Before I embarked on this exercise, I tried to think of my top 3 biggest expenses. I knew that mortgage is definitely the biggest expenses. I kind of think that food and parents will take up the next two rankings, but let's have a look:
Top 5 biggest expenses in 2015 (excluding tax):
1. Mortgage - $12,078
2. Food - $6,263
3. Insurance - $6,006
4. Parents - $4,040
5. Transport - $3,632
Total: $32,019
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| Without doubt, mortgage is the number one expenses for me |
I know the bulk of you will not consider mortgage because it's paid through CPF, but for me I pay them through cash. In fact, when I consider my expenses, I don't split up into CPF or out of pocket cash. Both are cash to me. This is relevant because my hospitalization plan is paid from my CPF medisave account, but I still included it as 'cash' expenses.
Mortgage taking the top spot is not a surprise. This is only my share of the mortgage, and I have to fork out 1k per month servicing the loan. Technically I paid up more since I do partial capital repayment every year end to shorten the duration of my loan and save up on interest. This one wins hands down. Is there any way I can do to reduce this? I don't think I can, unless I downgraded my flat. It won't happen, as far as I can tell, in the next 15 years. Since mine is an old flat more than 30 yrs, I think the chances of me cashing out to sell is greatly reduced as time passes. Have to suck it up, no choice.
Food is split up into hawker/food court/coffee shop type and restaurants type. The hawker variety of food amounts to $3,944 and the remaining $2,318 consists of restaurants. On a per month basis, it's $329 per month ($11 per day) for the former and $193 ($6.43 per day) for the latter. This is the area that I know I can reduce further, should I encounter difficulties in cash flow. I can reduce the restaurant trips to 0, and reduce the hawker food expenses down to $2.50 per meal, so it'll amount to $225 per month. This will drop my food expenses from $6,263 to just $900 per year. I'm obviously not going to do it unless necessarily, but it helps to know I have this buffer than I can cut down should I need to.
Insurance works out to be about $500 per month, consisting of:
1 x limited premium whole life plan $100k
1 x unlimited premium whole life plan 50k
1 x term plan $100k
1 x hospitalization plan (Private hospitals)
1 x disability income
1 x property mortgage plan (i.e. 30 yr decreasing term plan with 500k initial)
Can I reduce this further? I suppose I can. For example, I can stop my two whole life and surrender it, getting some money back and use that money to put it into a term plan with higher death coverage. Those two amounted to about 70% of the premiums paid for insurance, so possibly I can reduce the insurance amount from $6k to about $4.5k (probably less) with even more coverage. The reason I bought whole life plans is because I bought it before I knew I can save up the money myself. It's good as a backup in case my investment didn't work out as planned. If and when I have children, I'll have to boost my insurance coverage with term plan and that's about it. Again, it's good to know I can reduce some expenses should I need to, but seriously, I'll rather reduce other things than this unless absolutely necessary. It's like those last minute trump card encased in a glass container that I will break and throw in an emergency.
I gave my parents some allowance, amounting to about $330 per month. This amount varies every few years and I didn't include the bonus ang bao that I gave to my parents during birthdays and chinese new year. So, this is probably an underestimate, or more like a fixed 'salary' to my parents as opposed to the more variable 'bonus' given during big occasions. My sibling contributed another amount (I don't bother to ask) so we sort of share the monthly upkeep of our parents. For those who do no have siblings, I suppose he or she will have to step up and give a little more. Okay, maybe 100% more, to make up the income for the missing sibling. I compared with my wife, who don't have siblings, and indeed, she gave about 100% more than me. Ouch.
Can I cut on this? Absolutely not. This is one of those expenses I'm adamant on having it regardless of my financial circumstances, so it's not negotiable. I'll have to cut on other areas to make up for this essential expense.
Lastly, transportation includes both the total expenses of owning a 2nd handed car plus public transport. These days I don't really take public transport much because I work at home, so it amounts to about $200 per year (based on ez link top ups), so it's about $16.7 per month. Really bare minimum already. The rest of the $3,432 is for the installment of the car plus all the running costs and maintenance. Since my wife is the one driving, she's paying the bulk of the cost. For my share, it's $286 per month or $9.53 per day. That was for last year, where I still have to pay $179 per month for the installment for the car. Should I need to reduce this expense, I can choose not to drive and just pay for the parking costs, which is about $70 per month. For extremely light driving, I think it's possible to keep the cost around $1,500 per year. Assuming my public transport cost will double to $400 (not really possible, but let's be conservative), my transportation cost will drop from $3,632 to $1,700 per year.
Interested to know what's no 6 and no 7 down my list? Here we go:
Top 5 biggest expenses in 2015 (excluding tax):
1. Mortgage - $12,078
2. Food - $6,263
3. Insurance - $6,006
4. Parents - $4,040
5. Transport - $3,632
---------------------------------------------
6. Gadgets - $1,354 ($112 per month)
7. Vacation - $788 ($65 per month)
Gadgets I admit is part of my play fund, where I allocate a small sum every month so that I can spend on unnecessary wants without guilt. This can obviously be cut down to 0 should the need arises. Vacation is not a big need or want item for me. I can camp in Singapore (or even at home) for a very extended period of time without becoming unbalanced or feeling deprived.
