Estate Planning - Part 1

Hi Fellow Automated Millionaires,

This is the preliminary results of my research on Estate Planning:

1. According to IRAS, our life insurance is NOT exempted from estate duty tax,unless if the beneficary is either your children or wife. Hence, if beneficary is you and the total other assets (excluding CPF and dwelling house) is more than S$600,000, it is due for estate duty tax. (click here for more info)
2. According to IRAS, voluntary CPF contribution is also due for estate duty tax.
3. In addition, money situated at CPFIS will be also due for estate duty tax unless it has been transfer back to your CPF account before hand :)
4. IRAS informed me that unlike America where Living Trust is transparent to IRAS, in Singapore, any income from the Trust is deemed for tax at 20%! OMG!

All are fine except point 4. Let me talk to some professionals in living trust area to see if there is any way to avoid the tax. Maybe a Living Will or a Pour-over Will might help in this? :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Market Volatility

Hi Fellow Automated Millionaires,

Recently, the market went down and down. Acorns of Asia Balanced Fund went down by 5.82% in November. To tell you I am not affected by the whole situation is bullsh*t, my returns are affected of course. But then, I am not cashing out on the investment now anyway. The principle behind the whole Automated Millionaire System is time is on our side, hence history shows that if time is on our side, we are the ultimate winners :)

Both David Bach and Suze Orman recommends RSP so that we can dollar average our investment to diversify the risk and with time on our side, the percentage of getting a ROI of 8% or more (compounded) using Balanced Fund is greatly increase. (Side Note: Accumulative ROI of Acorns of Asia Balanced Fund from August to November 2007 is 3.31%)

This market fall makes me really consider what David Bach and Suze Orman recommendation on ETF. Because according to SGX, ETF has no sales charges, low management fees (less than 1%), diversified portfolio, price transparency, etc. Let me research more in this area before coming back here :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

October Quick Review

Hi Fellow Automated Millionaires,

Confucius once said, "By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest."

Hence, let us learn by imitation and review what an Automated Millionaire should do by now:

1. Have Life Insurance to cover Death, Total Permanent Disability & Critical Illnesses, Personal Accident Plan and Hospitalisation Plan to protect one's wealth
2. Have a Citibank Step-Up Account and have your salary credited to this account
3. Have at least 2 e$aver and 2 xSaver accounts
4. Have the following accounts for Long Term Savings, Financial Freedom, Education, Play, Charity and Bills (Though some of them can share the same account).
5. Set a x% of your income for above accounts except Bills of course ;)
6. Invest a x% of your income to at least a Balanced Fund with a ROI of more than 8%p.a. (compounded) with the Goal of building a neat retirement fund in 25 or 30 years time
7. Automate the process of transferring the money *KEY factor to the whole process*

If a person wants to be an Automated Millionaire but have not done these 5 steps, then no way he/she can become one in the near future. Start Young, Just do it!

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Pre-Tax Investing - Part 2

Hi Fellow Automated Millionaires,

I have calculated the differences of yearly investment through CPF versus Cash as below:

1. CPF
Amount Invested: S$10,000
Tax Incurred*: S$0
Employer CPF*: S$954 (subtracted S$3,396 for repayment of HDB loan of 4-room HDB flat)
Sub Total: S$10,954
ROI: 8%
Grand Total: S$11,831

2. Cash
Amount Invested: S$10,000
Tax Incurred*: S$350
Employer CPF*: S$0
Sub Total: S$9,650
ROI: 8%
Grand Total: S$10,422

*Taking an annual income of S$30,000.

DIFFERENCE: S$1,409

This difference for 1 year is already S$1,409.00. The difference in 10 years is S$22,044.49. What about 25 years later? The amount is S$111,246. The difference in 30 years is S$172,385.33. Are you willing to throw S$172K away? :) Definitely not me. Let us find a good solution to counter the CPF lock of the 1st S$20,000.

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Is Estate Planning important?

Hi Fellow Automated Millionaires,

I used to think that Estate Planning is only for old people or rich people and can be settled by just writing a will as shown on TV. Alas! But things are not true in that way in reality.

In reality, in simplified form, when a person die, the government will take all the assets of that person into a probate. According to Probate Enterprise, Probate is a process of application for the release of assets to the beneficiaries, which have been frozen upon the death of our loved ones. Probate might take at at least 1 year and even longer if a person die without a will or leave behind a complex estate! After all these hassles, the loved ones of the person has to pay estate duty (though there is exemption, click here to find out more).

