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  • Saving is a virtue, investing is a method

    I thought this would be a very good blog entry so I decided to write it.

    I was out with my junior from Ngee Ann Polytechnic. He wanted to get himself a nice Cello before he serves NS so we went Cello shopping. After viewing some nice instruments we sat down at TCC and I had a chat with him.

    My first advice to him was not to spend his life savings on a Cello. He assured me that that was not all the money he had and he had intended to use some of his savings to invest in blue chips. My first reaction was 😮 (not bad for a 19yr old!)

    I asked him, what kind of yield are you expecting from, say, $5,000.

    “5-7%”, he said.

    “That’s pretty much nothing”, I said.

    It works out to $250-$350 per year or about $20-30 per month if the yields meet his expectations. I told him that he’s still young and while his earning power is zero at the moment his expenditures are at an all time high. I sold him a new concept that at this point in life he should first learn to reduce his expenditure because that gives a better “yield” in relative dollars versus investing his life savings of several thousand dollars, not to mention the risks of investments.

    Afterall most people spend a larger portion of their income than save and it is generally easier to save 10% more than to earn an additional 10% from the savings.

    N.B. Saving does not mean scrimping, i.e. being a cheapskate to an extent that it impacts the wellbeing of yourself and people around you.

    One way to go about doing this is to leverage credit cards with cash rebates. But the bill must be paid in full at the end of each month, i.e. do not overspend. For example I have a UOB One card that gives me approx 3% cash-back on my expenses. If I spend on average $800 a month that works out to about $20+ per month, which is about the same amount that he would have gotten if his investments of $5,000 yielded 5%-7%.

    This is just one example, and probably not the best. There are many, many of these cards out there. I heard Standard Chartered even gives you $100 for a new sign up!

    If you are a student and not eligible for a card, just get an adult to sign up for you or be your guarantor. It is actually a good way to build a positive credit rating and to learn to manage your finances.

    Of course some apply for all the wrong reason, e.g. to get discounts eating out at fancy restaurants or simply to show off. It’s not that discounts are bad but when you keep eating out for the sake of that 15% discount, you are doing it for the wrong reasons. A plate of $3 chicken rice versus 15% off a $30 buffet is not savings.

    Without self control all these credit facilities can go out of hand and that’s exactly what the banks want — for you to default payment and pay the hefty 25% p.a. interest rate and $50 late payment fee, or to buy that Prada bag and miss one of your 12-month installments.

    Saving is a virtue and one should always start with that. Investment is one of the many methods to grow your money only when you already have enough money to go around.

  • Power Hungry

    Somebody once told me: Once you’ve driven a more powerful car, you won’t turn back. I guess thats really quite true.

    I’ve gone from my first car — a Nissan March (Micra in other countries) 1.0L to a new 1.5L Nissan and then to my current 2.0L BMW. I also used to drive my dad’s 2.4L Volvo when I first got my driving license. Power was never enough.

    The feeling of a vehicle with power on the tap is hard to describe. Many who have not driven a more powerful car may not understand and relate power with the need for speed. Of course I’m not talking about a Ferrari or a Bugatti but a normal road vehicle with sufficient power pulls you away safely in situations when you need it. In general, my personal figure is at least 100hp/tonne or more.

    I was in Melbourne a few years earlier where I rented a Holden SV6 3.6L V6 to drive up the Great Ocean Road. There were four of us and a boot full of luggages easily adding up to about 400 kilos but the car was still simply amazing to drive. It goes around the mountain roads effortlessly and merges with freeway traffic with ease.

    I specifically remember an exit from a farm road to the main freeway where I had to make a right turn (RHD in AU — which means I had to go across one direction of traffic before merging with the other). There was no way I could have waited for the right time to get on the freeway if I had been driving a 1.6L Toyota as there was simply too much traffic going at 100kph on the freeway. I waited for several minutes and found an opportunity where there was a gap in the traffic caused by a slow moving truck. I simply got on the gas and the car went right off and made the turn to merge with the traffic.

    I’ve had the opportunity to drive serveral new cars recently, namely the Audi A4 1.8T, VW Scirocco 1.4T, VW Polo 1.2T, Mini Cooper S 1.6T and the BMW 320i (F30) 2.0T. These are all amazing cars with turbocharged engines and they have loads of torque almost immediately off idle and are such a joy to drive even in our city traffic. In my opinion, there’s no reason not to consider these modern TC engines over the NA ones except for long-term reliability.

    Given the power improvements AND fuel economy, these turbo engines will be the future until a more efficient energy source after fossil fuel is found. At this point we have squeezed almost every bit of energy from gasoline and diesel. Hybrid or pure EV cars aren’t very practical yet IMHO. The need to wait a considerable amount of time to charge a battery makes it pointless. Some may argue: that’s nature and nature takes time to regenate (just like land for growing crops), but I am not at all convinced that electrical power generation is efficient given that most parts of the world still rely on some form of fossil fuel for electrical energy and the carbon footprint of setting up the entire electrical distribution infrastructure isn’t likely “CO2 friendly” either.

