Category Archives for Personal Finance

Optimise your CPF retirement with this CPF Tracker spreadsheet tool

How many years do I need to work to accumulate enough money in my CPF for retirement?

Should I transfer money from my Ordinary Account to my Special Account?

Can I work lesser years and have sufficient money to retire if I top up my Special Account with cash?

4 years ago, these were the questions I wanted to find answers for.

At that time, there weren’t any financial bloggers who had an answer for this so I decided to design my own spreadsheet. For the lack of creative cells in my head, I called it the CPF Tracker tool.

Seeing that the Seedly Facebook community has been asking the same questions in the past few months prompted me to make some changes to my CPF Tracker tool to make it more user friendly for others. It took some time, but it’s finally done!

Click here to view my CPF Tracker

Before you start, click on “File” and select “Make a copy…” to save a copy of this spreadsheet in your Google Drive.

Monthly CPF Contributions

Let’s start with the Monthly CPF Contribution worksheet.

I started this CPF Tracker in 2015 at the age of 32. Feel free to change the year and age to suit you.

Decide on how long you plan to be working and your estimate monthly salary. Note that any monthly salary amount above $6,000 will not make any impact because CPF’s Ordinary Wage Ceiling is currently capped at $6,000.

Forecasting your Full Retirement Sum

Using the Full Retirement Sum for the last 4 years to predict the average yearly increments for Full Retirement Sum. You can extend the number of years on your own to forecast how your Full Retirement Sum is like.

If your Full Retirement Sum is different from mine (I reach age 55 in 2038), Update cell M15 in the CPF Calculations worksheet accordingly.

CPF Calculations

Next, click to the CPF Calculations worksheet to make a few changes.

Input the final figures in your CPF accounts for last year in Column M. The CPF OA, CPF SA and CPF MA worksheets will use these figures to forecast your CPF account figures in future.

If you have existing mortgage loans, enter your monthly mortgage loan repayment numbers in Column J. The CPF OA worksheet will make the respective deduction each month.

Transferring money from Ordinary Account to Special Account

Are you wondering if transferring money from your CPF Ordinary Account to your Special Account to accumulate a higher interest rate of up to 5% will help you reach your Full Retirement Sum faster?

In the CPF OA worksheet, I created something to simulate an answer for this question.

Go to Column P and enter the amount you plan to transfer from your Ordinary Account to your Special Account. The CPF Tracker will simulate what happens when you transfer the money in the month of December from OA to SA.

Topping up your CPF accounts with cash

What about topping up your CPF account with cash? Besides the tax benefits that comes with your CPF cash top up, how does it accelerate your retirement?

I’ve added something in all the 3 worksheets, CPF OA, CPF SA and CPF MA, to simulate an answer for this as well. Column O of all 3 worksheets helps to simulate performing a cash top up to the respective CPF account in the month of December.

How forecasting your CPF retirement can help you plan for retirement

With this CPF Tracker tool, I hope you are able to forecast how long you will need to work to meet your CPF retirement needs.

Ideally, you should aim to reach 55 with a positive figure in your CPF OA account after repaying your mortgage loan. Bulk of your Full Retirement Sum should be funded by your CPF SA account for optimum effectiveness because funding it with CPF OA will take too long. This is due to the difference in interest rates between both accounts.

Let me know what you think about my CPF Tracker and what you would like to see improved in the comments below.

Note: The main challenge in the CPF Tracker was calculating the interest rates at the end of each year. CPF has a slightly more complex way of calculating interests that I wasn’t able to replicate in my CPF Tracker. That said, I feel that the deviations were not that far for me to spend the effort to make additional changes.

Additional note: The CPF Tracker ignores the extra 1% for the first $60,000 in the CPF account because it’s just too tedious to code it in the spreadsheet formula.

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50/30/20 rule: why experts got it wrong

US Senator Elizabeth Warren popularized the 50/20/30 budget rule in her book “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to divide after-tax income, spending 50% on needs and 30% on wants while allocating 20% to savings.

Thereafter, experts have been recommending consumers to save 10-20% of their income. Even in Singapore.

