Monday, March 09, 2009

Budgeting for the near future

I was trying to determine the big ticket cash outflow in the near future over the weekend. The 3 biggest ticket items are car, property and wedding. I roughly know the first two and set budget for them already, so I need to estimate how much I have to cough out for the wedding.

I started by writing down the names of the guests I wish to invite for the dinner. At last count, there are around 85 people, with maybe another 40 more coming from friends of both parents. This works out to be 125 guests to be invited, or assuming a table capacity of 10 guests, a total of 13 tables. Let’s just raise it up to 16 tables, in case there are extra.

Since there are only a small number of tables, I thought it’ll be better to have a dinner at a high end restaurant rather than be contented with a middle range hotel. That needs to be worked out with my gf. So assuming $1200 per table, I need to fork out $19,200. From what I asked around, the wedding package of bridal gown plus photos/video should cost around $6000. Add to this the cost of the wedding rings/bands, which I budgeted to be at $5000, we’ll have a grand total of $30,200. To be on the safe side, I’ll increase it to $35,000, which is a near 16% markup for conservative budgeting purpose.

For car, my total budget is around $30,000, which I intend to pay 50% as down payment and borrow the rest so as not to over stretch my cash coffer. With this budget, I narrowed down to 2 cars – first is a new Kia picanto, the other is a 2-3 years old Honda jazz. I’m undecided as to which is a better bargain, but that’s not important yet in this planning exercise. I strictly do not want my budget to exceed $35,000. Period. Let’s just use the budget of $35,000 to begin with, and my intention of paying 50% upfront means I have to fork out $17,500.

For property, I intend to get a 600-800k property for investment purpose. Assuming a 30% down payment, I need to raise 180-240k cash for it. This might be a little too big for me to swallow, so I’ll have to look for co-investors to share the down payment and mortgage payment. Still, my budget for property is only 100k, so I either have to find enough people to share the burden or just reduce the size of the property I’m looking out for.


Let’s tally the figures:

1. Car purchase: $17,500 which I’ll need by end 2009
2. Marriage: $35,000 which I’ll need by end 2010
3. Property: $100,000 which I’ll need by around 2010 to 2012

Total: $152,500


Assumptions:

1. I have to pay all the things myself, which is quite a valid assumption for now. My parents are definitely not going to chip in. My wild card here is the contribution from gf and her family. I assumed my wild card doesn’t exist.

2. I heard people saying that I can recover 80% of the wedding banquet expenditure. Since my banquet expenditure is estimated to be $15,300, this means I can recover back $15,360. I rather not bet on it. Let’s just assume that I get nothing back.


Cashflow

Getting the car and the property will increase my monthly expenditure as I need to repay the interest and principal of borrowing. The car should set me back by around $1000 per month (includes everything) while the property should at most set me back by around $1000 per month too, assuming that I have 2 person to share the burden with. That will set me back by $2000 per month, meaning that I have less to save unless my income increases by an equivalent amount too.

Of course, the point of buying a car for me is to increase my income, so even though my expenditure is 1k per month, I might/might not be able to break even/make more. The second thing is about the mortgage for the property loan. Best case is that the rental can more than cover the mortgage, generating cash flow for me. Worst case is that there’s no rental and I have to bleed 1k per month till I exit from the property. I’m totally fine with the worst case scenario. The more likely scenario is that my gf can help to ease my burden for both of the debts I incurred, which up till now I have not considered yet. That will greatly improve my situation and most likely I can retain my savings rate of more than 50% monthly income.


3 yr plan from early 2009 to end 2011

I have enough cash to cover both the car down payment and the marriage, which I’m very glad. This means that till end 2010, I do not need to accelerate my savings (like selling off my stocks to raise cash). I have 2 years – 2009 and 2010 – to save up, which at my current rate of 50k per year, I should be able to accumulate 100k for the property at end 2011. The critical period is from 2010 to 2011, as I might need to accelerate my savings before the property market flies off. However, if the market from 1998 to 2003 is any indication of future trend, there might be a period of consolidation while buyers and sellers fight it out. If that happens, I will have more time to accumulate savings for property. If I purchase the property 3 years later at 2012, I’ll have even more cash to buffer.

26 comments :

Createwealth8888 said...

For new driver, not advisable to get brand new car, as like most new drivers there is high chance of knocking here and there and that may make you feel painfully, unless you are immune to hard knocks. ha ha

PanzerGrenadier said...

Hi LP

My initial sense is that you are under-budgeting for property because you have to factor in that you don't have CPF buffer and that your loan instalment is dependent on mortgage interest rates which can change very fast after the 2-3 year lock-in period.

