Last chance to secure your income tax relief for 2019

Dear Readers,

Thank you for coming here.

It is the second last day of 2019. Have you secured your income tax relief for 2019? If not, below are 3 things you should do right now.

First of all, lets distinguish tax relief and tax rebate.

• Tax relief means a portion of your income is not subject to tax. 
• For example, your annual income is 200KSGD and you can claim a tax relief of 40K. Now your taxable income is 160KSGD. According to the income tax rate 2019, you should pay 7,950 (For first 120K) + 6,000 (for additional 40K) = 13,950SGD in income tax. 
• Tax relief typically applies every year and we need to be mindful about the timing to enjoy some of them, such as various Top-up schemes
• There is an overall tax relief cap of 80KSGD per year. I doubt I will ever hit that cap.
• Tax rebate means a portion of your income tax is off-set and does not need to be paid by you. 
• For example, your income tax is 13,950SGD and you enjoy a tax rebate of 5000SGD.  The actual income tax you need to pay is 13,950-5000 = 8,950SGD. 
• Tax rebate is typically one-time. Once you use it up, it is gone. And before you use it up, it will stay in your (or your partner's) account and be automatically carried forward to next year. While it is advisable to use it up as soon as possible as the balance does not generate any interest, the risk of losing them is very low, unless you do not know about it at all or complete forget about it.
• The tax rebate that applies to most of Singaporeans is Parenthood Tax Rebate (PTR), which is intended to support parents with children. It is 5K for 1st child, 10K for 2nd child and 20K for each child for 3rd and subsequent children. It is pretty generous as our government really loves babies and you and your partner can split it anyway you want.

In this post, we will focus on the 3 types of tax relief that typically applies to employees with regular pay-check, which I guess is most of us. You need to complete them by year end to enjoy the relief, which is literally TOMORROW!

So let's begin. While you need to determine your priorities based on your own situation, below sequence is what I follow and suggest.

• Voluntary Contributions (Cash) to Medisave Account (VC-MA)
• If you have not reached your Basic Health Sum (BHS) and you have not reached the annual CPF contribution cap (37,740SGD), you can top up your MA using cash and enjoy the tax relief
• According to IRAS website, the amount of tax relief given is the lowest of the following:
  
  • Voluntary cash contribution directed specifically to Medisave Account
  • Annual CPF contribution cap for the year, less Mandatory Contribution (MC) 
  • Prevailing Basic Healthcare Sum(BHS)^, less the balance in Medisave Account before the voluntary cash contribution.
• The process is fairly straightforward. Just follow the CPF instructions. If you give CPF a call, they will also walk you through it step-by-step
• Remember to use PAYNOW option to enjoy the almost immediate transfer. Wire or check is likely to miss the deadline, which is tomorrow. 
• Best time for doing this for me is late Jan every year to enjoy the max interest or when some Medisave money is used if you have reached BHS. This requires you to have a reasonably good forecast of your annual CPF contribution though. 
• Top up (cash) your CPF Special account (SA, below age 55) or Retirement account (RA, age 55 and above)
• You can top up your or your relatives' SA or RA all the way to the Full Retirement Sum (FRS)
• The tax relief would be the lower of your cash top-up amount and 7KSGD
• You can also top up your relatives' SA (Parents, ground parents, spouse or siblings) if they meet the requirements (basically low income) to enjoy additional tax relief, up to 7KSGD as well
• Again, follow the CPF instructions and use PAYNOW  
• Best time for doing this for me is late Jan every year to enjoy the max interest
  
• Top up (cash) Supplementary Retirement Scheme (SRS) account
• You can open a SRS account with DBS, OCBC or UOB. Sometimes, they even provide cash benefits if you open an account with them. Do check and grab the "free" dollars.
• The benefit of this account is that your contributions is tax free, up to 15,300SGD per year. You can invest the money. When you withdraw the fund upon or after retirement, only 50% of the withdraws are taxable
• The potential down-side is that if you withdraw before retirement, 5% of penalty will be imposed. Therefore, it is advisable to open your SRS account now, to lock in the retirement age after which you can withdraw the fund from your SRS account without the penalty. 
• Once you open an account, the top-up is like any other bank transfer. However, it does take a few days for the account to be opened.
• Best time for doing this for me is when my bulk of dividend has come in. This way, I can invest the dividend together with the new contribution to save fees. The fee to invest this account is not the best.

If you have done all 3, super! If you have not, do so now. A dollar saved is a dollar earned.

Till the next time.

Monthly Net-Worth Update - Dec 2019

Dear Readers,

Thank you for coming here.

Wish you a belated Merry Christmas and Happy New Year!

It is the end of the month, which means it is time for another monthly Net-Worth update.


Net-Worth increase from last month: ~34K SGD

This is a pretty good month for us. Apart from our salaries, the increase mainly comes from our stock investments. Again, these are ETFs tracking World, Singapore and China markets.

I hope this trend can continue. However, I might be out of a job after January next year. Finger crossed that I will find something by then. Otherwise, our Net-Worth will probably be declining until I find my next income sources, be it a job or a business or anything else (not breaking any laws for sure).


Investment: 6.47% annualized return, incl. dividend 

Compared to the annualized return of 5.49% last month, this month is a very good one. We are actually thinking whether we should sell our position to take the gains, even though the absolute number is not big. This is also due to the possibility of me being out of a job after Jan and that we might need the money for our monthly cash flow.


Anyway, shit happens in life and no one can say they have complete control over it. We believe this is a temporary set-back that reminds me to learn the lessons in the hard way and thus positions us for greater greatness. But at the same time, it is still damn scary and worries me a great deal. No more holiday mood, that is for sure.

