Questions: Length of loan?

Trusted colleague was advising me: I may wish to consider getting a larger and longer HDB loan since I would be able to get better returns on the money than 2.6% anyway. Not sure, it's a bit against my inclination to get out of debt as soon as possible but I suspect he's right!

Investment and returns

So... here's an interesting discussion in the comments on how to invest - buy and hold vs active trading.

Things that caught my eye:

1) "An investor who bought the Nasdaq index in 1973 and sold in 2002 would have earned an average yearly return of 9.6 percent. But the typical investor in Nasdaq earned only 4.3 percent over this period."

Which gives me two numbers on expected returns from investment. And..

2) "Peter Lynch always said the advertised returns of his funds were always considerably better than those realized by the investors of the funds. Investors buy what has been hot recently and then sell when they under perform."

What HDB flat can I afford? v1

I'm going to assume for this post that I'm buying a HDB flat - I'll cover the rationale for renting and my aversion to buying condo at this point in a separate post.

I'm considering one of two options:

a) Putting in for one of the Bi-Monthly Sale of 4-room & Bigger Flats in my area. Of course this would mean I've to get married pretty much within the next 3 months...

b) Putting in for one of the Build To Order flats in Punggol... which means I'd have to prepare to move in in about 4 years..

(See, that's one reason to rent rather than buy - pure flexibility!)

of course, there's always
c) Wait ...

which could also arise from
d) Apply but get unlucky at ballot.


Anyway, before that.
What can I afford? I must admit I have little idea about this, but there's this HDB MoneySense Guide which helps a bit. I'm gonna open a Google Spreadsheet and try to follow this.

A few information blocks along the way:

The first thing I should find out - am I eligible for a HDB loan at concessionary interest rate? This HDB article covers it. And, yes I am!
Generally, this means that I get an interest rate of 2.6% on my loan - presumably better than bank loans but I have no idea. Got to keep my eyes peeled for promotions as I walk around.

Then if I take a loan at 90% of the flat value, I can estimate my instalment payments here.

Keying it into the spreadsheet, I find:

a) For a flat worth $250k, I end up paying about $1020 in instalment payments, of which $120 must come from my cash. Not too bad!

b) For a flat worth $350k, I end up paying $1400 in instalment payments, of which $400 must come from cash - much tougher...

I've published the mug-ugly version 1 of the spreadsheet here.
Still need to
1) Figure out how HDB calculates the monthly payment based on
a) Loan amount
b) Per annum interest
c) Years to repay
So if you know this, let me know, okay?

2) Figure out the renovation loan interest rate and work out how renovation impacts the sheet

3) Add in calculations to reflect property tax, fire insurance, mortgage insurance, conservancy charges, maintenance costs, as the MoneySense guide advises.

Getting my financial life in order

So now I'm looking at HDB flats to settle down in with my dear Key - time to get serious about getting my financial life in order!

Problem is, after having read all those useful personal finance blogs, I realize that I haven't found one that's based in a Singapore context. And the world is totally different! For one thing, the best interest rate you can get on a savings account in Singapore (for someone with my funds) appears to be StanChart's 1.8% - whereas that guy at The Simple Dollar is always raving about the HSBC account with 4% interest rates... For another, the whole thing about buying homes using CPF and stuff is just so bloody confusing.

So now, I've got a few tasks ...

1) Figure how much I can afford for the HDB flat - or indeed, whether I should be renting instead (heaven forbid I buy a condo at this point!);

2) Find out how I can maximize my investment from this place where interest rates on all kinds of deposit accounts seems abysmally low;

3) Think through how much insurance I need, and get that amount!

4) Appropriately for the number 4, make my CPF declaration and draw up my last will and testament.

Of course, I'm ridiculously blur about this and still finding my way around.. So I might as well make a journey of it and a) entertain some people, b) share the experience, and c) seek inputs from anyone who happens onto the site.

So... let's start!

The best investment advice you'll never get

Via The Simple Dollar, a very good article about investing, using Google's experience just pre-IPO as the background story.

The advice? One economist said:

“Don’t try to beat the market,” he said. Put your savings into some indexed mutual funds, which will make you just as much money (if not more) at much less cost by following the market’s natural ebb and flow.

Another:

Don’t try to beat the market, he said, and don’t believe anyone who tells you they can—not a stock broker, a friend with a hot stock tip, or a financial magazine article touting the latest mutual fund

And most cuttingly:

Bogle’s closing advice was as simple and direct as that of his predecessors: those brokers and financial advisers hovering at the door are there for one reason and one reason only—to take your money through exorbitant fees and transaction costs, many of which will be hidden from your view. They are, as New York attorney general Eliot Spitzer described them, nothing more than “a giant fleecing machine.” Ignore them all and invest in an index fund. And it doesn’t have to be the Vanguard 500 Index, the indexed mutual fund that Bogle himself built into the largest in the world. Any passively managed index fund will do, because they’re all basically the same.

Index, index, index!


Also summarized here.

Why we overspend

The Simple Dollar has this interesting observation on one of the reasons why we overspend: We're perpetuating a lie about our own finances, either because we don't want to let people think we're poor, or possibly even because we may be lying to ourselves as well...

Lowering of income limit for credit

The income minimum for unsecured credit has been lowered to $20,000 per year. Maximum credit is still capped at twice the monthly salary..

On the one hand, I think that salary doesn't dictate whether a person knows how to handle their own finances. However, easier credit does make it easier for people to mess themselves up, even while it enables some of those people to change their lives for the better.

For instance, one friend I have used several credit card facilities to get enough cash to start his own business - a venture which was successful, thanks to his hard work and acumen. People should control their own destiny - it's not really anyone's role to protect people from their own folly. I mean, consider this news story from Wired, "Law Would Ban IPods When Crossing Street". So you're not allowed to listen to your iPod, talk on the phone, play PSP or check your BlackBerry while crossing the street - all in the name of protecting your life from yourself.

But there's a side of me that tells me that people may not be aware that how fast or how much they actually are spending, including whether they are spending above their capacity. Especially in the case of buying things they can't afford! I can buy something worth $6k on a credit card, but would I be able to put that much away while making all my other obligations? Especially if I need to make house payments, for instance. 7 years back I had to work my way out of a credit hole on a student credit card, and it was a heck of a miserable experience - and then the only person suffering was me!

But despite my misgivings, the perils of credit cards are a lesson probably best learnt by experience - after all, not everyone is as financially dumb as I was!

Simple Dollar: The Road to Financial Armageddon

I recently found the Simple Dollar website through the author's article on the 30 best freeware, which was rather widely featured on several sites. So now I'm reading its RSS feed and finding many rather interesting articles.

This particular series, "The Road to Financial Armageddon", is particularly good - do read it! I've linked to #8 in the series of 10 articles.

I experienced a similar (but smaller scale) problem with credit card debt when I was in the UK - ran myself into a credit card hole and spent three months digging myself out. I can tell you, the feeling of being in debt is entirely awful and till today, it makes me very careful about my credit card spending.

Of course, I'm still a rather profligate spender - Nekki says that I "spend money like water". And it's true - I don't have the discipline to put money away at a serious rate. But I keep reminding myself, I gotta save, invest, plan for the future. If you already have a plan for the future, good for you. If not - whether you're young or old, it's never too early to start practicing some financial discipline.