Double your income but not double your income tax.

This new blog post has an old theme and that is how we can pay less income tax even as we increase our income.

I have received my income tax notice of assessment. 

Tax payable: 

$1,606.02.




This is much more than what I paid last year which was $1,133.23. 

About 41.7% more, in fact! 

Why is this so? 

It has to do with the missing generous income tax rebate which was given in the year before.






Well, considering that my income in 2013 was almost twice as much as my income in 2012, $1,606.02 is not too much to pay, I suppose.

How is such a low income tax possible? 

After all, someone who makes $250,000 per annum would very likely have to pay an income tax of more than $20,000, wouldn't he?




OK, regular readers can skip the following pointers but if you are new to my blog, here are a few things you can consider doing:

1. Invest to receive non-taxable income. 

(For those who have the temperament and the know-how, trading could make some good money too.)




2. Start a Supplementary Retirement Scheme (SRS) account and make annual contributions to reduce taxable earned income. 

(For those who have yet to max out their CPF-SA, consider voluntary contributions up to a maximum of $7,000 a year. To avoid confusion, this is called a Minimum Sum Top Up or MSTU.)
 



3. Donate more to charitable organisations recognised by the government and enjoy 2.5x tax deduction, if we can afford to do so.

Mystery is solved.

The tools to help us build our wealth are out there and if we are able to help the less fortunate in the process, we should do it.




Don't say we don't have enough money or are not wealthy enough to help the poor. 

If we have some spare money to invest in the stock market, we are more fortunate than many out there. 

Even a $50.00 donation can do wonders. 

Not a big sum to most of us but it could mean a lot to the needy. 





If you don't know where to start, here is a suggestion: Singapore Children's Society.

Everyone's life should be better. 

If we do the right things, everyone's life could turn out better. 

Paying less income tax even as we increase our income will certainly help.

Reference: IRAS income tax rates.




Related posts:
1. Make more money, do good, pay less tax.
2. Ways to reduce income tax.
3. Voluntary contributions to CPF.
4. SRS- A brief analysis.
5. Build a bigger retirement fund: CPF-SA.

Croesus Retail Trust: What is the forward yield?

Not feeling 100% tonight. So, I am just going to zoom in on what bothers people most and skip the rest of the stuff which look OK anyway.

So, what bothers people most? The latest quarterly DPU of 1.76c.

If we were to simply annualise 1.76c, we would get 7.04c and based on a unit price of 93c, that is a distribution yield of only 7.57%. This definitely falls short of the IPO forecast of an 8% distribution yield.

An 8% distribution yield based on 93c would mean a DPU of some 7.44c per annum or 1.86c per quarter. Yikes! With only 1.76c, we have a shortfall of some 0.1c and this is after purchasing 2 more properties in the last quarter too!

There is a simple explanation. There are costs involved in the purchase of those 2 malls and they only contributed to income in the month of March. Of course, we can say something about the Japanese Yen being weak but currency hedge has already been put in place by the management.

In the quarter April to June 2014, the 2 newly acquired malls will contribute a full quarter of income. This will bump up quarterly DPU. Annualising that DPU will more accurately reflect the annual DPU and hence the distribution yield of the Trust.

The monthly NPI for the 2 newly acquired malls is estimated to be JPY 72.2 million. Refer to page 14 of the slides presentation.

With distribution income for January to March 2014 at JPY 619.78 million which gives us a DPU of 1.76c, an additional NPI of JPY 144.4 million (JPY 72.2 million x 2) will have some positive impact on DPU for the quarter April to June 2014. Even assuming that costs go up by some JPY 50 million (additional management fees and financial costs), we would still be looking at some additional JPY 94 million which can be distributed to unit holders. This is an increase of about 15%. So, we are looking at a DPU of possibly 2.024c.

Annualising 2.024c gives us 8.096c or a yield of 8.7% based on a unit price of 93c.  This is some 8.75% higher than the 8% distribution yield dangled during the Trust's IPO.

Having said this, I won't buy more at 93c a unit. It could be that I have anchored myself at 87c and 87.5c, my entry prices, but I feel that 93c is not all that compelling.

Wait a minute, wasn't the distribution yield estimated at 8.5% when I initiated my first long position at 87c last November? Why do I now say that an 8.7% yield is not compelling? Well, back in November, the gearing level was about 42%. Now, at 53.5%, to a simple minded person like me, getting another 0.2% in yield just doesn't cut it.

For a Trust that has a gearing level of 53.5%, I need a much higher distribution yield to be able to sleep better at night. Everything else remaining equal, a 9.5% distribution yield could, perhaps, entice me to add to my long position.

See presentation slides: here.

Related posts:
1. Croesus Retail Trust: 87c.
2. Luz Omori and Niz Wave I.

Buying a property: Affordability and Value For Money.

