CPF - Minimum Sum

Most of the info here can be found on CPF website. You can go from the link on my website. I just grab some info there and elaborate further here.

Firstly let us talk on the basis of Singaporean. I will try to give my own opinion whether CPF do you good or not. Let's face it, we can't run from CPF if you work in Singapore and even Malaysia too. Just that in Singapore you put more money into your CPF.

This is fact from CPF. It says CPF is your retirement, apparently Singapore government predicts your son/daughter will leave you alone when you grow old. So you need money to survive. It is actually a fact because you see a lot of Singapore youngster following western culture and more and more aged worker in McDonald. So, if one day your son/daughter don't care about you, you still have your CPF.

There is thing called Minimum Sum which is the amount that you must save in CPF after you take everything out on 55 years old. Before you take everything out you also must allocate fund of your Medisave Account. If your CPF amount is lesser than this Minimum Sum you will have to follow some special rules.

The Minimum Sum for (1 Jul) 2005 is $90,000. It will goes up according to the inflation rate so it is predicted to reach $120,000 on 2013. I mentioned just now that there is also minimum amount you must allocates in Medisave Account. For (1 Jul) 2005, this minimum amount is $5,100 (2003 dollars) and it will reaches $25,000 (2003 dollars) on 2013. What do I mean by (2003 dollars)? The amount is equivalent with 2003 amount and it will increases according to the inflation rate. For example, on $25,000 (2003 dollars) on 2013 and inflation rate for every year is 3% so it is about $33,600 on 2013 instead of $25,000. You can refer to Future Value calculation which I wrote earlier.

After my explanation above, let say you reaches 55 years old on 2013 and you have $160,000 in your CPF account (including interest). The amount you can take out is $160,000 - $120,000 - $33,600 = $6,400. Actually the amount to take out is quite low for Singaporean after deducting the money you used for buying HDB flat. I will write more in the case if your CPF can't reach Minimum Sum in the future.

Take note: Interest rate for CPF Ordinary Account is 2.5% pa and Medisave, Special Account & Retirement Account is 4.0% pa. (of course it will be moderated based on inflation rate)

Fundamentals III

Sorry for the delay due to busy work schedule.

Fifth - Wealth Distribution
This final guideline of this framework looks into the importance of preserving and distributing your wealth or i.e your estate. Whether you like it or not, one certainty in life is that we won't live forever. We will not be in this world someday.

Many people doesn't realize the need of planning their estates well. After working so hard during your lifetime, you wouldn't want your wealth is not distributed according to your will. An effective and efficient ESTATE PLAN would help in preserving and distributing your legacy.

For the not so rich or middle class people, you might ask, "Why bother since I'm not very rich?".

Yes, you may not be rich but I believe you would have owned properties, car, cash, stocks, unit trust, insurance, savings plans, jewelries and others. When in the event of death, your wife or beneficiary would have to deal with lawyers or government official to complete an arduous task of identifying yr assets and determine what goes to who. Your family will be disadvantaged by not knowing your estate.

Preserve what you have spent a lifetime putting together. Don't let it be torn apart when you are gone. Get a lawyer to have you WILL done.

The FIVE Fundamentals of Wealth form the foundation of your financial life. When implemented in totality, not only it covers comprehensively the finacial needs of throughout your life but it also prevent unforseen financial problems. Life itself is hard enough. A well managed financial life will prevent additional burden.

Therefore, CREATE your own financial plan NOW and review it with a trusted professional. You will enjoy the peace of mind that come along with it.

Excel - Number of Period (NPER) & Payment Amount (PMT)

As I promised, I will write more about Excel in our daily/monthly financial planning. Sometimes it is quite tedious to calculate how much payment/period of saving/installment you need to clear a loan or accumulate a certain value. Or even how much do you need to pay or save in order to repay your debt in 5 years time.

First of all, to get how long does you takes to clear your student loan. Let say the loan is $40,000 and the rate is 4.75%. Installment per month is $500. Below is the formula for the NPER.

NPER( interest_rate, payment, PV, FV, Type )

interest_rate = the interest rate for the investment/loan.
payment = amount of the payment for each period.
PV = the present value of the payments.
FV (optional) = the future value that you'd like the investment to be after all payments have been made. (For loan case, is $0 because you need to clear your loan)
type (optional) same with the type for Future Value which has been discussed earlier.

We type =NPER(4.75%/12,500,-40,000,0,1). For analysis you might want to identify how many payment does you need to do to clear off your debt, so you the coordinate formula which I discussed on Future Value.

Together with some calculations (Num of Payment x Installment - Total Value of Loan), you even can figure out how much does you lose as interest to bank for paying certain amount of installment. (**Note that the interest I took is a constant interest but it is not a constant interest for actual case).

For second case is more relevant to car loan but I still use student loan as an example because it is more close to us. And most of the case of unit trust investment also can use this function to calculate how much you need to pay per installment for specific returns. The formula as below:

PMT( interest_rate, number_payments, PV, FV, Type )

interest_rate = the interest rate for the loan/investment.
number_payments = the number of payments for the loan/investment.
PV = the present value or principal of the loan.
FV (optional) = future value or the loan amount outstanding after all payments have been made.
type (optional) ditto as above.

The above figure is the examples I did. The left hand side is student loan repayment plan. If you wish to settle your loan in 5 years time. You need to pay $747.32 per month. The function formula is =PMT(4.75%/12,year*12,-40,000,0,1). Year here is a constant column, inconstant row variable so you need to use $Xnn.

