How much should our networth be?

In the book The Millionaire Next Door: The Surprising Secrets of America's Wealthy, there is a formula which determines whether we are Prodigious Accumulators of Wealth (PAW) or Under Accumulators of Wealth (UAW). This formula first multiplies your age with your current gross annual income, followed by dividing by 10 to get the expected networth. If my current networth is more than two times the expected networth, i am a PAW. However, if my current networth is less than half the expected networth, i am a UAW. 

Example

Thommy is 50 years old now, currently earning $84,000 gross income per annum. His expected networth now should be $420,000. If his current networth is higher than $840,000, he is a PAW. On the other hand, if his expected networth is less than $210,000, he is a UAW.

I am sure many questions are forming in your heads now. Using this formula to see how we are doing financially now, ignores our future spending needs which is different for everyone. I can survive on cai peng everyday but not another person. I can be very able riding a bicycle as a means of transport but not another less able person. Many more questions! But as with all models, take it with a pinch of salt.  Imagine a fresh grad at 25 years old who has worked 1 year in investment banking and earning $150,000 a year, he would be a UAW! 

The PAW/UAW formula didn't fit what i was looking for. I needed to know whether i was on the right track in terms of whether i was having enough now.  To know that, i needed to project

• my estimated expenditure after retirement
• my annual contributions to my retirement fund till i retire
• the inflation rate
• my rate of return of my retirement fund if i had invested them

This retirement fund is to be used fully by the time i passed away.

The retirement age will be 63 ( as per Ministry of Manpower in 2022) and the date of passing away will be projected to be 86 (as per the female life expectancy in 2021 by Singstat). Females generally live longer than males who are expected to pass away at 81 (2021 by Singstat) and using 86 is a matter of prudence as life throws curveballs at us.

Example

Esther is 41 years old. She wonders if she currently have enough money to fund her retirement. She has been spending $4000 a month on her lifestyle and would like to continue her quality of living in retirement. Inflation has been hovering around 2% pa historically and she has been getting 5% pa on her retirement fund investments.

She has been contributing $24,000 a year into her retirement fund with ease and believes she can do this till retirement at age 63. 

Her networth now should be $201,222. 

A lot of things have to go right for Esther to be comfortable with $201,222. She has to be able to contribute $24,000 annually for 22 years to retirement by being gainfully employed, being healthy, not being scammed ,not facing a global financial crisis somewhere along the route to retirement e.t.c. As life do throw curveballs at us sometimes, it would be better to have much more that this networth to be comfortable.

Which electricity plan to choose?

Our Geneco fixed plan contract ends in February 2022. The rate we are enjoying now is $0.1662 kWh ( without GST). The current Geneco fixed plans in the market is $0.2334 kWh ( without GST) . This is a 40% increase in rates. This is a lot! My electricity bills average about $150 per month, a 40% increase is a $60 increase per month.

This is a comparison table on the best fixed plan , best discount off and SP regulated Tariff. 

Updated 31 Oct

A quick summary on the options available to the readers. In Singapore, household residents can choose to buy electricity from three sources.

• Singapore Power under the regulated tariff plan ( regulated by Energy Market Authority)
• Singapore electricity retailers ( Geneco, Keppel electric, Senoko, Pacific light, Tuas power, Sembcorp e.t.c)
• Singapore Power under the wholesale electricity plan

The trades offs between the above are price stability, prices, contracts lock-in and promotions such a credit card discounts or promo codes. 

In my opinion, one should never choose the SP regulated tariffs so i was quite surprised to read on papers that about 50% of households are still on the SP regulated tariffs. Get out of it! Its a low lying sure save money choice.

It was reported in the papers that a very small percentage are on the SP wholesale electricity plan. 

Let us see how wholesale electricity prices compare with the SP regulated tariff and electricity retailer prices in September. 

On the horizontal axis, period refers to the time of the day. 

Period 0 - 0000 to 0030

Period 1 - 0030 to 0100

Period 47 - 2300 to 2330

Period 48 - 2330 to 0000

Chart showing the average whole sale electricity for the Sep 2021

Interesting. More due diligence needed. Expect more future posts on the findings.  Perhaps, i could switch to the SP whole electricity plan when my contract ends. What better period to stress test the SP wholesale electricity plan than now when the natural gas prices are so volatile and expensive, with winter coming!

Click here for updated electricity statistics.

Property Viewings During Covid

My wife has been pestering me to go property viewing with her during these times. A happy wife is a happy life. So i obliged. 

The above table are the latest 1 year transactions based on URA from September 2021 to October 2020 for a particular freehold property. 

As gross yield can be really misleading, I decided to do a simple calculator, taking into account all the fees which we will need to pay.

• Additional buyer stamp duty
• Buyer stamp duty
• Seller stamp duty
• Estimate renovation and furniture
• Commission paid to agent when we sell this property in future
• Commission paid to agent when we rent out this property
• MCST fees
• Interest rates
• Property taxes
• Rental income

We made a few best case assumptions.

• Property never going to be vacant
• No replacement of aircon, lights, fridge , sofa etc for the holding period
• Earned income tax is zero. Meaning only the rental income is included in the income tax.

The calculator used is below and the property used is the one with the smallest size 1000 to1100. sqft.

I used a 10 year holding period for the new property and assumed the property did not appreciate after 10 years. Assuming i took a 30 year loan at 75% loan from the bank with an interest of 1.5%p.a, this is how the series of cashflow is. 

Series of Cashflow

As an investment property, one will have to have the holding power to tahan the first 10 years where the cashflow is negative.

More detailed information on how the above is calculated is found here.

The IRR( returns a year ) is only 0.75%pa.

This is ridiculous to me. I guess the hope would be for the property to appreciate to make the returns. But would interest rates appreciate too to negate the returns?

You can play with the calculator to see the outcomes of different scenarios by adding ABSD based on the number of existing property one has. As of above, the ABSD is $0 based on no existing property holding.

I made my wife an unhappy woman. Unhappy life.