    Speaking of long-term reliability, modern NA engines are made of lightweight aluminium or magnesium alloys and they tend to give way under stress and heat. Weight plays a critical part in fuel economy since basic physics defines Force = Mass x Acceleration. There’s only so much force a gallon of fuel can provide and apart from reducing any frictional losses, the next step is to reduce the weight (mass) of a car. The engine is sometimes the heaviest thing in a car after the passengers (LOL) so auto manufactuers do put considable effort into reducing weight.

    The good news is that some of these modern TC engine blocks (especially VW/Audi) are still made from traditional cast iron and that might help them last longer. I am not entirely sure at this point but it seems that the BMW N20 2.0 TC engine found in 20i and 28i models of 2012 BMW vehicles (possibly also Mini Cooper S “Prince” engine) seem to be made of aluminium alloy. If that’s the case then that may be bad news given the history of the aluminium N46 engines developing gasket leaks past 60,000 kms.

    Nevertheless, most people don’t really keep their car past 5 years so auto manufacturers don’t emphasize on long term reliability like they used to in the good old 80s. Long term reliability is quite different from short term reliability. A simple example would be a transmission that could withstand loads of torque (short term) but rusts and leaks after some time (long term).

    Sometimes I wonder if all the talk about green technology gets defeated by consumerism.

    That said, one of my dream car is an old 1987+ BMW E30 320i. If I had time and money, I would almost certainly buy one and have it nicely done up. Unfortunately the car would be frowned upon by my government and I will be slapped with a 50% increase in annual road tax. Given the current COE prices, looks like I may never get to buy one unless maybe… I move out!

  • Real World Technology

    I’m leaving for Sydney later tonight and will be flying on the Airbus A380. I know we’ve heard about wing cracks on the A380 and wifey was just getting a little paranoid that we’re going to fly in a potentially cracking aircraft tonight.

    So wife’s paranoia* got me reading up on the cracks.

    * I’ll have to convince her it’s safe to fly or she’ll squeeze my arms so hard on take-off that blood just stops flowing.

    Anyway just to quickly summarize, the cracks were small hair-line cracks in the feet of ribs in the wings. This was a result of using newer, lightweight materials to save weight and improve fuel economy.

    If you make an aircraft bigger, it gets heavier so you’ll need to make the wings bigger and the engine more powerful. It’s only natural that fuel economy takes a hit.

    The automotive industry works similarly – the easier way was to make things more aerodynamic and lighter so that fuel economy improves, but with newer safety standards this is starting to become a challenge. Making an engine do more work with less fuel was the difficult part.

    The aircraft turbofan is already very efficient (at cruising speeds) but automotive fuel-saving technologies still has some ways to go. Nevertheless, the automotive industry has seen some pretty awesome new technologies in the past decade, which explains why I am such a fan of them.

    But I’m not going to talk about cars today. This brings me to another point: What drives technology?

    Technology is an integral part of our evolution and my belief is that real world needs are the main drivers of good technology. Unfortunately for the folks who would like to believe everything new is good, I do not believe its true. Good technology is not just any new technology, but technology that works to solve a real world problem – hence my love for automotive technology. In fact, old technology can sometimes be better than new technology.

    I think that aviation and automotive industries are two of the major drivers of technology; if not for space flight and aviation, we wouldn’t have GPS, accelerometers and gyroscopes in the iPhone today.

    In the recent years the automotive industry has gained a lot of traction. We’ve seen new engine technologies that improve both power and fuel efficiency, reduced emissions and new gadgets that improve safety. These are technologies put to real-world tests in everyday use, and these technologies are what I believe where the real money should be.

    Not social networking. Not group buying. Not building some iPhone app.

    Of course, these are just my personal opinions.

    In today’s fast-paced environment we are distracted by the Internet. Our thoughts are becoming more and more shallow and short-sighted. Most new technologies are built around dreams and desires rather than real needs.

    I’m not downplaying the importance of dreams but I my worry is that many are headed towards building dream/desire and we’ll soon be starved of real talents to serve our needs – and I think it’s already happening right now in our society.

    If you’re thinking of building the next big thing, give a few minutes to think about what I just wrote here.

  • MP4 videos on my bedroom TV!

    Just found out that the (not so) new 32″ Panasonic LCD TV (Japanese technology!) in our bedroom plays MP4 videos from a USB flash drive flawlessly! I wasn’t able to play AVI videos with all sorts of weird video codecs in them – usually DivX.