Hence, to avoid the probate and reduce the estate duty (which potentially can run to tens of thousands of dollars, if not handle properly) legally, Estate Planning is one of the most important part of one's Financial Planning. As of how to do a proper Estate Planning, of course, seek professional help as I always recommend. But as usual, I will write down in this Blog on how I will do it :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Pre-tax Investing - Part 1

Hi Fellow Automated Millionaires,

David Bach, in his books mentioned about pre-tax investing. So what is pre-tax investing and is it relevant in Asia context? Pre-tax investing, according to David Bach, means that bypassing the government tax to do investing. This is relatively a very important concept in UK and US as the tax is very high (about 30%). But, in Singapore, though there is tax but it is relatively low (for more info, check out MOF website) and there is so many reliefs & rebates (for more info, click here).

With the change to CPF rules in April 2008 (1st S$20,000 in Ordinary Account cannot be invested), we cannot leverage on CPF to do investment anymore. So Sad. Because CPF to me is the mother of all investment accounts. Anyway, so what about SRS? Well, it really doesn't make sense to leverage on SRS to investment too.

Why? Simple, first to draw out the money, you have to wait until the statutory retirement age, which is 62 (7 years later than CPF) otherwise, you will be penalised. Second, if I am not taxed (due to low income plus reliefs & rebates) and invested about S$10,000p.a., after 26years compounded at 8%, I should have S$863,507.68. Now, if I invest using just plain Cash, I would have S$863K all tax-free as there is no capital gain tax in Singapore (ok, even I am taxed, I am taxed 3.5~5.5% on my current income and not the whole S$863K). However, if I invest using my SRS account, I am TAXED on my S$863K! Ain't this incredible?

Maybe SRS do make sense when a person is a high income earner who wants to deferred tax. But, I am still not yet a high income earner, hence, SRS doesn't make sense to low-to-average income earners as a pre-tax investment tool. Cash, at least for low-to-average income earners, is still the best form of investment now :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

How much I need to be covered for my Life Insurance?

Hi Fellow Automated Millionaires,

There are 3 major questions regarding about Life Insurance: 1. Do I need it? 2. If I need it, how much coverage is enough? 3. How long will I need it?

1. Do I need it?
According to Suze Orman, US Acclaimed Personal Finance Expert, said,"Life insurance was never meant to be a permanent need. Its original purpose was to protect people while they were younger, before they had a chance to build up a nest egg, in case the family breadwinner died early and unexpectedly."

Hence, if you have no dependents (e.g. young kids, old parents, etc.) and is still single, then there's no need for a life insurance!

2. How much is needed?
So how much is enough? Suze Orman came out with a very ingenious way of calculating how much coverage is enough. But please bear in mind, neither Suze nor I have to live your loved ones' lives, hence, its better safe than sorry :) According to Suze Orman, you will need about S$120,000* in insurance for every S$500 of monthly income required.

Say, for me, to survive I need S$1,500 per month to cover all my expenses. Divided by S$500 and Multiply by S$120,000. So my Life Insurance coverage should be S$360,000.

*Singapore Context

3. How long will I need it?
If you follow this Automated Millionaire Plan, the money that you invested for your retirement fund should be accumulated to close to S$1 Million as least by the age of 65. Hence, the need of a Life Insurance should be zero. So according to Suze Orman, by the time when you are 65 at the latest, your need for life insurance and your need to pay the premiums on your life insurance should be gone.

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Top Balanced/Managed Funds

Hi Fellow Automated Millionaires,

I realised that there is a need to select a good fund to generate a stable 8~10% returns in order to achieve the status of Automated Millionaire. Below is the Top 9 Balanced/Managed funds that based on their past performance history that are above 8% returns (compounded) dated 7th Nov 2008.

