Investment Posts – CFP, representing Financial Alliance

what to do with your children red packet?

As we conclude the festivities of the new year, an intriguing question has been raised by many of my clients: What should be done with children’s Ang Bao Monies? Our recommendation? Invest it. And for those without children, consider investing for your own future if you haven’t already done so.

Benefit 1: Providing a Head Start

One of the greatest advantages our children possess is time, and investing their Ang Bao or birthday money could prove to be one of the most prudent decisions. While money can be replenished, time is finite. Albert Einstein famously remarked, “Compound interest is the eighth wonder of the world.” By initiating investments at an early age, there is the potential to significantly augment their wealth. Even with conservative estimates, the power of compounding over time can yield substantial returns.

What to do with your children Angbao Money? — Engage

Benefit 2: Fostering Financial Literacy and Exposure to Market Dynamics

Financial markets are inherently volatile. Introducing children to investment early on exposes them to the realities of market fluctuations, instilling in them the understanding that the path to financial growth is seldom linear. This exposure cultivates resilience and equips them with the mindset to make informed, rational decisions, devoid of emotional biases. Moreover, discussions surrounding investments open avenues to explore various businesses and industries, igniting curiosity and potentially uncovering their passions.

Benefit 3: Cultivating a Positive Relationship with Wealth

For many children, money is synonymous with immediate gratification – a means to acquire possessions or experiences. By introducing the concept of investment, we shift the paradigm from scarcity to abundance. Through prudent financial decisions, we demonstrate the potential for sustainable growth and the ability to create value not just for oneself, but for others as well.

If you wish to find out more about starting an investment account for your children (or for yourself if you haven’t), do drop me a whatsapp/email.

Yvonne Lim
Certified Financial Planner
Representing IFA, Financial Alliance

Original Post here:

What to do with your children Angbao Money?

GST Voucher 2023 – and how you can fight inflation if you are not eligible to receive the payout

1.5 million Singaporeans to receive $1.2 billion in GST Voucher!
If you are wondering if you are ELIGIBLE, you can easily check out the following link (log in via singpass): https://www.gstvoucher.gov.sg

If you are wondering WHEN you will receive the GST Voucher, it depends on whether you are NRIC-Paynow registered.

For PayNow: 1 August 2023
For Bank crediting: 11 August 2023
For GovCash: 21 August 2023
(Citizens on GovCash may withdraw their GSTV – Cash at OCBC ATMs island wide by entering their 1) Payment Reference Number (PRN) that will be sent to them from 21 August, their 2) NRIC, and after passing the 3) facial verification.)

$700 may not be much but it can still offset the increase in GST for $70,000 worth of purchase/spending. This will be helpful for the lower to middle-income and senior Singaporeans, who are eligible for the payout.

And for those who are not receiving any payouts (if we view it optimistically, it’s a happy problem), here are some investment ideas on how you can fight inflation by making better financial choices:

Invest in Stocks: Stocks have a track record of being a good hedge against inflation. During periods of high inflation, companies can increase prices for their products and services, leading to higher revenues and potentially higher stock prices. It’s important to choose resilient companies with a history of performing well in inflationary environments, or to choose companies who have strong pricing power (think luxury!)
Invest in Real Estate: Real estate is a tangible asset that can help safeguard against inflation. As inflation rises, the value of real estate tends to increase. As we have seen in recent months, rental income also goes up int imes of inflation. Of course, not everyone can invest in a second/third property given the high prices and stamp duties. In this case, REITS may be good options to consider.
Invest in commodities: Certain commodities, such as gold, silver, and oil, have historically served as good hedges against inflation. Precious metals are often considered stores of value during times of uncertainty and inflation. You can invest in these commodities via various investment vehicles, such as ETFs, contracts, or physically holding the commodities themselves. You can also consider investing in stock of related companies (point 1).

