Our Life Journey
Life is like a journey. When we're born, we were raised up by our parents and take up the role as babies for the first few years. For the next decade, we assume the role as students and go to school, do home work plus sit for exams. After we graduate from school, we start our journey in the corporate world and work for the next 30-40 years before retiring at the end. I'm sure most of you are familiar with the situation i've just described. Some of you may still be students, some of you have just started working while some of you may already be in your retirement years.
Life seems like a cycle. It begins and it will end one day. However, in the midst of it, there are important decisions which we have to make. These decisions are important as they are big decisions which will make or break your life. So what are they?
The 3 biggest decisions that involves money
In schools, we learn all the languages, mathematics, science, history subjects and much more. These knowledge are important for later parts of your life. Learning a language such as English allows us to communicate effectively. Mathematics allow us to solve problems and science gives us the knowledge of how stuff works.
However, in schools, most of us have never learnt anything about money. How do we budget? How do we use credit wisely? Most of us are at a lost on how to manage our finances or some of us do not see the need to manage our finances. If schools do not teach and your family do not teach you too, then most likely you'll be lost in it.
The good news is now there is a new syllabus in secondary schools to teach about financial literacy as announced previously by Deputy Prime Minister Tharman Shanmugaratnam. The new syllabus is called food and consumer education and it replaces the home economics course which we had in schools last time. This is being offered to secondary 1 and 2 students only. If you would like to know more about the program, just Google Food and consumer education and you'll be able to find the relevant information by Ministry of Education. This is certainly good news to me as students get to learn how to manage money wisely at a young age.
For the rest of us, we may not be so fortunate to learn how to manage money in schools. But, this knowledge is still necessary especially if you're planning to get married.
Planning to get married
As we grow up, we begin to make decisions on our own. Some are big decisions in life. The first big decision which involves money that a lot of us make is to get married. Some of us spend a large sum of money on a wedding. Others spend a minimal amount of money for their wedding.
I wrote about the cost of a typical wedding in Singapore before. Read: How much money is needed to get married and start a family in Singapore?
So how much was the cost?
The cost of wedding was as high as $56,000
The cost of $56,000 shocked many people. There are couples who spend $100,000 on a wedding while some others spend only $900. Wedding cost can be subjective and it depends on individual couples on how much they want to spend on it. What we need to take note is to have a proper budget before your wedding. Borrowing and spending money you do not have for a wedding may be the worse decision you'll make as the debt comes back to haunt you after your marriage. So, budget the cost, prepare and save up that amount before getting married may be a better choice. If not, settle for a cheaper alternative wedding if you really can't afford it.
I had many good comments from readers sharing their views on getting married. One particular comment that i thought was good to share was this:
"20 years down the road, the same old money issues will surface again and again. It all boils down to living within your means, and forget about ‘face-value’. A standard wedding hotel dinner packages in 1990 starts at $800 to $2,000 per table. Instead of the usual wedding, my wife and I booked a small corner at a café in a hotel for buffet dinner, 30 pax at $23.95 per pax. That’s our wedding banquet. No fancy outfits. No fancy decorations. But we had joy. The monetary gifts covered the entire wedding dinner. Our first home was a 5-years-old re-sale 3 room flat costing $67,000 at Bukit Batok. The only renovation cost were the few cans of paint and labour provided by friends with beers as payment. For the first 10 years of our marriage our focus was on raising our beautiful children, career advancements, savings and savings. The holidays were simple, Malaysian beaches and towns.
My cousin spent $65,000 on a lavish wedding in 1992. Fancy restaurants, overseas photography packages, skilled professional hairstylists, Hong Kong air-flown make-up artists etc. She divorced her husband in 1995. Re-married in late 90s, this time spending $85,000 on wedding banquet. Renovation and furnishing for her new home came close to $200,000. She yet to have any kids as they’re planning to split.
Today, my wife and I are in our late 40s. Happily married. Our daughter is 20 and son is 15. We’ve no less than 8 properties spreading over Singapore, Australia and Malaysia. No less than 3 fancy cars and annual European holidays. I’m not writing to show-off. The point that I’m trying to make is marriage has nothing to do with the amount of money one spent on the wedding banquet or renovating/buying a new home. It has to do with love. If a couple loves each other they will sacrifice and compromise …….. to achieve their dreams. The dreams of building a sustainable family. The dreams of bringing up children in a warm lovely home. The dreams of building assets with no whatsoever issues of insufficient money. To do this, the first step is avoid debt. Forget about excessive big wedding banquet with exorbitant photography/video packages. Just make it simple, dinner with family and close friends with less than 5 tables. Be yourself. Be merry. Marriage is about love not the amount one spend on his or her wedding. Also, the family you’re going to build is not judge by the renovation."
A simple wedding can also lasts a lifetime of happiness. It's not about the wedding. It's about the life after that.
Planning to buy a house
The second biggest decision we have to make is buying a house. This is a cost that most of us have to pay for the next 25 years. I wrote before that for a $300,000 HDB flat, the monthly instalment will be $1225 per month for 25 years. Not forgetting that we need to pay a 10% down payment of $30,000 first. This seem like a scary thing for young couples who have just started working or worked only for a few years.
