Thursday, March 15, 2018

Why Young Adults Should Not Focus On Investing At The Start Of Their Career

Two young adults, Kimberly and Johnathan starts out in their careers at the age of 25. Kimberly saves $20,000 a year and invests her money to earn only 4% investment returns while Jonathan saves $15,000 and invests his money to earn 7% investment return. Who will have higher net worth after 15 years?

Surprisingly, it turns out that Kimberly would have higher net worth in 15 years at age 40 even though she achieved lower investment returns. How is this possible?

Let's take a look how this pans out in a chart as seen below:

As we can see, because Kimberly saves an extra $5000 a year, she is ahead of Jonathan even though she only earns an investment return of 4% vs 7% which Jonathan earns. This shows that investment returns doesn't matter as much at the start of our lives or career. We should focus on saving more and earning more in order to save more.

The different income levels in Singapore

Much have been said about paper qualification and not to paper chase in the society. However, reality still hits us hard on the different income levels in Singapore especially those of the graduates and the non graduates. A recent article on the straits times said that fresh university graduates earned a higher starting pay last year, with some getting as much as $4,000 to $5,000 a month in areas such as business and computing. As compared to a non graduate, the startinf pay is only about $2200.

MOM releases statistics on the different graduate starting salaries of those from ITE, Polytechnic and Universities. The latest I found is for the year 2016. Let's take a look at some of the different salaries for the different groups of graduates.

ITE graduates

CourseMedian Gross Monthly Starting Salary ($)
Higher Nitec (Engineering)$1,700
Higher Nitec (Business & Services)$1,652.50
Higher Nitec (Info & Communications Technology)$1,650
Nitec (Engineering)$1,545
Nitec (Business & Services)$1,690

Polytechnic Graduates

CourseMedian Gross Monthly Starting Salary ($)

University Graduates (NUS, NTU & SMU)

Course (4 year degree programme)Median Gross Monthly Starting Salary ($)
Bachelor of Accountancy$3,000.00
Bachelor of Accountancy & Bachelor of Business$3,500.00
Bachelor of Arts (Chinese) (Honours)$3,300.00
Bachelor of Arts (Economics) (Honours)$3,300.00
Bachelor of Arts (Education) / Bachelor of Arts with Diploma in Education$3,525.00
Bachelor of Arts (History) (Honours)$3,000.00
Bachelor of Arts (Honours)$3,500.00
Bachelor of Arts (Linguistics and Multilingual Studies) (Honours)$3,365.00
Bachelor of Arts (Psychology) (Honours)$3,200.00
Bachelor of Arts (Sociology) (Honours)$3,500.00
Bachelor of Business Administration (Accountancy) (Honours)$3,075.00
Bachelor of Business Administration (Honours); Bachelor of Business Management$3,500.00
Bachelor of Communication Studies (Honours)$3,000.00
Bachelor of Computing (Honours)$4,000.00
Bachelor of Dental Surgery$4,050.00
Bachelor of Engineering (Aerospace Engineering)$3,675.00
Bachelor of Engineering (Biomedical Engineering); Bachelor of Engineering (Bioengineering)$3,200.00
Bachelor of Engineering (Chemical & Biomolecular Engineering)$3,400.00
Bachelor of Engineering (Chemical Engineering)$3,450.00
Bachelor of Engineering (Civil Engineering)$3,400.00
Bachelor of Engineering (Computer Science)$3,500.00
Bachelor of Engineering (Computer Engineering)$3,710.00
Bachelor of Engineering (Electrical Engineering); Bachelor of Engineering (Electrical & Electronic Engineering)$3,400.00
Bachelor of Engineering (Environmental Engineering)$3,300.00
Bachelor of Engineering (Industrial And Systems Engineering)$3,500.00
Bachelor of Engineering (Information Engineering and Media)$3,350.00
Bachelor of Engineering (Materials Engineering)$3,300.00
Bachelor of Engineering (Materials Science & Engineering)$3,540.00
Bachelor of Engineering (Mechanical Engineering)$3,390.00
Bachelor of Fine Arts (Arts, Design & Media)$2,700.00
Bachelor of Science (Physics / Applied Physics)$3,450.00
Bachelor of Science (Biological Sciences) (Honours)$3,175.00
Bachelor of Science (Chemistry & Biological Chemistry) (Honours)$3,149.00
Bachelor of Science (Economics)$3,700.00
Bachelor of Science (Education) / Bachelor of Science with Diploma in Education$3,525.00
Bachelor of Science (Honours)$3,300.00
Bachelor of Science (Information Systems Management)$3,600.00
Bachelor of Science (Maritime Studies)$3,398.00
Bachelor of Science (Mathematical Sciences)$3,500.00
Bachelor of Science (Mathematics & Economics)$3,300.00
Bachelor of Science (Nursing) (Honours)$3,500.00
Bachelor of Science (Project & Facilities Management)$3,000.00
Bachelor of Science (Real Estate)$3,200.00
Bachelor of Social Sciences (Honours); Bachelor of Social Sciences$3,300.00
Bachelor of Sports Science and Management$3,200.00

