By Able Lim
Many of us have spent years in our careers chasing deadlines, sales targets, planning 5-year growth plans and juggling budgets. Has it ever occurred to you that we need just as much time, if not more, on planning for your own finances, and the sooner you do it, the better.
Amy, 46, director with a professional firm, shares her habit of how being a disciplined planner and using a spreadsheet to track her her finances since she was 30 year old helped her to create a healthy retirement fund.
My husband and I are not active investors. We are not looking at every opportunity to grow our investment. We basically have active financial planning in our younger days, which leads to having a good enough retirement fund when we are now in our 40s.
Like most Singaporeans, we were young and did not have a plan to start off with. We bought our first HDB flat simply because it was a natural step to take after we got married. For the initial 5 years, we served our monthly HDB loan like everyone else. We were, however, very cautious with our spending as we were determined to pay off our loan as soon as possible. This involved deferring all unnecessary purchases and to cut on dining out and entertainment. Thus, we created a spreadsheet to track our joint incomes, expenses, savings and monthly balance of our HDB loan.
We have since got addicted to the spreadsheet. The calculations on the spreadsheet soon brought our attention to our financial position with clear indication of our exposure, as well as cash savings for investments.
Knowing our financial exposure, we learned both to leverage on our finances, and to be just as cautious about not over leveraging. We used the money returned to CPF from the disposal of the first flat to buy a larger HDB flat and took a 10-year loan to finance it. This allowed us to use the cash we had from the sales proceed to pay for deposit for a new condominium.
We financed the balance with a loan, which ensured there were sufficient funds in the CPF account to pay for the flat we live in and have some balances in meeting the progressive instalment of the condominium until its TOP. Upon TOP, we rented out the condominium to pay for the monthly loan instalment.
Since the instalments for both the HDB flat and condo were funded by CPF and rental income, our routine savings from earned income grew over the years. The savings gave us a strong financial position to place deposit for our third property and set aside a safety net to ensure we had sufficient funds to pay up to six months of instalment if our condominium was unable to bring in any income.
We made a conscious decision to buy a condominium which was still under construction as our third property then. It was an important option for us as it allowed for progressive payments. All in all, our returns on investments and retirement funds have been sound over the years thanks to active financial planning in our younger days with our simple spreadsheet.
I often share with young relatives and friends the importance of taking a conscious step in planning one’s finances. Everyone can start by putting down your income and expenses on an Excel spreadsheet. It comes with many tabs with in-built formula to calculate each component, such as calculating the cash portion of each insurance policy, projected CPF contribution, loan repayment on houses and car (including future replacement of car), projected capital gain of each property, etc.
Go easy with your spending and renovation. Think along the lines that a dollar saved will be $2 in 15 years at 5 per cent return, or 7 years at 10 per cent return.