6 Myths About Personal Finance to Stop Believing

6 Myths of Personal Finance to Stop Believing

6 Myths About Personal Finance to Stop Believing
6 Myths About Personal Finance to Stop Believing

There are so many things that we can’t believe anymore. Even the age old “Put your money in the bank is safe” no longer stand through with the collapse of Silicon Valley Bank over the weekend.

Making the correct decisions when managing your wealth is essential. To do so, you may seek advice from trusted individuals like family and friends. Unfortunately, they may be making crucial mistakes with their personal finance decisions too, leading you astray.

Here are six personal finance myths that you would want to stay away from.

#1: Financial Planning is for the wealthy

“I don’t have money to plan for the future.”

The mindset that financial planning is only for wealthy individuals is a myth many people believe. Whether you are rich or poor, it is important to take control of your finances and budget planning. If you have income and expenses, creating a plan to handle them should leave you with more to spend. In the past, barriers such as high brokerage fees made it challenging to pursue a financial plan. However, transparency and technology have made it much easier to get started in the current age.

As a general rule, purchasing every product and service you desire will quickly get you into financial trouble. Following a budget is vital when you earn or have a specific amount of money. While some individuals think that having a budget doesn’t allow you to have fun, the opposite is true. You just need to make compromises. For example, if you want to buy a new car, you may have to cut out on extra wardrobe items and restaurant outings over a defined period of time.

#2: Using Credit Cards Is Best During an Emergency

“I have 6x monthly income limit on my credit card. I should be fine”

While covering an unexpected expense using a credit card may be handy, this action can be highly detrimental. Credit card interest rates are often high. Even if you have a small debt, the interest included with each payment can slowly eat away at your funds. Creating an emergency fund for troubling times is a much better option, allowing you to pay for costs you weren’t expecting.

#3: Investing Requires a Lot of Money

“Buying Apple Shares ($148 on 13Mar23) is expensive!!”. (Owned the latest iPhone 14 SGD $1311anyway)

Investing and making money in the stock market are often associated with wealthy individuals. This is a common myth seen from the portrayal of Jordan Belfort in The Wolf of Wall Street playing on fuboTV. This movie shows Belfort’s extravagance and lifestyle fueled by his success in the stock market. While having a lot of money certainly opens up multiple avenues for investment, a lot of instruments allow the average investor to enroll – in some cases, starting with as low as $10.

You can choose your preferred instrument – be it fixed deposits, bonds, mutual funds or stocks – based on the money that you have and the risk that you are willing to take.

#4: Getting Into Debt Is Bad

“Should I take a loan for my Balenciaga T-Shirt?”

While it’s important to approach debt with caution, it can be a good decision. Borrowing money can be a handy tool to reach financial goals, such as funding a startup business or purchasing a home. While you’ll be paying interest on the amount you borrow, using debt for a positive financial pursuit can be highly cost-effective. However, using debt to finance a lavish lifestyle could lead you down the wrong path, forcing you to pay high interest. Choosing the appropriate debt tools is critical when borrowing, and the timing is also essential.

Different sectors of the economy have cycles where the values of assets go up and down. In the housing sector, if you purchase a home when values are high, thinking you can save money by deducting mortgage interest on your taxes, it may not be best. Renting allows you to wait for lower home prices. Owning a home can be a dream for many individuals. However, purchasing at the top of a cycle can become a nightmare if you have to pay high installments for an extended period. Choosing the appropriate time to get into mortgage debt can be vital if you want to benefit.

#5: Paying Off High-Interest Debt First Is Best

“Which credit card debts should I pay off first?”

If you’re following mathematics, paying off debt with high-interest rates first will lower the amount of fees you pay quicker once you close out these types of debts. While this action is a good approach, it may take a significant amount of time, making you feel frustrated.

I have found that it is helpful and motivating to pay off accounts containing a small debt (anything less than $1000) first. Once you knock a few out, you’ll have fewer accounts to deal with and can focus on paying debts with the highest interest rates.

#6: Retirement Planning Can Be Done Later

“I will plan for retirement when I’m 65”.

Another common myth relating to personal finance is that retirement planning is usually completed later in life. While starting a retirement account may be the last thing on your mind if you’ve recently graduated from college and started a new job, it can be the best time to begin this pursuit. Saving for retirement early allows you to accumulate wealth over a larger number of years. Doing so can have a significant impact on the money you have to spend when you retire.

