Something about getting married I never thought about...

Recently, my husband referred a customer to me as he was keen to do a financial review with me as he prepares for his marriage. Before I share my findings, I'd like to share a little about my thoughts in this process.

Firstly, I respect this customer as he really took the initiative and exhibited extraordinary sense of responsibility by first making sure that he is able to afford everything needed for this wedding and housing. He asked many questions and I decided to take up the challenge. 

Secondly, I thank God for placing friends around me to help me find answers to questions I would never thought of it myself. They are experienced in their area of focus. One of them is a real estate agent and the other is my fellow colleague in the same team.

Buying a property in Singapore

As a young couple getting married, most of us would want to have our own private space after marriage. In Singapore, the natural course is to look for an ideal HDB apartment, whether it is brand new BTO or a resale flat. 

For me, we settled on a 3 room HDB flat at Potong Pasir. We outgrew that space in less than 5 years because of children and had to move out to stay with my in-laws for about 2 years, before we decided that 1 large room in a landed property is not enough for 2 large sized adults and 2 growing kids. Also, we were considering that our firstborn would be going to primary school soon (yes, kiasu parents at work). 

When we bought our first HDB flat about 14 years ago, bank loan interest rates were much higher than HDB loan interest rates. Hence, it was a no brainer to choose HDB loan. Either way, we just started out in our career and we didn't have much too. 

Fast forward 5 years, we thought it would be a good time to sell our HDB and buy a property near to a school that we would love to send our daughter to. Eventually, we found a pretty old condo near the school of our choice, and bought that property. During that time, we would have kept our HDB if not for the increase in property tax and stamp duty. So we sold that flat and left ourselves with a private property.

In other words, with private property, we don't have a choice for a HDB loan. The only options were to choose between the different banks, and to choose between loans with fixed interest rates or variable interest rates. 

Over the years, we saw bank loan interest rates decreasing and now it is almost at all time low, at about 1.1% p.a. (I think we must have paid a lot for interest over the years. I don't feel like knowing that number now.)

HDB LOAN vs BANK LOAN

In this article, I'm not going to make comparisons between the above 2 as there are already many articles published with very good and accurate information. What I would like to share is the process that I went through with my husband's client in making a decision on which type of loans to choose. 

Thanks to my client's openness to share, he put his budgeting plan into an excel sheet. The information included these:

• Purchased amount for the house
• Possible grant given by HDB
• Deposit paid
• Balance amount for downpayment and loan
• HDB approved loan amount
• Individual gross salary and CPF amounts
• Total amount needed for downpayment including use of CPF monies
• Comparison with bank loan amount
• Monthly payable if taking HDB Loan
• Monthly payable if taking bank loan
• Budgeting timeline (in this case for next 12 months)
• Expenses for various activities such as house renovation, initial required utility bills, regular expenses such as phone bills, travelling, food and entertainment.

At the end of this list, it was noted that this young couple had some $5000 left in their combined bank account. Their question to me was "is this right?" 

Is it enough to have $5000 left in their bank account? After painstakingly saving up something like $100k for their wedding? Is it correct to have only $5000 left by the time they finish their ceremony and officially move into their HDB flat? 

So how did I help them with that question?

It is actually a very difficult question to answer. For some, $5000 is not enough. For some, $5000 is luxury. In my own example, we had nothing left. So to me, $5000 is a luxury. However, it really depends on their lifestyle. As a financial coach/life coach, my first instinct was to find out more about their lifestyle or their dream lifestyle for that matter.

After asking a few questions, I found that this couple is a simple couple. They are not extravagant people and they do not have goals for engaging expensive hobbies like having pets or a dream to have their own car. Neither are they the kind who wish they could travel twice a year for holidays. I am so proud of this young couple and I truly think that they are going to have a bright future ahead of them. 

With this, $5000 seems to be a good amount to me to start off. 

But can this be sustainable in the long run?

The answer is clearly no. If each of their salary is $3000 per month, $5000 is less than 2 months of reserve for just one of them. They will have to build up their emergency funds to an amount at least 6 months. (Since total salary will add up to $6000 per month, they should aim to have emergency funds of at least $36,000. - just an example)

What is my take?

After calculation using the excel sheet, the couple realised that with the approved loan amount given by HDB, the difference in the total amount of downpayment is not too different if they were to take up bank loan. Eventually, they decided to take the bank loan. 

In other words, they not only have $5000 balance at the end of 12 months, they have also effectively saved about $300 to $500 per month just from the interest rates. (Please note that the sums are an estimate. There are tools in the market for actual calculation. This is only an illustration for understanding.)

With the amount saved, the money can be put into investments where the returns are at least 3-4%. If they can take slightly higher risk, 5-6% returns will be even more ideal. They also had the idea to pay off their mortgage earliest possible. However, this is another topic to discuss. 

Next, getting married is only the first step. Family budgeting can include having children, getting a car, children's education etc. etc. I am really glad to know this couple as I am able to share my experiences with them through those difficult times I experienced in my marriage, business and as a parent. 

Final thoughts...

I hope that this article did not bore you till cows go home with some technical details here and there. Ultimately it is the train of thoughts that we go through in the entire process. This is not just a budgeting exercise, but a process of family planning and relationship building. 

Life is more than just money. Money only assists us to live a better and more fulfilling life. 

Ms. Loke Huiying Sarah graduated with a BSc. (Pharm) and Dip. in Gemmology (UK). She had been teaching gemmology since 2010 and had co-founded The Gem Museum, Singapore. The Gem Museum is the first and most comprehensive gems and minerals museum in Singapore open to the public. She is also a Certified Behavioural & Career Consultant trained in DISC profiling and WSG Career Advisory and Career Facilitation programs. Her passion is to bring life to businesses and into individuals through her experiences, knowledge and insights. The 4C quality factors to a fulfilling life is inspired by the quality grading of a diamond that gives a diamond its value. Sarah extrapolated from her understanding and appreciation of the value of a diamond's quality into a person's quality of life and developed the 4Cs - Clarity, Connection, Credibility, Commitment. To contact Sarah for a chit-chat session, email her at huiying@gem.com.sg or WhatsApp +65 97324091.