What a bad way to end the year. Just read this article in Forbes website (source : http://www.forbes.com/home/opinions/2007/12/26/croesus-chronicles-recession-oped-cz_rl_1227croesus.html?partner=yahoofp) that suggested signs of recession (that I was also talking about in earlier posts).
Though recession in the US is not certain in 2008, but signs are starting to get clearer. The credit crisis in 2007 tipped the scale. The leading home price index is at a six-year low, financial services are at a 13-year low, while non-financial services are at a 56-month low, according to figures kept by ECRI.
The major drivers indicating recession includes:
(1) Job Figures.
Job creation have softened to under 100,000 new jobs last month. Any two months in a row of negative job growth--meaning there were job losses--is usually the key indicator that a recession is around the corner.
(2) Industrial Manufacturing Figures
Though manufacturing in the States are still positive due to weak US$, signs have shown that output is well below June 07's high.
(3) Housing Downturn
Home prices have plummet and expected to continue. New home prices have fallen (by 43% for new single-family homes), resale has seen lesser demand, more seizure taking place, etc. is down and expected to fall lower. This is further attributed by the inability to borrow vast amounts of money for home purchase.
(4) Other Factors
~ Dropping Interest rates
~ Retail sales have soften
~ Flat Investor expectations
Don't wait for the relevent government agencies tell you that we're in one (recession), because they ordinarily wait until economic activity has fallen for six months. By then, it's too late--the stock market will have sagged.
With large emerging markets such as China and India in the recent years, the citizens of these countries have become more affluence thus buying has been on an increase. This will help support global market from US' recession. Many countries have slowly divert their major trading partners, from the West to Asia. This means a recession in the US may not affect other countries as much as before.
Last but not least, HAPPY NEW YEAR to all and hope your finances sees you with great returns in 2008.
Monday, December 31, 2007
Saturday, December 29, 2007
Safe Investment (What's yours?)
The period of Mid 2006 to Mid 2007 saw many stocks on a bull run and Unit Trust appreciating from anything between 20% to a crazy peak of 80%. Thereafter, from July/August 2007 onwards, we can't say the same anymore. The last 6 months showed so much uncertainty, especially in August, October and December. Prices became very inconsistent, causing much worry each time we read any world news that affected the stock market.
Crude oil prices escalated from a modest US$46.53 in January 2007 (source : http://www.ioga.com/Special/crudeoil_Hist.htm) to a high of near US$100 in November before sliding down to sub-US$90 per barrel till recent assassination of former Pakistan PM Benazir Bhutto (I respect this lady) saw crude oil price going up again.
Here in Singapore, 2007 was also a spectacular year. With the Integrated Resort (and Casino) project underway, and a booming economy, we saw property prices peak beyond affordability (prime locations) of the norm. Though the property market slowed down from October 07 onwards, the prices had hold steady still.
Year 2007 had been a roller-coaster year. How can we find a safe haven for investment? To me, a safe investment should be based on something with an under valued asset, good potential for growth, value adding features on the investment and future demands.
These features will ensure the value of my investment only has one direction, head north. The investment I am doing assured those features (I sleep peacefully). With such attractive assurance, most would expect the returns to be conservative. Yes, conservative indeed, as I felt it could be better than the guaranteed returns.
With average of 15-20% p.a guaranteed returns and comes with capital protection, what's stopping investors from putting their money in it? Septical and conservative investors who believes something that sounds too good to be real, can't be real. Opportunity doesn't come often. Learn to open up doors to opportunity and hear what there is to offer than rely on hearsay.
Crude oil prices escalated from a modest US$46.53 in January 2007 (source : http://www.ioga.com/Special/crudeoil_Hist.htm) to a high of near US$100 in November before sliding down to sub-US$90 per barrel till recent assassination of former Pakistan PM Benazir Bhutto (I respect this lady) saw crude oil price going up again.
Here in Singapore, 2007 was also a spectacular year. With the Integrated Resort (and Casino) project underway, and a booming economy, we saw property prices peak beyond affordability (prime locations) of the norm. Though the property market slowed down from October 07 onwards, the prices had hold steady still.
Year 2007 had been a roller-coaster year. How can we find a safe haven for investment? To me, a safe investment should be based on something with an under valued asset, good potential for growth, value adding features on the investment and future demands.
These features will ensure the value of my investment only has one direction, head north. The investment I am doing assured those features (I sleep peacefully). With such attractive assurance, most would expect the returns to be conservative. Yes, conservative indeed, as I felt it could be better than the guaranteed returns.
With average of 15-20% p.a guaranteed returns and comes with capital protection, what's stopping investors from putting their money in it? Septical and conservative investors who believes something that sounds too good to be real, can't be real. Opportunity doesn't come often. Learn to open up doors to opportunity and hear what there is to offer than rely on hearsay.
Friday, December 28, 2007
Retire A Millionaire
I was reading this article in www.Kiplinger.com which said:
Find out how much you need to save each month to reach $500,000, $1 million of $2 million by age 65. The road to $1 million starts early, but if you're a late bloomer, help is at hand. The information below shows how much you need to save each month to accumulate $500,000, $1 million or $2 million by age 65, along with strategies for achieving that goal. At age 25, you're starting from scratch. At ages 35, 45 and 55, we assume you already have money in savings, on which you're earning 8% annually.
Sadly, this 8% earnings does not apply here in Singapore. With current interest rates on savings account being 0.25% per annum, while inflation stands at 3% (or more), how can our savings reach our desired amount to retire? Besides, with cash in the bank, there is a tendency to spend it than leave it.
The usual advice on cash distribution is:
- keep cash amount equvilant to 6 months of your current spending
- Invest some cash in high liquidity investment (eg shares)
- Invest some in short-term investment
- Invest some in mid-term investment
- Invest some in long-term investment (eg insurance)
Singapore's economy has been robust and booming in the last 2 years (2005 & 2006) and the same applies to 2007 (2007 overall economy results not out yet) and the next few years ahead. Since economy is doing well and job creation is high, it is easier to get a job should one decide to change. As such, I feel cash holdings can be reduce to 3 months.
Among some really good ways to make sure we are able to save in time for retirement is to invest our savings in some reliable source that provides very good returns with very low risk.
Being a Investment Consultant, I have invested some funds in this vehicle that provided me guaranteed returns (avg 15-20% p.a) with capital protection. Being mid-term investment, with capital protection, I won't need to monitor my investment, not exposed to market turbulance, not worried about broker dealings, etc.
Prudent savings and investment will put me on track to saving for my retirement.
Find out how much you need to save each month to reach $500,000, $1 million of $2 million by age 65. The road to $1 million starts early, but if you're a late bloomer, help is at hand. The information below shows how much you need to save each month to accumulate $500,000, $1 million or $2 million by age 65, along with strategies for achieving that goal. At age 25, you're starting from scratch. At ages 35, 45 and 55, we assume you already have money in savings, on which you're earning 8% annually.
Sadly, this 8% earnings does not apply here in Singapore. With current interest rates on savings account being 0.25% per annum, while inflation stands at 3% (or more), how can our savings reach our desired amount to retire? Besides, with cash in the bank, there is a tendency to spend it than leave it.
The usual advice on cash distribution is:
- keep cash amount equvilant to 6 months of your current spending
- Invest some cash in high liquidity investment (eg shares)
- Invest some in short-term investment
- Invest some in mid-term investment
- Invest some in long-term investment (eg insurance)
Singapore's economy has been robust and booming in the last 2 years (2005 & 2006) and the same applies to 2007 (2007 overall economy results not out yet) and the next few years ahead. Since economy is doing well and job creation is high, it is easier to get a job should one decide to change. As such, I feel cash holdings can be reduce to 3 months.
Among some really good ways to make sure we are able to save in time for retirement is to invest our savings in some reliable source that provides very good returns with very low risk.
Being a Investment Consultant, I have invested some funds in this vehicle that provided me guaranteed returns (avg 15-20% p.a) with capital protection. Being mid-term investment, with capital protection, I won't need to monitor my investment, not exposed to market turbulance, not worried about broker dealings, etc.
Prudent savings and investment will put me on track to saving for my retirement.
Saturday, December 22, 2007
Protect Your Funds From Investment Scams
This account may not be prominent here in Singapore but worth a read. Some people entrust their savings with a broker to help them manage and invest their funds.
I have heard of cases where a non-market savvy person entrusted a lump sum of money with a broker to help him invest and grow his money. It worked, initially! His $50,000 grew and after sometime, it swelled to over $80,000. He pump in much more funds now that he saw his savings growing fast and tremendiously.
That was during the bull market. The bear market set in, his earnings evapourated and in no time, his capital was erroded. His joy turns into sorrow as he saw his hard earned money gone up in dust.
Here's a story I read (source : http://www.kiplinger.com)
Ed and Ruthann Wolfe just wanted a safe place for their retirement savings. During his 32 years at the Rubbermaid plant in Wooster, Ohio, Ed had amassed more than $320,000 in his 401(k), all of it invested in low-risk Fidelity mutual funds.
After Newell bought Rubbermaid in 1999, early-retirement offers were made to more than 180 employees at the Wooster plant, including Ed, then 55. At the same time, many of his colleagues began attending investing seminars hosted by a Merrill Lynch broker, who was telling investors they could earn more money if they retired than if they stayed on the job. "There was a buzz going around the shop about how good this could be," recalls Ed. "We thought we couldn't afford not to do it."
The Wolfes turned over their entire $320,000 in retirement savings to the broker, with instructions to keep their money in low-risk investments because they needed to start making withdrawals right away. So they weren't concerned when the stock market tumbled in 2001.
Then they began hearing from friends whose investments had declined in value. Ruthann called the broker and was shocked to find out that they'd have to stop withdrawing money or go broke. Their retirement stash, which the broker had invested in high-risk Internet and tech companies, had plunged to less than $100,000. "I felt it could be the end of the world," says Ed, who went back to work driving trucks for two and a half years.
Stories like that are not always heard but is always happening. Entrusting your money with a broker seems like a good bet as the broker is supposedly more knowledgeable than us regarding investment.
On the other hand, some clients of mine who are also investors told me, "why trust others to manage your funds, pay them a percentage and they get to sleep even if the market is not doing well? Afterall, they are not playing with their own money". Reasonable advise from them. They are also the ones who had made me realised, it is time to relook money and how we could better manage it. Thank you, I am getting mature with money and sharing little such knowledge with others.
I have heard of cases where a non-market savvy person entrusted a lump sum of money with a broker to help him invest and grow his money. It worked, initially! His $50,000 grew and after sometime, it swelled to over $80,000. He pump in much more funds now that he saw his savings growing fast and tremendiously.
That was during the bull market. The bear market set in, his earnings evapourated and in no time, his capital was erroded. His joy turns into sorrow as he saw his hard earned money gone up in dust.
Here's a story I read (source : http://www.kiplinger.com)
Ed and Ruthann Wolfe just wanted a safe place for their retirement savings. During his 32 years at the Rubbermaid plant in Wooster, Ohio, Ed had amassed more than $320,000 in his 401(k), all of it invested in low-risk Fidelity mutual funds.
After Newell bought Rubbermaid in 1999, early-retirement offers were made to more than 180 employees at the Wooster plant, including Ed, then 55. At the same time, many of his colleagues began attending investing seminars hosted by a Merrill Lynch broker, who was telling investors they could earn more money if they retired than if they stayed on the job. "There was a buzz going around the shop about how good this could be," recalls Ed. "We thought we couldn't afford not to do it."
The Wolfes turned over their entire $320,000 in retirement savings to the broker, with instructions to keep their money in low-risk investments because they needed to start making withdrawals right away. So they weren't concerned when the stock market tumbled in 2001.
Then they began hearing from friends whose investments had declined in value. Ruthann called the broker and was shocked to find out that they'd have to stop withdrawing money or go broke. Their retirement stash, which the broker had invested in high-risk Internet and tech companies, had plunged to less than $100,000. "I felt it could be the end of the world," says Ed, who went back to work driving trucks for two and a half years.
Stories like that are not always heard but is always happening. Entrusting your money with a broker seems like a good bet as the broker is supposedly more knowledgeable than us regarding investment.
On the other hand, some clients of mine who are also investors told me, "why trust others to manage your funds, pay them a percentage and they get to sleep even if the market is not doing well? Afterall, they are not playing with their own money". Reasonable advise from them. They are also the ones who had made me realised, it is time to relook money and how we could better manage it. Thank you, I am getting mature with money and sharing little such knowledge with others.
Friday, December 14, 2007
Currency, War, and Civil Pay - We better Care for Ourselves
Read some rather disturbing article lately. An article suggested, when a government administration is inefficient, they hide the truth by inflating their currency (if they could) else go to war. This can camouflage their mismanagement, but it just exposed their citizens to further sufferings.
America
Is the problems in the US just credit crunch or a true mismanagement of many governments leading to the mess it is in today? US had gone through massive financial gusting wars since this current administration. With the wars, a lot of funds are diverted in the name of home security and world peace. Nothing has been proven, no "weapons of mass destruction, no nuclear, no biological warfare", no nothing but a lot of oil and victims. What has been done for the people? Credit problem just surfaced in recent 1 odd year. Economy is near a meltdown (is this a economic nuclear meltdown?) and not enough has been done to save it.
Let me share some extracts from the article:
(1) The first thing politicians do to hide their mismanagement, he said, is inflate the currency; the second thing they do is go to war.
(2) Iran has no nuclear weapons, and its military is designed for defense. It has no offensive capability - no air force, no navy to speak of. Israel, on the other hand, is usually ranked as the fifth most powerful military state on the planet. It has more than 200 nuclear weapons and a superb air force
(3) the lies told to you before Iraq: that Saddam Hussein was pursuing a nuclear weapon; that he had enormous stockpiles of chemical and biological weapons. The only thing he really had was oil. That's why we went to war
(source : http://www.populistamerica.com/inflating_the_currency_and_starting_wars)
Singapore
It was announced this week that "Top public sector staff will have a second round of salary adjustments on January 1 next year. Their annual salaries will rise between 4% and 21%". This means, the entry level ministers and senior permanent secretaries, will see their annual salaries increase by 21% to S$1.94 million. They did not mention the Prime Minister's pay.
It was also mentioned "Prime Minister Lee Hsien Loong had said in April that he will donate his wage increases for the next five years to charity", but it did not mentioned that he will be receiving pension (already pensionable by now) later in 2007. So, if pension is 2/3 of his last drawn pay (which is >$3mil when he is on pension), it amounts to more than $2mil in pension. So, what is $500,000?
