Prepaying your mortgage vs. investing
Interestingly, I wrote about this something back in June as I was going into On9 Systems full time.. Had a discussion over dinner at Dempsey Hill with some friends and the question came up again as it seemed that by making extra payments, the loan term would get shortened. Is there a good way to determine this? There is just such a calculator that can help in the link below. Guess everyone had different financial situations and resources but think we’re still got to stick to the 30 year loan for now. Guess I’ll review on an annual basis just to see where we are.
How do you build your emergency fund?
Its taken awhile but have finally attained my goal of building an emergency fund of a years worth of expenses for us. I’ve read about many ways to do so but The Digerati Life gives a pretty good summary of 5 different ways. #3 would be something we belong to currently and #4 something to move towards. I sincerely hope none of my friends are using #1 since 24% per annum on late charges is really like gambling your money away.
#3 Using a standalone cash account separate from your investment portfolio: the traditional Emergency Fund
Link to 5 Different Ways To Build An Emergency Fund » Silicon Valley Blog About Money
Good question if you own a home - Pay mortage or invest?
Our home is a modest 4-room HDB flat we purchased a year and half ago. Not wanting to overstretch ourselves financially, I insisted on getting a place we could easily afford versus just barely affording and maxing out all our CPF contributions for the loan repayment. I’m pretty much of the opinion that with the crazy prices of homes now, it’s silly to engage oneself with a HUGE loan just for the potential of selling it for profit many years down the line. Its like gambling with being bankrupt or being rich eventually. Of course, if one has the funds to pay off mortage loans for 2-3 years before a purchase, please go ahead and get even richer 
Back to our home, with HDB’s 2.6% interest on a 30 year loan, it definitely makes it also a lot easier to shell out the $657 in loan repayments every month. At this amount, even if one of us should need to take a break from working, the other wouldn’t have any problem supporting the loan. Taking into consideration this figure and our cashflow, I’ve also set aside an additional $300 a month towards the repayment of the loan. After about a year and a half, I’ve been wondering about whether to keep it invested in a higher yielding instrument (have yet to find something suitable) or to quickly make a lump sum payment (Dad advises against it).
Is it better to invest or to prepay a mortgage? Neither answer is wrong — there are advantages and disadvantages to both.
Source: Ask the Readers: Is It Better to Invest or to Prepay a Mortgage? ∞ Get Rich Slowly
After doing some reading on the topic, I came across a great research article at Get Rich Slowly that mentions the various advice from financial planners. For my own case, liquidity is rather important as running On9 Systems is pretty much like having a kid who needs the occasional big expense/investment. Kinda funny how couple of years back, I wouldn’t really be thinking so much about finances whereas nowadays, everything goes into Microsoft Money I guess the best option would be to save (more), make sure emergency funds are well stocked for both of us and to try not to make big ticket purchases for the time being (like getting a car or even moving to a bigger place).
How to know how much you will save?
I’ve been setting up about $300 a month towards repayment of our flat and was wondering based on an interest rate of 2.08% (Maybank iSAVvy Savings Account), what would the savings be at the end of 5 years? This link just has the right tool to do the job (Link to Saving for a Goal Tool).
Total payments = $300 * 12 * 5 = $18,000.00
Total amount after interested (monthly compound interest) = $18,952.02
Of course, an instrument with a higher interest rate would be even better so shall keep a lookout for something that isn’t too risky
Which Should You Choose: Joint or Separate Finances? ∞ Get Rich Slowly
Any system in which the partners are open about their money habits is a good one. Ultimately, it comes down to this: Do what works for you.
Source: Which Should You Choose: Joint or Separate Finances? ∞ Get Rich Slowly
Pretty interesting read over at “Get Rich Slowly” on joint or separate finances for couples. In our case, Yh and myself started out having a joint account that we both agreed to contribute a fixed amount each month that could be used to finance various purchases (especially for our wedding and home last year).
We actually had the account open when we were dating (around Jan 2005) as I had learnt a very good tip from an ex-colleague at NEC. That having a joint a/c makes it easier to spend on stuff when we do things together since we will both have to think about the purchase and not have one person feel like they are constantly paying for things.
Its been 2 years since and I’m glad we had such a system when we didn’t have to dig too deep into our own pockets to finance the furniture and wedding stuff. Now that we’ve finally completed our last installment, it’s time to channel some of the savings towards a higher interest account. (Maybank’s iSAVvy Savings Account is a good choice).
Saying no to Credit (Cards)?
Its probably with age that I’m starting to think more about financial security and family planning. Have recently added a few more finance blogs (tiny % compared to the tech articles I read ;)) and came across an article on using cash or debit cards instead of credit cards.
I actually tried this a couple of years back and can say it was actually quite a relief not having a constant bill to pay every month. Think its a good reminder to myself to spend on only what’s necessary and when I can afford it (credit feels good but hurts bad when you gotta pay the bill)
I really, really enjoy the freedom of not having to use a credit card. I like having and using actual money. Truth be told, I enjoy being a bit of an “oddballâ€. Cash rules!