But I have a different opinion on this and won’t recommend people of all ages to only save 10-20% of their income.

Here’s my view.

The 50/30/20 rules works when you’re starting your first job

For someone who is starting their first job, the 50/30/20 budget rule may be a good start since the salary isn’t very high.

According to Straits Times, the median monthly salary of fresh graduates is around $3,400. Let’s break the salary up using the 50/30/20 budget rule as a benchmark. With $2,720 after CPF contribution, that means as a fresh graduate, you should be spending up to $1,360 on needs, $816 on wants and $544 on savings.

I think that’s a fair starting point, if expenses such as insurance is considered part of needs.

What happens later?

Let’s fast forward to 3 years later.

You worked hard, possibly switched to a higher paying job. Your salary went up by 10% (I’m being pragmatic) and you’re getting $3,740 per month now.

That splits your salary into $1,496 on needs, $897.60 on wants and $598.40 using the 50/30/20 rule, after CPF contribution.

By following the budget rule, you would be spending an additional $217.60, bumping your total expenses to $2,393.60.

But what if your lifestyle hasn’t changed much? Are you going to spend more money just because the budget rule allows it?

Lifestyle inflation is totally within your control

If you received a salary increase and your lifestyle has not changed, there’s no reason to be spending more money. I know it’s enticing to eat in fancy restaurants more often, but does it really bring you joy and value?

The prudent and logical thing to do with that extra stash of money is to channel it into savings.

Now that we agree on this, your budget now becomes $1,360 (unchanged) on needs, $816 (unchanged) on wants and $816 (+$272) on savings.

We’ve jumped off the 50/30/20 budget rule bandwagon.

Your needs/wants/savings proportion is now 46/27/27 and this budget works for you!

Once we’re off the bandwagon, the sky’s the limit

Let’s go even further. You’re 30 with around 10 years of work experience under your belt.

You’re making $100,000 per year now. That’s $6,666 per month after CPF contribution.

Your needs have slightly increased to $1,500. You have a girlfriend and you’re spending a bit more bringing her to nice places, spending quality time. So wants have ballooned to $1,500. You save the rest.

The increases are real, but in reality your needs/wants/savings proportion have improved significantly to 22/22/56.

Considering all things, I think 56% is a very decent saving rate.

What it all means?

In the long run, needs-based expenses will eventually plateau while wants expenses have to be managed. But all things considered, it won’t be surprising for savings to hover around 70-80% eventually.

When you start your financial planning journey, your needs/wants/saving budget rule has to be suited to your current income. The 50/30/20 rule is not necessarily relevant and should not be even be a benchmark (unless you are starting your first job).

How did you plan your first budget? Let me know in the comments below.

My beginner’s guide to personal finance 101

In online forums and Facebook groups that I’m a part of, it’s heartening to see that many young adults are asking questions about managing their personal finances.

How much emergency funds should I have?

What type of insurance should I buy?

How much insurance coverage is considered enough?

Where should I invest my money in?

The list goes on and on…

In my efforts to help the community, I decided to publish my beginner’s guide to personal finance 101. This is meant for young adults who just started working and want to improve their personal finances.

The reason why I chose to call it MY beginner’s guide instead of THE beginner’s guide is because personal finance is a very individual thing (that’s why they call it personal finance) and what works for me may not necessarily work for you.

You can use my guide as a reference to build the pillars of your personal finance.

Let’s start with the fundamentals

Imagine your personal finance as a football field and the 11 players are portions of your money.

Your money is just like each player on the field. Every dollar has a purpose and you need to decide what they are meant to do on the field.

Insurance is your goalkeeper

Imagine playing in the most important football match of your life without a goalkeeper. That’s literally leaving the gates of your castle open for invaders to enter. What can be worse than that?

You work hard for both your family and yourself. No reason to let an accident, cancer cells or death, change everything for everyone.