(source : http://www.channelnewsasia.com/stories/singaporelocalnews/view/317221/1/.html)
I am not saying they do not deserve such pays. Afterall, we have enjoyed a country to be proud off, many thanks to our founding fathers. The British foresaked us during WWII, came back after the fall of Japan, had enjoyed their colonial days, did nothing wonderful and Singapore was foresaken by the Federation of Malaysia on 9 August 1965. Since the founding fathers of true Singapore done so much for us, till the current government, they deserve what they can justify.
The Singapore Education
Education teaches us, "study hard, get good grades, get a decent job, buy property, buy car, start family, be in debt". Many follows! Wonderful education, thus we have one of the most efficient workforce in the world, and one of the most literate population in the world.
This education system will ensure the majority are living above povety, with slightly average basic luxury of being able to buy themselves a property (doesn't matter if it is public housing or private housing), a car for some, etc.
In fact, we should hold our head much higher than the Americans or British, because, our average property is much more expensive than theirs, our cars are one of the most expensive in the world (mind you, a Toyota Camry cost >S$80k). Yet our pay are not one of the highest, but we are all surviving.
The Summary
From the above two governments I have shared, and this education system, the government has proven themselves. One government is busy firing missiles, trying to prove the existence of weapons of 'mess' destruction, while another government is commanding top notch salary.
Since both senarios has not shown how much the government taught their citizens on proper finanial planning, isn't it time we take care of it ourselves? It's never too early to start planning, it'll only be too late if we don't start now.
America
Is the problems in the US just credit crunch or a true mismanagement of many governments leading to the mess it is in today? US had gone through massive financial gusting wars since this current administration. With the wars, a lot of funds are diverted in the name of home security and world peace. Nothing has been proven, no "weapons of mass destruction, no nuclear, no biological warfare", no nothing but a lot of oil and victims. What has been done for the people? Credit problem just surfaced in recent 1 odd year. Economy is near a meltdown (is this a economic nuclear meltdown?) and not enough has been done to save it.
Let me share some extracts from the article:
(1) The first thing politicians do to hide their mismanagement, he said, is inflate the currency; the second thing they do is go to war.
(2) Iran has no nuclear weapons, and its military is designed for defense. It has no offensive capability - no air force, no navy to speak of. Israel, on the other hand, is usually ranked as the fifth most powerful military state on the planet. It has more than 200 nuclear weapons and a superb air force
(3) the lies told to you before Iraq: that Saddam Hussein was pursuing a nuclear weapon; that he had enormous stockpiles of chemical and biological weapons. The only thing he really had was oil. That's why we went to war
(source : http://www.populistamerica.com/inflating_the_currency_and_starting_wars)
Singapore
It was announced this week that "Top public sector staff will have a second round of salary adjustments on January 1 next year. Their annual salaries will rise between 4% and 21%". This means, the entry level ministers and senior permanent secretaries, will see their annual salaries increase by 21% to S$1.94 million. They did not mention the Prime Minister's pay.
It was also mentioned "Prime Minister Lee Hsien Loong had said in April that he will donate his wage increases for the next five years to charity", but it did not mentioned that he will be receiving pension (already pensionable by now) later in 2007. So, if pension is 2/3 of his last drawn pay (which is >$3mil when he is on pension), it amounts to more than $2mil in pension. So, what is $500,000?
(source : http://www.channelnewsasia.com/stories/singaporelocalnews/view/317221/1/.html)
I am not saying they do not deserve such pays. Afterall, we have enjoyed a country to be proud off, many thanks to our founding fathers. The British foresaked us during WWII, came back after the fall of Japan, had enjoyed their colonial days, did nothing wonderful and Singapore was foresaken by the Federation of Malaysia on 9 August 1965. Since the founding fathers of true Singapore done so much for us, till the current government, they deserve what they can justify.
The Singapore Education
Education teaches us, "study hard, get good grades, get a decent job, buy property, buy car, start family, be in debt". Many follows! Wonderful education, thus we have one of the most efficient workforce in the world, and one of the most literate population in the world.
This education system will ensure the majority are living above povety, with slightly average basic luxury of being able to buy themselves a property (doesn't matter if it is public housing or private housing), a car for some, etc.
In fact, we should hold our head much higher than the Americans or British, because, our average property is much more expensive than theirs, our cars are one of the most expensive in the world (mind you, a Toyota Camry cost >S$80k). Yet our pay are not one of the highest, but we are all surviving.
The Summary
From the above two governments I have shared, and this education system, the government has proven themselves. One government is busy firing missiles, trying to prove the existence of weapons of 'mess' destruction, while another government is commanding top notch salary.
Since both senarios has not shown how much the government taught their citizens on proper finanial planning, isn't it time we take care of it ourselves? It's never too early to start planning, it'll only be too late if we don't start now.
Wednesday, December 12, 2007
Fed Lowers Rates, Wall Street Tumbles
Previous two Fed Reserve rate adjustment saw a scoring Wall Street. The third adjustment this year to prevent economic fallout and recession was not well received immediately after the adjustment.
Investors had braced themselves for a 0.25% cut in interest rate, but was expecting a 0.50% cut instead. Fed Reserve had suggested that the three rate cuts ordered thus far "should help promote moderate growth over time," but many economists and analysts had hoped the Fed rate-making body, the Federal Open Market Committee, would cut the fed funds rate to 4%. And they hoped the Fed would convey a sense of urgency about the condition of the economy. (source : http://articles.moneycentral.msn.com/Investing/Dispatch/071211markets.aspx)
To cut the interest rates too much may expose the US to vulnerably of an outbreak in inflation but small reduction leads to market sliding southwards. What a dilemna. What could have held Fed from cutting further? The fear of inflation or lacking funds?
In contrast, China had adjusted their interest rates upwards several times this year to prevent overheating of their economy. China being one of the largest economy in the world, had seen double digit growth in the last few years. Will China's economy slowdown soon?
China's Central Bank announced on 8 Dec 07, that it will raise the bank reserve ratio requirement by a full percentage point to 14.5 percent on December 25. It said the move is "in order to strengthen the management of liquidity in the banking system and curb the excessive growth of credit,". (source : http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/316297/1/.html)
Let's hope the US problem doesn't turn into a major global downturn. In the mean time, it is still safer to be prudent and be prepared for any shocks.
Investors had braced themselves for a 0.25% cut in interest rate, but was expecting a 0.50% cut instead. Fed Reserve had suggested that the three rate cuts ordered thus far "should help promote moderate growth over time," but many economists and analysts had hoped the Fed rate-making body, the Federal Open Market Committee, would cut the fed funds rate to 4%. And they hoped the Fed would convey a sense of urgency about the condition of the economy. (source : http://articles.moneycentral.msn.com/Investing/Dispatch/071211markets.aspx)
To cut the interest rates too much may expose the US to vulnerably of an outbreak in inflation but small reduction leads to market sliding southwards. What a dilemna. What could have held Fed from cutting further? The fear of inflation or lacking funds?
In contrast, China had adjusted their interest rates upwards several times this year to prevent overheating of their economy. China being one of the largest economy in the world, had seen double digit growth in the last few years. Will China's economy slowdown soon?
China's Central Bank announced on 8 Dec 07, that it will raise the bank reserve ratio requirement by a full percentage point to 14.5 percent on December 25. It said the move is "in order to strengthen the management of liquidity in the banking system and curb the excessive growth of credit,". (source : http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/316297/1/.html)
Let's hope the US problem doesn't turn into a major global downturn. In the mean time, it is still safer to be prudent and be prepared for any shocks.
Thursday, December 6, 2007
Ways to Save (4) - Retire Early
Early retirement is getting more and more difficult. The environment around us are getting more and more upmarket, prices of lifestyle items are getting more expensive, there are more lifestyle norms to adhere to if you want to stay with the time. With these, it is, of course difficult to save and retire early.
Create a Personal Income Statement
This can help you understand your own cashflow. By listing down your income and expenses/liability, it helps us understand where we could have reduce in spending and how to increase our savings at the end of each month.
Clothings and accessories
How often do we stop ourselves from spending on an item just because it looks nice, rather than because we need it? People want to dress well to impress, and that means spending more. We can actually dress well with little budget if we know how to carry ourselve well and know how to seek out bargins.
Car
Rather than changing that current car every three years, we could have driven it longer and not bothered about who is changing to what fancy new car. Else for many, we could switch to public transport.
Stay out of debt
Avoid spending what we couldn't pay off at the end of the month. It is not uncommon to see people who spends future money, eg, people spends large sums just because bonus time is around the corner and they could have paid off the credit card bills when bonus arrives. Staying out of debt also means, cutting short our loans on small ticket items which includes car loan, keeping it to 2-3 years (I know, it's difficult)
The Simple Life
Live modestly and avoid spending on fancy stuff, eat in, avoid expensive meals, get some health insurance policy, invest money in safe vehicles, spend lesser and save more for investing and spend wisely. Make your money work for you.
Downsize
Rather than living in a bigger home and paying part of the mortgage in cash, downsize and avoid cash payments (but using your provident funds). The same applies to car, get a modest car than a big executive car. Not only do smaller capacity car comes cheaper, it is also more friendly to your monthly fuel bills.
Invest Your Retirement Savings
This will help your money beat inflation and growing it.
Create a Personal Income Statement
This can help you understand your own cashflow. By listing down your income and expenses/liability, it helps us understand where we could have reduce in spending and how to increase our savings at the end of each month.
Clothings and accessories
How often do we stop ourselves from spending on an item just because it looks nice, rather than because we need it? People want to dress well to impress, and that means spending more. We can actually dress well with little budget if we know how to carry ourselve well and know how to seek out bargins.
Car
Rather than changing that current car every three years, we could have driven it longer and not bothered about who is changing to what fancy new car. Else for many, we could switch to public transport.
Stay out of debt
Avoid spending what we couldn't pay off at the end of the month. It is not uncommon to see people who spends future money, eg, people spends large sums just because bonus time is around the corner and they could have paid off the credit card bills when bonus arrives. Staying out of debt also means, cutting short our loans on small ticket items which includes car loan, keeping it to 2-3 years (I know, it's difficult)
The Simple Life
Live modestly and avoid spending on fancy stuff, eat in, avoid expensive meals, get some health insurance policy, invest money in safe vehicles, spend lesser and save more for investing and spend wisely. Make your money work for you.
Downsize
Rather than living in a bigger home and paying part of the mortgage in cash, downsize and avoid cash payments (but using your provident funds). The same applies to car, get a modest car than a big executive car. Not only do smaller capacity car comes cheaper, it is also more friendly to your monthly fuel bills.
Invest Your Retirement Savings
This will help your money beat inflation and growing it.
Wednesday, December 5, 2007
The US Credit Problem (Similar Signs Here in Singapore)
Fed Reserve Continuing Bailout
Fed Chief Bernanke Hints Further Rate Reduction May Be Needed to Head Off Economic 'Headwinds'
Mr Bernanke hinted that another cut may be needed to bolster economy. The credit crunch, housing slump and rising energy prices will cause further agony to consumers in the coming months. There were already two rate cuts this year and the coming Fed meeting on 11 Dec 07 may see a third cut. How much more can Fed cut it's short term rate to bail out the economy?
The cuts have helped in some ways, to contain the current housing and credit problem from collapsing, and the economy falling into a recession, but
As he mentioned, "The odds have grown that the country could enter a recession. A sharp cutback in consumer spending could send the economy into a tailspin". The deepened housing slump and consumer confidence has already caused them to reduce spending.
(source : http://biz.yahoo.com/ap/071130/bernanke.html)
The current credit problem are actually created over the years. Banks comes up with attractive loan packages (low interest in initial years) that sucks consumers to be oblivious of the consequence of later years where interest rates hiked hit these consumers hard.
With the sudden constrain, consumers turned to credit facilities to tide over but in fact, sinks further into the credit pit.
Credit Problem in The Brewing?
Coming back to Singapore, this problem was experienced through the Asian Crisis till post SARS (Severe Acute Respiratory Syndrome) period. Back in the late 90s, property prices hit sky high but nosedive through the triple economy impact faced here. Unemployment was high, wages were cutted to save jobs, etc. Bankrupcy was at an all time high.
As the situation worsen till 2003, many property owners are no longer able to hold onto their property thus flood the market though the demand was low. Such situations are hard to avoid when buyers are unrealistic during good times and forgetting that what goes up will come down.
Could we be seeing another such credit problem in Singapore? Turning the attention to cars. Many car buyers are attracted to the low COE (Certificate of Entitlement) and low car price (as compared to the high prices years ago). Some car buyers are actually not in the position to afford a car years ago, but with fallen COE and car prices, they are not able to marginally afford a car.
Such car buyers may turn to 10 years loan, with no down payment. This means, 100% loan over the full 10 years COE lifespan. Isn't this the same as US' sub-prime problem? Houses has the potential of appreciated value, but can the same theory be applied to cars? Unlikely! Yet why does these car buyers choose to delude themselves that they could afford a car with their miserable monthly $2,000 gross income?
With an efficient public transport system here in Singapore, is there really a need for cars? A car is an luxury item that is nice to have, but not need to have. But more often than not, I hear people saying they need a car, when they actually don't.
Remedy
I can only hope that such hard times don't come too soon. If people doesn't start realising the need to be prudent and practical, to know what they could truly afford, I am afraid such folly will be a painful lesson to them.
The education system has to undergo some change to educate people the economics of money.
Fed Chief Bernanke Hints Further Rate Reduction May Be Needed to Head Off Economic 'Headwinds'
Mr Bernanke hinted that another cut may be needed to bolster economy. The credit crunch, housing slump and rising energy prices will cause further agony to consumers in the coming months. There were already two rate cuts this year and the coming Fed meeting on 11 Dec 07 may see a third cut. How much more can Fed cut it's short term rate to bail out the economy?
The cuts have helped in some ways, to contain the current housing and credit problem from collapsing, and the economy falling into a recession, but
As he mentioned, "The odds have grown that the country could enter a recession. A sharp cutback in consumer spending could send the economy into a tailspin". The deepened housing slump and consumer confidence has already caused them to reduce spending.
(source : http://biz.yahoo.com/ap/071130/bernanke.html)
The current credit problem are actually created over the years. Banks comes up with attractive loan packages (low interest in initial years) that sucks consumers to be oblivious of the consequence of later years where interest rates hiked hit these consumers hard.
With the sudden constrain, consumers turned to credit facilities to tide over but in fact, sinks further into the credit pit.
Credit Problem in The Brewing?
Coming back to Singapore, this problem was experienced through the Asian Crisis till post SARS (Severe Acute Respiratory Syndrome) period. Back in the late 90s, property prices hit sky high but nosedive through the triple economy impact faced here. Unemployment was high, wages were cutted to save jobs, etc. Bankrupcy was at an all time high.