The right hand side is an investment with constant 12.5% return annually. The payment mode is quarterly (4 times per year) so the function should looks like this =PMT(12.5%/4,year*4,0,-100,000,0). After looking at the example, I am sure you can do it on Excel too.

Happy calculating!

Excel - Future Value (FV)

I was waiting for mINg's Fundalmental III before I post this post but I guess he is too busy to write at the moment. I have nothing much to share on money and investment today but some tricks that a lot people doesn't know. I learnt this when I accidentally read a book in Popular JB. Before this I was using Excel formula to calculate interest rates.

Before you try this, you should know at least about Excel's basic function. FV stands for future value for an investment based on an interest rate and constant payment.

Open MS Excel and click on Fx (or "=" for older version) at the left hand side of the Excel edit.

FV( interest_rate, number_payments, payment, PV, Type )

interest_rate = the interest rate for the investment for a year.
number_payments = the number of payments for a year.
payment = the amount of the payment made each payment.
PV (optional) = the present value of the payments.
Type (optional) = mode the payments are due,
0: Payment due on beginning of month (normally for loan)
1: Payment due on end of month (normally for saving because you only save on end of the month).

Now, for the example:

Let say you save $500 per month, the interest rate is 2.5% per year. How much can you save in 3 years? You have zero balance in the bank when you start off your saving.

First key in values such as below and choose the result cell and click on the function button. A window will popup and you can key in the cell coordinates or use cell selector to select cells.

Interest rate is divided by 12 because it is based on monthly saving. And of course the duration is 3 years x 12. Add negative to monthly saving as you are adding money into the account (if you don't understand, the sign is always opposite between present value and payment).

So let's start a large calculation. We go back to student loan which we discussed two weeks ago. Let say the loan is $40,000 with installment of $500 - %1,000 per month. How will be the progress in few years time. (Actually there is better way to calculate the duration you need to clear the loan but I will use this example for the meantime to analyse your loan in few years time.)

The red value means your loan is payoff (it is negative value in fact). In order not to type formula for quite number of time I suggest you use Fill Handler to fill/copy formula. It is how did during my work as an Engineer (we cut off the timeline).

If you don't know Fill Handler in Excel, I will roughly do some demonstration here but practise makes perfect. If you select a cell in Excel, please notice there is a small dot at the bottom right hand corner of the cell. If you put your mouse pointer on it, the pointer will change to a black cross.

When you type formula, use "$" sign to tell Excel the column/row is a constant. Let say the spreadsheet with no coordinate above is starting from A and 1. For instance, the interest rate is a constant (C2). Type the interest rate as $C$2. For installment of $500 (C3), we want $500 to be constant but not the year (C21:C30). So we type $C$3 for installment and $C21 for year. After this, when we drag the black cross (fill handler) down from C21 to C30. It will automatic change and fill the formula for you in each cell from C21 to C30. Just remember, without "$" Excel will "fill/change" for you.

In short, $Cnn = constant column, inconstant row, C$nn = inconstant column, constant row, $C$nn = constant column, constant row.

If my explanation is unclear please comment below and I will explain again. (I know it is unclear). Remember to use Excel to try out (practise makes perfect).

In the next issue, I will try to write more about Excel in Finance. (It is important for you to know if you wish to play with figures in your investment or wealth management plan).

Fundamentals II

This is the 2nd part of my first post, Fundamental I.

Third - Wealth Accumulation
After being able to maintain a positive cash flow, one would be able to accumulate wealth. How do one accumulate wealth effectively? Many would immediately think of "Save First, Spent Later" approach. One need to be disciplined and should have a systematic plan in place as a guide.

Well, in most part of the world, the two most common needs are Retirement Funding and Children Education Funding. These two funding needs you to be persistant in a realistic and achievable accumulation program you've planned and developed. One must always remember, these two funding is a long term commitment.

Lets look at a senario.

Alex is well aware that he needs to set aside a portion of his salary every montt in order to accumulate money. Over ten years, he managed to save a five figure balance in his savings account. He is proud of his 'achievement'. He felt that he needs to enjoy the fruit of his labour. Alex then went off to Europe for a two week holiday, bought himself a new set of home theater system and paid a down payment for his dream car. As a result, his bank balance has reduced significantly. After consulting his financial planner and working out his plan, he realized that he had lost several years of opportunity to make his wealth work for him. His savings should have go hand-in-hand with careful investment and the early withdrawal of his savings actually had tremendous opportunity costs.

As mentioned earlier post, there just too many temptations to spend away our hard earned money.

Remember Save First and Spend Later. Persist in the plans that you've laid out in meeting your long term wealth accumulation objective.


Fourth - Wealth Enchancement
This is the fourth guideline for the Fundamentals of Wealth.

What are you going to next with the wealth that you've accummulate? Put it in savings account and earn the super low interest on your savings? Or put it in Fixed Deposit for year for a slightly better rate? (Please refer to DBS Bank rates and OCBC Bank, the two largest bank in Singapore - You can check your country's bank interest rates).

Either way, it's not going to bring you far enough to meet your Retirement Funding needs, for example. You need to develop an investment program that is appropiate and suitable to your unique situation, yet will grow at the desirable rate. In the market, there are tools and investment vehicles which could better enchance your investment returns, thereby fulfilling your long term financial goals.

