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One of the major complaints about Singapore is it is a very expensive city. The general notion about the city-state is if you want to live here you need a third kidney so that you can sell it; the money you have to spend on a burial plot can buy you a home in some other countries. These notions are not unfounded. Singapore is one of the most expensive cities in Asia.
If you want to live a comfortable life in Singapore, how much money do you need? A million or two? Actually, you must be able to save $1000 every month in order to live a good life.
Real estate is a flourishing business in Singapore and real estate companies and property listing sites are telling you to make changes in your life? Do you know why?
If you are thinking to have a roof to cover your head being able to save $1,000 every month makes quite a big difference. Saving $1000 has also other benefits as well, for example being able to save more so that you can have more money for investment in the future, or can have a house of your own which will be an asset when you retire.
Aha, we know what’s inside your head. You must be thinking: Saving $1000 in a month will buy you a house, how silly. Are you the National Development Minister or what?
Well, don’t get carried away by this. We are not intending to start an old argument. We’re trying to give you practical views. If you want to know how your $1,000 a month can make a difference in your life, this is how it goes:
Saving $1,000 a month means owning a condo or a flat
Let’s say, your partner and you are jointly making $6,000 in a month. Based on the Total Debt Servicing Ratio, or TDSR in short, your maximum monthly repayment should not be more than $3,600 per month. This amount includes your debts including the home loan.
Apart from repaying a home loan, let assume that you paying about $1,200 every month for various credits and loans such as credit cards payments, student loans etc. The maximum repayment for your home loan is capped at $2,400 per month.
If 80 percent of the money for your house is coming from a home loan with 1.8 per cent interest for the tenure of 25 years, the maximum loan you can get is around $560,000. This amount will be enough to purchase resale flat that cost between $650,000 and $700,000.
In case your household income is $7,000 and your expenditures are same, the maximum loan repayment you can have is 60 percent of your income minus $1200 for other repayments which will be $3,000 a month.
If your loan term is same as above (80 percent finance for 25 years with 1.8 percent interest rate), the maximum loan amount you can get is around $725,000. This money is enough to purchase a mass market condo that is priced around $900,000. If you can minimize your expenses, you can expect to buy a property that worth million dollars.
Because of the TDSR, if you make $1,000 more, you can easily afford a higher valued property. Consider this calculation and begin to negotiate with your boss about salary increment.
Making $1,000 more means owner-resident do not have to give everything to the housing market
Most of the Singaporeans think to sell their homes and move to small flats when they retire. The price difference between selling big homes and buying small flats will act as a retirement fund.
Generally speaking, property prices will go up (this is also true for other assets such as stocks). However, you should never confuse “all” with “general”. Sometimes property prices never go up are you might be forced to sell when the market is down. You should always be aware of the risk involved when the price is stagnant or you have to sell during the downturn.
If you can manage to save $1,000 a month that compounds at five per cent per year (possibly by investing in endowment plans etc), by the end of 25-year loan term, you will have over $600,000. If your property price does not go up, or housing market does down, this money will have a big difference in your life.
The power of holding property
The ability to hold is very important for home owners and property investments. People generally believe that you cannot hold unless you are very rich. This is a misconception. They say that in order to have holding power, you must have fully paid house or millions of dollars in your bank account.
Well, having a fully paid home or millions of dollars in your bank is really nice. However, saving extra $1000 can also give you enough holding power. All you need is an extra $1,000 a month.
Usually, condo residents pay around $4,000 per month as mortgage repayments. They fear about unbearable expense in the situation like getting divorced, getting retrenched, or facing litigation etc. This results in a fire sale (selling house fast with a loss).
What if you manage to save $1,000 every month for just two years? You will have $24,000 which will be enough to cover six months mortgage repayments. You can survive even if your house does not get a tenant for six months.
In case you are considering to sell your house, you will be having enough time to find a better paying buyer. You don’t have to do things in a rush and sell it with a loss. in the situation like illness or retrenchment, six months can help you to recover financially, and you are not forced to lose your house.
$1,000 will bring a major change in your lifestyle
This is not a property tip, but a general money making a tip. However, this can help you in many ways.
Give 10 minutes to do a simple calculation. Make a note on how much cuts you should make in your expenses in order to save $1000. Start jotting down expenses that you can cut.
How about avoiding a cab ride and taking a bus instead? Or perhaps, skipping movies in the theater? Cancelling your Netflix subscription? If your list consists of 12 entries, we can bet you will be saving $1000 in a month.
Perhaps, you might be thinking your life sucks if you are giving so many things that you are enjoying in life. Your life is so boring if you stop doing what you like. However, think another way around. You also gain so much. You save $1000 in a month. You don’t have to win a lottery to become rich. A regular saving of $1000 will give you so much. This brings us to the conclusion:
Your goal is realistic, you will have realistic changes
People dream big, however, most of the people do not work on their dream seriously. Most of the Singaporeans dream about having a condo, however, they are discouraged to pursue their dream because they need over a million dollars to have a condo.
However, that’s not a right way of thinking. Set a realistic goal such as putting $1000 every month in your saving account and work on that goal. If you cannot make $1000 more, try cutting expenses. Don’t put in your head that $1000 is a too little sum. Look at the bigger picture instead.
