Ever wondered how come your peer (earning a similar income as you) might be buying their first private property while you are fretting over whether you can get a suitable HDB?
As I work with many of my clients in their late 20s to mid 30s, property goals are a common immediate concern. I get it. Unlike in Western countries, home ownership in Singapore is a big affirmation of adulthood.
To some of us, it's simply a symbol of autonomy and the start of leading our own lives. To another group, it's the first step towards social mobility. Once you have your first asset, upgrading to your ideal house is much easier.
If you ask me, the biggest challenge in private home ownership is always the first house. Couples have it easier especially if you settle down early enough to be eligible for BTO. The upgrading process is always easier having an initial asset. Singles on the other hand face a bigger challenge. You either wait till 35 for your first public housing or buy private if you prefer not to wait till 35.
In terms of why private property, it's a myriad of reasons ranging from aspirational lifestyle wants to studies which shows that capital gains for the sale of the right private properties are much more significant compared to HDB homes outside of BTO purchases.
So the golden question is, do I need a high income to even dream of private home ownership?
In my opinion, having a high income is a massive advantage but having an average income can get you there too if you manage your money prudently.
In 2020, I read this article about my Poly and Chess playing friend who saved $500K by 32. Can he afford a private property? Obviously. Does he want to? I don't know but he certainly have the luxury of choice when he eventually settles on a home.
At the core of the discussion, I think that building wealth have pretty age old fundamentals. Once we learn how to accumulate wealth shrewdly, what we choose to do with the money is ultimately our freedom.
1. Have a high savings rate
As a FA, I meet people from various income demographics. Sometimes, the money habits from the groups you least expect will astonish you. I've met clients who earn $10K a month and spend $10K a month (no kidding) as well as met clients with kids who earn $5K a month and are on track to paying off their second property in 3 years.
The first step to having money is to save substantially. A person who earns $4000 per month after CPF who saves 50% of income will beat another person who earns $6000 a month after CPF who saves 20% of their income in the long run.
You need resources to grow wealth. This is a fact.
"But, if I earn less, how can I possibly save more?"
Ultimately for most of us, the cost required for basic subsistence isn't very high. The rest of our spending goes to our wants and comfort. More often than not, beyond a certain level of regular spending, our lives don't get happier from spending more.
Generally, I believe that all of us have a minimum spending we need to achieve. That is for our hygiene level needs. Spending below this level causes pain and thus unhappiness. Above subsistence, it is all good to haves. Of course as humans living in the city, there will be a certain level of expenses to help us maintain our sanity and happiness. As part of our every day lives, that will be the means to hang out with friends, eat restaurant meals every now and then and potentially pamper ourselves a little with the occasional bubble tea, starbucks and grab rides.
Beyond that, our daily happiness actually plateaus and further spending doesn't make us happier (my opinion). I actually did a small experiment to test this out. As a big time foodie, I used to aspire to have the means to eat at restaurants daily. However, when I finally achieved this, I found an over indulgence of rich food tiresome. Eventually, I reverted back to my homecooked food and coffeeshop meals while having the occasional indulgence. Was it an affordability issue? No... it just didn't make me happier even though I love food hunting (when I don't do it everyday). Check out my food IG here.
Ultimately, once we achieve comfortable status, spending more is just an illusion that it makes us happier. Sometimes we do this mindlessly and make it an unhealthy habit that's all. Frankly, if we really take note of our regular indulgences that meets our happiness level before we overspend, it usually falls within the range of 10-25% of our income... Once comfort is achieved, a happier state of mind is really the intangibles like the quality of our relationships, our fulfillment at work and whether we are on track to bigger goals like our dream holiday, our house, educational goals, perhaps having our own mode of transport etc... yes it involves spending too but you will never get to these bigger ticket items if you don't save up.
2. Cover your downside risk
One natural problem that arise from high savings rate is an obsession to hold too much cash. Money is emotional. Most of the time though, the best financial decisions should be made unemotionally and objectively.
