Monday, February 19, 2018

9 Highlights of the Singapore Budget 2018 Which Is Applicable to Most of Us

The budget was just announced on Monday at 3:30pm. This year, it is more focused on the future where the finance minister makes sure that Singapore will have enough revenue going forward. This means its not so good news for majority of the people but some things have to be done in order to be sustainable.

However, Singapore also registered the best surplus year in 2017 of almost $10 Billion. As such, there will be a sweet surprise for all Singaporeans. Read on to find out more

Here are 9 highlights of the 2018 budget which may be applicable to individuals like you and me:

1. More support for education

The annual Edusave contributions provided by the Government will be increased, from S$200 to S$230 for each primary school student, and from S$240 to S$290 for each secondary school student. This will take effect from January 2019. The Government will also update the income eligibility criteria for the Edusave Merit Bursary and the Independent School Bursary.

Currently, the income eligibility criteria for the Edusave Merit Bursary is S$6,000 in gross monthly household income, or S$1,500 in gross monthly household per capita income. From this year, this will be increased to S$6,900 and S$1,725 respectively.

Another interesting news that concern financial education is that a new financial education curriculum will be piloted at polytechnics and the Institute of Technical Education to give youth a good foundation in financial literacy.

2. Enhanced Proximity Housing Grant

The proximity housing grant will be increased from $20,000 to $30,000 for families buying resale HDB flats to live together with their parents. The keyword is live together. This will also extend to singles who will get $15,000.

For those buying resale flats to live near their parents or children, the PHG will still be $20,000. However, the live near criteria will be extended from within 2km currently to within 4km. Singles who buy a resale flat near their parents will also now receive a PHG of S$10,000.

The revised proximity condition of 4km will also apply to the Married Child Priority Scheme and Senior Priority Scheme for new flats, with effect from HDB’s May 2018 Build-To-Order (BTO) and Sale of Balance Flats (SBF) exercise.

3. Extension of S&CC rebate

For those who own a house, this is good news for you. The S&CC rebates will be as follow:

  • 1 & 2 Room HDB flats : 3.5 Months rebate with $380 GST U-SAVE voucher
  • 3 Room HDB flat : 2.5 Months with $340 GST U-SAVE voucher 
  • 4 Room HDB flat : 2.5 Months with $300 GST U-SAVE voucher 
  • 5 Room HDB flat : 2 Months with $260 GST U-SAVE voucher 
  • Executive/Multi Generational HDB flat : 1.5 Months with $220 GST U-SAVE voucher 

The money is typically used to pay town council expenses like cleaners’ wages, pest control, as well as the maintenance and replacement of lifts.

4. Foreign domestic worker levy to rise

Now for the not so good news. For those who own a maid, be prepared to pay more levy going forward. The levy will be raised from S$265 to S$300 for the first worker and to S$450 for the second worker. This will take effect from Apr 1, 2019.

For those who are paying the concessionary FDW levy of $60, they will continue to pay the same amount. However,  the qualifying age for levy concession under the aged person scheme will be increased from 65 to 67. All households with persons aged 65 and 66, which are enjoying or have enjoyed the levy concession under the aged person scheme before Apr 1, 2019 will continue to pay the monthly levy rate of S$60.

5. Tax deductions for donations

Another good news for those who have been making regular donations or want to make more donations. A 250-per-cent tax deduction for donations to charities that are Institutions of a Public Character will be extended for three more years, until 2021. 

6. GST hikes (in the future)

The most awaited news on whether the GST will increase is confirmed. The Government will raise GST by 2 percentage points to 9 per cent sometime from 2021 to 2025. Good news is this is not going to happen now so we still have time to prepare for it. 

This is to support recurrent healthcare, security and social spending so that every generation pays its share. I guess this is necessary for a sustainable future even though most of us would not want this to happen. Better get all the big expenditure items cleared off before the hikes begin. 

7. Buyer's Stamp Duty for residential properties raised

Another shocking news for those who want to buy property. The buyers stamp duty will be raised from 3% to 4% but only for properties with a value of more than $1 Million. If you have already bought a property valued at 1 Million and above and got your OTP on or before 19 February 2018, be sure to exercise your OTP on or before 12 March 2018 to continue enjoying the 3% stamp duty. 

8. Excise duty to be raise for tobacco products 

Singapore will increase excise duty on all tobacco products by 10% with effect from today. Not too good news for smokers out there.

9. Hongbao for Singaporeans: SG Bonus

Finally, the best news for this Chinese New Year. All Singaporeans aged 21 and above will get a HongBao of $100-$300 depending on our income. Here are the details:
  • $300 for those with an annual income of S$28,000 or below
  • $200 for those with an annual income of S$28,001-S$100,000
  • $100 for those with an annual income in excess of $100,000

Overall, this budget is more like planning for the future to me. I expected more support for healthcare needs in Singapore but it wasn't really mentioned in this year's budget. Long term healthcare cost such as nursing home, home nursing and those support for persons with family members who have disabilities at home are not mentioned. The only announced measure is where key services for seniors will be consolidated under one ministry for better quality delivery. I'm not sure how this will have a positive impact for the seniors or their family members who need help out there. 