As the situation worsen till 2003, many property owners are no longer able to hold onto their property thus flood the market though the demand was low. Such situations are hard to avoid when buyers are unrealistic during good times and forgetting that what goes up will come down.
Could we be seeing another such credit problem in Singapore? Turning the attention to cars. Many car buyers are attracted to the low COE (Certificate of Entitlement) and low car price (as compared to the high prices years ago). Some car buyers are actually not in the position to afford a car years ago, but with fallen COE and car prices, they are not able to marginally afford a car.
Such car buyers may turn to 10 years loan, with no down payment. This means, 100% loan over the full 10 years COE lifespan. Isn't this the same as US' sub-prime problem? Houses has the potential of appreciated value, but can the same theory be applied to cars? Unlikely! Yet why does these car buyers choose to delude themselves that they could afford a car with their miserable monthly $2,000 gross income?
With an efficient public transport system here in Singapore, is there really a need for cars? A car is an luxury item that is nice to have, but not need to have. But more often than not, I hear people saying they need a car, when they actually don't.
Remedy
I can only hope that such hard times don't come too soon. If people doesn't start realising the need to be prudent and practical, to know what they could truly afford, I am afraid such folly will be a painful lesson to them.
The education system has to undergo some change to educate people the economics of money.
Friday, November 30, 2007
Singapore's Property and Construction Sector
Had an interesting discussion with an investor last night and learn some different views which I would like to share. An investor's view are always valuable as they usually have a better feel of the economy than an ordinary folk.
From recent news, the Singapore Government had halt some construction projects worth some S$2billion in the fiscal year (or next couple of years). Reasons for the postpone are due to:
- Lack of construction force as most companies have their hands full of projects for the next few years.
- High construction cost due to lack of construction materials.
- Competing with other on-going or upcoming development projects could be bad
In recent year or so, a lot of new projects have arisen. With two Integrated Resort (IR) projects, development companies are badly stretched with manpower, high development budget, deadline, etc. Other residential development projects are moving slowly too.
A lot of en-bloc exercise was seen in the last two years, ranging from East Coast to Central/Prime Districts. Many condominiums that underwent en-bloc had been vacant, but have yet to be torn down and these will be in the developers' pipeline for years to come.
A lot of home owners had to seek new homes after their properties had been acquired. The new found wealth of these owners caused an upswing in property prices as they are now armed with large funds.
As homes were acquired and no newly completed properties available, it leaves Singapore with lesser homes in the last one year. To make matter worst, Singapore faces an average of 100,000 migrants a year. These migrants needs to be housed too.
Some properties that underwent redevelopment, will start to fill the market in the coming two years. Does this ensure an adequate supply of homes? Singapore has an estimate of 1.2million homes (being more than 800,000 public housing, more than 300,000 private housing) occupied by the current 4.55million population. With influx of 100,000 migrants per year, we will need at least 10,000 new properties (assuming, half of these are construction workers housed in dormitories).
With the IR scheduled to open in Year 2009, rental demands will increase. Some redevelopment projects will be completed next year (2008) but this may not be able to fill the new demands.
With this, shouldn't the demand and supply cause property prices to continue growing? However, property prices has soften recently due to turbulence in global economy (especially US) and market talk had it that, next year (2008) will see a slight downward pressure on property prices due to the worrying signs of global economy.
Property prices had climbed fast in the last one year, but demand had started to slow down in the last three months. Based on current property prices, it leaves many average being unable to afford to purchase a home.
The government stepped in this week, announcing new public housing projects in the pipeline, plus two Executive Condominium projects also in the pipeline. This can help provide new housing for the average and public housing owners to upgrade.
What will really happen in the next two years? How will the economy be like? Property? Will the US' credit crunch affect Singapore drastically? Let's hope US is able to prevent their recession (I shall provide more info from Mr Ben Bernanke's comments in another post).
From recent news, the Singapore Government had halt some construction projects worth some S$2billion in the fiscal year (or next couple of years). Reasons for the postpone are due to:
- Lack of construction force as most companies have their hands full of projects for the next few years.
- High construction cost due to lack of construction materials.
- Competing with other on-going or upcoming development projects could be bad
In recent year or so, a lot of new projects have arisen. With two Integrated Resort (IR) projects, development companies are badly stretched with manpower, high development budget, deadline, etc. Other residential development projects are moving slowly too.
A lot of en-bloc exercise was seen in the last two years, ranging from East Coast to Central/Prime Districts. Many condominiums that underwent en-bloc had been vacant, but have yet to be torn down and these will be in the developers' pipeline for years to come.
A lot of home owners had to seek new homes after their properties had been acquired. The new found wealth of these owners caused an upswing in property prices as they are now armed with large funds.
As homes were acquired and no newly completed properties available, it leaves Singapore with lesser homes in the last one year. To make matter worst, Singapore faces an average of 100,000 migrants a year. These migrants needs to be housed too.
Some properties that underwent redevelopment, will start to fill the market in the coming two years. Does this ensure an adequate supply of homes? Singapore has an estimate of 1.2million homes (being more than 800,000 public housing, more than 300,000 private housing) occupied by the current 4.55million population. With influx of 100,000 migrants per year, we will need at least 10,000 new properties (assuming, half of these are construction workers housed in dormitories).
With the IR scheduled to open in Year 2009, rental demands will increase. Some redevelopment projects will be completed next year (2008) but this may not be able to fill the new demands.
With this, shouldn't the demand and supply cause property prices to continue growing? However, property prices has soften recently due to turbulence in global economy (especially US) and market talk had it that, next year (2008) will see a slight downward pressure on property prices due to the worrying signs of global economy.
Property prices had climbed fast in the last one year, but demand had started to slow down in the last three months. Based on current property prices, it leaves many average being unable to afford to purchase a home.
The government stepped in this week, announcing new public housing projects in the pipeline, plus two Executive Condominium projects also in the pipeline. This can help provide new housing for the average and public housing owners to upgrade.
What will really happen in the next two years? How will the economy be like? Property? Will the US' credit crunch affect Singapore drastically? Let's hope US is able to prevent their recession (I shall provide more info from Mr Ben Bernanke's comments in another post).
Thursday, November 29, 2007
Singapore's Property and Loan Market (not sub-prime prone)
As mentioned many times in the news, the America's sub-prime are caused by falling property value and increasing loan defaulters.
A recap of sub-prime
During better times (not long ago):
- Banks were providing high loan (up to 100% Loan to Value) against properties to home buyers
- Interest rates during the initial years was low
- Economy was doing well
The Meltdown (largely, in late Year 2006 onwards)
- Property value reach the peak and starts falling
- Loan to Valuation exits property value (loan being more than 100% of property value now)
- High interest sets in
- Borrowers starts to have problem paying
- Borrowers turns to other credit facilities, eg, credit cards
- All else fails, borrowers default on loan
- Value of property falls further (low demand, high supply)
- Other financial business faced the crunch together with home loans
Singapore's Property Loan
How Singapore deviate from such a loophole, has much to thank to the Monetary Authority. Property loan regulation disallow high loans such as 100% Loan to Valuation (LTV). Up to Year 2005, banks are only willing to provide 80% LTV and starts to relax towards 90% LTV in early 2006.
During the late 1990s, property prices was at an all time high (eg, $2,000psf in prime districts). During the triple economy downturn (Asian Currency Crisis, 911 and SARS) in Asia, especially Singapore, the same property's value fell to a low of around $1,200psf). Demand for property in 2003 and 2004 was at an all time low, with almost very little buyers against many sellers (who couldn't hold on any further).
The economy started recovering in Yr 2004, with Gross Domestic Product growth over Yr 2003 being 12.8% (source : http://www.singstat.gov.sg/pubn/reference/yos/statsT-income.pdf). Demand for property started recovering in Yr 2005 with value stablizing in Yr 2004.
Property value saw a steep climb since late 2006 with many en-bloc exercises spreading from East Coast. En-bloc exercises reached prime District areas (such as Orchard Road, Newton, etc) in Year 2006 till August 2007. Some property's value climbed 150%, e.g, The Sail was launch at about $700psf region and peaked at about $1,800psf, The Icon was launch at about $600psf and reached beyond $1,500psf.
The government scrapped the Deferred Payment Scheme for new developments recently (early November). This can work to stop the runaway by average speculators who are keen to jump into the bandwagon. Ever since, property's value and transaction has stablized.
Had Singapore's banking sector not had strong and sounding regulation, with strict lending policies, our tiny economy may face the same downfall of Sub-prime.
Credit Assessment
In order to obtain property loan, banks usually look at the borrower's Debt Servicing Ratio (DSR). As a general rule of thumb, the DSR shouldn't be more than 50% of the combined Gross Income. The 50% takes into account, all loans including property and car mortgage.
Banks also looks at the individual's past credit report. Any bad credit rating could mean that the individual may face a rejection in his application. Banks also are concern of any litigation the individual may have.
These are just some indicators before banks gives an approval for loan application.
As individuals, we should learn to be financially stable. Good financial sense may not make everyone richer, but it can help us be less poor. Good financial sense includes knowing how to stretch our dollar, setting aside a part of our income to investment, not be drawn to spend unnecessary, planning our finances, etc.
A recap of sub-prime
During better times (not long ago):
- Banks were providing high loan (up to 100% Loan to Value) against properties to home buyers
- Interest rates during the initial years was low
- Economy was doing well
The Meltdown (largely, in late Year 2006 onwards)
- Property value reach the peak and starts falling
- Loan to Valuation exits property value (loan being more than 100% of property value now)
- High interest sets in
- Borrowers starts to have problem paying
- Borrowers turns to other credit facilities, eg, credit cards
- All else fails, borrowers default on loan
- Value of property falls further (low demand, high supply)
- Other financial business faced the crunch together with home loans
Singapore's Property Loan
How Singapore deviate from such a loophole, has much to thank to the Monetary Authority. Property loan regulation disallow high loans such as 100% Loan to Valuation (LTV). Up to Year 2005, banks are only willing to provide 80% LTV and starts to relax towards 90% LTV in early 2006.
During the late 1990s, property prices was at an all time high (eg, $2,000psf in prime districts). During the triple economy downturn (Asian Currency Crisis, 911 and SARS) in Asia, especially Singapore, the same property's value fell to a low of around $1,200psf). Demand for property in 2003 and 2004 was at an all time low, with almost very little buyers against many sellers (who couldn't hold on any further).
The economy started recovering in Yr 2004, with Gross Domestic Product growth over Yr 2003 being 12.8% (source : http://www.singstat.gov.sg/pubn/reference/yos/statsT-income.pdf). Demand for property started recovering in Yr 2005 with value stablizing in Yr 2004.
Property value saw a steep climb since late 2006 with many en-bloc exercises spreading from East Coast. En-bloc exercises reached prime District areas (such as Orchard Road, Newton, etc) in Year 2006 till August 2007. Some property's value climbed 150%, e.g, The Sail was launch at about $700psf region and peaked at about $1,800psf, The Icon was launch at about $600psf and reached beyond $1,500psf.
The government scrapped the Deferred Payment Scheme for new developments recently (early November). This can work to stop the runaway by average speculators who are keen to jump into the bandwagon. Ever since, property's value and transaction has stablized.
Had Singapore's banking sector not had strong and sounding regulation, with strict lending policies, our tiny economy may face the same downfall of Sub-prime.
Credit Assessment
In order to obtain property loan, banks usually look at the borrower's Debt Servicing Ratio (DSR). As a general rule of thumb, the DSR shouldn't be more than 50% of the combined Gross Income. The 50% takes into account, all loans including property and car mortgage.
Banks also looks at the individual's past credit report. Any bad credit rating could mean that the individual may face a rejection in his application. Banks also are concern of any litigation the individual may have.
These are just some indicators before banks gives an approval for loan application.
As individuals, we should learn to be financially stable. Good financial sense may not make everyone richer, but it can help us be less poor. Good financial sense includes knowing how to stretch our dollar, setting aside a part of our income to investment, not be drawn to spend unnecessary, planning our finances, etc.
Tuesday, November 27, 2007
Online Shoppers/Spenders Out In Force
It was reported that there was a surge for online shopping over the weekend. This could imply that shoppers are choosing to bypass heavy advertising, logistical and rental cost of retailers that is pass onto customers.
Online shopping may appear cheaper than buying from shops but shipping cost may equal that or reduce the savings. As spenders starts tilting towards online shopping, it may be a good sign, that these shoppers are getting savvy with their money, to avoid paying unnecessary higher cost.
However, there are two things negative thoughts that crossed my mind. Would this mean retailers will start to suffer the blunt of lesser business, thereby less job creation? Also, as people shop online, they are spending on credit. This may attribute further to the credit woes of some. Credit card users often overspend due to the transparent credit spending till month end.
The US economy comprises of about 25% of the total world activity, with consumers being responsible for about 70% of US economy activity. Any pull back in spending could lower global growth, especially in countries relying heavily on exports to US. The impact of the US economy is a concern to many parts of the world.
Let's hope unemployment does not rise sharply as it will aggravate the economy further, and closer to a possible recession. "As to whether a US recession would spill over to the rest of the world, opinions are split,'' says Marco Annunziata, chief economist at UniCredit Markets. "Some strongly believe in decoupling and look forward to watching the giant collapse, while the rest of the world powers on, while others believe we would all be hurt.'' (source : http://news.yahoo.com/s/ft/20071124/bs_ft/fto112320072258005142;_ylt=ApxCE3zxyXbboav1Oi3mQryyBhIF)
Online shopping may appear cheaper than buying from shops but shipping cost may equal that or reduce the savings. As spenders starts tilting towards online shopping, it may be a good sign, that these shoppers are getting savvy with their money, to avoid paying unnecessary higher cost.
However, there are two things negative thoughts that crossed my mind. Would this mean retailers will start to suffer the blunt of lesser business, thereby less job creation? Also, as people shop online, they are spending on credit. This may attribute further to the credit woes of some. Credit card users often overspend due to the transparent credit spending till month end.
The US economy comprises of about 25% of the total world activity, with consumers being responsible for about 70% of US economy activity. Any pull back in spending could lower global growth, especially in countries relying heavily on exports to US. The impact of the US economy is a concern to many parts of the world.