Before you go about investing in any investment, always remember to accessing your investment risks appetite. In other words, how much loss you are able to take and how much profit you want to make. Do take some time to understand various investment principles which help manage investment risks properly such as asset allocation and rebalancing. Never leave it to chance because you never want to risk losing your accumulated savings.

By enhancing your accummulated wealth's value, the time needed to meet any long term financial goals will be shorten. Nevertheless, design your own investment plan carefully and take into consideration your situation and needs.

*the last part will be on posted soon...*

Fundamentals I

This is my first post in this blog. Start Early Be Wealthy is a product of Kim Wei and I after some discussion. Our main objective for having this blog is to help young people(*applicable to all ages actually*) see the importance of starting early in managing their finances. It's also serve as a reminder to both of us to manage well of our own finances.

Well, let me start off by discussing about the fundamentals of personal financial management, i.e fundamental of wealth management.

What it takes to be successful in your personal finances? How do you go about managing it? In the financial planning industry, wealth management is a common term used. Whether you like it or not, wealth management is relevant to everyone, regardless of whether you are wealthy, rich, average, below average or broke. This is to mean wealth management is not just for the rich, it's also for the man on the street.

WHAT ARE THE FIVE FUNDAMENTALS OF WEALTH?
This is a framework which gives everyone a rough idea of the five fundamentals of wealth management.

First - Wealth Protection
First of all, you should protect your wealth so as to preserve its value or minimize its losses. It's a norm and compulsary thing to do when you first buy your home, car or other properties. But more often than not, people put little importance in protecting themselves, i.e human life. Adequate insurance covers should be put in place to mitigate the finacial losses that may occur as a result of an accident.

The wealth of an individual goes beyond the physical possessions he has. Through out your lifetime, the greatest wealth you have is your human life. The value of your life is determined largely by your potential lifetime earning capacity. This is susceptible to risks such as accident and illness.

Lets have this senario of Mr. Tan who is a savvy investor. He is able to make about 15% return annually by picking out successful investment opportunities in the past. Nevertheless, he realized of creating an immediate estate upon his premature death that would help his family manage financially. He knew that he could not measure the value of this wealth created by insurance proceeds since the time horizon could not be determined at the onset, but he persisted with an insurance program and treated it as a small regular investment. He knew whenever this investment is "called" upon, it would definitely be valuable.

Second - Wealth Maintenance
After protecting your wealth, what's next?

Well, maintaining a healthy financial position is the stepping stone towards wealth creation. Without proper maintenance of a positive cash flow position for a long period of time, you cannot build wealth.

So, how do you maintain a positive cash flow? To achieve that, you'll need to be prudent in managing your income and expenditure. It's not easy to do that because budgetting is not in the blood of human being. Human nature is to do whatever they feel comfortable with and doesn't like to be bounded by any circumstances. Moreoever, many people growing up not knowing how to manage their wealth. Therefore, it's a real challenge to persist with managing your finances.

Another aspect of money management is the use of credit. Without wise usage of credit, it can be a double edged sword. Many people got into debt because of excessive usage of credit especially those who has just entered the working world. There are just too much temptation nowadays.

Everywhere you go nowadays, there are bankers promoting credit cards with attractive points system which you can redeem gifts, retailers giving discounts, slimming centres 'brainwashing' and make you feel fat without going for their treatment. To make it even more attractive, installment plans are make available with low interest by large companies. All these are just one or another kind of 'trap' to increase your expenditure and worst still, getting you into debts when you don't have enough to pay off the credits you've used at the of the month.

Many people are getting in and out of debts throughout their life, depleting their wealth and sacrificing all wealth accumulation opportunities. Maintenance of a positive cash flow and liability position is thus the stepping stone to building wealth.

*to be continue...*

5 to 10 Years Plan - Income Tax IV

If you find this income tax issue is too draggy, it is because I didn't really plan the structure of it when I want to write. It is a blog anyway, I write what I been discussing or working on here so sometimes it is hard to tidy up everything. When I am busy I will not write everyday but you can try to visit here once awhile (or everyday because it is not hard for you to bookmark this page and load it).

I suppose to write some more about income tax reducing but my partner mIng pointed out something today. So I have to clarify a bit here otherwise it seemed not so professional for me. I have corrected one of my statement in yesterday's post about "CPF is not taxable". Indeed it is taxable but it is not taxable to some extent that most of us won't have problem as a freshgraduate.

If you follow this link, it will brings you to the CPF Relief (CPF exemption) for income tax. There you will be served with a term called Ordinary Wage Ceiling and what does this term means? This is only my logical thinking, if you are a high-salary-employee and with 20% CPF contribution. You are going to save a lot of your cash without going to the government pocket. Remember what tax does is to get rich man money to help the poors (quite impressive right? but this is only the ideal case.) That is why when you are poor, you pay lesser to the government. Therefore in order to get more of the rich man money, there is a max limit for CPF relief.


If you don't understand then just imagine 20% out of $10,000 is $2,000. One year is $24,000 and if you minus this amount from your rich income, your tax rate is going to be very low. So this will not be the case for you - Rich Men!

In the example from IRAS, the Ordinary Wage Ceiling (OWC) for 2005 is $5,000. So if your salary is more than that, your contribution to CPF is partial taxable. . Take a look at the chart below and let say your salary is $10,000 per month and annual bonus $50,000.