Final Thoughts

Don’t let these myths get into your way of financial success. Discern between the noise and what make sense to you.

March Forward!

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

CPF Changes 2023 Budget Highlight Impacts

CPF Changes 2023 Budget Highlight Impacts

CPF Changes 2023 Budget Highlight Impacts
CPF Changes 2023 Budget Highlight Impacts

In Singapore’s Budget 2023, Deputy Prime Minister and Minister for Finance Lawrence Wong announced the changes in CPF moving forward. He have highlighted 5 changes that will impact Singaporeans. In this article, I will give some insights on the changes and how it will impact your journey to retire confidently.

Increase in monthly CPF salary ceiling to $8000

This is the most talked about among my peers as I guess this impacts them the most. There will be 4 years of adjustment (until 2026) to realised the full impact of this increase. The annual salary ceiling of $102K will not be changed for now.

CPF Changes 2023 Budget Highlight Impacts CPF Monthly Salary Cap
CPF Changes 2023 Budget Highlight Impacts CPF Monthly Salary Cap

You will feel this impact if you are earning between $72,000 to $102,000 annually. There are 3 obvious impacts from this change. Firstly, our take home pay will be lower. Secondly, our total CPF contribution will be higher. Thirdly, our overall package will be higher.

CPF Changes 2023 Budget Highlight Impacts CPF Monthly Salary Cap Difference
CPF Changes 2023 Budget Highlight Impacts CPF Monthly Salary Cap Difference

This will directly raise our ability to fulfill the Full Retirement Sum (FRS) as there will be more contributions. In 2021, 66% of CPF members have hit their Basic Retirement Sum (BRS). While this is a good sign, this will increase the number of people hitting BRS or even FRS.

If we were to go one step deeper into the analysis, this might be the first of many steps to address prolong inflation. As we see the prices of goods and services increase in the last 2 years, our current BRS / FRS may not be able to allow people to retire with confidence. By increasing the monthly salary cap upwards to $8000, this will give some leeway to increase the rate of increase of BRS / FRS in the years to come so that there is enough CPF monies to allow you to retire with confidence.

Senior Workers Initiative

Increase in CPF Contributions

There will be another increase in CPF contributions for those that are age 55 to 70. The first two steps of increases took effect on 1 January 2022 and 1 January 2023 (Read More: 4 Things From Singapore Budget 2022 That Will Affect You and Me). The Government will continue to raise the senior worker contribution rates in 2024 with a long-term target to have the full increase rolled out by 2030.

RSS (Retirement Sum Scheme) Increase Payout

From June 2023, the minimum payout from RSS will increase from $250 to $350 per month.

Easier to receive CPF-Life Payouts from CPF-OA and CPF-SA

If you have not achieve FRS and are still working (getting CPF contributions), CPF board will automatically annuitised your CPF-OA and CPF-SA for higher CPF LIFE payouts.

Some of these changes are not new. They have been around for a while and we are beginning to see the implementation of it now.

 

Final Thoughts

There are also other initiatives that are welcome. I personally like the part where there will be extra CPF grant for eligible first-time buyers to buy resale HDB flats. This will relief some pressure in the property market and at the same time give families an affordable and more “immediate” home.

Do you like the new changes? Let me know.

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

4 Things From Singapore Budget 2022 That Will Affect You and Me

4 Things From Singapore Budget 2022 That Will Affect You and Me

On Feb 18, 2022, Finance Minister Lawrence Wong delivered the Singapore Budget 2022 in Parliament. The topics were broad ranging as it addresses the economy, helping businesses and green initiatives. The focus which I saw was mainly into healthcare, retirement and funding them.

In this article, I will talk about 4 main things from the Singapore Budget 2022 that will affect ordinary people like you and me. In addition, I will talk about the possible impact in a limited context.

4 Things From Singapore Budget 2022 That Will Affect You and Me
4 Things From Singapore Budget 2022 That Will Affect You and Me

#1: GST for You and Me

Singapore will raise Good and Service Tax (GST) from 7% to 9% in 2 stages in 2023 and 2024.