1. AIA Acorns of Asia Balanced Fund (since 2001) - 18.36%p.a.
2. AIA Greater China Balanced Fund (since 2003) - 16.76%p.a.
3. PRU Asian Balanced Fund (since 2003) - 12.47%p.a.
4. Lion Capital Singapore Balanced Fund (since 2001) - 11.26%p.a.
5. AIA India Balanced Fund (since 2005) - 10.25%p.a.
6. AIA Emerging Markets Balanced Fund (since 2006) - 10.00%p.a.
7. NTUC Income Combined Fund - Balanced (since 2003) - 9.72%p.a.
8. Lion Capital Target Return (since 2001) - 9.35%p.a.
9. Prulink Singapore Managed Fund (since 1992) - 8.18%p.a.

I have put my money on AIA Acorns of Asia Balanced Fund since this is the highest growing Balanced Fund I know (Thanks Financial Coach!). But please do your own research before putting your money :)

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Pathetic Bank Interest Rate

Hi Fellow Automated Millionaires,

Today I received a very important email from Standard Chartered. They are reducing the e$aver's Interest Rates from 1.5% to 1.2%. This is really Pathetic.

I am a very strong believer of High Interest Saving Account and ever since Standard Chartered came out with e$aver, I am a Champion for it. But, they reduced the interest rate from 1.98% to 1.5% and now from 1.5% to 1.2%. Though it is higher than conventional savings account of 0.25%, but it is NO longer the highest interest saving account in Singapore.

So what is the highest? Citibank Step-Up Account at 2% (terms and conditions apply). And this is where my Emergency Fund lies. Although, Fundsupermart.com's Cash Funds Interest rate is higher at 2.119% as of 28th Oct 2007 (nett of the expense), but it is still not as liquid as Citibank Step-Up Account. Hence, not justifiable for that small amount of difference in Interest Rates.

This is a breakdown of my Automated Funds dated 30th Oct 2007:

1. Citibank Step Up Account - Emergency Funds (10%)
2. StanChart Own xSaver - Education (5%)
3. StanChart Joint e$aver - Bills (Mobile, Cable TV, Internet, Insurance)
4. StanChart Own e$aver - Basic Necessity
5. StanChart Joint xSaver - Play (10%)
6. Financial Freedom Fund - Direct Debit from Citibank Account (10 ~ 15%)
7. Charity Fund - Direct Debit from Citibank Account (1%)

I am comptemplating to put my Financial Freedom Funds into Cash Funds to achieve a slighty higher Interest rates, but since I don't have S$20,000 in my CPF (updated singapore law) by April 2008, I will have to use my Financial Freedom Funds either cash or through SRS (for tax relief) for my 25 years Retirement Fund Plan.

But most importantly, all these have been automated. Hence, freeing me from having discipline to put my money into this and that accounts and for investment :) That is really wonderful! Hence, that is why we are Automated Millionaires!

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Level Term vs Limited Premium Whole Life

Hi Fellow Automated Millionaires,

I am totally divided now. :) David Bach is preaching most of us to take up Level Term Plan but yet my trusted financial coach has asked me to take up a Limited Premium Whole Life insurance.

Well below is the difference between the 2 Plan.

Level Term Plan (35 years)

1. Have Death / TPD / Critical Illnesses coverage
2. Same premium for 35years, which means I am paying S$76,440 in total
3. With $182 per month, I am covered S$430,000 for 35years, which means there is NO coverage after 35 years, but Income is offer a guaranteed renewable after that 35 years until I am age of 80 (i am still finding out the premium for that renewable)
4. No Cash Value after 35 years

Limited Premium Whole Life (Pay for 25 years and Protected for life)

1. Have Death / TPD / Critical Illnesses coverage
2. I pay S$187.65 for only 25 years to be covered for life, which means I am paying S$56,110 in total
3. High Premium for only S$100K to a maximum of S$175K (age of 65) coverage
4. If projected 5.25% returns, the policy would have about S$100,477.00 cash value in 36 years time (age: 65)

As everybody can see, if I am going for Protection, Level Term Plan is the one to go for, as my dependents (although strictly speaking I don't any dependents now) gets more if anything were to happen to me. Because if taking inflation of 3% of 25years, I need at least S$209,377.79 to cover myself, which is NOT achievable in Limited Premium Plan.

But if I am going for Cash Value or FREE Protection after I retire, I will be going for Limited Premium Whole Life. However, if I am going for Cash Value, why not take some of the premium to go investment, which gives more % back... which leaves the only attractive advantage of free protection after I retire at the age of 40 :) Oh god, I am so confuse

I need your help, what is your opinion on this issue? Please feel free to comments.