	Actual Income	Annual Income	CPF Contribution (20%)
Ordinary Wage	$10,000/month	$10,000 x 12 = $120,000
Additional Wage		$60,000
	Total	$180,000	$36,000

So we calculate the max CPF relief by $10,000 x 17 x 20% = $34,000. Therefore it is over the limit and $36,000-$34,000=$2,000 is taxable. Why I was ignoring this case? This is because the amount of salary is way beyond us now but it is a good point from mIng. You might need this in the future.

By the way, for your information, there is a relief that will automatically acted upon everyone which is the Earned Income Relief. This is not important. $1,000 will be reduced from your annual income if you are below 55 years old.

For this year onwards, local bank interest is not taxable under income tax anymore which I think is logic. Another way to invest and still avoiding income tax is to use CPF Investment Scheme. I still have some doubts regarding this issue but I will still write a bit and if it is incorrect I will edit them in the future.

Refering to Dividend, income distribution for CPF Investment Scheme and Supplymentary Retirement Scheme is not taxable. To make things not so complicated, we will only discuess CPF Investment Scheme today. As far as I know, income distribution from Unit Trust is taxable and Debt Securities is not taxable. To sum things up, please look at the table below:

Source of Income	Taxable?
Local Bank Interest	No
Unit Trust	Yes
Debt Securities	No
CPF Investment Scheme	No
Real Estate Investment Trusts (REIT)	Yes

If you notice almost all kind of investment here is taxable. As mentioned earlier, why putting everything into CPF? This is because you can use CPF to invest but the bad news is CPF is a black box. However, there are a lot of way you can ultilize CPF for living and be wise to use it. (There is bad rumours on CPF too which I don't want to mention here.)

As a conclusion on this income tax issue, always try to avoid it if you can and reduce it when you can't avoid. When you read Rich Dad Poor Dad, the author mentioned about buy property with business/company. It is a way to avoid taxes but I will not cover it here as this is what you need to know for time being. If anyone wish to write articles here, (I welcome you as long as it is related to our problem now) please drop me an email.

5 to 10 Years Plan - Income Tax III

As I promised earlier, we will try to reduce the taxable income on this issue. Finally we have come to this point that grab everyone attention. CPF is not taxable (to some extent if your salary does not exceed the Ordinary Wage ceiling, for us we can leave it for now unless your salary is higher than $5,000 per month. More info on Ordinary Wage ceiling on this page.) and by contributing the full amount of CPF as early as possible we can avoid being included into the annual financial statement.

For fresh graduate, 5% rate is graduate rate (partial rate) for first year. Full contribution is 20% but for second year partial contribution is 15%. If you follow this link, there will be three options shows as below:

Option	Employer	Employee
1	Graduated Rate*	Graduated Rate*
2	Full Rate	Full Rate
3	Full Rate	Graduate Rate*

Here is the important part, go for option 2 if your financial is allowing you to do it. Comparison of your first and second year with full contribute to graduate rate contribute is shown below:

Option	Year 1	Year 2
Graduate Rate	5%	15%
Full Rate	20%	20%
Additional %	15%	5%

So, let us see, for instance your salary is $2,000. Every month you will get $1,600 for two starting year instead of $1,900 for first year and $1,700 for second year. So in first year after you contribute full rate instead of partial rate, every month you contributed more $300 (for $2,000 per month salary) and for a year you contribute more $3,600. So what is the catch?

If you still can't understand, please read again from old articles such as 5 to 10 Years Plan - Centre Provident Fund (CPF) and read the top part of this article again. I mentioned that the CPF is not taxable (to some extend in our case of entry salary level), so if your annual income is $24,000 after deducted $4,800 (20% full rate to your CPF) you left $19,200. And for annual income of 20,000 or lesser, you are free from the income tax!!! Below is the comparison chart between full and partial CPF contribution and income tax.

Option	Year 1	Year 2
Graduate Rate	5%	15%
Full Rate	20%	20%
Additional %	15%	5%
Additional Amount out of $2,000 per month	$300	$100
Annual Income after partial CPF reduction	$22,800	$20,400
Annual Income after full CPF reduction	$19,200	$19,200

I think you will be more clear with the table above. In this case, we "escaped" from income tax for two years with just some calculations. By the way, for income of $22,800 and 3.75% (if you don't know what rate is this, please check here), your income tax to the IRAS is $855 and $20,400 is $765. You can save total $1,620 from two years income tax.

Even though some of you guys who are so fortunate to get high salary and failed to reduce it below $20,000, you can save quite an amount of money from putting your money to full CPF contribution.

Some of you may ask why you want to put your cash into a black box which you only can open after 55 years old. The answer is CPF can be ultilized before this age and it is very flexible if you know how. I will stop here and if you want to know more about CPF ultilization, please check here when you have time.

In the meantime when I am preparing more text, you can get more information from the google ads. (True, because most of the link go to some investment portal that will give you general knowledge of what I wrote here. It won't waste your time if you are willing to learn more while waiting for the next article to come.)

5 to 10 Years Plan - Income Tax II

From 5 to 10 Years Plan - Income Tax 1, we discussed about income tax rate and valid claims. Income tax rate for 20,001 - 30,000 is 3.75% and it increases when your income become higher. It is logical because richer people earns easily and rich people must contribute more because they got more from the society (my theory).

If you consider yourself rich then this is not the right topic for you. I targeted this topic just for poor school leavers like me where 1% of your income is negligible.

I have too many stuff in head and I really wish to put everything here but I need to write according to the topic. So may really bored you but this information may not known by many other peers.