*Groan*

This might be dreadful news for everyone. GST is basically a tax on all goods and service in Singapore. Think of your coffee at Breadtalk, the iPhone you buy from Singtel or the massage at the parlor. We might not “see” GST very often as most shops would have already incorporated GST into their final prices. When GST increase, this will inevitably be passed to consumers like us. It is more important than ever to plan more for our retirement.

Positively thinking, the GST in 2022 is still 7%. If you have any bigger expenditure (Read more: How To Save On Big Ticket Purchases) that you require, you can consider doing so in 2022. These could be things like renovation, buying a laptop etc.

On a side note, this might boost the Singapore economy in 2022.

#2: Vouchers for You and Me

The Assurance Package first announced in 2020 by then Finance Minister Heng Swee Kiat has been topped up to be $6.6B by current Finance Minister Lawrence Wong. The main intention is to help support lower and middle income household in the increase in GST (maintain standard of living) even after the package ends.

Singapore Budget 2022 Assurance Package Vouchers
Singapore Budget 2022 Assurance Package Vouchers

The Straits Times actually did a beautiful summary on the vouchers that could be received. For a more detailed look at how much specially you will be getting, the Ministry of Finance page is the place to go.

I can safely say that the minimum that a Singaporean age 21 and above will get at least $700 from 2023 to 2027.

#3: CPF Retirement for You and Me

CPF Retirement Sums Raised

The first impact on CPF retirement is that our retirement sums will be raised by 3.5% per year for the next 5 cohorts that will be turning 2023 to 2027. There have been no mention if this will be reduced after that. It would be good to note that it was previously increasing at 3% per year.

Singapore Budget 2022 CPF Retirement
Singapore Budget 2022 CPF Retirement

This means that more have to be put inside of CPF so that you will be able to have a higher monthly payout at 65. However, this will also mean that you will likely draw out less at age 55. (Read More: 3 Key Changes To CPF Policies From 2022).

It is also worth noting that 8 out of 10 active CPF members aged 55 in 2027 will be expected to hit their BRS securing a basic level of retirement in any case.

CPF Contribution Rates Raised

The second impact on CPF will be of contribution rates for employers and employees will continue to be increased. The first increase has started from 1 Jan 2022. The next increase will be in 2023. This will also mean that more will go into CPF.

It is worth noting that if a CPF member have already hit the FRS, you will be able to withdraw the excess out as cash. Therefore, increase in contribution rate (by the employer) is generally seen as a good sign.

Singapore Budget 2022 CPF Contribution
Singapore Budget 2022 CPF Contribution

#4: Taxes for You and Me

If you are affected by some of these tax, congratulations! You might be the top 1% income earners in Singapore. In the budget 2022, there will be 3 main taxes namely, income tax, property tax and luxury car taxes.

Income Tax

This change will come in for year of assessment 2024. This means that it will be for income earned between 1 Jan 2023 to 31 Dec 2023. There will be 2 additional upper bands.

For chargeable income from $500K to $1M, it will be taxed at 23%.

For chargeable income from $1M and above, it will be taxed at 24%.

Singapore Budget 2022 Effective Income Taxes
Singapore Budget 2022 Effective Income Taxes

In the grand scheme of things, our effective income taxes are still reasonable as compared to many other countries. I believe this will affect the top 1% of us. (Read More: Income Tax Deductible 2021)

Property Taxes

To understand property taxes, there are 2 concepts that you need to know. One is Annual Value (AV) and the other is whether the owner is staying in the property. As the latter is quite clear, I will explain AV.

AV: Estimated gross annual rent of the property if it were to be rented out.

This number is decided by IRAS and there is nothing much you can really do about it. You can find the AV of your property on the IRAS portal. Looking at the photo below, you can have a rough sense by looking at the AV compared with the type of property.

Singapore Budget 2022 Property Taxes
Singapore Budget 2022 Property Taxes

Property taxes will be raised in 2 phrases namely in 2023 and 2024.

Singapore Budget 2022 Property Tax Non Owner Occupied Rates
Singapore Budget 2022 Property Tax Non Owner Occupied Rates
Singapore Budget 2022 Property Tax Owner Occupied Rates
Singapore Budget 2022 Property Tax Owner Occupied Rates

I believe impact will be felt for Non Owner occupied of AV > $45,000 with tax rates increasing from the current 14% to 28% in 2024. These would most likely be an investment property that are collecting rent.