The above are just some examples of what you can do to hedge against rising inflation/ GST. Please speak to your financial advisor (or contact me) and conduct a proper review before making any financial decisions 😉

Maximise tax reliefs and save on taxes today.

Once again, the tax season has arrived and if you have not filed your taxes yet, here are some key ways you can save on taxes, simply by maximising and allocating your tax reliefs.

Part 1: Upon tax reporting in March / April 2023:

(1) Course fee tax relief $5,500: Any course of study, seminar or conference in 2022 for the purpose of gaining an approved academic, professional or vocational qualification

(2) Life Insurance tax relief: $5,000: If your CPF contribution is < $5,000, you may claim the lower of:
a. the difference between $5,000 and your CPF contribution; or
b. up to 7% of the insured value of your own/your wife’s life, or the amount of insurance premiums paid
New! The voluntary cash contribution to your Medisave account is not considered for the $5,000 limit for the total CPF contribution for YA 2023 onwards.

(3) Parents relief $9,000: You may claim this relief if you have supported the following dependants:
a. Parents / Parents-in-law / Grandparents / Grandparents-in-law
b. Stay with dependent $9000 / Don’t stay with dependent $5,500
TIP! You may also discuss with your siblings on how to share the parents relief.

(4) Qualifying Child Relief $4000: For parents, you may claim tax relief of $4,000 per child.
TIP! Depending on your income, it may be better for QCR to be claimed under fathers, as mothers have Working Mother Child Relief

(5) Working Mother Child Relief: Percentage of income. For working mothers, you may claim up to 60% of your income depending on the number of children as below, and your child did not have an annual income exceeding $4,000. 1st Child: 15%, 2nd Child: 20%, 3rd Child: 25% of income.
Tip! if your child worked part-time before tertiary education, your WMCR will be automatically removed. But you may write to IRAS to request to re-instate the WMCR once your child is back to full-time studies.

NEW! Budget 2023 – From YA 2025, there will be changes to WMCR from a percentage of income to a fixed amount. Budget 2023: Child relief for working mothers to be fixed from 2024

Click here for full list of reliefs. Do also note that there is an overall tax reliefs cap at $80,000

a tax is a fine for doing well a fine is a tax for doing wrong

Part 2: By end of the year 2023. Reliefs & deductions to reduce tax for 2024 NOA (to be done before 31/12/2023):

(1) Do good and save on taxes at the same time! Donations to approved Institution of a Public Character (IPC) enjoy tax deductions of 2.5 times the qualifying donation amount.

(2) CPF Cash Top Up Contribution Up $16,000: This is applicable if you top up to the CPF SA account if you have not reached the Full Retirement Sum.
TIP! You can enjoy tax relief of up to $16,000 for cash top-ups made in each calendar year. Get up to $8,000 tax relief when you top up for yourself and up to $8,000 when you help your loved ones build their retirement savings.

For self-employed: Max contribution $37,740. You may contribute the maximum CPF contribution of $37,740 to reduce your taxable income
Tip! You should top up as early as possible to benefit from the power of compound interest over the years.

(3) Supplementary Retirement Scheme $15,300: SRS is a tax deferment scheme. Every dollar contributed to your SRS account is eligible for SRS Tax relief the next year.
Tip! You are able to invest the monies in your SRS, or put into saving vehicles like SSB, making it a great retirement accumulation tool.

Hop the above information is useful!

If you are still unsure about the tax reliefs or have any queries, drop me a WhatsApp

Cheers and happy saving taxes!

Reasons to review your finances during a recession & how to do it. Here’s step 1~

a financial review when the outlook of the economy is gloomy is more important than financial planning when things are rosy.

When times are bad (note that the list is not exhaustive):

Our income may be affected.
- The risk of unemployment goes up.
- Pay cuts happen.
- Contract workers may not get renewed
- Drop in revenue (affects business owners)
Expenses may go up
- Think rent, mortgages, petrol and even food prices. There are many news regarding this recently so I shall not elaborate.
Tougher borrowing terms
- You may not be able to get financing easily
- In the event of a drop in asset prices/loss of income, you may not even be able to refinance your loans

A financial review will help you assess your capacity to deal with any of the above scenarios, and allow you to make adjustments to improve your situation.