For us, avoiding interest is the way to avoid unwanted losses. There is no point for a leaking water tank for the starting. My dad who did not received any average education often missed this point, even though he can earns quite a decent amount during his younger day but often interest kills him off. As I mentioned on my first post on compound interest, the story does not ended after your loan is settled. The compound interest has to do with every little thing in our life if you still want to live in this city. (including your hometown and all the place in the world unless you are going to stay in forest).

Avoid your credit card interest (this is VITAL!!! or if you can avoid credit cards), avoid unpaid student loan interest as well as your house loan interest in the future. Today let's avoid income tax interest. This once nearly hurt my father. In Singapore, payment of income tax due after one month.

1. Late income tax payment = 5% of unpaid tax and you get a Demand Note.
2. Still late after Demand Note is filed = 1% per month up to 12%.

I am yet to confirm this, if you wish to know more please contact IRAS, 12% of the unpaid or 12+5% of the unpaid. If you know, please comment below. Thanks.

Let say 12% and I mentioned you need to pay $937.5 as income tax if your annual income is $25,000 and the extra cost incurred is $112.5. Who wants to pay extra? Moreover, if IRAS does not happy with your payment arrangement, you might get sued in the court. And under Singapore Civil Law, if the Defendent lost in a suit, he/she needs to pay the legal fees of both parties. This includes their lawyer fees.

By the way, if you are facing financial difficulties, you can arrange the payment methods with IRAS. (and this payment arrangement talk can be done with the bank if you can't pay your loan, talk to them and don't pretend nothing happen.)

You see I am not teaching anyone to illegally exempting himself from tax but I pointed out mistakes some people made. Today article will ends here. The next article is regarding an old issue brought out on 5 to 10 Years Plan - Centre Provident Fund (CPF), can CPF be the solution? We shall see...

5 to 10 Years Plan - Income Tax I

Before I start, let's do some ice breaking. This is the origin of income tax (at least in US if not the World), and this is the Wiki version. (note that these articles does not belong to this site). The main purpose of income tax is to contribute your income/revenue to the nation and this is one of the government main revenue. (Otherwise where do you think government get money).

The government unit that in-charge of income tax in Singapore is Inland Revenue Authority of Singapore. Most of the people call them I-Ras. The information below is taken from IRAS website, if you want further information, please contact them or visit the website.

First of all, the tax rate from recent years. It is recorded here (if it is broken, please go to IRAS to check). We will take a look on 2006 since it is latest and I will boldly assume fresh school leaver like me cannot exceed $80,000 per year. Below is the summarised table of income tax rate from IRAS (We are not responsible for the wrong info, noted down on 11 Sept 2005).

Income Amount	2006	2003-2005
20,000-30,000	3.75%	4.00%
30,001-40,000	5.75%	6.00%
40,001-80,000	8.75%	9.00%

And for time being for myself I guess (and estimate) I gonna be in second row which is 30,001-40,000 but I will try to lower it down to 3.75%. So I will do calculation based on 3.75%. So for example your annual income is $25,000 , you need to pay $937.5 to the government which is a lot for us freshgraduate. Come on and think why I need to come out with so much money and I am really poor enough to support my living here.

Fear not. We will try to reduce everything together (DISCLAIMER: There is no illegal tax exemption method here. If you are looking for it, please do not hesitate to find else where). It won't be as bad as you think when your salary is $2,000 you need to lump all $2,000 to your income. So it is not $2,000 x 12 = $24,000.

The word INCOME refer to your "profit". There are a lot of exemption in the calculation of income tax as far as I read and know. You can claim three types of employment expenses namely:

1. Entertainment expenses
2. Travelling expenses
3. Subscriptions paid to professional bodies or society

By the way, I think logically people understand what is Entertainment expense means. It is not meant the two jugs of beer that you and your friend drank two weeks ago to celebrate your birthday. It is expense that you spend for production of your income (and not reimbursed by your employer). For instance, you are a property agent (property consultant) and you need to treat your customer dinner to discuss some contract paperwork. Do remember to keep the receipt because if it is not shown to your boss then you can show to IRAS.

There goes same as Travelling expenses too and it is definitely not reimbursed by your employer. Then you will think, my company did not provide transport fees for my transport so I can at least claim some from the tax. No, you can't because "Travelling expenses incurred to and from home and office are also not allowable". Therefore it is a good news to those sales engineer who do not have claims from their company. So remember to keep that taxi receipt (by the way, I do not know how the MRT/bus fare is calculated for this case. Can someone enlighten me?).

The subscription fees is not really a problem for most of the people. Unless you are a NUSS member (NUS society member). They always advertise you can get tax exempted from their annual fees. The problem of these claiming is troublesome paperwork. This includes:

1. mode of public transport (if claim is on travelling expenses)
2. date and place visited
3. name and address of the person contacted
4. purpose of visit and
5. amount incurred

IRAS also mentioned that we cannot estimate (or guesstimate).

I will end the first part here. The next part will includes more exemption and what is the best method to be a winner in this tax issue.

5 to 10 Years Plan - First Strike

First I wanted to wait for m|ng to write an article before I start another one. But he seemed quite busy recently so I will continue with another article before he starts (come on bro do something :P ).

Soon I will be busy with work, by the way, I gonna start work next week (I haven't sign the appointment letter with the company yet) so the thing could be slowed down. I hope I can catch up because everything need discipline to do.