Let's hope unemployment does not rise sharply as it will aggravate the economy further, and closer to a possible recession. "As to whether a US recession would spill over to the rest of the world, opinions are split,'' says Marco Annunziata, chief economist at UniCredit Markets. "Some strongly believe in decoupling and look forward to watching the giant collapse, while the rest of the world powers on, while others believe we would all be hurt.'' (source : http://news.yahoo.com/s/ft/20071124/bs_ft/fto112320072258005142;_ylt=ApxCE3zxyXbboav1Oi3mQryyBhIF)
Tuesday, November 20, 2007
Mortgage & Foreclosure
Mortgage Payment Problems
From online news, it is stated that the three most affected states (in U.S) reveal the two main causes of mortgage payment problems: economic weakness, as exemplified by Ohio, and speculative excess that led to high home prices and unaffordable mortgages, as represented by California and Florida.
Slowing Economy
All signs have indicated that the US economy is worrying. This range from sub-prime (and credit) to slowing economy (job losses). Some companies and plants have closed, job losses have risen, and both have hit some states' economy real hard.
Subprime Mortgages and Potential Defaulters
Statistics have show that there are about 7.2 million households with subprime mortgages, and more than 14 percent of those are in default. It projects that one of every five of those loans issued in 2005 and 2006 will end in foreclosure, with 2.2 million families losing their homes
Back Home - Singapore
Coming back to Singapore, the government recently intervent into the property boom, with runaway prices. To speculators/investors, this may not be a good sign, but for the overall economy, we have to agree that it will avoid our tiny city state from a property meltdown years down the road.
The problem is, a lot of people (ignorant speculators) bite more than what they can chew, forgetting that what they chew will bite them back when they have difficulties. Why live in self-deception that our salary will increase by the years (this is old school of the 90s) thus we can afford to live on the line and things will improve next year? These people are the ones hardest hit when there is a turn in the economy (for the worst).
Tips to Avoid Foreclosure Or Lender's Legal Suit
1. Don't Ignore The Problem
Identify the problem and deal with it sooner. The longer you drag, the more likely you'll get into trouble with your lender.
2. Contact the Lender
Lenders are not out to make a borrower a bankrupt or to seize your property. Negotiate with them a solution/package.
3. Open and Response to Mails from Lenders
Warnings/Reminders will be given by lenders before they take action. Act before they do.
4. Know your Option
Should a borrower be haul to Court, know what your options are. Bankrupcy is the last option and should be avoided.
5. Consult People With Better Insights
When one is in trouble, their mind is usually clouded. Consult someone or a professional who has a clear mind and more knowledgeable.
6. Reduce Liabilities While You Can
Why wait till you have lost ground before acting? Rid your financial burden (eg, car) to give yourself more financial ability to deal with the forecoming problem.
7. Prioritize or Restructure Your Spending
Refer to my other post, "Ways To Save" to see how you can reduce expenses/spending. The spare funds will go a long way.
8. Forget About Pride and Ego
Many falls into this trap and not seek or listen to sound advise. I've come across such individuals till situation gotten so bad. There's no big deal in loosing it all today, as you can gain it all back one day if you buck up and learn how to better manage your finances.
From online news, it is stated that the three most affected states (in U.S) reveal the two main causes of mortgage payment problems: economic weakness, as exemplified by Ohio, and speculative excess that led to high home prices and unaffordable mortgages, as represented by California and Florida.
Slowing Economy
All signs have indicated that the US economy is worrying. This range from sub-prime (and credit) to slowing economy (job losses). Some companies and plants have closed, job losses have risen, and both have hit some states' economy real hard.
Subprime Mortgages and Potential Defaulters
Statistics have show that there are about 7.2 million households with subprime mortgages, and more than 14 percent of those are in default. It projects that one of every five of those loans issued in 2005 and 2006 will end in foreclosure, with 2.2 million families losing their homes
Back Home - Singapore
Coming back to Singapore, the government recently intervent into the property boom, with runaway prices. To speculators/investors, this may not be a good sign, but for the overall economy, we have to agree that it will avoid our tiny city state from a property meltdown years down the road.
The problem is, a lot of people (ignorant speculators) bite more than what they can chew, forgetting that what they chew will bite them back when they have difficulties. Why live in self-deception that our salary will increase by the years (this is old school of the 90s) thus we can afford to live on the line and things will improve next year? These people are the ones hardest hit when there is a turn in the economy (for the worst).
Tips to Avoid Foreclosure Or Lender's Legal Suit
1. Don't Ignore The Problem
Identify the problem and deal with it sooner. The longer you drag, the more likely you'll get into trouble with your lender.
2. Contact the Lender
Lenders are not out to make a borrower a bankrupt or to seize your property. Negotiate with them a solution/package.
3. Open and Response to Mails from Lenders
Warnings/Reminders will be given by lenders before they take action. Act before they do.
4. Know your Option
Should a borrower be haul to Court, know what your options are. Bankrupcy is the last option and should be avoided.
5. Consult People With Better Insights
When one is in trouble, their mind is usually clouded. Consult someone or a professional who has a clear mind and more knowledgeable.
6. Reduce Liabilities While You Can
Why wait till you have lost ground before acting? Rid your financial burden (eg, car) to give yourself more financial ability to deal with the forecoming problem.
7. Prioritize or Restructure Your Spending
Refer to my other post, "Ways To Save" to see how you can reduce expenses/spending. The spare funds will go a long way.
8. Forget About Pride and Ego
Many falls into this trap and not seek or listen to sound advise. I've come across such individuals till situation gotten so bad. There's no big deal in loosing it all today, as you can gain it all back one day if you buck up and learn how to better manage your finances.
Year End Bonus
As we approach December, many are looking forward to their year end bonus. With a better economy over the last 2 years, some are looking at more than 1 month's bonus.
An unplanned windfall will likely be squandered away unknowingly. Some plans a year end holiday, some shopping, buying some stuff they've been waiting for (money from bonus), save, etc.
While we should reward ourselves after a year's hard work, we should also plan to leave some money aside to reward ourselves later. With money set aside and invested, we will have more to reward ourselves while others are waiting for another year's bonus.
Time to relook at how we could best stretch our dollar and make a new year's resolution to be more savvy financially.
An unplanned windfall will likely be squandered away unknowingly. Some plans a year end holiday, some shopping, buying some stuff they've been waiting for (money from bonus), save, etc.
While we should reward ourselves after a year's hard work, we should also plan to leave some money aside to reward ourselves later. With money set aside and invested, we will have more to reward ourselves while others are waiting for another year's bonus.
Time to relook at how we could best stretch our dollar and make a new year's resolution to be more savvy financially.
Thursday, November 15, 2007
Taxation Helps Rich Get Richer
Governments generates their revenue from taxation. There are two main category of tax, Corporate Tax and Individual tax. For Individual tax, it includes direct income tax and consumption tax. Income tax is calculated based on the amount earned during the year while consumption tax (e.g. Goods & Services Tax) is based on what you consume.
The Singapore GST originated on 1 April 1994, at 3%, but later increased to 4% on 1 Jan 2003 and 5% on 1 January 2004. it was raised again to 7% on 1 July 2007.
Looking at the timing of GST, during early 2003, Singapore was slowly and painfully climbing out of the economy scars of the terrorist act on 11 Sept 2001, where unemployment was high. On 1 Jan 2004, the country was just recovering from Sever Acute Respiratory Syndrome, SARS.
History evidenced that taxation was punishing the average. During election time, the government usually promises reducing tax or not increasing tax and many will be silly to be taken in. The rich on the other hand doesn’t really care as they does not suffer from the blunt of taxation. They could jolly well afford it anyway.
Reading from news, Nov. 14 (Bloomberg) -- Warren Buffett called on Congress to maintain the estate tax, saying that plans to repeal the levy would benefit a handful of the richest American families and widen U.S. income disparity. Buffett said that in the last 20 years, tax laws have allowed the ``super-rich'' to get richer.
I’ve brought up tax in my post not as a voice of disconsent towards the government but asking many, you work so hard to make that little money just to be taxed and be left with little. Why not look at ways to make your money work hard for you so that tax is no longer painful?
Remember, your savings in the bank depreciates by 3% (inflation) each year while it depreciates a further 7% when you spend it (GST). Why not find avenue to invest and grow this money into something double or triple of what you many loose, so that at the end of the day, you gain more than you lost?
Many choose to remain stubbornly 'ignorant' by refusing opportunities. The choice is yours. I've choosen mine. Each day we procrastinate, is our own lost.
The Singapore GST originated on 1 April 1994, at 3%, but later increased to 4% on 1 Jan 2003 and 5% on 1 January 2004. it was raised again to 7% on 1 July 2007.
Looking at the timing of GST, during early 2003, Singapore was slowly and painfully climbing out of the economy scars of the terrorist act on 11 Sept 2001, where unemployment was high. On 1 Jan 2004, the country was just recovering from Sever Acute Respiratory Syndrome, SARS.
History evidenced that taxation was punishing the average. During election time, the government usually promises reducing tax or not increasing tax and many will be silly to be taken in. The rich on the other hand doesn’t really care as they does not suffer from the blunt of taxation. They could jolly well afford it anyway.
Reading from news, Nov. 14 (Bloomberg) -- Warren Buffett called on Congress to maintain the estate tax, saying that plans to repeal the levy would benefit a handful of the richest American families and widen U.S. income disparity. Buffett said that in the last 20 years, tax laws have allowed the ``super-rich'' to get richer.
I’ve brought up tax in my post not as a voice of disconsent towards the government but asking many, you work so hard to make that little money just to be taxed and be left with little. Why not look at ways to make your money work hard for you so that tax is no longer painful?
Remember, your savings in the bank depreciates by 3% (inflation) each year while it depreciates a further 7% when you spend it (GST). Why not find avenue to invest and grow this money into something double or triple of what you many loose, so that at the end of the day, you gain more than you lost?
Many choose to remain stubbornly 'ignorant' by refusing opportunities. The choice is yours. I've choosen mine. Each day we procrastinate, is our own lost.
Wednesday, November 14, 2007
Splurging on Luxury Items Up - The Forgotten Lesson
Was reading The Business Times today (14 Nov 07) and an article caught my eye. The article "Splurging on luxury items up 29% in Q2" (source http://www.businesstimes.com.sg/sub/news/story/0,4574,256422,00.html) goes to reflect consumer's confidence in the economy. I ponder over that confidence. Still water runs deep, and peace before the storm, rings in my head.
The Business Times article stated
1) "Sales of luxury timepieces, jewellery and designer fashion items, as well as takings at fine dining establishments, were 29 per cent higher in the second quarter of 2007". Does luxury timepieces, jewellery and designer fashion appreciate in value that one can pawn away for money during bad times?
2) Apart from tourist spending on luxury items, the locals accounted for 64 per cent of luxury watch sales, 71 per cent of high-end jewellery sales, 72 per cent of designer fashion sales and 74 per cent of fine dining billings
In the last 1-2 years, we have seen a lot more luxury cars (e.g. Lamborghini, Ferrari, high end Merc, 7-series BMW, etc) on the road. While businessmen are making more money, the average are taking extra month(s) of bonus. With the little extras the average gotten, their spending increased tremendously. Spending has gone up, cost of goods have gone up too (due to recent inflation). That largely means, as they make more, they spend even more and save even lesser.
I am not suggesting that, the economy will collapse or turn into a recession in the next few months or a year. I just wonder, has people not learnt from the Asian Crisis and two other impact that brought our economy near its knees.
I recall reading in Robert Kiyosaki's book, Cashflow Quadrant, that suggested people will quickly forget painful lessons learnt when times are good and start spending again. This seems to be a childhood story of the hardworking ants and lazy grasshopper.
While some are happily spending and pampering themselves now, I shall look closely at growing my money and spending it later. Another thing came to mind, spending later, when the economy isn't doing as well, means, I won't have to pay the premium like everybody is paying now (Demand and Supply).
The Business Times article stated
1) "Sales of luxury timepieces, jewellery and designer fashion items, as well as takings at fine dining establishments, were 29 per cent higher in the second quarter of 2007". Does luxury timepieces, jewellery and designer fashion appreciate in value that one can pawn away for money during bad times?
2) Apart from tourist spending on luxury items, the locals accounted for 64 per cent of luxury watch sales, 71 per cent of high-end jewellery sales, 72 per cent of designer fashion sales and 74 per cent of fine dining billings
In the last 1-2 years, we have seen a lot more luxury cars (e.g. Lamborghini, Ferrari, high end Merc, 7-series BMW, etc) on the road. While businessmen are making more money, the average are taking extra month(s) of bonus. With the little extras the average gotten, their spending increased tremendously. Spending has gone up, cost of goods have gone up too (due to recent inflation). That largely means, as they make more, they spend even more and save even lesser.
I am not suggesting that, the economy will collapse or turn into a recession in the next few months or a year. I just wonder, has people not learnt from the Asian Crisis and two other impact that brought our economy near its knees.
I recall reading in Robert Kiyosaki's book, Cashflow Quadrant, that suggested people will quickly forget painful lessons learnt when times are good and start spending again. This seems to be a childhood story of the hardworking ants and lazy grasshopper.
While some are happily spending and pampering themselves now, I shall look closely at growing my money and spending it later. Another thing came to mind, spending later, when the economy isn't doing as well, means, I won't have to pay the premium like everybody is paying now (Demand and Supply).
Tuesday, November 13, 2007
Ways to Save (3) – Reduce Spending
A lot of times, people doesn't stop in their track and ponder where they could save but more often than not, people complaints about not having enough to spend or save. I shall share some pointers here.
Your Home Spending
1. Spend Lesser on Home Improvement
We flip the newspaper and everyday throughout the year, we see advertisements with sales after sales. Most of us here in Singapore would love to have a huge (43”) LCD TV in our hall or room, new audio system, new computer, new furniture, etc.
Do we really need a new and better (LCD) TV when we already have a 29” conventional TV? Is the computer giving us problem or are we finding excuses to get a faster PC? Do we need to change to new furniture when the current set is only 3 years old?
Cut back on home improvement spending and you see several thousands of dollars in your bank account.
2. Cut Back on Lightings and Electricity Bills
With raising oil prices, electricity cost would have gone up as well. Two years ago, an average household may be incurring $100 utility bills a month but will be paying $130-140 a month now.
Sometimes we have too much lights switched on, and not turned off when we are done. Singapore is among the most well led country in the world (that we can hardly see stars in the sky, partly due to our cloudy sky, but also attributed to the brightly lid roads). Do we need so much lights on if we are not doing any reading?
Use the fan if it is not warm and turn on the air-conditional just before you sleep instead of turning on immediately when you enter the bedroom. Raise the air-conditional’s temperature to 25 Degree Celsius and it will still be comfortable.
3. Cut Back on Grocery Shopping or Buy House Brands
Reduce spending on tibits and snacks. It not only keeps you in shape, but also your wallet too. Buy house brands instead of imported goods (import duties), get cheaper brands, etc.
