Wednesday, December 23, 2015

Your Money Ratio$

Recently I have been reading this book which I thought is really good for financial planning:

They provide you with advise such as how much you should be saving at every age, how much you should invest, the maximum debt you should get yourself into etc.

Let's get into the details. Assuming you want to retire at age 65, and require 80% of your last drawn income for retirement. How much savings should you have at each age group? The book introduces the capital to income ratio, the savings ratio and the mortgage to income ratio to address this: 

Age Capital to income ratio Savings ratio Mortgage to income ratio Stocks Bonds
25 0.1 12% 2.0 50% 50%
30 0.6 12% 2.0 50% 50%
35 1.4 12% 1.9 50% 50%
40 2.4 12% 1.8 50% 50%
45 3.7 15% 1.7 50% 50%
50 5.2 15% 1.5 50% 50%
55 7.1 15% 1.2 50% 50%
60 9.4 15% 0.7 40% 60%
65 12.0 15% 0.0 40% 60%

For example, at age 35, you and your wife if married should have savings (bank deposits, insurance, stocks, bonds, CPF) that is 1.4 times your total combined annual salary. You should also be savings at least 12% of your total combined annual salary. Your existing mortgage debt should not be more than 1.9 times of your total combined annual salary. Further, you should invest your savings in a 50%-50% stocks to bonds ratio.

The 5% Rule

The way this works is that at age 65, you have 12 times of your last drawn pay as savings. Assuming you earn 100,000 at age 65, you will have 1.2 million in savings. You will withdraw 5% of this savings every year for your expenses. So 5% * 1,200,000 = 60,000. However, earlier we said that we need 80% of our last drawn income for retirement, which means we need 80,000 a year. So where does the additional 20,000 come from? The author suggests that this should come from social security schemes, which in the Singapore case, is CPF life annuity.

Withdrawing 5% of your savings is only a base, and has to be adjusted for inflation. So say for example at age 65, you withdraw 5% of your savings. At age 66, inflation is at 3%, which means now you have to withdraw 8% of your savings to buy the same amount of goods.

To ensure your money doesn't run out prematurely, it is important to keep your savings reinvested. The author assumes you can earn 4.5% real returns yearly on your savings fund, over a 40-year cycle. It is important to note this 4.5% figure is after accounting for inflation. If inflation is 3%, and the financial markets return 7.5%, after accounting for inflation the real return is 4.5%.

I am happy to say that our household met all these ratios, except the 50%-50% stocks to bonds ratio. Currently we are heavier on stocks.

It is important to note that the above is written for an american in mind, how do these ratios change when we consider the Singapore context? This is another piece of research to be worked on.

Sunday, December 20, 2015

Financial Snapshot

I decided to do a snapshot of finances at my current state, and perhaps do it once a year, at the end of every year.

This is so that if I ever retire say in 1X years, I have a record of my finances at every year which I can share with people on 'how I retired at age 4X in 1X years'.

Naturally, I do not want to disclose too much details or my net worth, amount I have in banks etc. so I will just share the following:

Year ending Stocks Bonds Cash for investment
2015 52451.71 20872 8335.63

Not included in the above are bank savings, insurance policies, CPF, SRS etc. The above are just the amount of stocks and cash in my 2 stock brokerage accounts, the stocks in my BCIP and SRS account, and the bonds I am holding at the moment.

So that's what I have now, next year in Dec I will update this table and see how much the portfolio gained/lost.

Tuesday, December 15, 2015

How to choose an Endowment Plan

In this post I want to share how I  am choosing an education endowment plan for my child.

Disclaimer: I am not a finance professional, all views expressed here are my own and should not be taken as investment advice. You should do your own due diligence when investing.

Quotations provided by insurance companies are lengthy, complicated, and most people don't bother with the details. They simply buy perhaps based on recommendations of friends, or worse yet simply because the insurance advisor say it is a good deal. But if you think about it, why should the insurance advisor say anything else? After all, she only makes money if she sells you the product. If her plan sucks, she won't say it for sure.

When I am choosing an education plan for my child, I tried searching online for advice on how to compare insurance quotations, but I could not find anything useful.

Sure, there were some articles providing advice but they were really basic. Such as, choose an insurance policy with the right time frame, that suits your needs etc.

In my opinion, there are several important things in an insurance quotation you should pay more attention to:

  • Total premium paid
  • Breakeven year - the first year in which surrender value (at say 4.75% projected returns) > total premiums paid
  • Guaranteed surrender value
  • Death benefit

These ratios are important in comparing quotations from different insurance agents (in all these ratios, the higher the better):

  • Year at which policy matures / Breakeven year
  • Total premium paid / Total distribution cost
  • Death benefit at end of policy term / Total premium paid
  • Guaranteed surrender value at end of policy term / Total premium paid
  • Actual % returns per year (based on say a 4.75% projected investment return)

I get at least three quotes from different insurance companies, and I compute all these ratios in a spreadsheet and compare them side-by-side. For those quotations that score the highest in each category, I assign 1 point. At the end, I choose the quotation with the highest points.