One of my friend asked me am I nervous when I landed to the first job? Until now I haven't start to nervous because I would treat it as learning lesson while contribute my best to the company. The article for today is First Strike which is somehow related to First Job or First Revenue.

How do you plan to use the first salary you got? I have yet to plan but I guess I would spent everything off very easily. My starting pay is a bit low compared to my peers so to think it positive I treat it as a challenge. To think as positive as possible is hard sometimes because everyone get different pay every now and then. Moreover, some of your juniors may end up to be your boss, so you really have to think about your future. Think what you want? Money? Cash? Car? (Family? Children?).

Having a 5 to 10 years plan is really important because it motivates you to go further. I believe all of us will have a point of time that we are tired of life and started to question why you need to do such thing and why things are not as good as you think and why am I so restless? Not that I am telling everything I am good at planning but I just want to say planning is essential. I know action speaks louder than words so I also hope I will practise what I need to do and this article will stay here to remind me of the plan.

Side article (you can skip them if you like) :

You see when you look for first job you have dream like me too. When I interviewed for design engineer I would dream that I could get overseas training (Japan) and come back as a design engineer to design transformer tank. The dream gone after they got the other guy.

Then come to the application engineer in US firm. It is one of the job I like and I see myself as a field service engineer in few years time. Although it is like daydreaming but I treat it as target. I may be still the old junior executive in 3 years and work like no tomorrow but dream is dream. It will push you.

Come to this quality assurance engineer I see it as a "harder" job that suppose to get everyone away from this position. When people hear QA/QC, it really give me a bad impression in a manufacturing/production field. Ok, let me dream I will have the skills from this field and move on to the better future. Telling yourself this is part of your career and who cares your First Strike is a shit job. You won't be doing this for the rest of your life. Work on it, learn from it and go for it. From my position I have chances to get six sigma training and gain what I need for the future.

In short, let me stress that short term plan and long term plan motivates and direct you. Short term maybe 3 years, long term maybe 10 years. I don't really plan so far so I guess I make a short term plan for myself. Here is the to-do-list so far:

1. Get a job.
2. Secure my position. (Insurance, expenses planning, etc)
3. Settle my loan. (3 years might hard for me, maybe settle part of my loan)
4. Save some money for cashflow.
5. Start to save up for small investment. (Might not need to save a lot)
6. Buy a house. (If I plan to get married)

It is individual dependent for the to-do-list in short term plan. As long as you know where you want to go and how you get there then it is all right.

Ask an answer for yourself. What will you do with the money from your job. Are you going to finish them on fashion? Are you going to pay all to the loan repayment? You must need to know where are your money going instead of putting them in the bank. (There is no point to keep them in the bank for large amount). Use them because there is a Chinese folks saying goes like this "Earn money don't use money is equal to poor". But spend them wisely on investment and not something that is not useful.

For First Strike,

1. Don't go travel overseas (other than Malaysia).
2. Don't buy car, take MRT.
3. Don't gamble.

There are much place in Singapore and Malaysia, you still can enjoy your holidays in your hometown or house. Overseas travel is not recommended unless it is your purpose of life. You can have a lot of overseas travel in the future after your financial is stabled down. Car is definitely a no-no in Singapore, the transportation here is more than enough. For gamble, I don't think I need to tell you about it.

Let say $1,800 per month. $600 for daily expenses+meal+rental. $90 to CPF (5%). $500 for loan repayment. $300 for parent allowance. $100 for transportation+misc (should able be claimed from your company). Balance is $210. The balance is tight but there are always some ways to reduce these expenses (which will be discussed in the future).

Do not forget: Annual Income > $20,000 will renders you to income tax (3.75% for $20,000-$30,000). Next topic will be on Income Tax and how you benefit from acting smart when dealing with it.

5 to 10 Years Plan - Centre Provident Fund (CPF)

Singapore has a system that allows your money go to your retirement plan soon after you start work. It just like Malaysia EPF but the rate is much higher. This CPF issue has almost heated up Malaysia-Singapore relation sometime ago. As a fresh graduate, face it, we don't know about CPF. For me, I also just started to read some online statement on CPF rate. I will post the rate here but if I am wrong I will correct it later.

From CPF Contribution: (Graduated rate)

I am choosing >$750 because lesser than that it will be a problem for us and I will also choose age 50 years old and below.

Exceeding $750 (1st year after obtaining PR status)

Contributions payable by the employer for the calendar month:
a) 9% of the employee’s Ordinary Wages for the month up to $450; and
b) 9% of the Additional Wages payable to the employee in the month

Amount recoverable from the employee's wages for the calendar month:
a) 5% of the employee’s Ordinary Wages for the month up to $250; and
b) 5% of the Additional Wages payable up the employee in the month.

Exceeding $750 (2nd year after obtaining PR status)

Contributions payable by the employer for the calendar month:
a) 24% of the employee’s Ordinary Wages for the month up to $1,200; and
b) 24% of the Additional Wages payable to the employee in the month

Amount recoverable from the employee's wages for the calendar month:
a) 15% of the employee’s Ordinary Wages for the month up to $750; and
b) 15% of the Additional Wages payable up the employee in the month.

Focus on the percentage and not the max because you can't get $5,000 job after graduate. (The highest salary I know is $4,500). Let say your salary is $2,000, easy to say you need to put 5% of $2000 (excluded allowance) into CPF which is $100.