Avoid over-stocking as there is a tendency to try consuming everything faster, or some will end up in the thrash. We should be buying what we need and not always what we want. This measure could save us approximately $50 per household.
I recall there was a Governor in US living on a mere allowance for a week or month (in 2006). He had to forgo chips, his favourate coffee, no premium food stuff, no beer, etc, and found it miserable living on that little money. After the period was up, he realized that there are indeed many ways to cut down on grocery shopping and food. Kudos to him, he had to reduce his allowance to less than 20% his usual spending and still made it.
Lifestyle Spending
1. Get rid of Extra Cell Phones or Change Package
Interestingly, we are the most (or 2nd most) connected people in the world. Our population as at July 2007 stands at 4.55 million but we have 4.789 million (2006) mobile lines. (source : CIA Factbook)
Some are carrying more than 1 line to keep their bills down. In actual fact, it is cheaper to use only one line than multiple lines. Look at your 3 months bills (all phone lines) and average the total outgoing minutes per month. This will allow you to find a suitable package suiting your needs.
2. Cut down on Premium Coffee
Why spend $5 on a cup of coffee (not to mention any pastry) in a café when you can get local coffee at the coffee shop at $0.80 a cup? Instead of two trips a week to the café, reduce it to once a week, or fortnightly, this will save us a few dollars.
3. Cigarettes
Everyone knows that smoking has no benefits yet many smokes habitually. Instead of one large pack ($11.40 a pack?) a day, reduce to one pack in 3 days or even further. This will save more than $220 a month.
4. Alcohol and Clubbing/Pubbing
How often do you go partying? At least $50 goes down the drain each time one goes out partying. Why not use time wisely, find a income source, do some reading and self-improvement, etc.
Your drinking buddies are usually not the ones who stands by you when you are in trouble (except rowdy behaviours when partying). When you are down and out, your so-called buddies will shun you faster than lightning.
5. Meals
Cut down on fast-food and restaurant dining. Each fast-food meal will set you back by $6 while a meal at the local food centre will cost you $3. besides being more costly at fast-food, it has been proven that fast-food are usually less healthy (often associated to obesity).
6. Credit Cards
The convenience of Credit Cards is also a convenient way for the bank to make more money out of you. For individuals with little spending discipline, get rid of your credit card before it gets rid of you. Do not roll over any amount, pay what you spent at the end of the month. Countless of people goes bankrupt each month from credit card debt.
7. Unnecessary Memberships
Do you have any under-utilized memberships? Club membership, night spot membership, gym, car grooming, etc. All these membership cost you money with almost no privilege but additional income for such organization. Membership is a thing of the past.
8. Personal Grooming Treatments
It is important to be well-groomed. How often do you pamper yourself with Manicures, Spas, Facial, Expensive Hair Styling, etc. How much does it cost you each time you go for such packages? There’s something called, Do-it-Yourself, the DIY way.
9. Car Washes
Instead of spending $5 per wash, twice a week, why not do your own washing. It is good exercise and saves you $40 a month. We need to exercise at least 3 times a week, at an interval of 10mins each time. Car wash will take you 30 minutes each time doesn’t it?
10. Spending on Lottery
Let’s face it, how often do you strike it lucky? In contrast, how much do you spend on lottery a week? If you spend $200 a month on lottery, you could save $2,400 a year. Stop buying habitually and it is as good as a sure win of $2,400 a year.
Singaporeans are one of the most ‘committed’ gamblers in the world. We have 22 out of 30 days in November 2007 with some form of lottery. The lottery days are, TOTO on Mondays and Thursdays, 4D lottery on Wednesdays, Saturdays and Sundays, Big Sweep once a month (not to mention, horse race on Fridays, Saturdays and Sundays). How about soccer bettings?
Did I show you how you could have save more than $200 a month? Why not invest this money? You will be a lot richer, or at least not poorer.
Your Home Spending
1. Spend Lesser on Home Improvement
We flip the newspaper and everyday throughout the year, we see advertisements with sales after sales. Most of us here in Singapore would love to have a huge (43”) LCD TV in our hall or room, new audio system, new computer, new furniture, etc.
Do we really need a new and better (LCD) TV when we already have a 29” conventional TV? Is the computer giving us problem or are we finding excuses to get a faster PC? Do we need to change to new furniture when the current set is only 3 years old?
Cut back on home improvement spending and you see several thousands of dollars in your bank account.
2. Cut Back on Lightings and Electricity Bills
With raising oil prices, electricity cost would have gone up as well. Two years ago, an average household may be incurring $100 utility bills a month but will be paying $130-140 a month now.
Sometimes we have too much lights switched on, and not turned off when we are done. Singapore is among the most well led country in the world (that we can hardly see stars in the sky, partly due to our cloudy sky, but also attributed to the brightly lid roads). Do we need so much lights on if we are not doing any reading?
Use the fan if it is not warm and turn on the air-conditional just before you sleep instead of turning on immediately when you enter the bedroom. Raise the air-conditional’s temperature to 25 Degree Celsius and it will still be comfortable.
3. Cut Back on Grocery Shopping or Buy House Brands
Reduce spending on tibits and snacks. It not only keeps you in shape, but also your wallet too. Buy house brands instead of imported goods (import duties), get cheaper brands, etc.
Avoid over-stocking as there is a tendency to try consuming everything faster, or some will end up in the thrash. We should be buying what we need and not always what we want. This measure could save us approximately $50 per household.
I recall there was a Governor in US living on a mere allowance for a week or month (in 2006). He had to forgo chips, his favourate coffee, no premium food stuff, no beer, etc, and found it miserable living on that little money. After the period was up, he realized that there are indeed many ways to cut down on grocery shopping and food. Kudos to him, he had to reduce his allowance to less than 20% his usual spending and still made it.
Lifestyle Spending
1. Get rid of Extra Cell Phones or Change Package
Interestingly, we are the most (or 2nd most) connected people in the world. Our population as at July 2007 stands at 4.55 million but we have 4.789 million (2006) mobile lines. (source : CIA Factbook)
Some are carrying more than 1 line to keep their bills down. In actual fact, it is cheaper to use only one line than multiple lines. Look at your 3 months bills (all phone lines) and average the total outgoing minutes per month. This will allow you to find a suitable package suiting your needs.
2. Cut down on Premium Coffee
Why spend $5 on a cup of coffee (not to mention any pastry) in a café when you can get local coffee at the coffee shop at $0.80 a cup? Instead of two trips a week to the café, reduce it to once a week, or fortnightly, this will save us a few dollars.
3. Cigarettes
Everyone knows that smoking has no benefits yet many smokes habitually. Instead of one large pack ($11.40 a pack?) a day, reduce to one pack in 3 days or even further. This will save more than $220 a month.
4. Alcohol and Clubbing/Pubbing
How often do you go partying? At least $50 goes down the drain each time one goes out partying. Why not use time wisely, find a income source, do some reading and self-improvement, etc.
Your drinking buddies are usually not the ones who stands by you when you are in trouble (except rowdy behaviours when partying). When you are down and out, your so-called buddies will shun you faster than lightning.
5. Meals
Cut down on fast-food and restaurant dining. Each fast-food meal will set you back by $6 while a meal at the local food centre will cost you $3. besides being more costly at fast-food, it has been proven that fast-food are usually less healthy (often associated to obesity).
6. Credit Cards
The convenience of Credit Cards is also a convenient way for the bank to make more money out of you. For individuals with little spending discipline, get rid of your credit card before it gets rid of you. Do not roll over any amount, pay what you spent at the end of the month. Countless of people goes bankrupt each month from credit card debt.
7. Unnecessary Memberships
Do you have any under-utilized memberships? Club membership, night spot membership, gym, car grooming, etc. All these membership cost you money with almost no privilege but additional income for such organization. Membership is a thing of the past.
8. Personal Grooming Treatments
It is important to be well-groomed. How often do you pamper yourself with Manicures, Spas, Facial, Expensive Hair Styling, etc. How much does it cost you each time you go for such packages? There’s something called, Do-it-Yourself, the DIY way.
9. Car Washes
Instead of spending $5 per wash, twice a week, why not do your own washing. It is good exercise and saves you $40 a month. We need to exercise at least 3 times a week, at an interval of 10mins each time. Car wash will take you 30 minutes each time doesn’t it?
10. Spending on Lottery
Let’s face it, how often do you strike it lucky? In contrast, how much do you spend on lottery a week? If you spend $200 a month on lottery, you could save $2,400 a year. Stop buying habitually and it is as good as a sure win of $2,400 a year.
Singaporeans are one of the most ‘committed’ gamblers in the world. We have 22 out of 30 days in November 2007 with some form of lottery. The lottery days are, TOTO on Mondays and Thursdays, 4D lottery on Wednesdays, Saturdays and Sundays, Big Sweep once a month (not to mention, horse race on Fridays, Saturdays and Sundays). How about soccer bettings?
Did I show you how you could have save more than $200 a month? Why not invest this money? You will be a lot richer, or at least not poorer.
Monday, November 12, 2007
Ways To Save (2) - Your Vehicle
Here in Singapore, it is too common to see car owners changing for a new car every 3 years. Take a blink and the next car you see passing you by is no older than 3 years. Is new car really cheaper than your existing 3 years old car? Here's what my views are.
Car Sales Exec's Take
1) "Oh, COE price has fallen. Your car's COE is $25,000 while the current COE price is only $15,000. Why pay the extra $1,000 each year to the government"? What they hide from you is, 'yes another con job, you change car and i'll be $1-2k richer. What $1k savings than paying the government? You will end up paying import tax (abt 170%), shipping charges, company's profits, etc'. You think they really care if you pay more? If it makes more sense to change new car, is your SE changing car every 1 year?
2) Your car is 3 years old, you need to export your car before the export value drops. There is no resale value for used cars. (Who says you need to export or sell your used car? You can drive it on).
3) You will save on your monthly installment. You are currently paying $700. If you buy this new car, you end up paying $500 a month. What they failed to share with you is, you have paid 3 years of installment, with 4 years to go (total $33,600) while a new car will mean you are into a new 7yrs debt ($42,000).
Reasons to Change Car
It's human to justify their reasons and here's 2 common ones that I like:
1) My car is old. What they failed to say is, my friends are changing cars, I want to be seen with a new car too. Why not spend a little to do up the car to give it a new feel, eg New coat of paint $1.5k), sun-roof ($1.5k), leather seat ($800)? Do some modifications to the engine to give you better performance and fuel consumption, eg, changing to lighten belt pulley, lighten flywheel, etc.
2) My car is giving problems. New car comes with 3 years warranty. Is replacing old/worn out parts more costly than the 'warranty'? Set aside $2-3k to replace worn out parts and the car will serve you well for the next few years again.
Potential Loss
If you drive on your existing 3yrs old car (current paper value $30k. 10yrs paper value $8k), you will only need to suffer a depreciation of $3143/yr for the next 7yrs. If you change to a new car (new car price, $52k while 10yrs paper value $8k) now, you will suffer a depreciation of $4,400/yr for the next 10yrs. That's more than $100/mth for 10yrs.
If the new car is scrapped/exported after 3yrs, assuming the paper value at $30k, you will have lost $22,000 over this period of 3yrs (or $7,333/yr). This is almost $350/mth for the next 3 years.
If the potential losses are so much more than the savings, why not stick to the same car?
Trade down vehicle
Alternatively, you could have opt for a older car. Cars are built to last at least 20 years (conservative figure) under normal usage. My first car was 26yrs old when i bought it. Older cars can be reliable too.
Besides lower depreciation (usually less than $3,000/year for a 1.6l car), you also save on insurance, lower installment (or even, fully paid up car), etc.
Conclusion
I still cannot understand the need to change car with the simple excuse of old car. If one is well off, it doesn't matter how often he changes car as he can jolly well afford it. However, >80% of the car owners doesn't fall into this category.
With the lower COE value (pre 2000 COE price was as high as $60k, while COE in 2003 was >$30k), a lot of car owners are tempted to change car and forgotten to calculate true mathematics, but choose to calculate the new car's depreciation.
Think twice, think three times. If you are stuck whether to change car or not, you are definitely better off with your current ride. I suggest you consider keeping the car and invest your money wisely.
Friday, November 9, 2007
Warning of 'Serious' US Economic Correction
George Soros Forecast
NEW YORK (Reuters) - Billionaire investor George Soros forecast on Monday (2 Nov 07) that the U.S. economy is "on the verge of a very serious economic correction" after decades of overspending. "We have borrowed an awful lot of money and now the bill is coming to us," he said during a lecture at the New York University, also adding that the war on terror "has thrown America out of the rails." Asked whether a recession was inevitable, Soros said: "I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Fed Chairman Ben) Bernanke is seeing."Soros said that, for now, China is the "absolute winner" in economic terms, and will continue to see its economy soaring during the next few years. "Now it is going through this fantastic transformation but in 10 years time I think you may well have a financial crisis in China," he said.
(Soros was famous for his speculative attack on the Bank of England that made him >US$1billion, and his organization was linked to speculation on Asian currencies during Asian Crisis in 1997)
(http://biz.yahoo.com/rb/071105/soros_economy_slowdown.html?.v=1&.pf=banking-budgeting)
2 Million Empty Homes in America
NEW YORK (CNNMoney.com) -- The number of vacant homes for sale rose in the third quarter, according to the latest government reading that casts new harsh light on the weakness of the housing market. The Census Bureau report puts the number of vacant homes for sale at 2.07 million in the period, up about 2 percent from the second quarter, and 7 percent above year ago levels.
"It's really striking how high that is compared to historic levels," said Dean Baker, co-founder of the Center for Economic and Policy Research. "It's a lot of homes sitting there vacant. It's very hard to see how we're near a bottom, when you have that much excess supply."
There are estimates that about 2.8 million homeowners could see the payments on their subprime mortgages reset higher in the next two years. If they can't afford the new payments or be able to refinance due to the significantly tighter mortgage market, that could cause an additional flood of empty homes onto the market.
"It's very hard to see how this doesn't get worse," Baker said. "It's certainly possible we could see 3 million, maybe 4 million (vacant homes on the market.)"