What do you think of this method? I believe it is much more quantitative and objective than simply choosing a plan based on how well you relate to the insurance agent!

Monday, November 23, 2015

Game of Uber

Have you taken Uber? I have. Some Uber drivers told me they can earn up to 6000 per month, one even said 10000 after deducting rental fees and so on! Does driving Uber make sense? How much can you really earn?

Let's find out.

We make the following assumptions:

Distance per trip = 15 km
Petrol cost per km = $0.23
Rental cost of car per day = $59 (from Lion City Rentals. This is their cheapest car.)
Rental cost of car per month = $59*7*4 = $1652
Cashcard cost per month = $10*7*4 = $280 (assume $10 per day)

For Uber, they have peak driving hours which is 7 - 11am on weekday mornings, 5 - 11pm on weekday nights, and 10am-10pm on weekends.

For Uber, they take a 20% cut of the gross earnings you make.

We consider three scenarios:

Scenario 1: Lazy

In this scenario, we drive only during the peak hours of 7 am to 11 am. We drive 3 hours per day on weekends.

So your PSH driven weekly will be 4*5 + 3 + 3 = 26 hours.

Assume you make 1.2 trips per hours (TPH), this qualifies you for the weekly accelerator guarantee of $18 per hour.

Total gross earnings = 18*26*4 = $1872

Fuel cost = $430.56

Uber cut = $374.40

Net earnings = 1872 - 1652 - 430.56 - 200 - 374.4 = $-784.96

Scenario 2: Relax

In this scenario, we drive during the peak hours of 7 am to 11 am, and also 5pm - 7pm. We drive 6 hours per day on weekends.

So your PSH driven weekly will be (4+2)*5 + 6 + 6 = 42 hours.

Assume you make 1.5 trips per hours (TPH), this qualifies you for the weekly accelerator guarantee of $24 per hour.

Total gross earnings = 24*42*4 = $4032

Fuel cost = $869.4

Uber cut = $806.4

Net earnings = 4032 - 1652 - 869.4 - 280 - 806.4 = $424.20

Scenario 2: Moderate

In this scenario, we drive during the peak hours of 7 am to 11 am, and also 5pm - 11pm. We drive 6 hours per day on weekends.

So your PSH driven weekly will be (4+6)*5 + 6 + 6 = 62 hours.

Assume you make 1.5 trips per hours (TPH), this qualifies you for the weekly accelerator guarantee of $25 per hour.

Total gross earnings = 25*62*4 = $6200

Fuel cost = $1283.4

Uber cut = $1240

Net earnings = 6200 - 1652 - 1283.4 - 280 - 1240 = $1744.6

Scenario 4: Extreme

In this scenario, we drive during ALL the peak hours of 7 am to 11 am, and also 5pm - 11pm. We drive 12 hours per day on weekends.

So your PSH driven weekly will be (4+6)*5 + 12 + 12 = 74 hours.

Assume you make 2 trips per hours (TPH), this qualifies you for the weekly accelerator guarantee of $36 per hour (this is the max).

Total gross earnings = 36*74*4 = $10656

Fuel cost = $2042.4

Uber cut = $2131.2

Net earnings = 10656 - 1652 - 2042.4 - 280 - 2131.2 = $4550.40

So there you have it. Even if you drive all day without seeing your family, the max you can earn is around $4550.4.

Stay tuned for our coming article on how much you can earn, if you BUY a car and not rent!

Wednesday, October 7, 2015

Returns of Online Suveys

In this post I will like to share how much money one can earn from online surveys. Often we see spam that promise free $$$ from doing online surveys, but really how lucrative are they? Can you afford to quit your job and just do surveys for a living? Read on...

Valued Opinions

In VO, as you complete each survey, the dollar amount will be allocated to your account. Subsequently you can use these dollars to redeem vouchers.

My rewards are about $100 after 1 year.


In MySurvey, as your complete each survey, points will be allocated to your account, and you can use these points to redeem vouchers.

I earned about 3425 points after 1 year, and it takes 600 points to redeem a Capitaland $10 voucher. So this means I earned 3425/600*10 = $57 after 1 year.

So VO definitely is the one that has higher returns, though for sure you can't make a living doing these surveys...

Thursday, August 13, 2015

Game of SMRT

Have you heard of some whizkids that are able to fly for free in the US? They do so by taking advantage of the frequent flyer schemes and some flaws in the pricing system of flights. Based on this I started wondering if we could also game the local MRT system and ride for free? Well, no such luck here! But using the various incentives out there, we can reduce our MRT fares considerably. Let's see how this can be done!

 I will use myself as a case example. Every Mon-Fri, I travel from the East where I stay, to the West where I work. Each of these trips cost me $1.88, so per day its $3.76. Assuming 20 working days in a month, that will be $75.20. Assuming I spend around $4 on weekends, and 4 weekends in a month, the total bill for public transport works out to be  $107.50 per month. Woah, that's a lot of money!!