You think it is high? Think when you pay full rate which is 33% (employer) and 20% (employee). That is why Singapore government is so rich and the retired Singapore worker is so rich too. The system here is designed to which you can't get rich and you can't starve to die. It is a great system for those who don't know how to save money. But for those who wants to get rich, your cashflow maybe obstructed a little (I think it is not a problem).

One thing about CPF is something like long-long-long-term fixed deposit with high-high interest. You put your money into a box and you will not able to open it for long long time. One thinks that if you didn't put these money into this box, you can do extra investment which may resulting higher returns. But it is for high disciplined people to do that and you need good economic with good planning (luck). If your money is inside CPF, it is still your money. So decide on your own way to manage it.

That day I was chatting with m|ng and we are discussing about CPF contribution. m|ng suggested to put full amount into the CPF because it is not taxable. Since it is not taxable you can save your money from going to government and putting more money into CPF means you started early on your retirement plan. Remember the keyword "Start Early", it is never too early for investment or saving. It is just an excuse to tell yourself you are poor so you won't be saving for these few years (I used this excuse too). If you try to tight your budget, you may have extra few hundred for saving.

Again, I have friends who wanted to put lesser and he/she can use the money for greater purposes. Maybe in the future when we look at the latest Singapore bond/investment plan we will look back that this CPF issue. Until then, I shut my mouth.

Student Loan - Part II

This is part II of the article http://startwealthy.blogspot.com/2005/09/student-loan-part-i.html. If you have not read the first part, please read it so you know what I am talking about.

I can't say Singapore government is evil but they are really the smart-ass type of government. Let me start off with a simple bed time story:

Ah Seng is a younger brother of Ah Meng in the family. He was bullied by Ah Meng eversince he was born and he actually had a quite bad intention (cruel intention). We can't blame on Ah Seng to get out from the family because if you are bullied everytime in the family, you will not get sense of belonging. By the way, actually Ah Meng is also not that bad. He is not a bad bully, he is just act like that because he is the older brother and of course after his father died, he got a bigger land from the will.

So after both of them actually separated into two families, Ah Seng was struggling damn hard because his piece of land is damn small compared to Ah Meng's land. Not even a grass can grow out from Ah Seng's land so he is about to die. All because the need of survival, he had to evolve into another form. Ah Seng asked Ah Meng to let him sell some of Ah Meng's crop in the market. Ah Meng agreed since he is too lazy to walk to market to sell his crop afterall he can get money from Ah Seng who carries his crop to market to sell. All Ah Meng do on this period of time is to stable down his family and feeding his elder son. Ah Meng got three sons - Ah Mak, Ah Chai and Ah Ik. His second son is the brightest son of all three and his third son is very well as well but his eldest son Ah Mak always making trouble for him. Ah Mak wanted to get better claim out of everything just because he is older and larger in size.

So back to Ah Seng because today's main character is Ah Seng. After working so hard to sell crops for Ah Meng, he finally able to build up his family. I can say that time he was struggling very hard. If not for Ah Meng, Ah Seng would died. So, as Chinese proverb goes "Feng shui exchange its formation every now and then", now Ah Seng is richer than Ah Meng. To make it short, Ah Meng's second and third son had problem with the family too, they wanted to get out of the family to venture outside. So Ah Seng employed both of them. Ah Meng is silly enough not to ask both of his son to stay and let them go.

Story end.


I guess it is a boring story but all I wanted to convey is the history behind two families. Now, back to Singapore government. Some people said that, Singapore government even though they encourage entrepreneurship, they never actually wanted their citizen to start business. They want good and obedient worker. This is what they wanted at the beginning of 80s. You work, you pay Central Provident Fund Board (CPF) and you retire rich. You can save your problem cracking your head to think about your retirement.

After 15 to 20 years, they realised that there are a lot of Singapore business is not owned by their own citizen. So they started the entrepreneurship idea and encourage more youngster to do business. However, not too much people go for business because they need professional workers to work for their country as well.

With this small mass of land, you can't get so much talents. Therefore, ASEAN scholarship plan is started to promote interaction, broaden your mind and blah blah blah. It is true that the purpose of the scholarship is met and you who study here actually "boarden" your mind. The another purpose of the scholarship actually to "harvest" talents from ASEAN.

Why I use the word "harvest" here? When you plant something, you need seed. But Singapore does not need seed to get the final product. You only need to "harvest" what someone has been growing for many years. Of course, it is not really evil because first of all ASEAN scholarship does not bond student, and secondly one to willing to be "harvested" in order to make the plan works. After these scholarship things, people will feel there are greater opportunity here so some of us will take loan to study here. (I am not speaking for Singapore government, it is just the truth behind everything.)

For example, Malaysia spent 12 years education for a student to reach STPM (Higher Malaysia Certificate of Education) equvailent to 'A' Level (if you study private school then it is exceptional for you). Singapore government promotes "gathering foreign talent" campaign and here you go, a bunch of talents are harvested.

In order for a poor student to study in Singapore, first you need to get Tuition Grant, Tuition Fees Loan and Study Loan.

MOE Tuition Grant

MOE Tuition Grant is applicable to undergraduate students at universities and diploma students at polytechnics.The cost of University education is highly
subsidised by the Singapore Ministry of Education (MOE). The high subsidy is provided in the form of a Tuition Grant (TG). The TG is the difference between the full fees (cost of training at the University) and the tuition fees payable by the student (i.e. direct payment). The TG is offered to all admitted full-time undergraduate and polytechnic students. Students who accept the TG need only pay the portion of the fees not covered by the TG. The TG is very substantial and works out to be about 65% - 80% of the full tuition fees. E.g. (Business Bachelors course in NUS without TG is S$19,350/annum, with TG is S$6,220/annum).

