Asked 3w ago
Would like to pay off the HDB price largely by cash so I don't have to worry about paying back accrued interest or hitting basic/ full retirement sum 30 years later.
Stashaway suggests 1.5k/mth investment for 5 years in order to achieve 100k. However I will be stretching myself quite thin by locking that money up. How should I portion my salary if I intend to pay for the house that's ready in 2026 largely by cash?
Initially I was planning to leave 1.5-1.7k in savings acc per month.
You may be stretching yourself rather thin if you invest that heavily. Remember to take into account your CPF deduction, daily expenses and emergency savings. If you are not investing for a living, invest only with spare cash.
Investment monies cannot double as your emergency savings. And, you cannot assume your investments will grow. You must still be able to live comfortably and happily (physically and mentally) even if the investment monies become 0. So, with this in mind, think of an investment amount you are comfortable with.
Also, it's best to slightly overestimate your expenses so that you will never have to feel like you are shortchanging your current quality of life. Your expenses may even increase in the next year (it happened to me, I became more willing to spend in exchange for QoL).
As for mortgage loans, never rush to pay it off. You should save up for other big ticket expenses which have higher loan interests e.g. renovation and wedding.
Lastly, I am convinced that 5 years is not a long enough investment horizon if you are going for investment portfolios with higher proportion of equities. For monies that need to be used in next single digit years, it'd be best to put them in portfolios with lower proportion of equities or cash management accounts.
Hey OP, I'm also a fresh grad and intend to pay off my HDB by cash as much as possible so I understand your concerns.
Before diving in, I would just like to clear a misconception you might have. Stashaway investments are liquid so withdrawing the deposit is not an issue. It takes at most a few days for them to transfer to your bank account, but there is absolutely no lock-in period.
However, as mentioned by others, it may not be wise to invest the money given that your investment horizon is pretty short. If the market further dips due to unforeseen circumstances (e.g. another global pandemic or WWWIII... who knows eh? But touch wood haha) or undergoes a correction just as you're about to withdraw your money, your returns may not be as high as expected or worst still, decrease far below your target amount of $100k. Therefore, it might not be wise to invest the money which you intend to use for your downpayment, especially not in equities as they can be volatile.
Personally, what I'm doing instead is parking my money reserved for my downpayment in:
This is a high-interest savings accounts (or what used to be high-interest anyway), which earns you 1% p.a. for your first $20,000. Eligibility criteria: only if you're 26 years old or below.
This is an insurance savings plan which earns you up to 2% p.a. for your first $10,000. So far they have consistently credited the promised amount since I opened my account in June 2020, other customers have verified this as well. I was lucky as I joined early when it was 2.5% p.a. Nonetheless, 2% p.a. is still a really attractive offer given that most banks have decreased their interest rates. If you're also keen to start an account, you can click on my referral link which will reward both you and me with $10 each: https://app.singlife.com/Zlc9urWzwab
This is a cash management account which has projected returns of 1.4% p.a. on any amount. Although there is still some risk involved, it is very little as compared to investing through their core portfolios. So far I've had pretty good returns as well. Again, much better than what I would reap if I were to leave the money in my bank accounts, they all have really dismal interest rates at the moment. If you're also interested to open a Stashaway Account, you can click on my referral link and we'll both get up to $10,000 SGD managed for free for 6 months: https://www.stashaway.sg/referrals/gabrielbkz
Here is an average breakdown of what I do with my take-home pay (close to yours):
60% for future downpayment in Stashaway Simple
10% for personal expenses (e.g. food, transport)
8% for emergency savings (low % as I have amassed sufficient savings)
10% for warchest
12% for retirement savings/investments in Kristal.AI
That said, if you're willing to take the risk to invest (really not advisable) in one of Stashaway's core portfolios, you might want to set it at a lower risk index.
Hope the above information is helpful and good luck on your journey to $100k!
2 more comments
First of all, let me say that it is a great time to get started in the investment world even if it is as soon as after graduation. Congrats on embarking on that journey!
When considering goal-driven investments, it is important to keep in mind the target and time horizon you are looking to invest towards.
For a target 5 years in the future, Investors need to be mindful to gradually de-risk their portfolio the closer they get to their expected target date. Statistically, equity markets enter into sharp corrections at regular intervals. You would not want to experience a similar drawdown like in March this year, where markets dropped 30%, just before the pay off for a property comes due.
With a 5-6 year horizon, you can start out with a growth-oriented portfolio, but 2-3 years before the target date, it is advisable to switch into a lower risk/asset preservation portfolio.
In contrast, in a savings account in the current environment, the returns are to be expected to remain close to zero for the foreseeable future. If adjusted for inflation, the return over time may even end up negative in such a scenario.
Hope this helps to answer your question! :)
If you go do the maths, 5 years of saving 50 or 60% of nett income can get you close to the $100k. Save before you invest and please invest wisely.
Assumption : No other bonuses, just nett pay (not be pessimistic but easier calculations)
Step 1 : Savings
50% : $1,360 per month / $16,320 per year
60% : $1,632 per month /
$19,584 per year
After 5 years (excluding any interest rate given that the local bank savings interest rate is at rock bottom now)
50% rate : $81,600
60% rate : $97,920
Step 2 : Take out a good 15% of the savings for investment (risk averse)
DISCLAIMER : This is the pot of money you ARE PREPARED TO LOSE.