Now, let's look at ways to reduce this amount.

POSB Everyday Card
 Do you know that POSB Everyday Card offers 100% cashback on your MRT and bus rides every Friday? Utilizing this scheme, I can reduce my MRT fares on Fridays to $0. So the new monthly transport fare will be 107.5 - 4*3.76 = 92.46. Good? This is a 14% reduction already! Let's continue.

Free Early Morning MRT Rides
Do you know by exiting before 7.45 am on weekdays at any of the 18 designated MRT stations in the city area, your ride will be free? I stay in the east and work in the west, so this means I can travel from the East every morning, exit at Tanjong Pagar MRT station, and re-enter and continue on my journey to the West. In doing so, my morning train fare is cut from $1.88 to $1.32, or a reduction of $0.56 everyday. So the new monthly transport fare will be 92.46 - 20*0.56 = 81.26, which is a 24.4% reduction in total. Let's continue.

Travel Smart Scheme
I have joined the Travel Smart scheme for a few years already. I am a platinum member meaning I earn more points for every km I travel. On average I earn around $8 in rebates every month. So the new monthly transport fare will be 81.26 - 8 = 73.26.

OCBC Frank Card
Using this card, you will get rebates of 6% if you spend >500 a month using this card, and if you use Flashpay auto top-up. Well, for me I don't spend so much on this card but I still get rebates of 0.5%. So the new monthly transport fare will be 73.26 - 0.5%*81.26 =  72.85.

Thats about it. We have reduced the fare from 107.5 to 72.85 which is a 32.2% reduction in monthly transport fare!

There are other techniques like taking advantage of a full refund when the MRT breaks down, but such chances are not frequent so I don't bother about them for now.

Friday, June 12, 2015

Retirement 2

In my last post, I wrote that there are two schools of thought to retirement:

  • 'Extreme savings' : You scrimp and save so that you can retire early
  • 'Work to enjoy life' : You continue working and have a late retirement to enjoy a comfortable lifestyle
 After thinking about it, perhaps there is a third school of though to reconcile both and have the best of both worlds. That is, the 'financial freedom' school of thought:

  • 'Financial freedom' : You work to achieve financial freedom. This means you have earned enough to maintain your current lifestyle, and you are able to quit if and when you want to. You don't necessarily have to retire from work, but the point is you are no longer working for the money.
I think this is what I should aim for! Financial freedom!

So now, a quick analysis on how far I am from financial freedom:

Monthly expenditures (this includes everything from groceries to monthly mortgage to child education expenses and insurance policies) = $4100

Monthly passive income (from stocks, bonds, savings deposits, fixed deposits etc.) = $391

Hmm...well...seems I have some way to go...

Thursday, June 11, 2015


I had an interesting conversation with my wife last night. I told her that I will like to retire early, and accomplish this by extreme savings ie. eating out less, buy cheap stuff, cut back on holidays etc. However, my wife disagreed with me and said she will rather work longer so that she can enjoy life ie. eating expensive food if she feels like it, maintaining present lifestyle and so on. It seems these are two different schools of thought.

The 'extreme savings' school of thought partly came from the articles I read on Marketwatch, one example is:

From the article:
"One secret to their success? They live on very little for a family of three: about $25,000 a year. They own a car, but mostly bike. Dining out is an occasional luxury. And shopping for stuff? That’s best avoided. But their philosophy goes beyond mere scrimping, says Mr. Money Mustache. It’s about enjoying life with less."

But after listening to my wife and her arguments I'm no longer sure which school of thought I belong to...hmm....

Tuesday, May 19, 2015

Cost savings of using LED lights

LED lights are more expensive than fluorescent lights, but are there any cost savings in the long run? How many years it takes before we spend less using LED than using fluorescent? Let's do a spreadsheet analysis to find out!

Cost of LED light 24.6 W = $35
Cost of fluorescent light 32 W = $6.80 (Sheng Shiong)
Electricity tariff = 0.2233 per kWh
Days in a month = 31
Hours light is switched on per day = 6
Both the LED and fluorescent light does not spoil in the time period we are analyzing.

So there you have it! In the spreadsheet below, we showed that the initial cost of using LED is higher than fluorescent. However, after 92 months (7.7 years), the total cost of using LED will be less than the total cost of using fluorescent.

This is analysis of using LED purely from an economic standpoint, and it is up to you to decide whether LED lights make sense for you or not :)

Cost of LED light 24.6WCost of Fluorescent 32W (Sheng Shiong)
0 months356.8000

Monday, May 18, 2015

Hello World!

I started this blog to raise awareness of simple ways you can do to save money and result in larger cash flows for investments/savings/enjoyment etc. As to the name, 'opti' is short for 'optimization' and as its name suggests, we aim to optimize our personal finances. Stay tuned for our articles!