Nevertheless, I believe it is important to plan ahead for the future which the government is doing so clearly for this year's budget. I would think Singapore really need to find more sources of income instead of just relying on raising taxes. There's a lot of work to do to transform industries, keep up with technological trends and the digital age disruptions and try to generate new sources of income for the country. We certainly hope that the future will be as bright as it has been for Singapore. 

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Is Comfort Delgro Still A Good Investment? - FY17 Full Year Financial Results and Thoughts

Comfort Delgro recently just released their FY2017  full year financial results. Previously, I did an estimation on how its results will look like in this post. The good news is the results came in better than what I had expected.

Actual results vs what I estimated

In my previous post, I painted a very bleak picture of its business especially its taxi business. I estimated that the revenue of the taxi business will be at $1270.8 Million. Indeed, the taxi business continued to suffer and came in lower than what I had expected at $1208.7 Million.

This was offset by the rise in its public transport business which is the core of Comfort Delgro's business. I estimated the revenue of its public transport business to come in at $2302.2 Million but this came in much higher at $2392.8 Million. This came in higher due to the bus contracting model and also higher revenue for its rail business when DTL-3 started in Oct 2017.

In summary, full year operating profit came in at $409.2 Million, higher than my initial estimate of $379.4 Million. Actual EPS for FY 2017 is 13.95 cents, higher than my estimate of 11.40 cents. With this, the PE ratio is about 14x at current price of $2.05 which is better than what I estimated the PE to be 17.37x at $1.98.

Moving Forward plans of Comfort Delgro

I can sense the management of Comfort Delgro trying as much as they can to get other sources of income and also prevent its taxi business from getting worse. They have formed an alliance with Uber where all Comfort Delgro taxis are under the Uber app now. It is unknown whether this will stop its current taxi drivers from going over to the competitors but seems like it is getting stable as of now. This deal is still pending regulatory approval in Singapore.

Elsewhere in the world, they have made the following merger and acquisition:

  1. Acquired remaining 49% of shares in ComfortDelGro Corporation Australia Pty Ltd
  2. Acquired remaining 49% of shares in CityFleet Networks Limited in United Kingdom
  3. Acquired business assets of Metro Taxi with a fleet of 170 taxis in Perth, Australia
  4. Acquisition of 217 Taxi Licences and Vehicles in Shenyang, China
  5. Acquisition of 100% of shares in New Adventure Travel Group with a fleet of 117 buses and coaches in Wales, United Kingdom
  6. Acquired remaining 51% shares in ComfortDelGro Insurance Brokers in Singapore
Despite all the acquisitions, its financial position is still stable with gearing of 10.6% and cash of $596.2 Million. At current price of $2.05, the valuation is actually quite decent if we expect its business to remain constant. Hopefully, the acquisitions is favourable for the company and they are able to generate more profits from all these. If that happens, then really the stock price of Comfort Delgro will go up. 

If business gets worse, then all these might change and stock price can go south again. I am of the opinion that the worse is over for Comfort Delgro at least in the near term. There is still a lot of monitoring to do for this stock and it is still a high risk one. As of now, I am still vested in this stock and will continue to monitor the developments.  

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Tuesday, February 13, 2018

Here's Why The First $100K Savings Is Really Important

Here's Why The First $100K Savings Is Very Important: 
"The first $100,000 is a bitch, but you gotta do it. I don’t care what you have to do—if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit" - Charlie Munger
The above quote is adapted from Charlie Munger who's a popular name in the investing world. He is vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett. There is much truth in his words as I personally experienced it myself saving the first $100,000. It was real hard, very hard at the start. After that, its true that it gets easier.

To illustrate the point why saving the first $100K is very important, I've put the numbers into various charts to visualise how life actually pans out after we have saved the first $100,000. The scenarios are based on saving just $10,000 annual and investing at a 7% investment return.

How long does it take to save the first $100K?

The first $100K is the hardest. If we only save $10,000 annually and invest at 7% return, it takes about 8 years to reach the first $100K.

The journey beyond $100K

Let's look at what happens after we have saved the first $100K assuming we continue to save only $10,000 annually and invest at 7% interest rate.

From $100K to $200K, it takes about 6 years

From $200K to $300K, it takes less than 5 years

From $300K to $400K, it takes less than 4 years 

From $400K to $500K it takes about 3 years plus

And from $500K to $600K, it takes only less than 3 years

This is the summary of how our money compounds after the first $100K. As we can see, the line gets steeper indicating the the power of compound interest and also the importance of saving the first $100K.