In summary, how much can I cut? To tally up, I can reduce my top 5 expenses from $32k to $23k, which is about 9k per year or $750 per month. And this is just the first round of cuts I can do without feeling much deprivation and suffering. That's good. I don't want to live just on the edge, I want to enjoy life a little to hedge against a short life and yet not derail from my long term plans to hedge against a long life. This little exercise allows me to see clearly what are the fat areas that I can bank on during lean times.
I realised I'm not that frugal afterall, haha!
11 comments :
wow you track your expenses right up to a dollar?!!!
what you some kind of machine or what haha....
incredable!
hedge against short life by spending more hahaha, i like that....
Hi coconut,
Haha, thanks for visiting even though it pains your eyes to read this :) I actually track it up to cents, but not necessary for the readers to know that lol
Seems like a lot of hardwork but it doesn't take a more than 2 minutes per day to key in as and when I spend. So after a while, it's second nature ;)
The power of YNAB haha - easily down to cents indeed.
Hi Kevin,
You should know too! lol
LP,
Focus on earning more can intellectually more stimulating:
1) Charge more per hour?
2) More students without increasing price and hours worked?
Save more is exercising discipline and control.
Earn more requires creativity ;)
Hi SMOL,
No worries, I'm not going to the other camp haha! I'm still very much on the earn more to save more side :) I'm just drawing out my defense lines to see when the battles become hot, where is my next rendezvous point for my troops ;)
parents $4040 - I know a lot of friends give more than $1000 per month.
"Technically I paid up more since I do partial capital repayment every year end to shorten the duration of my loan and save up on interest."
personally i preferred to keep a bigger loan given the low interest rate currently.
This is really one of the cheapest form of leverage.
I read about people borrowing from leveraged bank margin accounts to buy reits but really the purest form is using the money otherwise paid to lower loans to buy reits to earn from the difference in the real estate management companies' ability to earn more rental income.
http://www.sreitinvestmentblog.sg/2015/09/analysis-of-global-investment-limited.html?showComment=1442816958917#c6394356489567466708
the danger in leverage in this method is you can lose more than the amount you seek to 'carry trade' if the interest rate increases.
but really, the biggest roadblock in your path to utilizing this form of leverage is maybe your preception that you cannot liquidate in time to repay should the need arises. (or you chose investments that has low speed in liquidation.)
" On a per month basis, it's $329 per month ($11 per day) for the former and $193 ($6.43 per day) for the latter. "
not a meaningful idea to set aside restaurant spending as a separate category especially to daily averages. you don't eat restaurants every day. as a whole, food expenses as a daily average is a more useful gauge to determine whether you are spending more today. even better to set aside a restaurant fund if you are using YNAB.
further to this, I am with you if you decide to do so to build up your emergency fund to 12 months. (*shrugs* maybe it is already 12 months)
1 x limited premium whole life plan $100k
1 x unlimited premium whole life plan 50k
i would prefer unlimited premium to limited premium.
same thinking as in paying 25 years for a house and paying up in 10 year for the same house.
but of course at such low coverage, the difference in performance from a different choice is not so easily evident.
"I gave my parents some allowance, amounting to about $330 per month. This amount varies every few years and I didn't include the bonus ang bao that I gave to my parents during birthdays and chinese new year. So, this is probably an underestimate, or more like a fixed 'salary' to my parents as opposed to the more variable 'bonus' given during big occasions. "
ah no wonder :)
I don't believe in variable allowances. that's maybe just me.
some parents may see the angpow as indicative, some see it as bonus.
personally, I feel clockwork fixed is better. because putting myself in my parent's shoes, I also prefer a bit more assured predictability.
"because I work at home,"
congrats! good business practice to have visiting clients to your office.
"7. Vacation - $788 ($65 per month)"
for self employed, unfortunately, this is calculated as a monthly expense.
"This little exercise allows me to see clearly what are the fat areas that I can bank on during lean times."
yes very important, there are likely some extended periods of testing times coming up.
"I realised I'm not that frugal afterall, haha!"
already quite. rental in the form of mortgage is inevitable.
agree with SMOL.
Hi SMK,
Wow wow wow, thanks for giving your invaluable comments on my post :) You must have made a lot of effort to put in your views, and I appreciate that very much!
I guess for the capital repayment for loans is a matter of preference. If you have a sum of money, would you pay down your debts or use that money to generate an income with a yield higher than that of the interest rate of the loan? Well, I would do both. I'll use a portion to pay off the loan to reduce my overheads and also use another portion to build up a portfolio to generate income. My reasoning for paying off the loan early is that while the interest for the loan is fixed, my investing returns are not guaranteed. The other reason for not using the entire amt to pay off the loan early is that at the end of the day, once I paid off, I would be asset rich but cash poor. Not a good situation to be in either.
Okay, for the insurance part, I prefer to concentrate all my payments during the phase where my human asset is at the peak. Even paying a little more during the period where my income is coming in and more assured is fine. I don't want to have to worry about payment issue when my human asset is waning. I'm focusing not on the time value of money but more on the reliability of my income and timing most of my major expenses to end before my human asset starts to wane off.
You're also self employed?
Hi LP
衣食住行, you have 3 on your top 5 list. So it is a common expense trend.
Knowing you, you just need to be less generous to friends and may save few percent of your food cost. Haha. But I know you will say money well spent.
A rare financial blogger who have every aspects well balanced. Lifestyle, knowledge, investment approach, personality. Maybe the unbalanced part is your hours spent working, but which you enioyed doing.
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