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

Money Market Funds

Hi Fellow Automated Millionaires,

I met up with my trusted Financial Planner last night from 10 to 1130pm. After discussing with Anthony and Kae Tyan, I made several decision:

1. NOT to put my FFA into a Money Market Funds but also invest into Mutual Funds for better growth
2. Not to work on Bi-weekly Payment for Real Estate (as there is no such payment mode in Singapore)

Money Market Funds
I have researched Money Market Funds in Singapore are generally making a profit of 2-3% returns. Hence, minusing the initial sales charge of 2%, the nett profit is only 1% (taking the maximum returns of 3%) which is lesser than the e$aver of 1.5%. Hence, for all the trouble of setting up the Money Market Fund, it just doesn't add up. Hence, I decide NOT to put my FFA into Money Market Funds but invest into Mutual Funds until end of 2008 to buy Real Estates in 2009

Bi-weekly Payment
Sad to say that Bi-weekly payment according to Anthony Boon doesn't exist in Singapore. Hence, enough talk about it :( So it makes more sense to grow money in elsewhere rather than paying off the interest other than required.

Retirement Calculator
I have found out that CPF website has an incredible array of Calculators at http://mycpf.cpf.gov.sg/Members/Calculators/mbr-Calculators.htm. I am using it to determine what i need to do to achieve my Automated Millionaire Plan!

Disclaimer
The above information is wholy author's personal opinion. It does not intend to replace any professional advice. If legal advice or other professional advice, including financial, is required, the services of a competent professional person should be sought.

My 1st Step

Hi Fellow Automated Millionaires,

"A journey of a thousand miles begins with a single step" - Confucius.

That single step involves in talking to my Financial Planner, researching on Money Market Funds, talking to several Insurance companies, etc to find out the finalised the Plan to become an Automatic Millionaire. *phew* Tough work to localise the concepts from David Bach, but I have learnt a lot during this process.

At the current moment, I aim to achieve a Net Worth of S$3 million by age of 40 and this is what i have done as of 24th October 2007:

Wealth Protection

1. Death, Total Permanent Disability & Critical Illnesses covered at about S$100k (Asialife)
2. Personal Accident covered at about S$100k (Tenet)
3. Hospitalisation Plan (NTUC Income)

Wealth Accumulation

1. Increased Income Level by S$500 ~ S$1,000 per month through Melaleuca
2. Pay Myself First (10% to FFA, 10% LTS, 10% Play, 5% Edu, 1% Charity)
3. Build my Emergency Funds with 2% interest rate (Citibank)
4. 25 years Retirement Fund by reinvest my CPF in Mutual Funds aiming to achieve a 10% ROI up to a maximum of S$834/mth (Thank you my Financial Planner!)
5. Automate most of my bills payment (e.g. Starhub, Insurance, Transport)
6. Direct Debit payment to Charity (currently to Singapore Children Society)
7. Working on Melaleuca business aiming to achieve S$84,000/mth by age of 40
8. Future plans to go into Real Estates and Stocks

As this is the 1st time I am setting up the system, hence, there is some hardwork involved. However, once the system is setup, there is absolute no discipline needed, as it is automatic! This is why it is so fun! ;)

Max Tay's Life Vision: To help at least 1,000 people to become Automated Millionaire

Max Tay's Life Mission: Enhancing the lives of those we touched by helping people reach their goals

I have a dream today!

Hi all,

After reading The Automatic Millionaire by David Bach, I feel so much inspired! Even though I still am in debt now, unsure of my future, but my friends, I still have a dream. A dream deeply rooted in me...

I have a dream that one day I would be a Millionaire. I would be the true owner of my life. Spending quality time with my wife and children. Have the freedom to travel round the World. Have the chance to taste exquisite food *slurp*

I have a dream that one day not just me can be a Millionaire. All of my friends will be able to sit down together at the table of Millionaires. They would one day possess the knowledge of how to become an Automated Millionaire.

I have a dream that one day we will be enhancing the lives of those we touched by helping people reach their goals. It will no longer be restricted just in Singapore but also in Malaysia, Indonesia, Thailand... the sky is the limit.

I have a dream today!

And NOW is the time to take action. Now is the time to raise up to the challenge. Now is the time to make this dream a reality! I sincerely invite you to come along with me to make this dream a reality!