    I find the new LED TVs too bright and contrasty. Colors didn’t appear natural and I got this “old technology” LCD TV for $399 a few months back. It’s awesome and in fact very ideal for bedroom use as the lights in a bedroom are usually dimmer. Please grab them before Apple starts making TVs with iTunes built in that costs $1,488 or something like that.

  • Balloon scheme (loan) is not what it sounds like

    Addendum, Oct 2017: I have further simplified this article for the benefit of the many visitors every month. This article is one of the highest hit articles on my blog, and it is actually a bit worrisome that even banks have joined in to offer the scheme now. The MAS rules for car financing have also changed, so many of the figures have been updated to be current. Please support me by clicking on ads that interest you. It will help me keep this blog alive and allow me contribute more articles to the Singapore motoring community.

    I came across a loan scheme called the “balloon scheme” recently. Some people say this loan scheme existed a long time ago, but I have not heard of it until recently so it’s new to me.

    My first thought: “Wow, these financial tools will evolve in 101 ways just to get people to take a loan.”

    But before reading on, please take some time to understand the Singapore vehicle taxation structure. Without that knowledge, it may be difficult to understand some of the terms used here.

    So what is a Balloon Scheme?

    The Balloon Scheme is deferred payment scheme designed to reduce the monthly instalment sum. The flip side is high interest rates and a large sum to pay at the end.

    Technical details: The interest rate is applied to the full loan amount, and then the minimum PARF rebate (or “scrap value”) is deducted before dividing into monthly instalments.

    The lower monthly instalments make it seem extremely favourable especially if you are buying an old car, but I would suggest to avoid balloon schemes. Why?

    Example of calculations

    Let’s say you bought a used car for $100K and intend to get a 5-year loan for $60K. The car has a min. PARF value of $10K.

    Typical Loan Balloon Scheme
    Car price $100,000 $100,000
    Min. PARF $10,000 $10,000
    Down payment $40,000 (40%) $40,000 (40%)
    Loan amount $60,000 (60%) $60,000 (60%)
    Interests $5,640
    @ 1.88% x 5 years    		 $8,040
    @ 2.68% x 5 years
    Total Instalments Payable $60,000 + $5,640
    = $65,640    		 $60,000 + $8,040 – $10,000
    = $58,040
    Instalments (Monthly)  $1,094/mth $967/mth
    Final Instalment $1,094 $10,000 + $967
    = $10,967

    That’s a $127 reduction in installments! Yeah! Let’s do that balloon scheme now!

    But wait… in addition to the extra $2,400 in interests paid, there is also a final sum of $10,000.

    The implications of the final sum

    If the COE expiry coincides with the end of the loan period then it is fine because the min. PARF rebate from the government would cover the final sum, but what if…

    What if the car has several years to go?

    You will have to cough up this $10,000 to keep your car. Or you’ll have to dispose the car prematurely and you will stand to lose even more (see below).

    What if you were stuck in a bad financial situation?

    In an event that you have to dispose (i.e. sell) the car prematurely before the end of the loan term, you will likely suffer even more financial losses.

    Early disposal

    Here is an illustrated example of an early disposal/sale.

    Selling at 8th year Selling at 10th year
    Car price $100,000 $100,000
    Sale price $20,000 $10,000 (Min. PARF)
    Years 8 years 10 years
    Depreciation ($100,000 – $20,000) / 8
    = $10,000/yr    		 ($100,000 – $10,000) / 10
    = $9,000/yr

    It is clear that selling the car at the 8th year would have cost the owner and additional $1,000/yr over 8 years, that is total of $8,000! This has not taken into account any financial charges and fees should the car be disposed even before the end of the loan term. (Read up on the Rule of 78 if you would like to find out more.)

    The reason for this is because an older car should depreciate less, so the price of the car dips more than it depreciates (in a straight line) as it ages. There are some specific situations, however, that this may be not true and will depend largely on market forces at the time of sale, e.g. high COE prices would result in high car prices.

    Final words

    If you have to use the balloon scheme to afford a car, chances are that you are stretching your finances.

    The two biggest purchases in our life would likely be a property and a car; but unlike property, a car in Singapore is not an asset. It depreciates in value quickly from the moment you buy it.

    My advise would be to avoid the balloon scheme and find a car that you can comfortably upkeep.

    Addendum, Oct 2014: Do also read the updated article I wrote here in 2014: How to buy a used car in Singapore

     

  • Screw you, PayPal. You are off my list.

    I am absolutely pissed. If I’m an ass I can basically go and reverse any PayPal purchases I’ve made and I’ll get away scott-free thanks to their “consumer protection” policy.

    I’ve had customers who received their orders, signed on the SingPost consignment note and then later did a charge back on their cards. Not only did PayPal honor the payment reversal, they still charged us the payment processing fee.

    This means if the transaction was $1,000, I not only lose $1,000, I’ll still have to pay PayPal ~$40 (~4%) for payment processing. What kind of logic is this?