I also stated the cost for a house:
Total upfront cost for house: $53,000-$65,000
This includes the down payment and also the renovation and furniture cost.
Nevertheless, i said before that it is possible to save up for a house as well as for a wedding. It takes around 2-3 years for a couple to save up in order to start a family. So, plan early to avoid hiccups.
Again, it is important to budget. If you realise you can't afford a 4 room flat, then there's always an option to get a smaller one.
I came up with the estimated cost and wrote on which income bracket is suitable for which type of house:
1) A family income of less than $2000 (2 Room flat)
2) A family income of more than $2000 but less than $4000 (3 Room flat)
3) A family income of more than $4000 but less than $5000 (4 Room flat)
5) A family income of more than $5800 (5 Room flat)
This was important because of the limit to the amount of debt you can take also known as the Mortgage Servicing Ratio(MSR) for HDB flats. It is capped at 30% of your gross monthly income which means you cannot take on debt more than that.
I also wrote on the various housing grants available which will help us lessen the burden of owning a house.
Read more on the housing grants here: The affordability of housing in Singapore and the various housing grants available
Planning for Retirement
The last big decision we have to make is planning for retirement. Many of us find out how to book the wedding package from the hotel, how to apply for a BTO HDB flat but most of us do not plan for retirement or do not know how to plan for it. But, it is actually the most important aspect of our lives after working hard for the past 30 years or so. Imagine if you start working at the age of 25, retire when you're 55, you would have worked 30 years. If you live till 85 years old, that would be another 30 years in retirement. Your retirement years is actually equal to your working years. 30 years in retirement is a long time and if you do not plan for it, how are you going to have enough money to live through it?
But of course, some would say i can work till 65. So retirement years are shorten to 20 years. That is still a long time. Then, there will be people who say they won't live that long so don't have to plan for retirement. But the problem is, none of us can know how long we can live. What if you really live to a ripe old age? The truth is, life expectancy is getting longer.
Cost of Retirement: $1 Million Dollars?
I first heard of this 1 Million amount about 8 years back when i was studying for a diploma in one of the local polytechnics. I was listening to a financial advisor who told me that i would need $1 Million dollars by the time i retire 40 years from now. I was confused at this idea because i thought who can really save up a Million dollars? Does that mean everyone has to be a millionaire just to survive in Singapore?
To find out if this is true, we just have to do a simple illustration.
Total Savings: $1 Million
Retirement age: 55 years old
Expected life expectancy: 85 years old
Years in retirement: 30 years
Amount available for spending per month: $2777.77 (($1,000,000/30years)/12 months)
According to the simple illustration above, with $1 Million dollars you can spend about $2777 per month for the next 30 years. Is this enough for retirement? I think this amount should be quite enough to live by bearing in mind that inflation will happen through the years and things will get more expensive in the future. If we have $500,000 only, then the amount available for spending during retirement will be halved at $1388.
Now, $1388 seems like too little to live by especially if its 30 years from now. A $3 chicken rice may have become $5 or $6 by then. So perhaps, $500,000 is not enough for retirement?
CPF for retirement
By now, all of us should know what is the CPF after all the discussions and attention that it had gained through social media in recent months. PM Lee also gave a detailed explanation on the CPF during his National day rally speech. In essence, if you've met the minimum sum of $155,000 currently, you would expect to get an estimate of $1200-$1300 per month from age 65 to the day you pass away. As the minimum sum increases, the monthly payouts will increase as well. It was announced that the minimum sum will increase to $161,000 next year.
Still, $1200 per month may be too little for retirement. Some may also think they don't want to retire at age 65. If you want to retire earlier, then planning early is important. We just have to take into consideration that the CPF will supplement our income from age 65. To me, it is only an additional bonus and not a necessity where we depend on it fully for retirement.
How do you plan for your retirement?
There is no exact way to plan for retirement and that's what makes it confusing for many people. We always want to find the model answer to problems but some how, some things never have a model answer. One way i can think of to plan for retirement is to set a target amount you want to achieve and work towards it. If you want $500,000 at age 55, then set that long term target and also set a few short term targets. For example, $100,000 at age 30, $200,000 at age 40, $400,000 at age 50.
The figures may seem hard to achieve at first but if you break it down further, it'll seem easier. For $200,000 at age 40, let's say you start work at age 25, from age 25 to age 40 it'll be 15 years. So, to achieve $200,000 by age 40, you need to save $1111 per month for the next 15 years. Seems achievable now?
The above is the traditional way to retirement where you save up so that you can draw on it for future spending. You will draw on your savings for retirement. There is another better way where you still save up but this time round, you do not have to draw on that savings. This is done through creating passive income where you will have income for the rest of your life even without working.
Are you prepared for the 3 big decision of your life journey?
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1. How much money is needed to get married and start a family in Singapore?
2. A couple should buy a 3 room HDB flat if combined gross income is less than $4000
3. How much money does a couple need to earn in order to afford a $300,000 HDB flat?
4. All about CPF minimum sum and CPF life