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With just a month to go before the new year, I thought it’d be a good opportunity time to do a review of my personal finances with little Marie Kondo-inspired twist this year – simplifying my finances and getting rid of ‘unloved’ investments.
I was looking into ways to solidify my financial foundations on important things like having an emergency fund ready, and proper insurance coverage, before moving to advanced topics like understanding my income statement (how I can increase income and reduce expenses), balance sheet (my assets and liabilities) and cash flows (where my money is coming and going). I know, I know – accounting nerd here.
Before I start planning for 2020, it is important to take a look at where I stand before making any changes and recommendations.
This post is to share some of my thought processes behind my financial planning for the new year.
Looking back at 2019
I track a lot of things in my life, from how long I sleep each day to how much I spend each month. In the following deep dives, I use data points from various apps to help me formulate an understanding of my own finances.
I blogged about expenditure tracking earlier this year, which helps me understand my spending and how much I have been spending for different categories of items. Using an expense tracking app like Next, together with an automatic Tableau data import, I can just refresh my dashboard to see how my spending has changed over the months.
You can tell that I spend a lot on food… I didn’t realise that I had spent almost $7K on food year to date (including meals during dates, my bubble tea cravings, eating out with friends and all my mala hotpots).
It’s interesting to see that my expenditure on food has actually doubled year-on-year – probably because I spend a lot more on dates now and eating out in Suntec where I work is really expensive. I probably need to make some changes in this area in 2020!
Other than understanding my expenses, I’ve been trying ways to save money when I eat out with my friends. For example, I use Shopback GO to give me cash rebates when eating at partner restaurants, and also recently subscribed to Burpple at 30% off which gives me 1-for-1 meals at cafes, restaurants and coffee shops.
The UOB One Card remains my main spending card thanks to its generous rebates (especially the additional 5% for Grab topups!) – all my bills like my mobile phone and electricity bill are also paid using this card via GrabPay and AXS for additional rebates.
I also use the UOB Preferred Platinum Visa and Amex True Cashback Card for any spending over the tiered amount eligible for UOB One’s cashback. I think these combination of cards make the most sense for my kind of expenditure given I am most likely to hit between $500 to $1000 of spending each month on my cards and I usually use my AMEX for 1.5% cashback or UOB PPV on contactless transactions for UNI$ which can then be exchanged for miles.
I’ve set aside my emergency funds – six months my monthly expenses – into a high interest Stanchart Jumpstart account offering 2% p.a. There are many school of thoughts on how many months you should set aside for emergency savings and it usually ranges from 3-12 months of either expenses or income. For me, six months worth of expenses work fine to tide me over any emergencies.
Aside from Stanchart, I use DBS Multiplier as my checking account for funnelling money everywhere. My salary and other income goes straight into this account, giving me 1.85% to 2.20% every month, before it gets funnelled into other areas such as investments automatically every month.
The ongoing trade war, political and economic uncertainty in many parts of the world means that diversification still remains a key value proposition for a resilient portfolio that can ride out market ups and downs.
In 2019, I made a lot of my investments automatic and passive to avoid timing the market and taking emotions out into the investment decision. This has helped me take a long-term view of investing and also to avoid spending idle cash in my bank accounts.
For example, I have a weekly standing instruction into StashAway to invest into a diversified portfolio of ETFs managed at my desired risk level. I also have monthly standing instructions with Interactive Brokers and FSM One to invest in global and local ETFs.
They have all done well so far this year with the v-shape recovery in global equities, and I am expecting to continue this monthly strategy of dollar cost averaging into ETFs of different asset classes – stocks, bonds and REITs, across multiple portfolios to avoid putting all my eggs in one basket.
Everything is automatically deducted from my checking account each month, without me lifting a finger.
Insurance is also another crucial part of financial planning because unforeseen events can have a financial impact on you. For example, getting into a small accident and leaving you bedridden or even disabled can derail your financials if you are unable to work.
With healthcare costs stacking higher and higher each year, healthcare insurance is still the most important insurance. There are also other useful insurance policies that I have myself covered such as term life, ECI and disability, in addition to my company insurance covering outpatient and medical.