There is another interesting fact we can see through the charts. The fact is investing is less important when we have less money as even if we can get 10% on just $10,000 savings, it is only $1000 returns. This doesn't add much to our wealth. But if we have $100K savings, the same 10% will increase our wealth by $10,000.

For my own financial journey, I set out a goal to save $100K when I started my blog back in 2013. I saved aggressively and managed to achieve it in less than 5 years. Did it get easier after that? Yes it did and I really can ease off a little bit and spend more without hurting too much.

For those who are still on your way to the first $100K, get it as early as you can. For those who have already got your first $100K, you can actually relax a bit.

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Tuesday, February 6, 2018

Here's How To Easily Get At Least $2000 Monthly For Retirement

All of us will think of planning for retirement at some point in our life. However, when we start thinking of retirement, many times we ask ourselves how we can go about to start planning for it? How much do we need to save and invest? This is always the answer we would like to know.

One thing we must know is that retirement can never happen by chance. If we do not plan for it, we will never have enough when the time comes. This is a scary fact when we actually reached that stage. In this article, I will write about some of the easiest ways to plan for retirement. The ways I will be writing about will NOT require much effort and most of us will be able to do it. The goal is to plan to have at least $2000 monthly to spend during our retirement years. This amount may not even be enough for some people but we will start of small first. The more you need, the more you need to plan.

The assumption of the scenarios will be to start work at age 25 to age 65 (40 years of working) and retire at age 65 to live till age 85 (20 years of living).

$2000 Monthly for retirement through savings only

If you just want to live on your savings alone for retirement, this is not difficult to calculate. If you approach a financial planner, this would most often be the method. They would advise you to get a retirement savings plan so that you can save up for your retirement and have some cash when you stop working. However, this is not the best method which you will find out why later.

Let's assume you retire at the age of 65 and live to age 85, this is 20 years of retirement life. Using a simple calculation, you'll need $480,000 to draw-down $2000 per month for 20 years. How are you able to save $480,000? If we assume we start work at age 25 and work till age 65, this is 40 years of working life. To save $480,000 in 40 years, we'll need to save averagely $12,000 every year for 40 years just to achieve that.

$2000 Monthly for retirement through savings & investment

If we up our game and not just save but invest also, how much do we need to save every year to achieve the same $480,000? The answer is a stunning $3758 only as compared to $12,000 for a person who does not invest.

For a person who invests, they can even retire earlier. For the same $2000 monthly for retirement, a person can save $10,000 every year and be able to accumulate $480,000 in about 24 years. This means if this person starts working at the age of 25, he or she can probably retire by the age of 50. However, this $480,000 still can last 20 years only if we draw down $2000 monthly.

$2000 Monthly for retirement through CPF Life

For Singaporeans, we are all under this CPF life scheme whether we like it or not. However, we can actually use it to our advantage in planning for our retirement.

As we can see earlier, we actually need $480,000 savings to have $2000 monthly for retirement which can last for 20 years only. With CPF life, we will only need $256,000 savings at age 55 to get monthly payout of $2000 for the rest of our life from age 65 onward.

How do we achieve the $256,000 in our CPF by the time we are 55 years old? The strategy is to utilise our Special Account (SA) to let the money compound to reach that amount. If we have $38,000 in our SA at the age of 30 and have $300 monthly contribution till age 55, we would easily achieve that $256,000 in 25 years.

Which method will you use to plan for retirement?

I have stated 3 methods which are most common in retirement planning. I have summarised the different methods in the below table:

Method Accumulaed SavingsAnnual SavingsHow many years to save?How long the money can last?
Savings only$480,000 $12,000 40 years20 years
Savings + Investment (5%)$480,000 $3,758 40 years20 years
Savings + Investment (5%)$480,000 $10,000 24 years20 years
CPF Life$256,500 $3,600 25 yearsLife

There is no one method that fits all. The most important thing before planning for retirement is to know how much you need when you stop working which can sustain your lifestyle for as long as you live.

It is also crucial to plan early as the earlier we start, the less we have to save to achieve the same amount of funds for retirement. Just like a marathon race, the road to retirement is the same length. If we start early, we have the luxury to jog or even walk to the finish line. If we start too late, we may have to even sprint just to reach the same finish line. It can be very tough at that time.

There is one last method for retirement planning which is creating passive income for retirement. The most popular way is to create a sustainable dividend income stocks portfolio or through getting rental from properties. Both these method need a significant amount of savings in order to create that income. For dividend income through stocks investing, the rule is 4% draw down during retirement years which according to research is sustainable can last a lifetime. This means if we have 1 Million dollars, we can generate $40,000 dividends every year using the 4% rule. If we have $500,000, then we can generate $20,000 every year. This should be sustainable and not difficult to achieve.

No matter which method we use for retirement planning, starting now is the key. Try thinking how much you need per month when you retire and work backwards from there. Its actually not as difficult as we thought it would be once we start the ball rolling.