Following my blog post on considerations in buying a property for first timers, a reader mentioned how it is all about location and that if we can afford it, always buy a property in a better location.

"You may baulk at the high price for properties in a good locations. But if you have the budget, go for good locations because when you sell in future, you can also sell for a good price. If you buy a property because it is cheap, it is likely to be poorly located with little amenities and poor connectively. When you sell in future, potential buyer may also "hiam" the place.

"Always buy where there are future potential development (for examples, Paya Lebar, Jurong East and Woodlands have been designated as regional centres under the Masterplan)."

Of course, I think that location is important too. 

However, to me, it is never about "affordability", it is always about "value for money".





"Value for money" is a concept that is location neutral when it comes to real estate. 

It can be quite subjective, for sure, but there is also a high degree of objectivity. 

So, when we have a discussion on this, it is important to stay clear minded about what we are talking about.

Example 1:

If someone had bought a resale 5 room flat in a mature estate for, say, almost $800,000 because he liked the location for some reason while a sale of balance flats exercise could yield a 5 room flat in a non-mature estate which could be had for half the price, should we say that he was not getting value for money?

Well, for some of us, it could be really hard to rationalise away the extra $400,000 that had been paid for convenience and familiarity, perhaps. 





However, to the buyer, the location could be priceless. 

Whenever there is a strong emotive element, objectivity is suppressed. 

Don't discuss because it could disgust.





Example 2:

If someone had bought a BTO 2 room flat in a mature estate for a quarter of a million dollars instead of a BTO 4 room flat in a non-mature estate for the same amount of money with an eye on becoming a landlord, would the better location in a mature estate help? 

With the BTO 2 room flat, he could not rent it out until 5 years later while with the BTO 4 room flat, he could rent out 2 rooms and immediately, it would be cash flow positive. 





Of course, we are talking about doing things legally here.

However, if the thought that the BTO 2 room flat in question could appreciate by much more in price and was, hence, a better buy, then, we would have entered the realms of speculation. 

Don't discuss because no one is the wiser.

Example 3:

If person A had bought a condominium that was a 2 minutes walk from a MRT station at $1,700 per square foot, would he be better off than person B who had bought a condominium of a similar size that was a 15 minutes walk from the same MRT station at $1,200 per square foot? 

Assuming a floor area of 500 square feet, we would be looking at a cool $250,000 difference in price. 





Was the proximity to the MRT station worth that much?

If person A decided to rent out the condominium at $3,000 a month, person B could ask for $2,400 and would still end up with a higher rental yield, everything else remaining equal. 

For a monthly savings of $600 (or $7,200 a year), potential tenants could be more than willing to take a stroll to the MRT station and this is a realistic scenario especially when smaller apartments are more likely to appeal to younger renters.





Example 4:

If someone had found a condominium in a good location but it was asking for a significant (say 15%) premium to the latest transacted prices of surrounding properties (and a 15% premium is pretty normal with new launches most of the time), how would that provide value for money? 

Now, if someone had found a condominium in a not as good location but it was offering a nice discount (say 15%) to the latest transacted prices of surrounding properties, wouldn't that be a value buy?


Think a property in a less convenient location is harder to rent out? Try lowering the rental. 

If there was a comfortable margin of safety in the purchase price of the property, there would be plenty of room to lower prices and it would still give a satisfactory result.

Something I like to remember all the time (but sometimes forget):

"Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results." Warren Buffett.





And I said this on my FB wall:

"I would like to play the Devil's Advocate here. A rising tide lifts all boats. I know friends who bought properties in not so good location who saw their properties' values going up by 100% too in the last few years. My properties which were in more prime locations also went up by 100% up to the point I sold 2 years ago.

"I believe that keeping an eye on value is more important and that location is, often, a reason bandied around by vested interests to push up prices. If we could buy an undervalued property in a less prime location, from a value for money perspective, why would we want to buy a property that has priced in future value?

"I am not an expert on property investments. I have just used some old concepts about price and value for money here."

Buying a piece of real estate anywhere is a big commitment and the decision making process is complex although making a decision is easy. 

Considering whether a piece of property is "value for money" should be a part of the decision making process although it is not the only consideration.





However, if all else have been taken into consideration, we should remember that it is not about "affordability", it should always be about "value for money".

Note: All examples provided in this blog post are real life examples that I know of.




Related posts:
1. Buying an apartment: Considerations.
2. Buying a property as an owner-occupier?

My travel blog:
Value for money in a box of Mikans?

Yummy Yum Yum (60c) breakfast!

This is another way we can have the spring onion pancake I blogged about not too long ago:

Frozen pancake in a frying pan.

Flipped!



Flipped again and include a slice of low fat cheese.

Fold it like a burrito.



I spent too much time taking photos. Messy but super yummy!

If AK can cook, so can you!

Related post:
Yummy Yum Yum ($1.10) lunch.

What is our attitude towards having children? 钱最重要的!