I spent some time researching on the Internet, looking at articles and blogs of personal finance experts to understand the purpose of the various types of insurance. With that knowledge, I have determined the amount of insurance coverage an individual should have at least:

  • Death/Total Permanent Disability – 7.5 years of annual income
  • Critical Illnesses (CI) – 5.5 years of annual income
  • Early Stage of CI – 1 year of annual income
  • Accidental Death – 5 years of annual income
  • Integrated Shield – Covered up to Class A wards in government hospitals

Your savings will defend you when your life takes an unexpected turn

Now that you’re taken care of when it comes to sickness and death, let’s look at defending against everything else.

Think about it, what’s the worse thing that could happen to you financially?

Taking longer to recover from an illness and can’t get back to work?

Received a large bill for a leaking pipe in your kitchen?

Retrenched from your job and need to cover your living expenses until you find a new job?

Experts typically recommend having 3-6 months of living expenses. While I agree with this recommendation, I question the opportunity cost of letting the money sit in a low interest savings account.

Some readers may argue that today, there are saving accounts that pay out pretty decent interests if certain conditions are met. My issue with these saving accounts is that they require some level of active management each month and if you don’t put away the interest earned somewhere, you might end up just spending it all.

I’m just too lazy for that sort of thing.

Personally, I have chosen to set aside 6 months of emergency funds, but stored them in different places.

  • 1 month – Cash savings account (available immediately)
  • 3 months – STI ETF (available in 3 days upon sale)
  • 2 months – 60% bonds & 40% equities portfolio in AutoWealth (available in 7 days upon sale)

I don’t put all my money in a cash savings account where they sit around doing nothing. It’s just like how you keep your defenders running on the field ensuring their opponents do not get the ball past them. You don’t bench them waiting for things to happen before you activate them.

Instead, I keep a months’ worth of emergency fund in a cash savings account in case I need them. For the rest, I have them in investment accounts that I can cash out within 1 month.

The only thing I have waiting on the bench as a substitute, is my credit card.

Your investments are your midfielders and strikers

With the defence all sorted out, let’s start putting some points on the scoreboard.

How you place your midfielders and strikers in your formation and how hard you work them, determines your chances of scoring a decent profit. The positions of your midfielders and strikers determine the level of risk you are willing to take in your investment portfolio. The higher risk, the higher the returns right?

A well-balanced formation of midfielders and strikers will help increase the chances of delivering the ball to your strikers and giving them the opportunity to score goals.

But an unbalanced formation increases the chances of your opponents attacking and overwork your defenders, exhausting them unnecessarily.

Midfielders have lower chances of scoring but also take lesser risk

You can have place your midfielders in defensive positions closer to your defence to protect against those long balls. Sure they won’t help score the big profits but at least they are capital guaranteed.

Here are some defensive midfielders that are capital guaranteed:

  • Singapore savings bonds
  • Singapore government treasury bills
  • Singapore government bonds
  • Fixed deposit with banks
  • CPF top ups

You can also have midfielders closer to your strikers to facilitate the goal scoring. Sure the risks are higher and your capital may not be guaranteed, but they can help score some goals. Because for some, ending the game with a draw isn’t an option.

Your attacking midfielders could be:

  • Unit trusts or mutual funds
  • Index exchange-traded funds
  • Defensive income stocks
  • Real Estate Investment Trusts (REITs)
  • Real estate

Who’s going to help you score?

You may want to have some aggressive investments in your portfolio if you want to achieve high returns.

Here are some of the strikers could get you the high returns you seek, but fair warning, they could also cause a major upset when they fail:

  • Stocks (especially penny stocks)
  • Commodities
  • Options and Futures
  • Currency exchange (Forex)

Good strikers are really hard to find these days. I had some really good ones who scored a few goals for me a number of years ago and they’ve been retired. I’m fielding my attacking midfielders as strikers for now.

The way I’m doing it right now is having a 80/20 split between equities and bonds in one of my AutoWealth robo advisor portfolios.

While I’m settled with scoring lesser goals (only getting 5-8% returns) for the moment, I’m happy to report that I sleep very well at night.

What are you going to do?

There you have it, my complete write-up on Personal Finance 101 for beginners. I hope you found them useful to you.

You can also check out my investment portfolio and insurance choices.

Did you find my article useful? Please share your thoughts in the comments below.

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