There are certainly differences with starting salaries for different groups of graduates. It seems like the median income for ITE graduates is about $1600, for polytechnic graduates is about $2200 while for university graduates is about $3400. This is quite a lot of difference for those who are starting out in their career.

Higher income will allow us to save more without compromising on the quality of life we still enjoy. Of course, there are people who are still not able to save even with higher income but that is another issue on its own.

For young people, it is important to invest in our own education to get a better head start in life in terms of the income we earn. Many young people look to investment in stocks thinking it is the answer to a better life but more often than not, it is not the case at all. As seen by the examples of Kimberly and Jonathan earlier on, just saving $5000 more every year will allow us to do better in life even with a much lower investment return for 15 years.

When will investment returns matter more?

Having said that investment returns does not matter as much during our early days, it does not mean we should totally ignore investing in itself. Investment returns will matter more when we have accumulated a substantial sum of money through savings.

Let's look at Kimberly and Jonathan again and extend their life by another 10 years to 50 years old:

This time, Jonathan has surpassed Kimberly as he continues to invest and earns 7% investment returns. But do take note he only surpassed after about 17 years which is really a long time. If Johnathan saves more at the start, he would have been much better off earlier.

Another thing to note is that investment returns are unpredictable. We can never be sure how much investment returns we can make but we can control more on how much money we can save. Increasing your savings rate can have a more massive direct impact on your net worth over the first 15 years.

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Friday, March 9, 2018

Unlimited 1.5% Cash Back And Up To $220 Cash And Vouchers Giveaway For This Credit Card

How does it sound to have unlimited 1.5% cashback on all your spending? There is no cap and no minimum spend required. This is very different from the other credit cards in the market which only gives you points or cashback for certain types of spending. There is often a minimum spend too to be eligible for the cashback. This is not the case for this new unlimited cashback card which was just launched last year. This card can also be used for public transport with automatic EZ-reload top up function.

I have got an exclusive offer for readers here where you will get all of the gifts listed below for sign up of any SCB cards at this link
  • Up to $120 cashback
  • $100 Takashimaya Vouchers
  • First 2 years annual fee waiver

I have been using this card for about a year now and the cashback is always credited to my card on time every month automatically to offset my bill. The $100 voucher will only be given if you apply by clicking on the above image. Be sure to follow the instructions on the page to claim your free voucher. One more thing, the card has 2 years annual fee waiver so we don't have to worry about paying for the fees upfront.

Another SCB card is the Standard Chartered Spree Card. This card seems to offer the highest cashback of 2% for all online spend and also all contactless and mobile payments. Its easy to find contactless payments now all around Singapore which shouldn't be hard to get the 2% cashback. Just use visa pay wave easily at many locations island wide.

  • Up to $120 cashback upon sign up
  • $100 Takashimaya Vouchers
  • No minimum spend and up to $60 cashback monthly
  • Earn 3% cashback on all online spends in foreign currency and all vPost spends
  • Earn 2% cashback on all online spends in local currency, all contactless and mobile payments
  • Earn 1% cashback on all other retail spends
  • Many other privileges for Singapore Post and vPost services
  • Annual fees waived for 2 years
  • Minimum annual income of $30,000 for Singapore Citizens and PR

Sign up at this exclusive link to get your $100 Taka Vouchers and $120 cash back.

Offer ends 31st march 2018. 

If the SCB cards does not suit your needs, OCBC cards are coming soon with the same $100 Takashimaya vouchers.

