Life Insurance Tax Relief

Have you been over declaring your Tax Relief unknowingly?

Majority of the people thinks that their have paid a lot for insurance premium and when it come to declaration of Tax where there is this column for Life Insurance Relief, they feel "relief" that at least it is tax deductible but they are only half right!

An extract from IRAS Website on the subject matter as follows:

"You are not eligible for life insurance relief if your total compulsory employee CPF contribution in the previous year is $5,000 or more.

If your CPF contribution is less than $5,000, you can claim the lower of

• The difference between $5,000 and your CPF contribution.
• Up to 7% of the insured value of your own/your wife's life or the amount of insurance premiums paid, whichever is lower."

Conclusion:

Majority of the population are not eligible for Life Insurance Tax Relief unless you are self-employed without CPF contribution or low income earner where total annual CPF contribution is less than $5000 a year.

Note:

The current tax-filing system cannot detect whether you are eligible to enjoy Life Insurance Tax Relief and will not disallow any input in the Life Insurance Tax Relief column subject to a maximum of $5,000 even if you are not eligible. It is up to you to file and is your own responsibility to know how much to file. If you have been over declaring, you can write to IRAS to do an adjustment.

You can click on the following link to know more about the subject matter:

http://www.iras.gov.sg/irasHome/page04.aspx?id=208

P.S. Tax matter changes from time to time and I am not a tax consultant, hence please consult your tax consultant or IRAS if in doubt.

Best Deal for Aircon

Recently my aircon gave way after good ten years and I decided to do some research before my aircon purchase and found the following two website particularly useful to share with my reader:

1. http://singapore-aircon-advice.blogspot.com/
2. http://www.coolserve.com.sg/

I do not get any referral fee from the above but I wouldn't mind if they were to give me some for my free advertisement. Anyway good luck in your aircon purchase!

Investment Strategy

Interestingly I have been discussing this topic with many of my friends recently which motivate me to post it in my blog instead. Please note that this article is not for layman but for audience who is at least familiar with the Technical Jargon. However if you are still interested and bother to google those Jargon, you can still understand them.

The most commonly asked question: "Is there an investment strategy that can work in current and all market condition?"

The answer will be depend on your time horizon and type of money baskets you are investing in. There is no quick answer to it but read on to discover the pot of gold yourselves. If you are sharp enough, you might point out "How about Risk Profile and Investment Objective?"

I would say that Investment Objective is normally either Long Term for Retirement Needs or Short Term for Income Needs, and I am going to cover both anyway. As for Risk Profile, I personally think is crap because when the market is good, almost everyone has an Aggressive risk profile but when the market is bad,they become Conservative risk profile. This behavior is totally opposite from the best known investment theory call "Buy Low Sell High" or "Buy when everyone is Fearful, Sell when everyone is Greedy". Having said that, thanks to all these people who are just doing the opposite by buying high, selling low and sell some more when lower, so that the value investors like Warren Buffet can make some good money and buy some cheap stocks finally! (Note: Value Investing can be apply to all things in life not restricting to stocks market. It can be apply in the way you purchase goods, luxury and property as well)

But wait! Did I say that Value Investing is the only investment strategy to make money? The answer is no. There is another strategy call Momentum Investing where you buy and sell base on trend. You can also use Option Trading or CFD Trading for Momentum Investing where you are allow to short the market and make profit even if the market is heading south aka downturn. I am not going to discuss these strategies in detail as you can find a whole lot of information if you are interested enough and take action to google them. If all seems too alien to you and you only wish to find an Idiot-Proof way of making money through investing, there is a strategy for novice call Passive Investing by investing into all market or sector over a long period of time like 20 to 30 years through Mutual Fund commonly known as Unit Trust or Index Fund commonly know as Exchange Traded Fund (ETF). Again, you can find out more if you google them.