(http://money.cnn.com/2007/10/26/news/economy/vacant_homes/index.htm)
The Business Times (Singapore)
It is said the current US credit problem will take "a long time to work its way out. You don't cure a (credit market) bubble in five or six months, it takes five or six years", quoted by Mr Jim Rogers, of co-founder of Quantum Fund with Mr Soros. (7 Nov 07)
Further comment by Mr Sakakibara, former Japan's vice-minister for finance and international affairs, now professor at Tokyo's Waseda University, warned that global financial markets are likely to face further bouts of volatility. "what we have seen thus far "is only the tip of the iceberg" and the problem will probably linger for 6-18mths. The world economy is highly integrated now, and is highly possible that the US will slow down sharply or even go into recession. In such an event, Asia cannot be unaffected. (2 Nov 07)
Economic Correction, Sub-prime and Credit Woes
With data shared in my recent post, there are reasons to be cautious in our investments. Are we installed for a huge correction that may last for a long time? If the reports above are true, wouldn't that lead the way into 2010 when the first baby boomers retires? I should avoid being overly pessimistic over the economy, but facts are keeping me worried. Signs will show hints of a correction, but it takes observation and careful actions (plus conservative thinking) to avoid falling into it.
NEW YORK (Reuters) - Billionaire investor George Soros forecast on Monday (2 Nov 07) that the U.S. economy is "on the verge of a very serious economic correction" after decades of overspending. "We have borrowed an awful lot of money and now the bill is coming to us," he said during a lecture at the New York University, also adding that the war on terror "has thrown America out of the rails." Asked whether a recession was inevitable, Soros said: "I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Fed Chairman Ben) Bernanke is seeing."Soros said that, for now, China is the "absolute winner" in economic terms, and will continue to see its economy soaring during the next few years. "Now it is going through this fantastic transformation but in 10 years time I think you may well have a financial crisis in China," he said.
(Soros was famous for his speculative attack on the Bank of England that made him >US$1billion, and his organization was linked to speculation on Asian currencies during Asian Crisis in 1997)
(http://biz.yahoo.com/rb/071105/soros_economy_slowdown.html?.v=1&.pf=banking-budgeting)
2 Million Empty Homes in America
NEW YORK (CNNMoney.com) -- The number of vacant homes for sale rose in the third quarter, according to the latest government reading that casts new harsh light on the weakness of the housing market. The Census Bureau report puts the number of vacant homes for sale at 2.07 million in the period, up about 2 percent from the second quarter, and 7 percent above year ago levels.
"It's really striking how high that is compared to historic levels," said Dean Baker, co-founder of the Center for Economic and Policy Research. "It's a lot of homes sitting there vacant. It's very hard to see how we're near a bottom, when you have that much excess supply."
There are estimates that about 2.8 million homeowners could see the payments on their subprime mortgages reset higher in the next two years. If they can't afford the new payments or be able to refinance due to the significantly tighter mortgage market, that could cause an additional flood of empty homes onto the market.
"It's very hard to see how this doesn't get worse," Baker said. "It's certainly possible we could see 3 million, maybe 4 million (vacant homes on the market.)"
(http://money.cnn.com/2007/10/26/news/economy/vacant_homes/index.htm)
The Business Times (Singapore)
It is said the current US credit problem will take "a long time to work its way out. You don't cure a (credit market) bubble in five or six months, it takes five or six years", quoted by Mr Jim Rogers, of co-founder of Quantum Fund with Mr Soros. (7 Nov 07)
Further comment by Mr Sakakibara, former Japan's vice-minister for finance and international affairs, now professor at Tokyo's Waseda University, warned that global financial markets are likely to face further bouts of volatility. "what we have seen thus far "is only the tip of the iceberg" and the problem will probably linger for 6-18mths. The world economy is highly integrated now, and is highly possible that the US will slow down sharply or even go into recession. In such an event, Asia cannot be unaffected. (2 Nov 07)
Economic Correction, Sub-prime and Credit Woes
With data shared in my recent post, there are reasons to be cautious in our investments. Are we installed for a huge correction that may last for a long time? If the reports above are true, wouldn't that lead the way into 2010 when the first baby boomers retires? I should avoid being overly pessimistic over the economy, but facts are keeping me worried. Signs will show hints of a correction, but it takes observation and careful actions (plus conservative thinking) to avoid falling into it.
Tuesday, November 6, 2007
Next Credit Woes in the Brewing?
Sub-Prime
Sub-prime (about US$900 billion) was largely attributed from America’s high Loan to Valuation (LTV), high interest rates and falling property valuation. Loan package was so attractive during the first year of loan (possibly 0%) and escalate on the 2nd year onwards (potentially 7-8%), that caused borrowers to default on payment.
Fed Reserve’s Rate Adjustment
With US Federal Reserve’s interventing action on 18 Sept 07, to reduce subsidized lending rate from 5.25% to 4.75%, it helped cushioned a the fallout and near recession. The more recent adjustment on 31 Oct 07 saw interest rates going down to 4.5% now. But with the latest adjustment, it has not done good as another problem has surfaced.
Credit Problem
The new problem was expected even before Sub-prime was an issue. A lot of people are living on borrowings or future earnings. This sign is even prominent here in Singapore and we have to be wary of a potential late 1990s financial problem (not just Asian Crisis). This new problem is related to their credit cards debt (about US$915 billion)
Payment Defaulters
What will happen next? Before borrowers became mortgage delinquents, some had relied on their credit cards facility to help them pay for their installments. Now that they had exhausted their credit lines and looming mortgage, the problem in America’s financial market can be worst than August 07 (Sub-prime). We are seeing a domino effect.
Those securities (homes) would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.
Credit card debt is different from subprime debt. Unlike mortgages, credit card debt is unsecured, so a default means a total loss.
(source http://finance.yahoo.com/banking-budgeting/article/103811/The-915B-Bomb-in-Consumers'-Wallets)
America’s Economy
How do I relate America’s economy woes to the world? America is the World’s No 1 Economy, with California being World’s 10th largest Economy. With these figures, wouldn’t we be worried about the health of their economy? (Source : CIA’s World Factbook, 2005 estimates).
Household Income
The 80% of American household income (pre-tax) are no more than US$65,000 per annum. This means they have less than US$4,800 per month per household (after 12% average income tax). How much disposable income would the household have (not forgetting, mortgage payment, car loan, credit card, daily expenses, etc).
Annual income parking ramp
Income level (percentile) --> Median income (rounded)
Level VI (90 to 100) --> $170,000
Level V (80 to 89.9) --> $99,000
Level IV (60 to 79.9) --> $65,000
Level III (40 to 59.9) --> $40,000
Level II (20 to 39.9) --> $24,000
Level I (less than 20) --> $10,000
(Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey)
Sub-prime (about US$900 billion) was largely attributed from America’s high Loan to Valuation (LTV), high interest rates and falling property valuation. Loan package was so attractive during the first year of loan (possibly 0%) and escalate on the 2nd year onwards (potentially 7-8%), that caused borrowers to default on payment.
Fed Reserve’s Rate Adjustment
With US Federal Reserve’s interventing action on 18 Sept 07, to reduce subsidized lending rate from 5.25% to 4.75%, it helped cushioned a the fallout and near recession. The more recent adjustment on 31 Oct 07 saw interest rates going down to 4.5% now. But with the latest adjustment, it has not done good as another problem has surfaced.
Credit Problem
The new problem was expected even before Sub-prime was an issue. A lot of people are living on borrowings or future earnings. This sign is even prominent here in Singapore and we have to be wary of a potential late 1990s financial problem (not just Asian Crisis). This new problem is related to their credit cards debt (about US$915 billion)
Payment Defaulters
What will happen next? Before borrowers became mortgage delinquents, some had relied on their credit cards facility to help them pay for their installments. Now that they had exhausted their credit lines and looming mortgage, the problem in America’s financial market can be worst than August 07 (Sub-prime). We are seeing a domino effect.
Those securities (homes) would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.
Credit card debt is different from subprime debt. Unlike mortgages, credit card debt is unsecured, so a default means a total loss.
(source http://finance.yahoo.com/banking-budgeting/article/103811/The-915B-Bomb-in-Consumers'-Wallets)
America’s Economy
How do I relate America’s economy woes to the world? America is the World’s No 1 Economy, with California being World’s 10th largest Economy. With these figures, wouldn’t we be worried about the health of their economy? (Source : CIA’s World Factbook, 2005 estimates).
Household Income
The 80% of American household income (pre-tax) are no more than US$65,000 per annum. This means they have less than US$4,800 per month per household (after 12% average income tax). How much disposable income would the household have (not forgetting, mortgage payment, car loan, credit card, daily expenses, etc).
Annual income parking ramp
Income level (percentile) --> Median income (rounded)
Level VI (90 to 100) --> $170,000
Level V (80 to 89.9) --> $99,000
Level IV (60 to 79.9) --> $65,000
Level III (40 to 59.9) --> $40,000
Level II (20 to 39.9) --> $24,000
Level I (less than 20) --> $10,000
(Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey)
Thursday, November 1, 2007
Ways to Save (1) - The Right Loan, or Refinance
There are more than 100 loan packages out there in the market. Which is the most suitable package for the property buyer/owner? Many a times, property buyers are ignorant of their options or overly rely on a property agent that claims to know the best bank. The hidden agenda, best bank can also means best referral fees they may get. If a Property Agent claims to know which is the best loans, Mortgage Consultants will know properties as well as these agents.
True or Lies? If those claims are true, we won't need lawyers or doctors anymore as we are just as good as they are isn't it?
The Right Package
There are more to packages than lowest rates. Lowest rates may not necessarily means best package. There are a few considerations before a Mortgaage Consultant recommends a series of packages that suits the borrower. A bank may have the lowest interest rates for one type of package, but does not means they have the lowest rates for another type of package. Most suitable package is dependant on the borrower's needs more than just rates.
There are 4 categories of packages. They are:
- Fixed Rates
- Variable Rates
- Combo Package
- Curent Link Account
Each category has it's own set of purpose and each property owners needs are different from another. It is very important to understand the borrower's needs before recommending suitable packages.
New Loan
The government has recently scrapped "Deferred Payment Scheme" for new developments (Building Uncomplete). This leaves property buyers with only "Progressive Payment Scheme", unless they are rich enough to pay in full (but why pay in full when there are a lot more your money could work for you).
For new property buyers, they could check on their financial eligibility before deciding on their purchase. This will take into account their current financial commitments and their income. Be careful not to over stretch.
Refinance Existing Loan
Some property owners perceive that their existing lender offers them the best package. Misconception! Most of the time, promotion packages (usually much more attractive) are offered only to new customers. Existing customers does not qualify for promotional packages. Lenders are more keen in new customers, thus existing customers may end up paying for their 'loyalty'.
Valuation Limit
When one buys a property, they should not based their decision on 5 years plan (I hear this often) to sell the property for a profit and move to a larger property. What if the plan doesn't materialize?
If the property buyer is using funds from their CPF Funds (Ordinary Account) towards the purchase (downpayment) and installments, they need to be aware that the Withdrawal Limit is based on 120% of their purchase price or valuation, whichever is lower (at the time of purchase).
By the time the property owner utilized this 120% limit, remaining installments will need to be paid in cash.
Illustration
- Purchase Price : $500,000
- Loan Amount : $400,000 (80% of PP)
- Interest Rates : 4%
- Loan Tenure : 30 years
- Monthly Installment : $1,910
- Principle & Interest distribution : 30.18% and 69.82%
- Lower Loan Tenure : 20 years
- Monthly Installment : $2,424
- Principle & Interest distribution : 44.99% and 55.01%
Conclusion
The illustration shows how much we are actually paying towards interest (Month 1 of loan) for a longer loan tenure.
A properly sourced package will save you substantial money and problem, while wrong package means you end up paying for it.
Relying on property agent for your loan can have undesirable consequence. Do not be a victim of their claims, and pay heavily later.
True or Lies? If those claims are true, we won't need lawyers or doctors anymore as we are just as good as they are isn't it?
The Right Package
There are more to packages than lowest rates. Lowest rates may not necessarily means best package. There are a few considerations before a Mortgaage Consultant recommends a series of packages that suits the borrower. A bank may have the lowest interest rates for one type of package, but does not means they have the lowest rates for another type of package. Most suitable package is dependant on the borrower's needs more than just rates.
There are 4 categories of packages. They are:
- Fixed Rates
- Variable Rates
- Combo Package
- Curent Link Account
Each category has it's own set of purpose and each property owners needs are different from another. It is very important to understand the borrower's needs before recommending suitable packages.
New Loan
The government has recently scrapped "Deferred Payment Scheme" for new developments (Building Uncomplete). This leaves property buyers with only "Progressive Payment Scheme", unless they are rich enough to pay in full (but why pay in full when there are a lot more your money could work for you).
For new property buyers, they could check on their financial eligibility before deciding on their purchase. This will take into account their current financial commitments and their income. Be careful not to over stretch.
Refinance Existing Loan
Some property owners perceive that their existing lender offers them the best package. Misconception! Most of the time, promotion packages (usually much more attractive) are offered only to new customers. Existing customers does not qualify for promotional packages. Lenders are more keen in new customers, thus existing customers may end up paying for their 'loyalty'.
Valuation Limit
When one buys a property, they should not based their decision on 5 years plan (I hear this often) to sell the property for a profit and move to a larger property. What if the plan doesn't materialize?
If the property buyer is using funds from their CPF Funds (Ordinary Account) towards the purchase (downpayment) and installments, they need to be aware that the Withdrawal Limit is based on 120% of their purchase price or valuation, whichever is lower (at the time of purchase).
By the time the property owner utilized this 120% limit, remaining installments will need to be paid in cash.
Illustration
- Purchase Price : $500,000
- Loan Amount : $400,000 (80% of PP)
- Interest Rates : 4%
- Loan Tenure : 30 years
- Monthly Installment : $1,910
- Principle & Interest distribution : 30.18% and 69.82%
- Lower Loan Tenure : 20 years
- Monthly Installment : $2,424
- Principle & Interest distribution : 44.99% and 55.01%
Conclusion
The illustration shows how much we are actually paying towards interest (Month 1 of loan) for a longer loan tenure.
A properly sourced package will save you substantial money and problem, while wrong package means you end up paying for it.
Relying on property agent for your loan can have undesirable consequence. Do not be a victim of their claims, and pay heavily later.
Friday, October 26, 2007
Anticipation of the Next Recession or Great Depression
It is said that there are definite signs of Recession or Great Depression. Man on the street will say that each Economic Cycle last 10 years and the next Recession can be anything from now to 2010. Where’s the facts and figures?
I would like to analyse some facts and figures and make my assumption and guess timing of the next potential Recession, or possibly, the Great Depression (which is scarier than recession).
Baby Boomer Generation
The Baby Boomer Generation refers to babies born from the period 1945 to 1965. During these period, there were more than 4 million babies born in America yearly. Huge childbirth were also experience in United Kingdom, Australia, Soviet Union, Canada.
There were 76 million American children born during the Baby Boomer period and that comprised of 28% of the adult US population while 80% of the wealth in UK are from Baby Boomers.