Tuition Fees Loan actually covers everything up to 80% of the school fees (remaining from Tuition Grant). This is the mother of all loans for fresh graduate. Now look at the term:

Terms of the loan

Interest Rate
An interest rate at the average of the prime rates of the following banks, DBS, OCBC and UOB, prevailing on the first day of each quarter or such other rates as may be determined from time to time will be charged upon graduation.

Interest will commence on 1st February of the year following graduation for students who graduate at the end of Semester 1 and 1st August in the year of graduation for students who graduate at the end of Semester 2.Interest will be accrued on a monthly basis.

Repayment
The following repayment terms are applicable:

(i) Repayment of loan can be in one lump sum or by equal monthly instalments commencing not later than two years from the date that interest is first chargeable on the loan.

(ii) The minimum amount of repayment is $100 per month and the maximum repayment period is 20 years.

(iii) In the event that the student leaves the University without completing the course of study, the loan outstanding will immediately become due and payable. He may, however, repay the outstanding sum by monthly instalments on such terms and conditions as the University may allow depending on the circumstances of each case.

(iv) Early repayment of the loan in full or in part will be allowed after 7 working days' written notice has been given. Partial repayment may be made in multiples of $1,000.

Guarantor
One guarantor above 21 years but below 60 years is required. There is no income qualification. Non-Singaporean guarantors are acceptable for foreign students.

Late Payment Charge
Penalty interest will be levied at the rate of 1% per month on instalments in arrears.

Another loan is study loan which is optional. It actually supplies you with $3,600 per year after paying the remaining sum from Tuition Fees Loan. So, if you don't have money and you want to study in Singapore, this is the route you have to take. This is also as heavy as Tuition Fees Loan.

As I mentioned in Part I, the loan for one year is $10,000.

How Singapore government "tie" you down with loan? You are not poor even if you got bunch of loan because the purpose of these loan is to "tie" you down and continue to work for Singapore so some period of time. From what I have analyse in Part I, you need about 10 years to finish everything if you are paying minimum sum. So you still have 10 years here. (A bit different from the terms but this is what I heard it from a bank officer lately.)

If you wish to leave, you can leave anytime after the 3 years bond from Tuition Grant but I am so doubtful of people want to go back to their country empty-handed. So, you will work at least 5-7 years here for building up your financial capability.

Now you will start your life here in Singapore. Staying in HDB flat (maybe with your mate who you met here), taking bus/mrt to work and eating in hawker centre. This is life you have to go through and I believe there are dreams among us and there are hopes among us. It is not a bad life either, it is just a beginning for an adult life. Just that the lifestyle is different from Malaysia.

My next part will be on 5 to 10 Years Plan. For now while waiting for me, please read ming's article if he posted something here. Please support by donating us some cash or visit more often because without these advertisement banner, this site would be dead.

Student Loan - Part I

I graduated from National University of Singapore (NUS) on June 2005. I suppose I actually graduated after my final paper which 20 April 2005. So after this date I have been brought to a whole new world which is "The world after student". I won't say it is working world because until now I am still looking for a job. Even though I have been working part time jobs in three of my four years studying in NUS, I still considering it is not real working. Yeah, I been communicate with real working people and do my work as professional as I could. But whenever people look at me I am just a student. When you are student, you did a mistake you can be forgiven.

Ok, let's start with student loan. I will first do a simple analyse on the loan. To round things out if you are a student taking NUS Study Loan and Tuition Fees Loan, one year is $10,000. So if you studying for three years in NUS, your total loan will be $30,000. For me is $40,000. Let say my case, I got two loans (excluding computer loan), one from DBS and another from OCBC. The minimum installment per month is $200. The annual interest is 4.75% so every year is $1900. Some of you will say it is like peanut (by the way, peanut costs $600,000 each in Singapore. - It is a jokes brought to you by Mrs.Goh)

For those who don't realise the power of compound interest, I shall make them realise. Below is the rough formula of compound interest.

New Balance = (Old Balance - Installment Paid) x Interest

When you see 4.75%, it seemed very little. When you see $1900, it is quite a lot. But you haven't see how does it add up to a large amount by compound interest. Since the minimum you need to pay is $400, so:

0  40000  36872
1  36872  33595
2  33595  30163
3  30163  26567
4  26567  22801
5  22801  18857
6  18857  14724
7  14724  10396
8  10396  5861
9  5861   1112
10 1112  -3862

You will need to take 10 years plus to pay all the loan. The extra cash you need to pay the bank is about $10,000. Just merely $40,000 in ten years you get extra $10,000 which is 25% of $40,000.

Once I been thinking too, what if the inflation rate compensate off the interest? It is really a wishful thinking because the 4.75% interest can be adjusted according to the inflation rate. You see we can't beat the bank like this, you can only do that by clearing your loan ASAP.

The fixed deposit rate is much more lower than the loan interest. Refer to http://www.dbs.com/ratesonline/fdsgd.html. It is only 0.75% per year compared to 4.75%. Therefore, if you think you just save your money in the bank, it is better to do something if you are not thinking to invest the money. I will continue more on how does it will ruin your life in part two.