However the number of investment strategy doesn't stops here but I just mentioned the most common one. In fact, my definition of Investment Strategy is the Strategy that work for you (You might still need to fine tune all the above strategy to suit your circumstances and need)! As the famous China leader Deng Xiaoping once says, "Regardless is Black Cat or White Cat, as long as they can catch Rats, they are good Cats". I have a friend who share with me this interesting strategy which he regards as the lousiest strategy. He says he has no strategy in investing, he only invest through feeling where he "Buy during good feeling and sell when the feeling is bad". You might laugh at it and agree with him that this is a most lousy strategy but the most remarkable part is that he is making money so far with this "lousy" strategy! Do you see anything common between his strategy with the famous investment theory "Buy when everyone is Fearful, Sell when everyone is Greedy"? Sometimes, people just don't know how to crystallize what they are actually doing. I commented to him that this is still a strategy although he think is not. Why I say so is just like when someone tell me that he hate decision making, he had already made a decision! He further share with me why he had adopted such a strategy is because there are many people who know how to read all the financial statement, reports and PE ratio but still lost money so why bother? Wow Lau! He win already lor!

The next thing you might be interested is what kind of investment return would each strategy fetch you and within how long? The following is just to serve as a guideline and past performance is not a guarantee of future performance where returns might varies according to actual scenario:

1. Passive Investing - about 12% return annually with time horizon of 20 to 30yrs period
2. Value Investing - about 15%-25% return annually with time horizon of at least 5 to 10 yrs period
3. Momentum Investing - more than 25% return within 3 to 6 months
4. Option Trading or CFD Trading - more than 100% return within 1 day to 3 months

(Note: Option Trading and CFD Trading is a tool while Momentum Investing is a strategy. You can also using normal trading platform for Momentum Investing. The difference is normal trading using Momentum Investing strategy do not give you the leverage and can only long the position.)

Now, you know the time horizon required for each strategy, what is the type of money baskets then? The key to all investment strategy is to diversify into at least 8 to 10 counters at any one time because no matter how much research you do and no matter how good a company's stock can look, things can turn against you with a single piece of negative financial news. Another way to diversify is by putting your money into 4 different baskets namely Security Basket, Growth Basket, High Growth Basket and Luxury Basket.

1. Security Basket as the name imples is for your security with investment target return of 1.5% to 4.5% p.a. which should make up from cash, Fixed-Deposit, insurance & capital guaranteed products. This basket will serve as emergency fund to meet sudden lost of job or paycut.

2. Growth Basket is the basket where you build your net worth & positive cash flow assets that will lead you to financial freedom with investment target return of 8% to 20% using Passive Investing and Value Investing Strategy

3. High Growth Basket is the basket where you ACCELERATE the building of your net worth & positive cash flow assets that will lead you to financial freedom with investment target return of 15% to 25% return using Momentum Investing Strategy

4. Luxury Basket is the basket where you save up to indulge in your dream assets with 0% investment target return. The money to be used for luxuries should not come from your primary source of income but from the passive income generated from your positive cash flow assets e.g. returns from your Growth and High Growth Basket. You should reinvest 80% of the return from Growth and High Growth Basket and put the 20% of the return to Luxury Basket.

You should allocate your investment funds in term of percentage into Security Basket, Growth Basket and High Growth Basket according to your age band. You SHOULD NOT allocate any amount of your monthly savings into your luxury baskset IF you want your savings to have high growth, else you can still allocated into your luxury basket with your primary source of income. The luxury basket should preferrably be filled by the returns generated from your growth and high growth baskets. My experience show that defer gratification will make you more hungry and your mind more active in wealth generating.

Suggestive allocation depending on your age band as follows:

Below 30 years old - 20% Security Basket, 40% Growth Basket, 40% High Growth Basket.
30 to 40 years old - 30% Security Basket, 35% Growth Basket, 35% High Growth Basket.
40 to 45 years old - 40% Security Basket, 30% Growth Basket, 30% High Growth Basket.
45 to 55 years old - 60% Security Basket, 20% Growth Basket, 20% High Growth Basket.
Above 55 years old - 70% Security Basket, 15% Growth Basket, 15% High Growth Basket.