*This offer is brought to you in collaboration with Singsaver

Tuesday, March 6, 2018

3 Tax Reliefs You May Not Know Of To Reduce Your Tax In 2018

The tax filing season is here again. All of us would have received an SMS from IRAS that we need to fill our tax by 15 April for paper filing and 18 April for e-filing. As our income goes up, tax can be quite a significant amount in the thousands. Just to give an example, a person whose take home pay is $3500 plus 3 months of bonus will end up paying $1425 in tax. We can actually reduce our tax by knowing the different reliefs which we may be eligible for. Let's explore the different reliefs in this article. You may not even know some of these reliefs existed.

Course Fees Relief

Those who have studied courses or part time diploma/university courses while working, you are actually able to claim course fee relief on the course fees you paid. The course fees claimable is the actual course fees incurred by yourself up to a maximum of $5500 each year regardless of the number of courses, seminars or conferences you have attended. You can claim only the portion of course fees which you paid. Any amount paid or reimbursed by your employer or any other organisation cannot be claimed.

There are a few criteria to meet for the course fees relief according to the IRAS website:

  1. Any course, seminar or conference you attended in 2017 leading to an approved academic, professional or vocation qualification
  2. Any course, seminar or conference you attended in 2017 that is relevant to your current employment, trade, business, profession or vocation; or
  3. Any course, seminar or conference that you completed between 1 Jan 2015 to 31 Dec 2016 which is relevant to your new employment, trade, business, profession or vocation in 2017
I have personally claimed this relief for my part time university studies before so I can ascertain that this is claimable. University course fees are definitely more than $5500 so just input this maximum amount for your claim. 

There are some courses which are not eligible for the relief. They are: 

  1. Courses, seminars or conferences for recreational or leisure purposes;
  2. Courses, seminars and conferences for general skills or knowledge (e.g. Internet surfing course, social media skills, basic website building skills and Microsoft Office skills); and
  3. Courses, seminars and conferences to acquire skills or knowledge for a hobby instead of your profession (e.g. photography, language and sports courses).
  4. Polytechnic/University courses if graduates have never exercised any employment or carried on any trade, profession or vocation previously.
For more info on this course fee relief, you can refer to IRAS guide here

CPF Cash Top-up Relief

A popular tax relief is the CPF Cash top up relief. If you top up your own CPF Special Account or CPF retirement account in CASH, you are eligible for up to $7000 tax relief per year. An additional $7000 tax relief is applicable if you also top up your family member's CPF special/retirement account.

Examples of family members are:
  • Parents or Parents-in-law;
  • Grandparents or Grandparents-in-law;
  • Spouse; and/or
  • Siblings.

For example, if John tops up $7000 cash to his CPF special/retirement account and also tops up another $7000 cash to his spouse or parents CPF special/retirement account, he will get a total of $14000 tax rebate for the year.

A point to take note is there are income threshold for top up of CPF for spouse/siblings. To claim tax relief for cash top-ups for your spouse or siblings, the spouse or siblings must not have an annual income exceeding $4,000 in the year preceding the year of top-up. Annual income includes taxable income (e.g. trade, employment and rental), tax exempt income (e.g. bank interest, dividends and pension) and foreign-sourced income regardless of whether it has been remitted to Singapore. This income threshold does not apply to parents, grandparents, handicapped* spouse or handicapped* siblings.

There are other limits which can be quite confusing to explain in this blog post. You can refer to IRAS page here for the detailed information. Anyway, you do not need to manually claim for this tax relief. The relief is granted automatically to those who are eligible based on records sent to IRAS by the CPF Board.

Parent Relief / Handicapped Parent Relief

If any of your parent is not working and is 55 years old and above in 2017 or is handicapped, you can claim tax relief also. If your parent is totally not working and does not have any form of income, you can claim $9000 per parent if they stay with you. If they do not stay with you, you can still claim this relief but it will be $5500. Do note that if they do not stay with you, you must have incurred $2,000 or more in supporting him/her in that year to be eligible for the relief.

The family members whom you can claim for this relief includes:
  • Parents
  • Grandparents
  • Parents-in-law
  • Grandparents-in-law
For handicapped parent, you can claim $14000 per dependant if he/she stays with you and $10000 if does not stay with you. You can also share this tax relief with your siblings or other family members for all the above relief. 

You can click here for more information on the Parent Relief / Handicapped Parent Relief. 

There you go, 3 tax reliefs which you may be able to claim if you meet any of the above criteria. There are also other tax relief such as NSmen relief and reliefs for donations made in 2017 but all these will be automatically calculated for us. You should see the relief under your tax assessment form. Its good to file our tax early and get it over and done with.

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