Also, you have to factor in other costs of investment property ownership e.g. 10% property tax on annual value/rental income vs. 4% for owner-occupied residential properties as well as maintenance fees of $200-300 every month for properties under strata title (i.e. private condos).

Furnishing the property if you are letting it out is another cost consideration and if you want to get agent to find tenants for you, their agency fees will also come in.

Anonymous said...

Bro,

A sub-30k budget is going to be difficult to fit a 3 year old Japanese car. Not impossible but you may find Honda Jazz/FIT, Mazda 2 or Mitsubishi Colt. But these are really stretching it and they will fall just the $30k mark which means the transfer fees will blow your budget. Also, the media COE for 2006/2007 is around $15-16k. After depreciation, that COE is still worth $10k today, almost twice the price of a new COE.

I think a new Korean 1.0l car might fit into your budget at the moment.

Let's explore more options when you're online, especially, the reason why I am doing a COE renewal soon.


- V

No Regret said...

When it is e ripe time to invest, u actually decided to buy car/house/wedding..
You wasted a chance to get richer but it is your take.
-it only cost less than 30 bucks to marry..
-u can get civic/carmy when u sell just 10% of your holding in 4 yrs.
-u can fully paid your 4 bedroom condo when u sell the rest of your holding in 8 yrs

la papillion said...

Bro8888,

A car for me is strictly for work. I don't think i'm attached in the sense that i have to wake up early on sun morning to wash my car, or get frustrated when there's a scratch. In that respect, I hope I'm immune to these kind of things. I'm just afraid what I thought I will be might in reality be different.

la papillion said...

Hi PG,

What is the CPF buffer you're talking about? Sorry, can you explain it to me? As for the mortgage, a fixed rate mortgage should be my choice, so I can plan out the budget per month for mortgage payment. Definitely not SIBOR linked as I've heard stories about the SIBOR links being one way - they rise with SIBOR and don't drop with SIBOR.

I can't do the property alone. I intend to do it with 2 or 3 more persons to form a tenants-in-common (TIC), so that might ease things a bit.

Thks for your comments, PG.

la papillion said...

Hi no regret,

Thks for your curt but insightful remarks. Perhaps you can hear my feeble defense?

I needed a car strictly for work. I have no fantasy to drive fast and sporty cars. In fact, if not for the need to save time, I will not even learn driving now. I spent 12 hours a week walking/waiting/travelling on public transport. More than 60% of my time is spent waiting for buses/trains. This time lost is getting more expensive to me, hence the decision to get a car.

I had fully considered your suggestion for the marriage. I might delay it. Have a feeling my other half is not ready when I sounded her out. Thus I'll have the money for equities.

Property is for investing, not for living. 70-80% of my net worth is in equities, so I'm not sure if that's a wise choice.

Thanks for your comments.

Anonymous said...

Hi LP,

Its been sometime since I last came around. Been busy with my reservist training.

Regarding the property investments with co-investors, you might want to re-consider it VERY VERY CAREFULLY... I have seen several of those fail among my friends. They all start out well but due to differences along the way, split apart. This can damage friendships.

You idea of getting a car to cut down on traveling time is sound cos' time is money for you. Makes perfect sense to me. The more time you save on traveling, the more money you can make on tutoring. For me, Time is time and Money is Money :)... MOst of the time I am just sitting around pretty at home.. haha.. waiting for the market to tell me when to go long or short... been out of the long side since early Jan when STI was around 1920.

For wedding, if you are NOT TOO HUNG UP ON FACE, you might want to consider holding the banquet at a restaurant instead of in a hotel. The cost can be VERY SUBSTANTIAL (50% DIFFERENCE). Don't saddle yourself with huge amounts of debts when you first start out as a couple. I held mine in a rest. and broke even.. hence no need to save for wedding ;)

My wife and I are virtually debt free and live off my investments, so that I can concentrate on spending time with my son and doing my volunteer work, while looking for good trades which comes around perhaps 4-5 times a year. It's a waiting game for me most of the time.. waiting for all the factors to align together.

Cheers,
MM

la papillion said...

Hi MM,

Always nice of you to drop by :) Hmm, i'll liase with you thru email, can share some more details with you there :)

Cheers!

PanzerGrenadier said...

Hi LP

I meant that as a self-employed, you don't get employers' CPF contributions so your mortgage has to be financed by cash, i.e. if mortgage goes up, you are hit very directly in having to increase your mortgage instalment over other lifestyle expenses.

Be well and prosper.

la papillion said...

Hi PG,

Ah, now I get what you mean. You're right, I do not have the extra employer's CPF contribution.