(Note: You should adjust the pecentage in Growth Basket and High Growth Basket according to your circumstances and not neccessary always the same percentage. You might not have High Growth Basket at all if you are not comfortable with momentum investing or you could have zero fund in Growth Basket because you think you are savvy enough and value investing takes too long to double your money.)

To Summarise:

Value Investing or Passive Investing is suitable for people with little time to monitor the market and who have a longer time horizon of at least 5 years putting in the Growth Basket for Long Term Retirement Need.

Momentum Investing using Option Trading or CFD Trading is suitable for people who are more financially savvy with more time to monitor the market and who have shorter time horizon of 1 day to 6 months putting in the High Growth Basket for Short Term Income Need. You can also use this strategy to boast your Long Term Retirement Need as well with consistence return made.

Disclaimer:

No one strategy will guarantee to work as it all depend on the investor's committment place into learning the strategy with hands on experience. You are expected to make some lost initially in order to overcome your two greatest enemy call "Greed" and "Fear".

Some of the ideas in this article is not originate from me but from Adam Khoo's best seller "Secrets of Millionaire Investors" and "Secret of Self-Made Millionares". You are encouraged to read them for more details on the ideas that I have discussed here.

Making an Investment

I was gathering info to write my next article on Investment and came across CPF website on this topic where they even have comic version on how to diversify your investment! Wow! I feel sorry for what many people had missed by not visiting CPF website regularly. It already have a whole mountain of gold to dig with many information that will affect our way of investment regardless in Property or Equity Markets.

CPF recently also launch a new website call IM$avvy where you do a quick test to see how your financial knowledge measures up, ask Dr $avvy on every thing you always want to know about personal finance and most importantly you can find the latest news on personal finances and CPF saving.

This will be the most regular website that I will visit from now on!

My Recommended List of Credit Cards

If there are only 2 Credit Cards you wish put in your wallet, these are the two:

1. Best Credit Card for Home use - POSB Everyday Mastercard

This card give 1% rebate for your SP Services Utilities and StarHub Bills. My total expenses for these two bills add up to around $600 per month and that is $6 saving which I can use this rebate to exchange for daily necessities at Watson e.g. Toiletries.

If you like to visit Carrefour, this card will give you 5% rebate on your purchase too! This card also entitle to all DBS card promotion e.g. Dining, so I do not own any DBS credit card which is a duplicate.


For more detail of Rebate Structure, click below:

http://www.dbs.com.sg/posb/cards/everyday/partners/



2. Best Credit Card for Petrol and Dining- Citibank Dividend Platinum Mastercard

This card offer 5% rebate on top of any on-site discount and you can use it with any petrol station company so you only need to hold one card. Please read my blog on Best Credit Card Discount for Petrol.

On top of that, this card offer at least 2% rebate on any dining expenses except food & beverage spend withing hotels and wedding banquets held in hotels.

Best part of this card is you will also earn 0.5% cash back on all your other purchases. That's on
top of the exclusive discounts and privileges you'll already enjoy as a
Citibank credit cardmember.

For more detail of Cashback Structure, click below:

http://www.citibank.com.sg/SGGCB/APPS/portal/loadPage.do?path=/prod/sub_det/cc_xx_divplat_cashback.htm&tabId=Credit%20Cards

Best Credit Card Discount for Petrol

Today, I came across a website - Petrolwatch Singapore which I think is very useful to save some dollar in your Petrol by using the right Credit Card. I have posted my comment as follows:

"I am a long time user and also a hardcore user of Citibank Dividend Platinum Mastercard. I strongly recommend this card if you pump ExxonMobile petrol. I notice many have question on the extra 3% rebate, it is true because it is reflecting in my bank statement monthly. I do not know how the total discount of 12.6% come about but according to my own calculation, it should be 13% from 5% on site discount + 5% rebate + 3% extra rebate. Not to forget that with ExxonMobile SMILE card, every 300 Smiles Point can redeem $10 worth of petrol but I strongly suggest that you accumulate up to 750 Smile Point to redeem $30 worth of petrol instead! Now add up all the benefit and don't you agree this is good value? Visit my blog @ teaengpeng.blogspot.com for more detail on this card. "

How Do You Allocate Your Money - Part 2

I have promise in my article "How do you allocated your money" to extend the topic a bit by discussing about the Type 1 and Type 2 people. How these two types of people should allocate their money for financial success.

