GoHuat explains.. “How did I build up my spare cash?”

In my first post, I explained about my foremost investment guiding principle - ONLY INVEST WITH MY SPARE CASH. The 2nd question will be - “How did I build up my Spare Cash”. In this post, I shall share more about how this can be achieved.

Making Financial Decisions with my Spouse

As my readers might have known from my profile, I am happily married, so a lot of family decisions are made after discussing with my wife. These routine discussions enabled both of us the chance to present and explain our viewpoints openly on our near-term financial situation and long-terms goals. We also identified common directions and goals to work towards to enable us to retire early. For us, a conversation on finance matters is a key building block for our marriage. I am grateful that she has been ever supportive, always willing to listen and share her perspectives. She is also my greatest pillar of support whenever I want to explore new areas to work on. So readers out there, we urge you to engage your spouse actively for all your investment matters too!

In general, we believe in saving and investing well when younger; so that we can reach our investment goal faster. This might sound contradictory but we also see the importance of spending on travelling and socialising to uncover and expand our perspectives of foreign countries and cultures. Thus, it is necessary for us to plan and maintain a suitable balance between saving for our goal and spending in self-development.

Strategies to build up spare cash

We set out 3 strategies to build up our spare cash: (1) Planning for current & future needs, (2) Increasing cash inflow, (3) Reducing cash outflow. The moves sound rather straight-forward so the actual challenge lies in the process of implementing them.

Planning for current & future needs

Planning is very important to us. It provides us with a clear direction to achieve our investment goals and allow flexibility to adjust our investment actions in line with the changing situation. Besides that, planning enables us to forsee key upcoming expenses so that we can prepare sufficient cash for them. One of our near-term expense is the HDB flat which should be ready by next year. In preparation for the renovation and household purchases, we have worked out a plan and budget to set aside sufficient cash before receiving our house keys.

Increasing cash inflow

Will you complain if you have more money inside your bank? Definitely not us! Our ways of gaining “extra” money are as follow:

(a) Choosing suitable savings accounts...

A savings account is the most basic investment building block for everyone. Hence choosing the right accounts will ensure that your incoming money has a “headstart” in getting itself invested. Similar to my co-writer EzHuat, I leverage on OCBC 360 to “passively” earn its interest rates. You can read about it from EzHuat’s post here.

(b) Enhancing our Pay-check!

My main source of income comes from my monthly pay-check. To get more money out of my pay check, I needed to have higher bonus and salary increments! I aim to achieve a relatively good performance each year so that I can have better bonus and improve my promotion opportunities. Enhancing my pay-check is however a double-edge sword. This is because the dreaded income tax rises in accordance with the salary increments. For my age group, this remains one of the most common and crucial source.

(c) Investing in Stocks

Our investments in Singapore stocks have achieved a return of 2.5 to 5% every year, across the past 6 year period. My calculations are based on my initial buying price and the amount of returns that enters my bank each year. Hence, the bulk of the cash inflow comes from stock dividends and from buying/selling shares during opportune times. I paid my fair share of "school fees" during my first 4 years due to poor investment choices; and was glad that over the last 2 years, my investment portfolio has improved on its rate of return. At this point, I am still actively shaping our investment portfolio by leveraging on the market conditions to build up a stronger base. I will share more about my investment experiences in future blog posts.

Reducing cash outflow

(a) Reducing cash outflow = saving even more!

My wife and I saved around 55-65% of our total annual income. We adopt a prudent mindset so that we can reduce our cash outflow in order to save EVEN MORE. Our concept is simple. If we are able to curb our urge to spend unnecessary, for example $1,000 on non-essential wants, we will be able to save $1,040. The logic is that we can use this extra $1,000 to buy stocks that yield 4% in dividends. So instead of losing the $1,000, we have $1,040 in our bank!

(b) Minimising Income Tax by preparing for your retirement

Income tax is a silent killer of our pockets. After happily receiving our salaries and bonuses, the most tense moment is to open up the income tax statement letter. This is the reason why we needed to find ways to minimise our income tax payment. One way is for us to top up our CPF Special Account (SA) with $7,000 cash each year. We see 2 main benefits to doing so. (1) Each top up increases our retirement fund by $280 due to the 4% interest rate for CPF SA; and (2) reduce our income tax payment by at least $380. So instead of paying income tax $380, we are gaining at least $660 each year. As our salary rises, we expect to gain more from the top up, especially when our salary crosses into the higher income tax % tier. The downside is that our cash will be locked in CPF until the withdrawal age which is currently 55 years old. And only then can we start to take out a portion of the cash from CPF.

(c) Maximising gain through multiple deal combinations

When making online purchases, we enhanced our rebates or discounts by combining multiple deals in a single purchase. One example is to go through referral websites to book my hotels from hotel providers; and using specific credit card to pay for the hotel bookings.

For my hotel bookings, I normally go through the following steps to minimise spending and/or maximise benefits from the purchase:

• Using Shopback to select the hotel providers which offers the best hotel rates and cash back rebates. For example, the current promotion enables us to gain 6% cash back from Shopback for every successful Expedia booking/purchase.

• Leveraging on credit card promotions to gain more value from hotel bookings. For example, the current promotion for Citi Premiermiles Visa card enables one to earn 6 Citi Miles per S$1 spent on Expedia.com; while for UOB One Card, they offer up to 50% savings on hotel bookings with Expedia + additional 10% off.

I hope that my sharing has provided some new tips and insights to what you can do to build up your spare cash. For a start, you might want to look into your own financial situation to determine whether my 3 strategies are applicable to you. Everyone has different needs, priorities and lifestyle so it is essential to tailor one that best suit you.

Together, let us all Go & Huat ah!

GoHuat