For Owner occupied of AV > $55,000, the tax rates will increase from the current 4% to 10% in 2024. According to Lawrence Wong, this will affect 7% of owner-occupied residential properties. I believe this will be a combination of landed property owners (5% according to Department of Statistics in 2021) and some condominiums owners in central areas (2% of residential properties owners by subtraction). It will not affect most of us.

This is be seen as a form of wealth tax.

Luxury Car Taxes

An additional registration fee (ARF) tier has been created for cars, taxis and goods-cum-passenger vehicles with open market values (OMV) exceeding $80,000.

This will only affect Porsche Cayenne, Lamborghini Urus and Bentley Continental GT, and it will also affect several other makes such as Ferrari, McLaren, Aston Martin, Rolls-Royce and Mercedes-Maybach as well as top-end models in a number of other brands.

I believe this will not impact most people on the ground.

The top 6 luxury car brands in Singapore sold 216 cars in 2019. If demand remains the same, only a extremely small proportion of people will be affected by this. This is definitely a wealth tax.

Singapore Budget 2022 Car Taxes Bentley Continental GT
Singapore Budget 2022 Car Taxes Bentley Continental GT: Seen any of these around?

Conclusion

The budget comprises more than just the above 4. The 4 points above just show how the Singapore Budget 2022 will directly impact you and me.

I wish you the best in your financial journey. Hope to hear from some of you.

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

SRS Last Chance Save 1 year with $1

SRS Last Chance: Save 1 year with $1

SRS Last Chance Save 1 year with $1
SRS Last Chance Save 1 year with $1

SRS is a voluntary scheme to help individuals save for retirement in additional to the Central Provident Fund (CPF) saving.

The SRS offers tax benefits and you can find a quick summary of SRS here. This information is crucial to you especially if you are above 40. I will be conducting a SRS webinar in the next few weeks. Join my Telegram Group where I share 1 financial tip a day where I will be posting more details.

Why is this a last chance?

SRS allows you to make penalty free withdrawals from your SRS on or after the statutory retirement age (currently at 62) that was prevailing at the time of your first SRS contribution. 

In the National Day Rally in 2019, it is already made know that the statutory retirement age will increase to 63 (in 2022) and 65 (by 2030).

This means that if you don’t make your first SRS contribution before 2022, your penalty free withdrawal year will increase by 1 year to age 63. This is your last chance in doing so.

SRS Last Chance Retirement Age Increase National Day Rally 2019
SRS Last Chance Retirement Age Increase National Day Rally 2019

How much do I need to contribute?

All it takes is $1. You didn’t hear me wrong. You don’t need to invest in anything yet. The account opening only require $1 (and around 1 minute). The purpose of it is to “lock in” your statutory retirement age to be 62. You can find out more in one of my most read article last year called the $1 SRS strategy.

You can then consider to invest it or think about investing using your SRS in future.

Final Thoughts

Personally, I think it is a no-brainer to open the account. The “opportunity cost” is just $1. That being said, the choice is still yours at the end of the day.

For those of you who have opened your accounts. What are you investing in currently?

Let me know in the comments below.

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

Top 5 CPF Decisions To Be A CPF Millionaire

Top 5 CPF Decisions To Be A CPF Millionaire

Top 5 CPF Decisions To Be A CPF Millionaire
Top 5 CPF Decisions To Be A CPF Millionaire

CPF remains one of the main cornerstone of wealth management in Singapore. There are tons of information regarding the CPF on the web and I’m happy to see that CPF is having a purposeful outreach to the retirees and even the younger crowd. I do notice a better acceptance of the CPF during my 9 years in financial services and I do hope this trend continues.

Previously, I have spoken about 5 Things You Need To Know About Your CPF. This stems from 5 mistakes people make using their CPF that I have written in the last year. One of my friend then asked me why not write about the best advice that I will give with regards to CPF.

I have reservations about using the word “advice” because this assumes that I understand the situations, the profile, the life stage and risk tolerance, etc about that individual. Hence, this article is not about best advice but perhaps best decisions you can make if it fits your situation.

If you wish to find out more, I’m organising a CPF webinar on 29th April 2021. Limited seats only. Click here to join us.