(extract from http://en.wikipedia.org/wiki/Baby_boomer#Size_and_economic_impact)
The Great Depression
The Great Depression is caused by the Worldwide economic decline, that started in 1929 and lasted till early 1940s. The Great Depression was a decade of unemployment, low profits, low prices, high poverty and stagnant trade that affected the entire world in the 1930s. The stock market crash of 1929 triggered the Great Depression in the United States, which then spread across the world's economies. (A depression cycle is said to be every 50 years).
The long term sufferings and memory made the American resolve that such a financial disaster would not be allowed to happen again, and that the nation would have "Freedom from Fear. Would you believe what they claim?
The stock market crash in 1929 didn’t last long. In the first half of 1930, the US stock market recovered to pre-market crash level. However, consumers cut back on spending and borrowings, and eventually brought down sales and prices began to decline across the board
The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. By late in 1930, a steady decline set in which reached bottom by March 1933. This produced the greatest long-term market declines by any measure and erased billions in assets.
In the 1920s, widespread use of the home mortgage and credit purchases of automobiles and furniture in the U.S. boosted spending, but created consumer debt. People who were deeply in debt when a price deflation occurred were in serious trouble — even if they kept their jobs — and risked default. They drastically cut current spending to keep payments on time, thus lowering demand for new products. Furthermore, the debts grew when prices and incomes fell 20-50%, but the debts remained at the same dollar amount. With future profits looking poor, capital investment slowed drastically. In the face of bad loans and worsening future prospects, banks became more conservative in lending money.
The Singapore / South-east Asia Recession
In 1997, the Indonesia Rupiah devalued, follow by few other countries including Malaysia and Thailand. Singapore dollar had lost ground but comparing to our neighbours, the devaluation of Sing Dollars is mild. This can be explained by our strong reserves that the government had unlocked to prevent the fallout.
Few countries in SEA went into Recession during the periods of 1997 to 1999 and started to bottom out in 2000. However, 9/11 occurred in 11 Sept 2001. 9/11 was the incident whereby terrorist had attacked the United States. This caused another downward swing in many parts of the world, and tourism sector suffered badly (tourism is one key income and employment for Singapore).
As the economy started to recover in 2002, SEA were hard hit by SARS in 2003. The triple impact lasted till late 2004 and started to finally bottom out in early 2005, with banks starting to adjust interest rates upwards and economy started to show promising growth in 2006.
This period lasted almost 10 years, which I would relate to, a domestic Great Depression of Singapore. There is no economist value in my statement though. The happenings during this period is akin to the Great Depression in 1929 to 1939, where unemployment rates were high, spending were low, value of assets fell and lack demand, etc.
The Next Sign
The first batch of Baby Boomers will turn 65 in year 2010. From 2010 onwards, there will be more than 4 million people retiring from the workforce. With the biggest spending power and retiring, their lifestyle needs will diminish, they may start moving out of the cities into sub-urb areas. With retirement, they may even withdraw their investments in the stock market, and start selling away their properties to move out of city.
On the other hand, the current sub-prime issue may have bottom out currently, but it does not mean things will improve. Property loan default have increase from the current sub-prime. Seizure and lower property demand has caused a decline in property valuation and worrying ripple effects in the stock market has been experienced despite the downward Fed Rate adjustment (0.5%) on 18 Sept 07.
By year 2010, even if the property and stock market starts recovering, the retiring 4 million baby boomers per year may cause prolong lower demand.
Lastly, heard on CNN.com (Concerns over U.S economy) 25/10/07. Mark Konyn, CEO of RCM, had shared his knowledge. The concern is whether US economy slowdown may spill over to the world. Auto mobile sale (loan) has fallen, credit card debts had maintain (mount). There are signs of recession including tax coming down, sub-prime spill over, inflation, slow sales, etc.
This analysis may not hold much water since it has not taken into many economic consideration, but it has caused me to stop and wonder, if the signs are showing, shouldn’t I take a precautionary stand on my investment?
I would like to analyse some facts and figures and make my assumption and guess timing of the next potential Recession, or possibly, the Great Depression (which is scarier than recession).
Baby Boomer Generation
The Baby Boomer Generation refers to babies born from the period 1945 to 1965. During these period, there were more than 4 million babies born in America yearly. Huge childbirth were also experience in United Kingdom, Australia, Soviet Union, Canada.
There were 76 million American children born during the Baby Boomer period and that comprised of 28% of the adult US population while 80% of the wealth in UK are from Baby Boomers.
(extract from http://en.wikipedia.org/wiki/Baby_boomer#Size_and_economic_impact)
The Great Depression
The Great Depression is caused by the Worldwide economic decline, that started in 1929 and lasted till early 1940s. The Great Depression was a decade of unemployment, low profits, low prices, high poverty and stagnant trade that affected the entire world in the 1930s. The stock market crash of 1929 triggered the Great Depression in the United States, which then spread across the world's economies. (A depression cycle is said to be every 50 years).
The long term sufferings and memory made the American resolve that such a financial disaster would not be allowed to happen again, and that the nation would have "Freedom from Fear. Would you believe what they claim?
The stock market crash in 1929 didn’t last long. In the first half of 1930, the US stock market recovered to pre-market crash level. However, consumers cut back on spending and borrowings, and eventually brought down sales and prices began to decline across the board
The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. By late in 1930, a steady decline set in which reached bottom by March 1933. This produced the greatest long-term market declines by any measure and erased billions in assets.
In the 1920s, widespread use of the home mortgage and credit purchases of automobiles and furniture in the U.S. boosted spending, but created consumer debt. People who were deeply in debt when a price deflation occurred were in serious trouble — even if they kept their jobs — and risked default. They drastically cut current spending to keep payments on time, thus lowering demand for new products. Furthermore, the debts grew when prices and incomes fell 20-50%, but the debts remained at the same dollar amount. With future profits looking poor, capital investment slowed drastically. In the face of bad loans and worsening future prospects, banks became more conservative in lending money.
The Singapore / South-east Asia Recession
In 1997, the Indonesia Rupiah devalued, follow by few other countries including Malaysia and Thailand. Singapore dollar had lost ground but comparing to our neighbours, the devaluation of Sing Dollars is mild. This can be explained by our strong reserves that the government had unlocked to prevent the fallout.
Few countries in SEA went into Recession during the periods of 1997 to 1999 and started to bottom out in 2000. However, 9/11 occurred in 11 Sept 2001. 9/11 was the incident whereby terrorist had attacked the United States. This caused another downward swing in many parts of the world, and tourism sector suffered badly (tourism is one key income and employment for Singapore).
As the economy started to recover in 2002, SEA were hard hit by SARS in 2003. The triple impact lasted till late 2004 and started to finally bottom out in early 2005, with banks starting to adjust interest rates upwards and economy started to show promising growth in 2006.
This period lasted almost 10 years, which I would relate to, a domestic Great Depression of Singapore. There is no economist value in my statement though. The happenings during this period is akin to the Great Depression in 1929 to 1939, where unemployment rates were high, spending were low, value of assets fell and lack demand, etc.
The Next Sign
The first batch of Baby Boomers will turn 65 in year 2010. From 2010 onwards, there will be more than 4 million people retiring from the workforce. With the biggest spending power and retiring, their lifestyle needs will diminish, they may start moving out of the cities into sub-urb areas. With retirement, they may even withdraw their investments in the stock market, and start selling away their properties to move out of city.
On the other hand, the current sub-prime issue may have bottom out currently, but it does not mean things will improve. Property loan default have increase from the current sub-prime. Seizure and lower property demand has caused a decline in property valuation and worrying ripple effects in the stock market has been experienced despite the downward Fed Rate adjustment (0.5%) on 18 Sept 07.
By year 2010, even if the property and stock market starts recovering, the retiring 4 million baby boomers per year may cause prolong lower demand.
Lastly, heard on CNN.com (Concerns over U.S economy) 25/10/07. Mark Konyn, CEO of RCM, had shared his knowledge. The concern is whether US economy slowdown may spill over to the world. Auto mobile sale (loan) has fallen, credit card debts had maintain (mount). There are signs of recession including tax coming down, sub-prime spill over, inflation, slow sales, etc.
This analysis may not hold much water since it has not taken into many economic consideration, but it has caused me to stop and wonder, if the signs are showing, shouldn’t I take a precautionary stand on my investment?
Monday, October 22, 2007
Life Expectancy and Retirement Funds
Heard on radio news this morning (22 Oct 07), some information on the government's plan on Annuity for Singaporeans. The annuity withdrawal age is proposed by SM Goh, to be 80 years old. Some facts and figures on Life Expectancy of Singaporeans:
- Male : 79.21 years
- Female : 84.59 years
- Average life expectancy being 81.8 years
- Median Age : 37.8 years
(info accurate as at Year 2007's statistics. Extract from https://www.cia.gov/library/publications/the-world-factbook/print/sn.html)
What gotten me wondering is, why does the government initially propose the withdrawal age at 85 years old, and now SM Goh counter-proposed it at 80 years old, when most males will be dead by then, and not many females will be living past 85 years old? This seems too funny, or rather, unfair to ordinary citizens like us. Is it really for the benefit of the general public, or will insurers benefit more from this? Shouldn't it be based on individual's preference, to opt-in if they like? Alternatively, the government could propose Endowment Funds provided by CPF where we get monthly payout from certain age for certain years, and remaining cash to be paid to next of kin should the member pass on prematurely.
Back to facts and figures. If the average life expectancy is 81.8 years old while the current retirement age is 62 years old, that means we will have almost 20 years to live on our savings. Will you have the finances to retire and live life as before retirement?
Let's take our expenditure after retirement as half that of an active working adult. If your current expenditure is $1,000 per month, you will need $500 per month after retirement. Take into account, this year's (2007) inflation is 2.9% (average inflation is about 3-5%). This means, the $500 should be inflated to (median age till retirement being about 24 years) $987 by year 2031.
With 20 years to live from retirement till motality, we need to have $987/mth for first year, and $1,727 on 20th year, thus average monthly expenses will be $1,357 per month upon retirement in year 2031. This means, we need at least $325,680 for retirement. If we were to save $500 per month, with interest (average savings interest being 0.29% pa), upon retirement, we will have less than half the amount we need to retire. Scary facts!
Let's look at how we can build funds for retirement. If we are able to invest $500 per month, at an average growth of 5% per year, we are only able to retire and have an average life, minus car, minus holidays. But is the average working adult able to save $500 per month?
Forget about your CPF. Our CPF Ordinary Account's funds are largely drained into housing installments. We still need to pay in cash, for the upkeep of the household. An average Singaporean's monthly income range from $2,000-$3,000 (guess-estimate). If the average income is $2,500 per month, $500 goes to CPF, which leaves us with $2,000 take home pay. If the individual owns a car, they are expected to spend $1,000 - $1,200 per month on car. What does that leave you with? Sadly, no more than $1,000 per month. How do you expect yourself to save $500 per month for retirement?
It is either, we start making more money, or make our money start working. Else, continue slogging till death do we part.
- Male : 79.21 years
- Female : 84.59 years
- Average life expectancy being 81.8 years
- Median Age : 37.8 years
(info accurate as at Year 2007's statistics. Extract from https://www.cia.gov/library/publications/the-world-factbook/print/sn.html)
What gotten me wondering is, why does the government initially propose the withdrawal age at 85 years old, and now SM Goh counter-proposed it at 80 years old, when most males will be dead by then, and not many females will be living past 85 years old? This seems too funny, or rather, unfair to ordinary citizens like us. Is it really for the benefit of the general public, or will insurers benefit more from this? Shouldn't it be based on individual's preference, to opt-in if they like? Alternatively, the government could propose Endowment Funds provided by CPF where we get monthly payout from certain age for certain years, and remaining cash to be paid to next of kin should the member pass on prematurely.
Back to facts and figures. If the average life expectancy is 81.8 years old while the current retirement age is 62 years old, that means we will have almost 20 years to live on our savings. Will you have the finances to retire and live life as before retirement?
Let's take our expenditure after retirement as half that of an active working adult. If your current expenditure is $1,000 per month, you will need $500 per month after retirement. Take into account, this year's (2007) inflation is 2.9% (average inflation is about 3-5%). This means, the $500 should be inflated to (median age till retirement being about 24 years) $987 by year 2031.
With 20 years to live from retirement till motality, we need to have $987/mth for first year, and $1,727 on 20th year, thus average monthly expenses will be $1,357 per month upon retirement in year 2031. This means, we need at least $325,680 for retirement. If we were to save $500 per month, with interest (average savings interest being 0.29% pa), upon retirement, we will have less than half the amount we need to retire. Scary facts!
Let's look at how we can build funds for retirement. If we are able to invest $500 per month, at an average growth of 5% per year, we are only able to retire and have an average life, minus car, minus holidays. But is the average working adult able to save $500 per month?
Forget about your CPF. Our CPF Ordinary Account's funds are largely drained into housing installments. We still need to pay in cash, for the upkeep of the household. An average Singaporean's monthly income range from $2,000-$3,000 (guess-estimate). If the average income is $2,500 per month, $500 goes to CPF, which leaves us with $2,000 take home pay. If the individual owns a car, they are expected to spend $1,000 - $1,200 per month on car. What does that leave you with? Sadly, no more than $1,000 per month. How do you expect yourself to save $500 per month for retirement?
It is either, we start making more money, or make our money start working. Else, continue slogging till death do we part.
Saturday, October 20, 2007
Delay Gratification
I came across people who find excuses to change car, excuses to spend, excuses to pamper themselves. Some will say, "I only lived once", "I'm young only once", "I can earned back what I spent", etc.
I've learnt that since I lived only once, I should make the most out of it. Since I am young only once, I have to make sure I do not look back later and say to myself that I shouldn't have spent like that. I had my share of desiring a better car, only to look back and told myself "I would have been $30,000 richer if I had not changed car those few times".
What we have spent, cannot be earned back. We only get to earn new income, but not what we spent. It is easier to spend than to save and grow these funds, so that we have more in future and are more able to afford things.
Rather than spending $500 on a new watch, or many thousands to change to a new car, we could have set aside this money and invest it so that it multiplies so that we have more to spend in future. Changing car, getting new and more fashionable clothings, new gaugets such as handphones, pda, computer, etc, are not a necessity but many finds it necessary to change.
Take car for example, if we were to change to a brand new entry level car (eg, those that cost less than $50k), we may loose $25,000 (depreciation) over 3 years. Calculation as follows:
- Purchase Price : $48,000
- 3 years paper value : $20,000
- Body value : $3,000
If existing car has another 7 years left, why not drive it on? Rather than wasting more money, save up this unnecessary funds and invest. With the earnings some years later, you could afford a new car and still have left overs to spend or invest again. Think again.