If you have read my previous blog, you'll notice that Type 1 people belong to those who always overspent while Type 2 people are those who will spend first and save the rest if there is any balance.

Both type belong to unsystematic type of people and most of the time only live by today freely. They either do not really care for the future as future might not come or their earning is too little but there is so much things that they want to spend. With the easy access of credit card, people start to spend future money and that is how they got trap in the cycle of debt. Rolling bigger and bigger like snowball.

There are two things that this two types of people need to do:

One, set up a systematic saving program no matter how small the amount might be. Start from $1 a day in the piggy bank that is kept by your trusted family member or $30 a month by transferring from salary account to fixed saving account that require two signature before you can draw out your money and no ATM Card please. When you start to feel the habit of saving and getting use to it, increase the amount to $2 a day or even $100 a month on top of what you are already doing.

If both ways still can't work, buy an insurance plan that give your money back after certain number of years. A hundred percent sure work way because if you withdraw your money half way, you are not getting much back. Hahaha!

Second, cut your credit card into two pieces and consolidate all the debt (if any) to one bank or financial institution. Try to negotiate a best term for repayment. Develop a habit of asking this life saving question: "Do I have the ability to pay back if I take a loan now?" If you do not have ability to pay back, do not borrow in the first place because you problem will grow bigger instead of smaller.

If you really need to borrow, have the commitment to pay it back regardless is from friends, family members, banks or financial institution. What people scare most is that you borrow and don't show up. If you dare to show up in front of them and keep telling them you are going to pay them back, people are more willing to believe you than those that always hide and never show up. (Please make sure you really pay them back bit by bit every time you see them and not just keep telling them that you will return them money but no action!)

If you follow the above two steps diligently, your self-esteem and finance will definitely improve tremendously. Your problem will be gone before you know! Never take a short term solution for a long term problem!

How do you allocate your money?

I had a breakfast meeting with my friend one day and he asked me how one person should allocate his money.

I thought this is an interesting topic to post here so that everyone can benefit.

There are 3 types of people in this world:

Type 1: Spend more than they earn

Type 2: Spend all their income and save if there is any balance

Type 3: Save first then spend the rest

We'll discuss Type 3 people today since they will be the only group of people that have predictable and regular saving to fund a proper financial plan. (I'll discuss Type 1 and Type 2 of people separately.. do keep a look out on that!)

Given an ideal case, one should save at least 50% of their total income and spend the rest on their living expense but in reality, if you can save 30% of your total income and spend the rest, you'll be in the above average group.

Let says you can save 30%, how should you allocate the saving?

1) Save 10% for liquidity meaning in banks or other safe instruments (e.g. Money Market Fund)where you can withdraw your money for emergency or during retrenchment. How much will be enough for this portion? Normally ranges from 6 months to 2 years of income depend on how much you feel secure. However you should continue to save this 10% even after you meet the 6 months to 2 years limit, so that you can channel it to other resources when the timing are right. E.g. Cars, Education, Property or even Business Opportunities.

2) Save 10% for investment. This investment can be in liquid asset or fixed asset.
- Liquid asset means Equity like stock and shares, unit trust, fixed deposit etc.
- Fixed asset means Property, Art Work, Gold or other Collector's Items.
This portion will help you to grow your money to fight against the silence killer called "Inflation"

3) Last but not least, most people do not like to do or never thought of doing is to save the balance 10% for your insurance. This 10% of your saving is use to protect the other 90% of your monthly income and your future potential income.

Hope this piece of information is useful to all my reader!

Until my next blog... all the best things happen!