With all the interests in, it is time again to check the current state of financial health. But before I share on that, let me share how I define my assets and liabilities.

I believe most people would have similar ideas for items listed above but may differ in how we treat our residence and car. After considering the opinions from various camps, I decided that I will treat my residence and car as depreciating non-current assets. My simplistic thinking is that if I would to sell them now in the market, I would be able to get some money back, hence they are assets. For car, I am depreciating it linearly over 7 years. So at the end of the 7th year, it would have zero value.

As for house, the value will be just the current price in the market. Theoretically it would go to zero at the end of the 99-year lease but with another 90 years to go, I won’t live till that day to see it. So I am quite sure the flat would continue to have some monetary value in the next 20 to 30 years.

Any normal expenses that will occur in the coming year will be considered as current liabilities. What is excluded is discretional expenses like holidays. Last year I also decided that the investment I made for my spouse and children will be categorized under non-current liabilities. Currently, I am setting a time-frame of 10 years for this investment but if necessary they can be withdrawn any time.

Year on Year Changes

The following table highlights the changes in the major categories.

20202019
Income (Salary + Dividend+Interest )-14.0%-5.8%
Expenses+2.2%–10.6%
Current Assets+15.3%+21.2%
Cash Balance+8.9%+36.5%
Non-current Assets+6.0%+5.5%
CPF+12.6%12.6%
Current Liabilities-3.3%-0.9%
Non-current Liabilities-12.7%-1.8%
Net Worth11.1%12.3%

For the second year in a row, there is a drop in income. In 2019, the drop is due to a lower dividend received as I invested more into US market. 2020’s drop is due to a new work arrangement, resulting in a 10% decrease in salary. Couple with no bonus, slight drop in dividend and lower bank interest, hence the overall 14% decrease. With no change in the work arrangement, 2021 should see a flat or slight increase in income.

I was initially surprised that the expenditure increased in 2020 since no overseas trips were taken. After pondering, I attributed it to credit card bills that were spilled over to 2020 January. Also, there was an increase in household maintenance due to purchase of new furniture and electronics. 2021’s expenses might increase further if travelling is allowed again.

Despite the drop in income and hike in expenses, current assets increased in 2020. This is due to the strong performance of shares investment, with a return larger than my income. This is unlikely to recur next year and hopefully its return will be a quarter of next year’s income.

Non-current assets increased by a low 6.0% due to the drag of an unchanging value of current residence. What I am monitoring closer is the change in CPF. If it’s purely due to CPF contribution and interest, the increase will probably be around 6-8%. So I am delighted that it has grown by the same amount as previous year’s 12.6%! This again can be attributed to the strong performance of investment in both stocks and unit trusts for the year. Not sure if I can maintain this performance next year but I am quite sure the CPF pie will continue to grow.

Current and non-current liabilities decreased due to a completion of a retail loan and smaller remaining car loan. These values will stay similar for the coming year.

As a results of all the above, net worth increased by a good 11.1%. While the percentage increase is lower, the absolute value increased is slightly higher. I will be more than happy if this trend can continue.

Personal Financial Ratios

One way to check personal financial health is to use some common financial ratios. This article at Seedly provides a good explanation of 8 common personal financial ratios. I tracked only 4 of them and use them as a rough guide to see if my personal finances are in good health.

Financial RatioTarget202020192018
Basic Liquidity Ratio
cash/monthly expenses 		> 12 months262416
Savings Ratio
savings/total income*		> 10%1%16%12%
Debt Servicing Ratio
debt repayment/total income		< 35%14%12%12%
Debt-to-Asset Ratio
total liabilities/total assets		< 50%7%8%9%

The big red for 2020 is the drastic drop in savings ratio. Again, this is largely attributed to the drop in my salary this year due to a change in HR policy. Not complaining as it is my choice to continue to earn less. The low saving rate should persist for another year before recovering.

Asset Allocation

The last thing that I am going to write about is my asset allocation. In my investment journey, I have never invested in bonds. So allocation has always been cash vs equities. When setting up the new portfolio last year, I decided not to separate my cash and CPF investment as it is my intent to transfer CPF investment out in a decade time. This has led to my exploration and projection of my financial portfolio from 55 onwards.

After some readings and playing with the numbers, I decided that beyond the full-retirement sum (FRS), CPF will act as my fixed income portion in my asset allocation. So from 55, the asset allocation will be in the form of cash-CPF-equities. I am still thinking and exploring what is the ratio that I am comfortable with. But in my mind the followings are possibilities: “20-30-50”, “15-25-60”, “10-30-60”, “10-15-70”.

Because I have thought about the above before, the idea of checking what it is like at the current moment dawns on me as I am writing this entry. So I played with the past few years data and got the following.

If I combine CPF-O with CPF-S (excluded FRS) and Shares with CPF-IS, then the allocation of cash-CPF-equities for past 3 years is nearer to “15-25-60”. There will be changes 9 years later but at current moment, I quite like this allocation.

Finally, in the process of compiling the allocation, I also charted the changes in each category over the past 3 years. The visual that came out is definitely comforting.

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