50% rate : 15% or $12,240
60% rate : 17.5% or $17,136
I'm not sure what you mean by locking your money up. If you use the Stashaway account to accrue your funds, the funds can be withdrawn anytime. The risk that you have is that the market might go on a downturn and you might need to defer your payment contingent on the market recovery.
I do not see a big issue to set aside 1.5-1.7k per month if you can do it. My numbers were more extreme as compared to yours when I first started work and I did fine. If you live on assumption that you simply have an army salary, it is amazing how creative you can be to get by on a bare budget. The problem is having to do it for 5 years straight, which is not sustainable for most people. (I did it for 8 years with severe social consequences)
The big idea, shoot for your target, and whether you really use the funds for the downpayment of your BTO is really just an open option. That might change in 5 years' time due to the interest rate environment. That decision should not be made today but planned as you have very well done so.
Lastly, whether you actually hit the target is secondary. I think you need to give yourself some credit in embarking on a plan that you will administer some financial discipline for a goal of 100k in 5 years. That is the true value point here. The investment returns cannot be controlled, but you can control your expenditure. Even if you do not hit it, (in life, shit happens) you will be on your way to a pretty decent financial buffer which will put you in a good position to have options when the time comes.
In hindsight, you can simply just adjust the risk of your Stashaway funds based on your risk profile. If you have high risk, go towards an equity-based portfolio.
Keep it up.
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Given the nature of housing loan and current low interest environment, it might be worthwhile to consider maximising your loan tenor while allocating the intended cash into investments which has has risk profiles you are comfortable with. (Probably you could share more details for gurus on the forum to work out the math.)
Theres probably alot more financial pressure given the double whammy of being a fresh graduate and the series of expenses for newly wed. Would suggest to closely track and plan your financials as a couple. Do not think it is sustainable if you strech yourself out too thin.
Here are my 2 cents...
It is not wise to use so much cash to pay off your BTO HDB, as cash is king in this world. Cash has the ability to pay off other things such as renovation and wedding (which is quite silly if you don't have cash to pay off this once and for all and get loans instead. Won't you still be paying interest rates?). There is a reason for HDB loan of 25 years for you to pay off slowly. Granted that there is accured interest rates for HDB housing loans, but you are using CPF monies anyway. Correct me if I am wrong, if you sell the first house and buy a 2nd BTO, the sale price will caluclate the accrued interest that you have paid for, which is actually still your CPF monies anyway, so there is no difference. I can't touch CPF monies till retirement age anyway. So personally, I still prefer to hold cash for other items in life. Mortage for housing is a good debt. Assets like property tends to appreciate over time, so it doesn't hurt much to slowly pay off your house using CPF OA only. I rather you use the excess CPF OA of $20k which doesn't earn the 3.5% interest rate to pay off in small lump sums over the years when your salary increases, for your housing loan (which is 2.6% currently).
Hope this helps :)
As someone who started out with the exact same salary ($3400), after 4+ years I can safely say I am FAR from saving $100k. Maybe 70% of that amount.
The reality is, life is unexpected. Work has socialising events like celebrations, farewells, welcomes that you need to chip in. At the same time, taking holidays every year is not cheap too. Finally, assuming you want to move up the ladder, you will pay to take exam certifications as I did.
Source: I spent $9k in total just for my graduate studies applications in America; about $10k for travelling over the years, and another $7k on courses and certifications.
No right or wrong answer.
You've got to know if you're okay living life on scraps. On paper, it's possible. But is that what life is about? Is that living? If youre okay with that lifestyle then go for it.
what kind of life do you want to live?
It's about priorities.
Does life comes first or money?
If you can't bare the idea of paying accrued interest then pay up your BTO ASAP.
Hi OP, here's some advice I can offer.
For BTO saving, we'll assume that your BTO costs up to $500k, down payment is 10% and your share is 5%. Therefore, I would say that having $25k cash saved up will be a good position to be in.
2020 to 2026, you have about 5 years to save 25k. so you have to save 5k per year or around $400 per month.
With a basic salary of $3400...
20% CPF: $680
12% Saving for BTO downpayment: $400 (put in a high interest saving account, check out OCBC)
13% Food + Transport: $450 ($15 a day)
You are now left with $1870.
I strongly advise you to buy some insurance, use 5% ($170) to 10% of your salary and get full hospitalization coverage followed by terminal illness, total permanent disabilities, and death with whatever you have left. Do seek proper financial planning advice for this.
You are now left with $1600.
If you can invest $1300 you are doing awesome! (invest this in the stock market, I personally won't use Stashaway but its ok... look into ETFs, mutual funds, unit trust, buy a whole basket of shares of good companies like apple, samsung, alibaba, etc) This investment in stocks is not to be used to pay your BTO, its to buy your financial freedom. If you just do this you'll be a millionaire by 50.
The remaining $300 is for you to enjoy.
Hello! It is fantastic that you already know how much you will need in 5 years time. BTW, locking up is not really the right thing to say because you can still withdraw from stashaway when you need it, so grow your savings to $2k gradually to make up for time. After some number crunching, if you purely save your money, it will be 90k in 5 years. Let me introduce you to Warren Buffett's 8th wonder of the world, compound interest. I did the number crunching again, even at a modest 4% pa interest rate, you will only have $97,493.81. So somewhere along the way, within the 5 years, your savings must increase. And you have to invest in low risk derivaties like ETFs to reach your goal in time. Good luck, hope this helps.