If that happens, I'll have to earn more to pay my mortgage and pass on the higher costs to my 'clients', hoho :)

nhyone said...

la papillion, a car may not be as convenient as you think.

Roads jam. Parking is hard to find. Hopefully, your routes and the places you go don't suffer from these two problem.

Don't forget parking charges. The rate is $1/hr for non-CBD areas and $2/hr for CBD areas. Non-season and non-per entry parking are expensive.

A cheap alternative is riding a motorcycle. The total cost is on-par with public transport.

Riding is definitely more risky, so most people dismiss it outright.

I can tell you one thing though: when I'm riding, I'm handling the most valuable thing in the world -- my life. You can be sure I'm very very careful.

la papillion said...

Hi nhyone,

Thks for visiting my blog :)

First of all, thanks for telling me these stuff. I've not thought about some of them, esp the bike. I think being a safe biker is one thing, but on the road, you're exposed to danger from yourself and from others. Being careful means you eliminate half of the dangers, but the other half you can't control. Some drivers are just very dangerous - just driving on the road for the past 2 months made me see all these (i'm learning driving now).

I'm a full time tutor, btw. I won't be going to CBD area at all, nor will I be using expressway much. The time I'm travelling will be mostly off peak hours where the traffic is lighter. Actually parking will be more biggest concern. However, I plan to park at private estates and walk when I can. If not, I'll charge higher rates to cover it.

Due to the special circumstances of mine, I believe a car will be well justified.

Do visit my blog and give your valuable comments more often :)

Createwealth8888 said...

Have you seriously simulated on paper on those time saving on travelling between classes could actually translate to extra classes e.g. saving 30 mins here and there may not translate to extra class of 1-1.5 hr, probably, you have more rest time in between classes, and that about it.

la papillion said...

Hi bro8888,

You're right. I thought about this problem too. I know what you're driving at, because even if I save 30 mins every day for 7 days, it doesn't mean I'll have 3.5 hrs to have a class. There are many many times where I have to reject a student because the travelling time is just impractical for me.

I know that if I cover 3 classes more, i can cover my cost (that's a conservative estimate actually). I'm very confident of being able to squeeze in 2 classes extra. But the ultimate savings is actually in time. If I can leave home later and reach home earlier, the extra time can result in something I can never do at this moment. I can read more, rest more and perhaps finally do the book that I always wanted to write. I think having more time is invaluable, either to use the free time to do more work, or to rest more.

Thanks for your keen insight, you're always the detailed one :)

BL Trading Team said...

Hi LP,

May I know as a tuition teacher, do you declare your income to IRAS?

Just curious on how do tuition business works.

Brendan

la papillion said...

Hi brendan,

Yes I do declare income to IRAS. But I think some who do it as a side line do not declare the income, cos it's hard to trace.

This is my source of income, if I do not declare, next time I might have problems explaining how I get my assets.

BL Trading Team said...

Thanks for your reply.

Do you register a company for your business?

la papillion said...

Hi Brendan,

No, I didn't register my business. I do not see the advantages of doing so. Perhaps I might do so in the future. In the meantime, I'm declaring my income as a sole proprietorship.

BL Trading Team said...

Thanks for sharing.

nhyone said...

Never say never. 15 years ago, I dismissed riding outright too. 10 years later, I was fed up with public transport, but I wasn't prepared to fork out an arm and leg for a car. It was then I finally realized I missed out on a cheap alternative.

(My father now grudgingly accepts me riding. However, I still don't dare to tell him I've got two bikes!)

I won't use your current L-plate experience to judge. In the future, when you drive on the road, hopefully you'll smile at the L-plates instead of trying to cut them off. You won't believe you used to drive so slowly and so unsteadily too! :lol:

For car related stuff, you may want to visit http://www.mycarforum.com/

la papillion said...

Hey nhyone,

Thks for sharing your experiences :) Okay, never say never, haha! I'll check out the car forum, thks a lot!

No Regret said...

life is too precious to be ruined because u want to save money by buying bike.
either u buy a car or if u cannot afford it, take public transport.
I already had 4 great friend/buddies perished on the road through motor accident...

la papillion said...

Hi no regrets,

Sad to hear that. All of them rode bikes?

No Regret said...

yes.many years back when We are still young and fearless..ha..
When u have kids yourself...u will understand why yr parents always nag at u here and there....because they LOVE YOU!

Leggy said...

Ok i'm like 4 years too late to this topic, but I'm still going to share what I can.

I don't think the kia picanto is the cheapest (and relatively safe) transport solution in Singapore. Register a company and get a 2nd hand van. The total cost to owe a van should be $3-5 compared to $12-15 to owe a picanto per day, not counting fuel.