UPDATE:
Force your children to become your financial assets! 

Force them to give you a monthly allowance when they start working if they don't do it!




Listen to the Chinese aunty:


"钱是最重要的!"

This is a big difference from what the aunty at the end of the video said about emotional support being more important and that "money isn't everything". 

I so stunned like vegetable.
------------------------



Being single, I get asked "When are you getting married?" quite a bit. 

Of course, for couples who are married, the next question which gets asked is usually "When are you going to have a baby?"


Now, I have blogged about weddings and marriage before. Twice, in fact. 

In both instances, they received an overwhelming number of comments. 

So, I know it is a very sensitive topic and, maybe, I should avoid blogging about it in future.

I have also blogged about how it is important to involve children in financial issues and how achieving financial freedom should be a family affair. 

Now, this topic was very well received. 

Not as explosive and it is something I should consider blogging more of in future, perhaps.





However, I have never blogged about how some people think that children are assets which they can depend on in their old age or have I? 

Well, I don't remember.

When a reader told me on FB that one of his friends, who is given to admonishing him for being single and for giving in too easily to his wanderlust, told him that kids will, in future, be a source of monthly allowance, paid holidays and free medical care, for examples, my jaw dropped (and for readers who follow me on FB, you know which emoticon I would use).




I always say that kids are very expensive to bring up in Singapore. 

An estimate which I did almost 20 years ago showed me that it would cost some $250,000 per child from birth to graduation day at a local university. 

I am sure that this figure is much higher today.

Now, I have said before that a wedding is a consumption item. 

Expensive photo shoots, bridal gown, diamond ring, honeymoon, apartment, furniture, electronics and renovation are all consumption items. 

Expensive wedding banquet is a consumption item. So, if we cannot afford all these, then, scale back or, indeed, delay gratification. Have the wedding at a later date. 

In fact, ask whether a wedding is necessary at all.




Of course, some might say that we could make money from the red packets at the wedding banquet. 

Now, that is bringing a speculative element into a wedding and I don't think we should even go there. 

I mean if we have to even think about how we have to depend on money we get in red packets to pay for wedding expenses, we must be really scraping the bottom of the bin.

Anyway, before my head gets chopped off, I should move on to talk about children.

I always say that marriage is to give children legitimacy. Our modern day society requires this. It cannot be avoided. 

If two adults love each other but do not wish to have children, they don't need to get married. 

That marriage certificate is just a piece of paper. 

Love each other forever and stay together.




OK, in Singapore, we have this consideration called a HDB flat. 

So, if a couple want to buy a BTO HDB flat, they must be married. 

Well, there is always the option of buying a resale HDB flat if both are 35 years or older, right? 

Yikes! Who threw a shoe at me? 

OK, ok, I get the hint.

Coming back to the topic of children. 

Now that we agree that a wedding is a consumption item, what about children? 

They spend so much money! 

They must be consumption items! 




Talk to parents and you will hear them telling you how much money they spend on their children.

Scary stuff, children.

Of course, if we think that children will take care of us in our old age, will give us pocket money, will bring us on paid holidays and will pay for our hospital visits, for examples, then, children could be an investment for our golden years. 

Yes, children could be investments too!

Now, we are in a fix. 

Consumption or investment?

Well, I think that this falls in the realm of speculation. 

Children might grow up to be very accomplished and filial or they might not. 

There is no guarantee that the "investment" would turn out the way we want it.





So, I feel that it is only prudent that people who want to have children treat them as consumption items. 

Think of spending money on children like we would spend money on a hobby or a household pet. 

They will provide enjoyment, I hope, anyway, but unlike a hobby, we cannot give up on them and unlike a household pet, children have far longer lifespans, I assume. 

As with all consumption items, we do not expect any financial rewards.

Well, some readers told me that I should think of my CPF savings as a bonus if I should see the money in my old age because the government could change the rules again. I feel that couples who think of children as "investments" should adopt this mind-set towards their CPF savings and their children. Don't you think so?




Frankly, to think that children are assets we can rely upon financially in our old age, we could be setting ourselves up for disappointment.

If I had a choice, my bet is on my CPF savings.

Related posts:
1. Financially prepared to be married?
2. Not enough money to be married.
3. Financial Freedom is a family affair.
4. Warren Buffett Illustrated.
5. Little Book that Beats the Market.
"It is written for the non-financial professional, but all could learn from this simple, but powerful concept."

Fire up your Sunday with SAO and Log Horizon!

Sharing some music from a couple of really fantastic anime I watched recently!

Sword Art Online (SAO)


(Unfortunately, Log Horizon's soundtrack was removed.)

Hope you like them as much as I do. Enjoy your Sunday!

More music:
1. Fairy Tail.
2. Hunter X Hunter 2011.
3. Full Metal Alchemist.
4. Groove Adventure Rave.