 

#1: Transfer money from OA to SA

This is a pretty easy one. Currently, the floor rate of CPF-OA is 2.5% and the floor rate of CPF-SA is 4%. You would want to put more money into an account with higher interest with all things kept constant.

Top 5 CPF Decisions To Be A CPF Millionaire Compounding Effect
Top 5 CPF Decisions To Be A CPF Millionaire Compounding Effect

For the same $20,000, you would have $68K in your CPF-OA and $142K in your CPF-SA after 50 years. This is a difference of $73K. However, I do acknowledge that some might need to use the monies in the OA for your housing loan or downpayment. If you do not have “extra” monies in your CPF-OA, you can consider to transfer it to your SA.

Please note that this process is irreversible.

 

#2: CPF-SA Shielding

At the age of 54, you might want to consider CPF-SA shielding. In a nutshell, it means keeping your monies in your CPF-SA account to get a higher interest. This is because at age of 55, the formation of your RA (retirement account) starts from your CPF-SA and than your CPF-OA.

Top 5 CPF Decisions To Be A CPF Millionaire CPF SA No Shielding
Top 5 CPF Decisions To Be A CPF Millionaire CPF SA No Shielding

This is an example of no shielding. All your CPF-SA ($150K) will be transferred in the creation of you CPF-RA account leaving $0 in your CPF-SA after age of 55.

Top 5 CPF Decisions To Be A CPF Millionaire CPF SA Shielding
Top 5 CPF Decisions To Be A CPF Millionaire CPF SA Shielding

With CPF-SA shielding, you temporarily transfer out you CPF-SA into a “safe” investment. $40,000 is left in the CPF-SA due to the rules of the CPF. At age 55, during the creation of the CPF-RA account, only $40K is transferred from CPF-SA and the rest will be transferred from CPF-OA. You then transfer the monies back to your CPF-SA which is giving 4% interest.

Remember that the crust of this is to keep your monies in the higher interest account.

 

#3: Upgrade your Medishield Life to an Integrated Shield Plan

I cannot emphasize more on the importance of medical insurance. With the new adoption of the co-payment structure of our medical plan, you can also interpret it as medical costs are getting more and more expensive.

It is important to get a medical plan that suits your needs especially during retirement age where the chances of hospitalisation are a lot higher. Having a strong medical plan is a risk management to help you remain a CPF millionaire.

 

#4: Choosing The Appropriate CPF-Life Option

Big shoutout to families here. Do you know that you can increase the amount of money you leave behind to your loved ones if you select the appropriate CPF-Life option?

Top 5 CPF Decisions To Be A CPF Millionaire CPF Life Bequest
Top 5 CPF Decisions To Be A CPF Millionaire CPF Life Bequest

If you don’t select the CPF-Life option, it will be a standard plan. Let’s look at the difference between the standard plan vs the basic plan.

Difference Between Standard Plan and Basic Plan Monthly: $124 (taking the lower estimate)

Difference Between Standard Plan and Basic Plan from Age 65 to 83: $26,784

The reason I’m using age 83 is because that is the accepted mortality age in Singapore at the moment. This is means that we are expected to live until age 83 (life is short isn’t it). For an extra $124 a month (the cost of one meal a month), your family might lose out potentially $84,368 (because $111,152 – $26,784) worth of bequest. This “extra” bequest may help your loved ones become a CPF Millionaire.

I hope this word gets out to more families out there.

 

#5: Using cash to pay for your mortgage

CPF was set up years ago as a retirement vehicle. In 1968, the government finally allowed the use of CPF for the downpayment and to service the monthly mortgage loan instalment. This means that less will go into your intended retirement (not taking accrued interest into account).

Using more cash to pay for your mortgage will leave more money that will be compounded for your retirement so that you can become a CPF Millionaire.

 

Final Thoughts By Wealthdojo

The decisions above serves as a guide and shouldn’t be taken as advice. The main emphasize is to consult an expert to see if any of the decisions above serves you. Most of the decisions circle around keeping the monies in the higher interest account (which is CPF-SA) at the moment to let it compound for the future.

Wishing you all the best to be a CPF Millionaire.

If you would like to benefit from CPF more, I have put together a free webinar to share my knowledge on it. Limited seats only. Join us with the link here.

 

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.