We hoard our cash because it gives us a sense of security. We feel insecure because we usually don't have a plan in place should unforeseen events happen. Hence, if we can put this plan in place, we will have more confidence to utilize our resources in a wiser manner.
Put 6 months of emergency funds aside
Once you can set aside 6 months of your salary aside for your emergency funds, you would have mitigated most of your short term emergencies including a loss of job.
Buy your insurances
Insurance is important because it's meant to cover your loss of income due to health issues as well as your medical bills. As long as this isn't done, 6 months of emergency funds won't save you in the event a major health issue occurs.
The entire idea of insurance is to use a small sum of money to cover for a big unforeseen bill you might take months or years to save up for. What's more, you may need it in 3 months' time or potentially not use it at all... its uncertain nature is precisely why you cannot afford to be without it. Above all, the universe doesn't have an obligation to wait till you have saved up the amount you need before making you ill so don't gamble!
Set aside money for your retirement
Either people don't even think about this or they end up hoarding too much cash and worrying about the affordability of big ticket items. Often they overcompensate this fear by committing to something much more affordable but with much lesser upside.
I often hear old people lamenting that they had an opportunity to buy a particular Condo for $800K in the past and it's worth $1.5M today but didn't have the courage to commit even though they have substantial savings. Even now when they are retired, they continue to try lower their expenses for fear they may end up out-living their savings.
Retirement is a foreseeable event. It can be planned. The math can be calculated. Once you put in place a system to set aside a planned amount for retirement, you can make better use of your existing surpluses. It's better than to go by an arbitrary feeling where you simply hoard more and more cash, effectively eroding its spending power.
3. Invest your money
I always tell my clients beyond your emergency funds and have your downside risk covered, every additional sum in your bank account is surplus and should be working harder for you.
If we look at the overall growth of private property prices over the years, it feels like we are chasing ever increasing prices. This is why property have proven to be a good store of value in Singapore.
If we store our money in the bank while accumulating our money for our down-payment and perhaps other costs like renovation and extra savings etc, we are effectively eroding our savings spending power depending on how long we take to accumulate the funds. Above all, by the time we saved up for the home of our choice, it may cost more again...
On the flip side, if we invests all our surplus into instruments that meets or beats inflation, we are at least preserving our wealth. If we do better than inflation, we would accelerate our wealth accumulation process.
In fact, those who are more ambitious may even explore investing their CPF. There was once someone asked me, "with the zero sales charge in place for CPF investments, wouldn't people be more incentivised to invest their CPF Ordinary Account (OA)?"
*please note: your OA account gives a risk free 2.5% and your special account gives a risk free 4%.
A caveat...
Encouraging investing doesn't mean doing it foolishly. Investing isn't gambling. If you are new to investing, I'd recommend sticking to orthodox investing approaches. The common instruments are your stocks, mutual funds, ETFs... given that there's risk involved (you can lose money!), it might also be prudent to get someone to hand-hold you through the process. If you want to DIY, you should invests in courses. If you have really limited time and interest in this, to speak to a trusted financial advisor.
What might not be known to the average consumer is that not all investment solutions are long term. I mean let's be realistic, a 25 year old can't use a 20 year solution to save up for their first home. That would be depressing. There are flexible solutions that financial advisors can offer too. Obviously, the shorter your time horizon, the greater the risk. Any duration that is too short is bordering gambling.
Summary
These are the 3 golden rules I'd suggest to save up for your first private property.
Have a high savings rate
Protect your downside risk
Invest your money
If one stays disciplined in this approach, generally the dream of owning the first private property isn't too far-fetched and is definitely achievable. I've met enough people who have done so with average salaries to attest to this.
After reading this article, you may have some questions or may want to get started on your wealth accumulation journey. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about how to save up for their first private property.
About Janice
I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning.
Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here.
I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram. Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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