayment portion will grow even as the monthly installment stays the same. If you would like to pay less interest, one way is to shorten the loan period. Then, you would be paying more of the principal amount monthly. However, your monthly installments would also be bigger, of course.

As for whether you should pay off the housing loan first or invest for higher returns, it depends on what is the interest payment on your housing loan and what you are able to get from your investments.

Imagine that you have a housing loan of $300,000 and that the interest rate is 2%. Let us assume that the loan is non-amortising for the sake of illustration. In a year, you would have to pay $6,000 in interest payment. If you were able to generate a 5% return through investments that year, you would make $15,000 which is more than enough to cover the interest payment.

Of course, there are good things to be said about paying down our housing loans ASAP no matter the interest rates or potential investment returns. Do what gives you peace of mind. That is priceless.

Now, as for stocks A and B, not an easy question because there could be so many different circumstances surrounding them. I would, however, first ask if the dividend is sustainable, if it is sustainable and if we are after passive income, I would go for stock A.

Price is, after all, often a function of Mr. Market's moods while there could be some certainty in dividend payments if they are sustainable. Like I said, bear in mind that this is actually a very simplified approach to a possibly very difficult question.

Best wishes,
AK

Related posts:
1. A car loan is different from a home loan.
2. A new flat on the way and $200K in spare cash?
3. Newly married and planning for a child?
4. Interest rate on home loan jumped 15.84%!
5. POSB HDB Loan: Peace of mind (for 8 years).

Tea with Solace: A review of Dividend Machines.

The following is a voluntary review by a guest blogger, Solace, who signed up for the income investing course, Dividend Machines.

Solace says:

Disclaimer : I am not paid or given free access to the course materials to do this review. Solace has paid $XXX USD like everybody else to take a look at the course content. These are my personal views and readers should make their decision on whether the online course is value for money.

The online course has 4 Modules:

- Personal Finance (Covers the mindset, psychology and own personal financial situation.

- Dividend Machines (Covers 8 checklists/steps in screening for dividends stock)

- REITs (All about REITs, business, valuation, financial, management etc)

- Portfolio Management

In addition, there are also:

1. Video lessons

Where they do in depth case studies and how to screen for stocks based on their methodology.

Video Lessons will commence from 25 March 2015, Wednesday onwards.

2. Q & A session

You can post your question in this segment. The Trainers have been rather prompt in answering your queries. All questions are usually answered within 24 -48 hours from observation.

Website: Dividend Machines.

I leave it readers to read more about it.

Who is the course suitable for?

In short, this course is excellent for all who are looking for insight and a consistent method to screen for dividend stocks.

This is especially so for beginners who are still trying to find their way. Even for seasoned investors, time to time we might need to defrag all knowledge we have in our mind and this course helps to do that. It helps to streamline our thought process.

While many of the fundamental concepts are not new to me, I still look forward to the case studies where I can exercise my brains to practice analyzing. I am also attracted to the Q&A section where there will be interesting discussion with fellow investors and trainers.

In my interactions with many people who are starting out with investment, I would recommend them to read different kinds of investment books. This has worked extremely well for me. However, there are people who have difficulties digesting the content inside the book and find it hard to apply them. Another group might be overloaded with many schools of thought and do not know which methods work best for them.

This particular group will always wonder: 

"What is the essence of investing? Is there an easy method which I can follow?”

What the Fifth Person has done is basically summarize the key points and presented them in a very clear, easy to understand and easy to follow manner. And there we have it, the very “essence” to dividends investing.

If you can follow the method well and are able to identify a good dividend stock that will serve you well for many years, then, paying a course fee of $XXX USD would well turn out to be a “multibagger investment” for you.

There is still slightly more than a day to sign up for the course and have a workshop session thrown in for free. Please go to the related post below for the link to sign up for the course.

Dividend Machines by The Fifth Person

Related post:
Listen to AK and create your own Dividend Machines.

Want that $1m in liquid assets or $120K in passive income?

I am very happy to receive emails from readers of all ages but I am especially happy to receive emails from young people who are just getting ready to join the workforce. 

Why?

I always say that we should plan for retirement early. 

Don't wait till we are in our 30s or 40s because we think we are still young in our 20s. 

This belief in planning early is clearly seen in many of my blog posts.






I have also shared my own experience, including some very personal financial numbers, as well as what I did to get to where I am today. 

Some readers are amazed by how simple it sounds but, of course, it isn't as easy to execute. 

Definitely, there is also always an element of luck.

Everyone's experience is going to be different and the paths we take very likely will not be the same. 

It is not about having $1 million by a certain age. 

Definitely, it is not about having $120K in passive income by a certain age either. 

It is about having a better life no matter what our age may be.






Be inspired to take action.

Be inspired to have a better life.

This is what my blog tries to do, to inspire.

Hi AK,

I happened to stumble on your blog when I was researching on the topic of financial planning. And i must say that it was a valuable find.

Anyway, I would like to ask you a question and seek your guidance in it.

I am currently studying uni and about to graduate. Hence, I'm starting to think and plan for my finances so that i'm better prepared in the future.

I understand that I have to save up an emergency fund first, before starting to invest the rest.

This is where my question comes in. Given my low initial capital (i'm expecting about $500-$1k a month of free cash flow that i can invest in the near future), how do i go about investing for a start?

Since transaction fees are really expensive (min of $25), do i put my money in those regular share plans that buy into STI ETF where the transaction cost is 1%? 

Or do i buy single shares/REITs/etc to build up a dividend paying portfolio? 

And even if i do buy singly, do i accumulate them for one company first since I'm only investing a small sum at any one time?

Hope my question isn't too confusing, i tend to be a little long winded :p

Thank you.

AT

Hi AT,

Welcome to my blog. :)

You probably read my blog posts on what fresh grads should think of doing first to help towards a financially secure future. 

Must always get the basics right first.

The next step which is what you are thinking of now is to invest and secure a second stream of income. 






Of course, there is another school of thought which is to grow wealth through investing in growth stocks. I am not dogmatic. They are both good ideas. In fact, why not do both? ;)

If your monthly free cash flow is $500 to $1000 and you would like to get into the thick of things right away, then, buying into an ETF is a good idea. 

Look for the guest blogs by Matthew Seah on the offers by POSB and OCBC in my blog. He did good write ups on these.

You could also choose to build up a war chest and buy stocks when Mr. Market goes into a depression. 







Need to be a disciplined saver and need to have patience. 

Of course, you need to have the courage to bite when almost everyone is feeling depressed too.

There is no hurry. Take your time to find out what you are more comfortable with. 

Self-knowledge and peace of mind are priceless. :)

Best wishes,
AK

Related posts:
1. Retirement (funding) adequacy.
2. Dollar cost averaging and expected returns.
3. How to recession proof your life?