This year, I also got myself a cancer insurance policy from FWD by directly purchasing it from their website, which gives me 100% payout on cancer diagnosis even at early stages. The premiums are super affordable ($9 a month at my age band) and it gives me a peace of mind for cancer related illnesses in future.
Goals for 2020 – income statement
The income statement is all about improving one’s profitability – by either increasing incomes or reducing expenses.
I could increase my income either by getting a pay raise (I estimate the increment to be roughly 3%-5%), switching to a higher paying job (probably 10%-20%) or through side-hustles, which is very time consuming to build.
Raising incomes can be tough when wages are stagnating and machines slowly taking over a lot of the rudimentary jobs creating a structural skill mismatch in the job marketplace. A lot of income upside is through self-upgrading, continuous learning and making yourself indispensable or valuable in the workplace.
Reducing expenses is difficult if you have regular fixed expenses such as mortgage payments. Thankfully, a lot of my expenses are discretionary expenses such as food and gadgets so cutting them should be a little easier. I hope to eat out less often and bring my monthly expenses on food to $500 and below and cutting down on non-essential food items like bubble tea and curry puffs.
In 2020, my most probable ways of improving my income statement is through a combination of both factors.
Goals for 2020 – balance sheet
The balance sheet is all about buying assets, reducing liabilities and debt.
I will continue investing a significant portion of my income into income generating assets and reinvest those dividends from these assets. Dividend investing is one of the best form of investing because I love to see passive income flowing into my bank accounts each month.
In terms of approach, my current allocation of 80% equities – diversified across local and global equities, plus 20% SGD-denominated bonds would continue to be my preferred asset allocation. I have also decided to simplify my investment methodology by moving most of my invested assets into ETFs using the Bogleheads’ approach described here and through Robos.
Interactive Brokers continues to be my broker of choice for global equities (VWRD) as the all-in costs remain relatively low compared to StanChart. That’s because my company requires me to report my trades automatically and that drives the minimum monthly commissions to be just US$3.
I will move my Regular Savings Plans for SGD-denominated securities into FSM One because of its low commissions, which is cheaper than what the 3 local banks are offering for their RSPs at the moment.
I track my dividends every month with a portfolio tracker like Sharesight, which gives me visibility over my average purchase price, dividends received and capital returns on one page. Taking inspiration from bloggers like Dividend Warrior, building a dividend portfolio can bring you huge returns over time through compounding.
On the liabilities end, I am happy to say I don’t have much liabilities such as mortgages at this point, so going into 2020 with a clean state is a great start!
Goals for 2020 – cash flow
My immediate goal before I turn 30 (still 3 years away) is to have my passive income supporting at least half my monthly expenses today – that means $500 a month in passive income.
$500 a month of passive income requires $500 x 12 = $6000 of annual passive income. Assuming a dividend yield of 4%, I’d need a capital of $6000/0.04 = $150,000 to produce that amount of monthly passive income.
Getting to $150K before 30 is not an easy feat, assuming that one starts from scratch without any inheritance from parents or windfall. For me, I am cautiously optimistic about hitting this target capital if I am able to get annual income raises at the constant saving rate.
Other financial goals and optimisation
Aside from the above, I would be looking into optimising my CPF OA and SA balances to ensure that I have sufficient liquidity for making my BTO downpayment.
While some financial blogs have advocated for the transfer of OA to SA to maximise compound interest, I have avoided fully utilising this approach because of several reasons:
- 5% annual yield on a super long-term investment (40+ years) does not appeal to me at the moment
- OA funds can be used for housing needs without sacrificing my cash liquidity
- OA funds can be liberalised and used for retail fund management solutions like Endowus
- Policy risks might change the relevance of CPF SA
On the topic of voluntary contributions to CPF, I have also avoided doing so to maintain cash liquidity. Once again, 2.5%-5% for a super long-term (40+ years) lockup does not appeal to me.
Apart from personal finances, 2019 has been a very fulfilling year for me – growing this blog was to thousands of monthly readers is something I am very proud of. I hope that you guys like the content that I have been putting out.
Wishing all of you a happy 2020 and if there’s anything you would like to see more, please leave a comment below!