I've learnt that since I lived only once, I should make the most out of it. Since I am young only once, I have to make sure I do not look back later and say to myself that I shouldn't have spent like that. I had my share of desiring a better car, only to look back and told myself "I would have been $30,000 richer if I had not changed car those few times".
What we have spent, cannot be earned back. We only get to earn new income, but not what we spent. It is easier to spend than to save and grow these funds, so that we have more in future and are more able to afford things.
Rather than spending $500 on a new watch, or many thousands to change to a new car, we could have set aside this money and invest it so that it multiplies so that we have more to spend in future. Changing car, getting new and more fashionable clothings, new gaugets such as handphones, pda, computer, etc, are not a necessity but many finds it necessary to change.
Take car for example, if we were to change to a brand new entry level car (eg, those that cost less than $50k), we may loose $25,000 (depreciation) over 3 years. Calculation as follows:
- Purchase Price : $48,000
- 3 years paper value : $20,000
- Body value : $3,000
If existing car has another 7 years left, why not drive it on? Rather than wasting more money, save up this unnecessary funds and invest. With the earnings some years later, you could afford a new car and still have left overs to spend or invest again. Think again.
Friday, October 19, 2007
Start Investing with Nothing
That sounds like a joke. How do I start investing when I have no money? Many people perceived that they have no money and avoid the topic altogether. Let me share some insight.
I had done a little reading this year. I hate books, I'll doze off upon the first paragraph and exams are a torture. I had a few great men to thank. Three of my clients had told me "you must read this book 'Rich Dad Poor Dad'. It will change your mindset about money". How could three guys who have seen more than me, better fortune than me be so wrong about it? They told me, "the $10+ dollars investing in this book will pay off and it'll give you an idea why a lot of people are still stuck in their rat race".
It took me months, till repeat recommendation rang in my ears, gotten me curious about this 'great book'. Now, I thank these men, and the author Robert Kiyosaki for changing my mind.
Some who had read this book commented that there is nothing to gain from it. I learnt from what the author wanted me to understand, "reduce your liability and expenses, increase your assets and income". This will not make me rich, but it will help me avoid being any poorer than what I am now. It helped, I started asking myself, since I couldn't increase my asset (for now), I could have at least, reduce my liability and expenses. Good financial planning must be embraced early (it's never too late).
Coming back to my agenda of this blog post - How to Start Investing With Nothing? If you think you do not have the funds to invest, have you consider where you could raise funds? I have chanced upon one advice from one of the three men. Invest with others' money! If the cost of funds is 8%, and I can show you a potential returns of 10% per year (NETT), would that sound workable? If you think it's a joke, maybe you can stop reading.
Some people think they do not need money, or they are happy as they are now, being happy with little, maybe they want to start looking at being happier with more. Money is Not Everything, but Everything is Money. You are spending even as you sleep. Don't forget utility bills, other running cost of a home, etc.
It is time to change the way we think, take action and stop procrastinating. Money don't come to you, you have to find ways to make it yours. Stop self consolation that you can earned it back. Once money slips out of your hands, it's gone forever and you will have to earn again.
The big question now, How to Invest with Nothing! As taught by Robert Kiyosaki, reduce your expenses (and that will increase your disposable income). If a person has no savings to begin with, I will show you one opportunity where to find money for investment.
This sounds stupid to some, but idea to others (go on, laugh at my stupid idea). Invest using other people's money and pay interest on the funds you utilize. I can show you, making more than $1,000 a year, with nothing to begin with. Since you begin with nothing, $1,000 is a lot of money in return.
Let's take Line of Credit for example. If you borrow with prime interest rate of 7-8% pa, that is the cost of funds. If I can provide you guaranteed returns of 15-20% pa, don't you get a lot of money with nothing to begin with? If you think this is a scam, maybe you will stop reading.
Remember Robert Kiyosaki's words, reduce expenses. If you borrow $10,000 with interest of 8% pa for 2 years, your liablity is now $11,600 (based on compounded interest). If you pay back this borrowing over 24 installments, the monthly repayment is no more than $483/mth. Reduce your expenses, say, by $200 per month, you could be paying off these liability faster than you know.
At the end of the investment period (2-3yrs), you will get a return of between $14,470 to $15,960. The installment is your forced savings. You could either benefit from a returns of $2,870 (2yrs) from nothing, or see a savings and returns of $12,870. Did I showed you something practical and achievable?
It is time to start thinking and take action? Welcome to the world of money. I hope my idea benefit you.
I had done a little reading this year. I hate books, I'll doze off upon the first paragraph and exams are a torture. I had a few great men to thank. Three of my clients had told me "you must read this book 'Rich Dad Poor Dad'. It will change your mindset about money". How could three guys who have seen more than me, better fortune than me be so wrong about it? They told me, "the $10+ dollars investing in this book will pay off and it'll give you an idea why a lot of people are still stuck in their rat race".
It took me months, till repeat recommendation rang in my ears, gotten me curious about this 'great book'. Now, I thank these men, and the author Robert Kiyosaki for changing my mind.
Some who had read this book commented that there is nothing to gain from it. I learnt from what the author wanted me to understand, "reduce your liability and expenses, increase your assets and income". This will not make me rich, but it will help me avoid being any poorer than what I am now. It helped, I started asking myself, since I couldn't increase my asset (for now), I could have at least, reduce my liability and expenses. Good financial planning must be embraced early (it's never too late).
Coming back to my agenda of this blog post - How to Start Investing With Nothing? If you think you do not have the funds to invest, have you consider where you could raise funds? I have chanced upon one advice from one of the three men. Invest with others' money! If the cost of funds is 8%, and I can show you a potential returns of 10% per year (NETT), would that sound workable? If you think it's a joke, maybe you can stop reading.
Some people think they do not need money, or they are happy as they are now, being happy with little, maybe they want to start looking at being happier with more. Money is Not Everything, but Everything is Money. You are spending even as you sleep. Don't forget utility bills, other running cost of a home, etc.
It is time to change the way we think, take action and stop procrastinating. Money don't come to you, you have to find ways to make it yours. Stop self consolation that you can earned it back. Once money slips out of your hands, it's gone forever and you will have to earn again.
The big question now, How to Invest with Nothing! As taught by Robert Kiyosaki, reduce your expenses (and that will increase your disposable income). If a person has no savings to begin with, I will show you one opportunity where to find money for investment.
This sounds stupid to some, but idea to others (go on, laugh at my stupid idea). Invest using other people's money and pay interest on the funds you utilize. I can show you, making more than $1,000 a year, with nothing to begin with. Since you begin with nothing, $1,000 is a lot of money in return.
Let's take Line of Credit for example. If you borrow with prime interest rate of 7-8% pa, that is the cost of funds. If I can provide you guaranteed returns of 15-20% pa, don't you get a lot of money with nothing to begin with? If you think this is a scam, maybe you will stop reading.
Remember Robert Kiyosaki's words, reduce expenses. If you borrow $10,000 with interest of 8% pa for 2 years, your liablity is now $11,600 (based on compounded interest). If you pay back this borrowing over 24 installments, the monthly repayment is no more than $483/mth. Reduce your expenses, say, by $200 per month, you could be paying off these liability faster than you know.
At the end of the investment period (2-3yrs), you will get a return of between $14,470 to $15,960. The installment is your forced savings. You could either benefit from a returns of $2,870 (2yrs) from nothing, or see a savings and returns of $12,870. Did I showed you something practical and achievable?
It is time to start thinking and take action? Welcome to the world of money. I hope my idea benefit you.
Ignorance to Investment
A lot of times, when it comes to investing, people faced restriction from several reasons including:
- Conservative
- Had setbacks
- Procrastinate
- Misunderstood, wrong perception
- Excuses
Some people I've met had excuses such as:
- I've no money to invest
- I don't believe in investments
- If it's too good, there must be something I don't know
- I'm not ready
- I will get to that later
- I lack financial know-how
- I've been burnt before
- The risk is too high, etc.
I used to have such negative mindset after being burnt from mistakes during the Asian Crisis (1997) and Bursting Internet Bubble (2000). I was in denial when the market started falling during the months after April 2000 and refused to exit the market as I had no knowledge what was going on and gave myself excuses to leave my funds there only to see my funds plummeted by more than 50%, some losing more than 70%.
That was painful and I dare not touch investment again for the years to come till I started to relook at what went wrong and re-strategised my funds with some consolidation and taking painful cuts. The result from such an exercise with some brief knowledge saw my fortune recovering, though not back at the entry but at least I reduced my losses.
Recently, I looked at the market once again and asked myself if there is any potential market correction in the making. Since early this year (2007), there were 2 corrections, one in Feb/Mar and the second in August (U.S Sub-prime). Looking at the second correction, it shouldn't have affected the stock market but it did. I started reading into news reports to at least understand what the situation is and pondered what will happen in the coming months.
U.S Sub-prime was caused partly (i could be wrong though) by borrowers / home owners who took huge loans on their property mortgage (up to 100%) and the banks permitted it because of appreciating property prices in recent years. The first year of loan was faced with very low interest rates but rates will increase drastically on the second year or later and a good handful of borrowers couldn't afford the big jump in their regular mortgage installments.
With financial constrains, some borrowers default on mortage payment, some had to dump their investments and cash out to pay for mortgage, etc, thus ripple effects happened to the stock market. Of course, there are also other reasons that I have not analyse or not presented (too much info). Property sizeure happened, property market slowed down and prices started to depreciate, causing further problems.
U.S Fed Reserve had to take action to prevent a fallout on financial markets. Reading into potential action, they would likely reduced lending rates from 5.25%, bringing it down by 0.25% to 0.5%. The next Fed Reserve announcement would be on 18 Sept 07 and I took a calculated risk that interest rates will go down, thus stood by my beliefs and hung on.
I was guessing that the reduction will be by 0.25% but hoping that it would be a huge reduction of 0.5% instead. News were announced on 18 Sept 07 and interest came down by a whooping 0.5%. With that, I scheduled my exit from Unit Trust and happily took my money into another investment that gives a guaranteed return (15-20% pa).
I am learning and I hope to share my little knowledge or perception as I gain along the way.
- Conservative
- Had setbacks
- Procrastinate
- Misunderstood, wrong perception
- Excuses
Some people I've met had excuses such as:
- I've no money to invest
- I don't believe in investments
- If it's too good, there must be something I don't know
- I'm not ready
- I will get to that later
- I lack financial know-how
- I've been burnt before
- The risk is too high, etc.
I used to have such negative mindset after being burnt from mistakes during the Asian Crisis (1997) and Bursting Internet Bubble (2000). I was in denial when the market started falling during the months after April 2000 and refused to exit the market as I had no knowledge what was going on and gave myself excuses to leave my funds there only to see my funds plummeted by more than 50%, some losing more than 70%.
That was painful and I dare not touch investment again for the years to come till I started to relook at what went wrong and re-strategised my funds with some consolidation and taking painful cuts. The result from such an exercise with some brief knowledge saw my fortune recovering, though not back at the entry but at least I reduced my losses.
Recently, I looked at the market once again and asked myself if there is any potential market correction in the making. Since early this year (2007), there were 2 corrections, one in Feb/Mar and the second in August (U.S Sub-prime). Looking at the second correction, it shouldn't have affected the stock market but it did. I started reading into news reports to at least understand what the situation is and pondered what will happen in the coming months.
U.S Sub-prime was caused partly (i could be wrong though) by borrowers / home owners who took huge loans on their property mortgage (up to 100%) and the banks permitted it because of appreciating property prices in recent years. The first year of loan was faced with very low interest rates but rates will increase drastically on the second year or later and a good handful of borrowers couldn't afford the big jump in their regular mortgage installments.
With financial constrains, some borrowers default on mortage payment, some had to dump their investments and cash out to pay for mortgage, etc, thus ripple effects happened to the stock market. Of course, there are also other reasons that I have not analyse or not presented (too much info). Property sizeure happened, property market slowed down and prices started to depreciate, causing further problems.
U.S Fed Reserve had to take action to prevent a fallout on financial markets. Reading into potential action, they would likely reduced lending rates from 5.25%, bringing it down by 0.25% to 0.5%. The next Fed Reserve announcement would be on 18 Sept 07 and I took a calculated risk that interest rates will go down, thus stood by my beliefs and hung on.
I was guessing that the reduction will be by 0.25% but hoping that it would be a huge reduction of 0.5% instead. News were announced on 18 Sept 07 and interest came down by a whooping 0.5%. With that, I scheduled my exit from Unit Trust and happily took my money into another investment that gives a guaranteed return (15-20% pa).
I am learning and I hope to share my little knowledge or perception as I gain along the way.
Thursday, October 18, 2007
Investing your Funds
Where do you park your spare funds? Keeping all funds in one basket is unwise, leaving it all in the bank depreciates your money, uninformed investment exposed you to loosing it all. There are just so many investment vehicles out there.
We could be doing a proper diversification on our investments into:
- Short term, high liquidity investments
- Mid-term and sound investments
- Mid-long term investments to lock away funds
Investments with high returns (10% or more) are usually exposed to high risk as well. This could be in the form of stock market investment, Unit Trust, etc. Average investments (average of 2-5%) includes Insurance based products, bonds, blue chips, etc. Low returns investments are the 'safest' but gives you pathetic returns and they includes savings (current savings interest being 0.29% pa).
Remember, economic analyst projected an inflation of about 2.9% for this year, 2007. If you keep your funds in investments that pays lesser than inflation, your money has depreciated. You loose almost 3% just keeping it in the bank. You loose even more, eg 7%, if you spent it (7% GST).
Give this a thought, a mid-term investment that gives you an average of 15-20% Guaranteed Returns, plus Capital Protection. Sounds too good to be true? That's because you've not been exposed to such opportunity or info.
We could be doing a proper diversification on our investments into:
- Short term, high liquidity investments
- Mid-term and sound investments
- Mid-long term investments to lock away funds
Investments with high returns (10% or more) are usually exposed to high risk as well. This could be in the form of stock market investment, Unit Trust, etc. Average investments (average of 2-5%) includes Insurance based products, bonds, blue chips, etc. Low returns investments are the 'safest' but gives you pathetic returns and they includes savings (current savings interest being 0.29% pa).
Remember, economic analyst projected an inflation of about 2.9% for this year, 2007. If you keep your funds in investments that pays lesser than inflation, your money has depreciated. You loose almost 3% just keeping it in the bank. You loose even more, eg 7%, if you spent it (7% GST).
Give this a thought, a mid-term investment that gives you an average of 15-20% Guaranteed Returns, plus Capital Protection. Sounds too good to be true? That's because you've not been exposed to such opportunity or info.
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