A talk on how to manage our personal finances was held at NLB on 26 October, 7:30pm. During the 2-hour talk, the audience was treated to a very animated but down-to-earth presentation by Mr Dennis Ng who is a certified financial planner.
Putting aside all jargon, Dennis talked about matters close to our hearts; namely, our housing loans, car loans, taxes and investments. We were taught how to determine our debt-service ratio in 3 simple steps so that we won’t be over-committed to serving loans.
Step 1: total up your total monthly debt repayment obligations
Step 2: estimate your gross monthly income
Step 3: divide 1 by 2
The ideal ratio should be 35% or lower. If we apply this principle to our housing loans, a person with household disposal income of $3,000, should only purchase a house with a maximum price of $250,000, taking a maximum loan of $200,000 and thus end up with a monthly installment of $1050. It is also prudent to set aside CPF or cash to cover 6 months of housing loan installments as an emergency measure.
If you are a savvy investor or have a wish to be one, the 5 steps to investing are:
- Have an investment objective in mind. Financial investments should be made based on an objective or purpose. For example, if you need money in 5 years, don’t commit to a 10 year investment.
- Determine your investment time horizon. As seen from historical data, the shorter the investment time horizon, the higher the risk of losing and not making money whereas if you take a long-term view of 10 years or more, you will be able to ride through the booms and the busts.
- Determine your risk appetite. Dennis offers an evaluation method called the “Sleep level investing”. If your investments are making you lose sleep at night, you are in danger of investing beyond risk tolerance level.
- Diversify your portfolio. We have all heard this one before; never put your eggs in one basket. Seek alternative investments like foreign currencies, unit trust and traded endowments etc…
- Review your portfolio and make changes when necessary.
The underlying message was very clear; we have to take a vigilant and proactive approach to investing our money to make it work harder for our financial future.
Another matter discussed by Dennis was Supplementary Retirement Scheme (SRS). This is a voluntary scheme where one can set up a free account with participating banks and your cash contributions can be claimed as tax relief. Contributions will attract a penalty if withdrawal is made before retirement age but the benefits of SRS outweigh this restriction. SRS accounts can be used to invest in a range of investment instruments like unit trust, stock and shares, fixed deposits. Hence, all singletons should take special heed of this scheme, especially if we do not have any relief claims and have to pay so much income tax on our chargeable income that it pains our heart.
Dennis has offered all participants a free financial diagnostic session and a free housing loan analysis. He has also set-up websites where you can find more information:
LAS members are encouraged to email firstname.lastname@example.org if you have any questions on this event.
Contributed by Caroline Pang