And step 1: awareness on your spending habits. What are you REALLY spending on?

First, calculate your monthly fixed expenses. This includes bills and payments which HAVE to be paid and which remain fairly consistent in the short term – this means you can’t just make huge cuts just because you want to.

Think rent & mortgage repayments- even if you were to make lifestyle choices and move to a more modest home, the process takes time.
This is also the reason why the government has the mortgage servicing ratio and total debt servicing ratio in place to ensure financial prudence.

If a huge chunk of your income is going to fixed expenses, you may find yourself in a more stressful situation in the event of a pay cut/unemployment as it would require you to make major lifestyle changes to bring down the expense to fit the budget (or a smaller income)

To mitigate this, keep enough emergency cash or have a plan that can buy you time (such as renting out a room in the house, moving in with your parents temporary, exercising retrenchment benefits/premium holiday on your insurance plans).

Next up, calculate your monthly variable expenses. This includes discretionary spending that can be reduced easily.

Food – Dining in vs preparing your own meals
For some people, dining out could be cheaper as it may not be cost effective to cook for one. For others, having their meals at home can save a huge chunk.
Transport – Public transport vs driving/taking the taxi

and the list goes on.

The good news if a large part of your income goes to discretionary spending is that you can easily make adjustments when times are bad. The bad news is that human beings are creatures of habit and it can be painful to change your spending habits overnight.

If you are working in a high risk sector, you may want to start assessing your spending habits in order to be better prepared.

The whole point of calculating your expenses? To help you determine the level of emergency cash to keep. (No, I do not think that the commonly advocated emergency cash of 3-6 months expense is sufficient)

Example:
Monthly Fixed Expenses: $5000
Monthly Variable Expenses: $3000
Total Emergency cash to keep: $5000 * 12 + $3000*6 = $78,000

Of course, if you still aren’t convinced to do this ‘tracking exercise’, just keep 12 months of your income as emergency cash.

The Singapore Savings Bonds is currently giving a high interest rate of ~3.4%p.a. As it is a highly liquid vehicle, it is a great vehicle to use to hold your emergency cash. And the reason why I advocate this over FD/T-bills is because i do not believe that interest will stay at a high level (not 10 years, anyway) perpetually.

How are you accumulating for retirement?

In the course of my work, the one question I love asking clients will be their outlook towards retirement accumulation. Recently, I’ve started to classify the attitudes of my clients in their late 20s/early 30s.

(1) The Lifelong worker: Individuals who are not too concerned about the future because they believe/want to work for as long as they can.

(2) The Live Light: Those who prefer to reduce liabilities as soon as they can to reduce financial commitment, thus allowing them to ‘semi-retire’ earlier. These are usually the ones who like to clear off their mortgages and pay up for their insurance. And as soon as they are free from liabilities, they will save aggressively for their retirement. Investment volatility? No problem – because they have no liabilities.

(3) The Early Savers: Those who prefer to save aggressively when they are young, so that they can semi-retire early with multiple sources of passive income. These are the ones who kickstart their annuities early and plan more longitudinally. They don’t mind having loans as long as their total income can cover the repayments. They do not mind investment volatility either because they have the luxury of time.

(4) Retirement? Money isn’t a problem. I am building my empire!

There’s really no right or wrong approach to retirement planning but the important thing is to know and to plan according to your preferences. After all, different strokes for different folks and what matters is that we all get there.

Do you belong to one of the above too?

If you have been thinking about your retirement (or if you have not done it at all), feel free to try out this calculator here: https://northstar.efc.sg/link/consultant/yvonnelim/retirement

Otherwise, just drop me a note. I promise it’ll be a fun discussion!