My wife has been really supportive and always trying to ease my worries. I am lucky to have her. My two kids as well. I will do my best to make sure they are not affected. They deserve what they have now and more.

Till the next time.

Basics 01: How our Net-Worth is calculated

Dear Readers,

Thank you for coming here.

As the 1st post of the "Basics" series, we will introduce how our Net-Worth is calculated.


Net-worth, by definition, is "Asset minus Liability". We, of course, follow this definition. What we might do a bit differently is that we divide our Net-Worth into different categories and we calculate "Asset minus Liability" for each category before integrating them all to get the total Net-Worth, instead of calculating the total Asset minus total Liability.

We think there are three advantages to our way of calculating the Net-Worth.

First, it makes it easier to account for all assets and liabilities.

When we look at category by category, the chance of missing out one or more components in that category is smaller, compared to when we try to think of all the assets and liabilities in one shot.

The challenge, if there has to be one, is that we need to ensure the categories are MECE (Mutually Exclusive, Collectively Exhaustive), a term frequently used in my previous job as a consultant.

• "Mutually Exclusive" means the categories cannot overlap with each other. Otherwise, you will double-count. 
• "Collectively Exhaustive" means the categories listed need to cover everything. 

How we did it was first list out all the categories we can, by braining-storming and going through all related channels, such as broker accounts, banking accounts etc. It was not as easy. It took us a few months to get all categories listed. For example, we only realized that we did not count the CDA (Child Development Account) balance until the 4th month of tracking.

Then, we examined all the categories listed and adjusted the calculation to make sure they do not overlap and double-count. For example, we cannot include dividend income in both our "Stock" category and the "Cash-equivalent" category.

Second, it makes the calculation easier.

In some cases, Liability and Asset are connected and it is easier to calculate them together. For example, the "would-be" fee of selling our stocks is dependent on the market value of our stock portfolio, once we have chosen the broker. Yes, we deduct the "would-be" selling fee from our stock portfolio when calculating Net-Worth.

Third, it enables us to get more clarity.

With everything split into categories, we can easily do analysis by category, tracking their percentage in our overall Net-Worth and changes month-over-month. We also split by region inside each category, which enables similar analysis over region as well (like SG and Overseas etc).


OK. So what are the categories we include in our Net-Worth?

1. Stock/bond portfolio - market value minus the "would-be" selling fee
2. Real Estate - conservative estimation of market value minus the remaining loan (I know I do not consider the interest expense on the loan here, because when you sell your property, the reaming loan is what you will pay back to the bank. We do not have the early-payment penalty problem)
3. "Fix-term" asset - this is like fix deposit. No liability here
4. CPF
5. Cash-equivalent - balance of bank/broker accounts minus credit card balance and other loans other than housing loan

We track both our investment portfolio and Net-worth in the same tracker we built ourselves, with investment portfolio numbers automatically transferred to the Net-Worth tracking. We update monthly, towards the end of the month, and take a snapshot to build the below graph




I hope this post helps you understand how we calculate our Net-Worth. If you are thinking of starting your own Net-worth tracking, hope the details above can help you get started and then you can refine your own model based on your own situation and needs.

Till the next time.

Monthly Net-Worth Update - Nov 2019: 1.1M SGD

------- This is not a sponsored post-------

Dear Readers,

Thank you for coming here.

This is the first post in this blog. We intend to share monthly update of our net-worth to keep records and to hopefully serve as inspiration to fellow Singaporeans on their journey to Financial Freedom.

In the first few posts, which we will name "Basics" series, we will also describe below topics:

• How the net-worth is calculated
• My investment journey and outcome
• The tracker tool I use

For today, it is going to be the 1st update of our net-worth as of Nov 2019.

• Net-worth as of Nov 2019: 1.1M SGD 

In the chart above, the history was also shown. We started tracking our net-worth from Jun 2018, which was ~750K SGD. Over the past 1.5 years, we have grown our net-worth by~380K SGD, or ~50%.

The increase shows that our income is higher than our expenses.

On the income side, it was mainly active income, as our passive income is relatively small. The interest from bank accounts and CPF is limited and our investment has been doing not great (More on this later). In the below chart, the blue line shows our net-worth by month, while the red bar shows the change month-on-month. There are 3 months where we had net-worth decrease. That was because our investment took a really bad hit in those months.

On the expense side, we have been frugal. We come from a very humble background. Our parents cannot help us much. We have learned to reply on ourselves and increasing net-wroth does give us a sense of security.

Have said that, our monthly expense is higher than average households. We are having trouble obtaining clarity on where the money goes exactly and trying to reduce it. It was a pain to extract Credit Card statements each month, especially so when they are in PDF and we have to convert that to excel for analysis. Seedly currently cannot sync DBS and SCB, which our main transactions unfortunately concentrate on. Please share or point us to the right direction if you have an "easy" way that would enable us to obtain clarity on monthly spending, especially on Credit Cards.

• Investment portfolio as of Nov 2019: 5.49% annualized return, incl. dividend

Our investment portfolio mainly consists of ETFs tracking World, Singapore and China. Unfortunately, we entered the market at the high point and therefore, our return has been negative until Feb 2019, despite continuous capital injection.

In the chat above, the blue bar represents absolute Gain/Loss, including both realized and unrealized. The two lines represent return rate and annualized return rate respectively. At this point in time, they are very close.

We made a lot of mistakes in the beginning of my investment journey. We will write more on this in subsequent posts.


This concludes the 1st monthly update. It would be great to have your comments as we start this blog.

Till the next time.