Monday, February 24, 2014

Why my parents are so eager to invest

My parents passed me another 60k to invest around early Feb. This is after the initial tranche of 50k.


I found out a bit more why they are suddenly so keen to put their money to work. They said that they've put it in the savings account for almost 10 years, then realised that the interest is so pathetic, so they wanted to get their money to work harder for them. Initially they wanted to put into some fixed deposit that pays about 1.18% pa, which is way better than the interest from savings (maybe 0.05% now), but still pathetic. I managed to convince them to buy my LP bonds eventually.


A few thoughts ran through my mind:


1. Why think about such things only 10 years down the road? A few reasons - as a family, we don't really talk much about money between ourselves. I don't know why, but that's the culture. If I know that they have this amount, it might be better to buy endowment products or put them into fixed deposit to squeeze more returns. But would I be willing to invest for them?


I doubt so. I'm a different person 10 yrs ago. I trade warrants in the past, maybe can do around 10-20 trades per day. I would have blown my parent's savings instead of getting more returns for them. On hindsight, we always calculate the possible gains that we can get from investing the money for 10 yrs, but never really think that a lot had happened - most notably you. You're probably a different person now than 10 years ago, with a different temperament, with a belt-full of investing/trading mistakes that you swear never to repeat.


That's just the way it is. This is the right time for me to help my parents, and this is the right time for them to get more returns for their money instead of putting them in the bank.


2. My wife knew about me helping out my parents. She thoughtfully asked whether she will have 60k + 50k when she retires. I get her. My parents finished their payment for their 4 rm hdb in just 2 years. Back then, salary wasn't high because my mum didn't finish her primary school and my father failed most of the subjects for O lvls, but managed to get a job as a clerk. So, that's all it takes...2 years to finish paying the loans. They have a whole long period of their working lives paying for the upkeep of me and my brother, as well as for our education and general living expenses, and also to save up. Me? If I keep to my payment schedule for my HDB, I'll be 60 years old when I finished paying all up. It makes you wonder.


Complaining wouldn't help at all. Might as well work and save hard and try paying off the housing loan early and also save up for retire. All in one shot. Having children? That's the last of my priority.


3. Investing at 4% pa returns of the new 60k will net around 2.4k per year...that's about $200 per month. Is it good enough for my parents? Since the 60k comes from my father, I take it that the 200 per month is for my dad alone (mum has her own 50k). Is it enough?


He don't have to pay for food, utilities, medical expenses. That's provided for by the monthly allowance given to him by me and my brother, while medical expenses are mostly covered by the healthshield plans bought for him. He don't have to pay for lodgings too, because the housing had long been settled. This money is just 'play' money - for the occasional travelling and to buy stuff that he likes. Is it good enough?


I think it's more than enough. Don't squander it and live simply. I think it's enough.


4. When it comes to my turn to retire, I hope it'll be good too. Maybe 300k in today's money is good enough. 300k @ 4% pa returns will be $1000 per month. That's for me alone. For my wife, maybe we need another 300k, so that's a total of 600k. I think a rough figure of between 600k to 900k should be a good amount to plan for. I think we each need to save at least 1.5k per month for our retirement.


Since my expenses is already 3.5k per month, that just means I need to earn at least 5k. But doing that, I can't accelerate the capital repayment of my housing - I need another 1k per month to shorten the debt duration of my housing loan. So, final figure - 6k. No matter how I calculate, it's always down to that figure.


Let's just get on with it.


12 comments :

Cory said...

U re-compute my expenses just last night. Not sure is coincidence. 6K to live in "Singapore Dream" is my magic number as well.

CreateWealth8888 said...

In 2013, Singapore's median monthly household income was S$7,870.

$6K is really living well for single person

la papillion said...

Hi cory,

Ya, quite coincidental. I think 6k per person is quite normal for anyone with private property/resale property. With BTO flats or staying with parents, the housing component will be much much lower.

6k I think will be quite comfortable, with savings. Any lesser will be harder and harder to save without sacrificing some creature comfort.

la papillion said...

Hi bro8888,

I suppose it's quite comfortable, yes. I would say as a household, a comfortable household income should be nearer to 10k. That would enable both couples to save for their retirement. I'm not going to debate what's comfortable and what's not.

If the couple is to have children and still want to save for retirement, then it has to be even higher than 10k.

B said...

Hi LP

I am currently earning about 5k net of cpf and am supporting my wife and my baby due soon. We tracked down that we spent about 1.5K together net for two person and it probably will bump up to 2.5k when my kids are around. All in all that's still.about 50% spent and another 50% saved.

My ideal number is in the range of 6 to 7k because ideally I would like yo hv another child so I know income needs to be bumped up sooner or later.

Money Honey said...

Like son like parents?

la papillion said...

Hi B,

I rmb that you're staying with your parents or in-laws right? I think if not, you'll have to add another 500 to 1k depending on the type of housing you choose, so it'll be about the same as my 6k.

I think the critical period is during the growing up phase all the way till secondary school. Unless you really don't want to send your kids to enrichment classes, then it's fine. But if you do, that will really eat up a lot of money.

Congrats on being a father soon!

la papillion said...

Hi money honey,

Cryptic comment. Care to clarify?

Matt said...

LP,

My wife and I are living comfortably on 5k a month with an additional 20k for holidays and other expenses. My wife and I stopped working 7 years and a year ago respectively.

To be frank, most of our savings for our retirement were saved in the last 12 years before we stopped work. We bought a landed property in 2002 and took a huge loan which was cleared in 4 years after we sold off our first condo.

The plan then was to finish paying off for the landed and if necessary, sell it off to fund our retirement and downgrade to a condo or even HDB. But as things turned out, we did not have to do that.

Don't be too caught up on the numbers but concentrate on growing the income. There is no special formula. We did it the conventional way and not through any windfall i.e. purely through salaries and capital gains from stocks.

There are always two sides to the issue and multiple ways of solving them.

la papillion said...

Hi Matt,

Thanks for your encouragement!

Congrats on reaching financial freedom..very enviable position :) I'll remember what you said. You're right, I'll just concentrate on doing things right and hopefully things will just fall into place at the end of the day. Must place more faith on human ingenuity :)

SnOOpy168 said...

Matt

Our new role model. That property is a huge help in FF, if bought & sold/rented out at a right price.

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