Mortgage in expensive city making it difficult to achieve 50% savings rate

[tony.james]

Hi folks

I'm a single expat living in Singapore, one of the world's most expensive cities. I've trimmed down on most of my expenses other than my existing mortgage. Unfortunately, this accounts for a huge percentage of my after tax salary and is stopping me from achieving a 50% savings rate or higher (I'm currently sitting at 48-49%).

I bought my current property about five years ago. It's not very large - about 1200 square feet but that includes a small balcony, air conditioning ledge, and bay windows in the bedrooms. It's not in one of the fancy areas either. Even if I downsized I would eventually need a place this big anyway for a family, so it's eventually going to be just right or even perhaps a little cramped if I have more than one child. Buying and selling costs here are quite high, and I would now be penalised with additional taxes as a foreigner if I decided to do that, which wasn't the case when I originally purchased. Ironically in Singapore the cost of renting is just as high or higher than paying off a mortgage.

The percentage of my after tax salary going towards my rental is concerning me if I want to retire early. I earn a decent wage, but I'm certainly not on one of those luxurious expat packages. I've considered renting out the spare bedroom, but I'm almost 40 and that really doesn't seem too appealing. I've recently refinanced the mortgage which has shaved off a couple of hundred dollars every month. With interest rates of about 1% in Singapore the general advice is not to try to pay off a mortgage quickly but to invest extra cash in higher yielding assets.

I'd greatly appreciate any suggestions on options I may have.

Tony

[FlorenG]

Sounds to me like you are doing pretty darn well given the circumstances!

Are you sure you are not being too hard on yourself? Not everybody can (or should) get to a 75% savings rate, and at a 50% and investing wisely you should hit FI soon enough. The questions is do you like what you are doing and where you are?

[ChpBstrd]

As stated above, it comes down to whether you are committed to Singapore. HCOL areas are a luxury, not a necessity, so keep in mind that you have other lifestyle options if early retirement is your priority.

Getting a roommate is probably your easiest option. The specifics of your roommate make all the difference. Have you done the math on how many months or years more quickly this would allow you to FIRE?

Also, where does this fit in your larger life plan? Are you in Singapore so you can make a crapload of money and take it home some day? Planning a family?

[pancakes]

Agree with the others that you are doing really well.

48%, 50%, 52%... I feel like focusing on that number is less important than focusing on your specific goals and if you are on track to achieve them in a timeframe that is acceptable to you.

[tony.james]

Thanks all, appreciate the feedback!

At this stage I am committed to Singapore. It's home. I've been here almost 10 years and am now a permanent resident. The eventual plan is to move back to Australia as it's too expensive to retire here, but I see myself staying here a good number of years yet. I looked at returning back to Australia a couple of years ago but it would have meant less pay, no annual bonus and much higher tax, so it works out better for me where I am. Australia's capital cities aren't cheap any more despite the infrastructure being somewhat lacking.

I didn't really aim to come here to earn a lot, it was more a life experience. I had friends who had taught English in Japan, backpacked through Europe - this was my little 'adventure'. I originally thought I'd stay for a year or two, but I've come to like it. I don't own a car and keep my expenses low compared to most expats. I'm also lucky that Singapore is a hub where many companies set up their head offices for the Asia Pacific region, so there are more job opportunities here.

I haven't done the math yet on how much I need and how quickly I can get there, primarily because living overseas adds another level of complication. For me to invest in Vanguard index funds the costs would be higher trying to access those investments from outside the US. I'd like to put some money into property back in Australia but since I'm not a tax resident there I miss out on a lot of benefits. Singapore is great in as much as there is no tax on capital gains, but property doesn't make a great investment here due to the high entry cost and government legislation aimed at curbing speculation. The local stock market doesn't offer the same returns as the US either.

[obstinate]

It's not surprising that it's hard to get your savings rate up in an HCOL place. It's important to realize that even modest housing in an expensive city is a consumption good, a luxury good. If your rent costs $20k per year more than someone who is in a 500 sq ft studio, your choice is no more admirable than if you went out and bought a new car every year. That doesn't mean you shouldn't do it. It's just important to be aware of. It should be no surprise that someone who is dropping a lot of money on housing will have trouble saving.

[obstinate]

Also you can trade the Vanguard S&P 500 ETF on the Hong Kong exchange from Singapore. This should not be expensive to do.

https://www.vanguard.com.hk/portal/mvc/detail/etf/overview?portId=9583&assetCode=EQUITY##overview

[obstinate]

One last thing. There are stock brokers in the US who advertise specifically to expats. Schwab is such a one. There has to be at least one of these in Australia. You're going to want to talk to a financial planner who specializes in Australia-Singapore investing to see how to do this most efficiently. For safety, it might be best to get a second opinion. You should use your network to find someone reliable. This is one of those rare cases where it may make sense to pony up for financial advice, as there's a lot of misinformation out there on the internet. (Case in point, your assumption that investing in US securities from Singapore is infeasible. ;))

[tony.james]

One last thing. There are stock brokers in the US who advertise specifically to expats. Schwab is such a one. There has to be at least one of these in Australia. You're going to want to talk to a financial planner who specializes in Australia-Singapore investing to see how to do this most efficiently. For safety, it might be best to get a second opinion. You should use your network to find someone reliable. This is one of those rare cases where it may make sense to pony up for financial advice, as there's a lot of misinformation out there on the internet. (Case in point, your assumption that investing in US securities from Singapore is infeasible. ;))

That's definitely worth checking out, thanks for the recommendation. I read up on this a while ago and saw something to the effect that I'd have to pay non-resident taxes on the earnings if I invested in the Vanguard funds, but I'm going to see if I can chase down more details on this. Thanks again!

[lbmustache]

I agree with the HY assets, sounds like you've pared down your mortgage to what it could be. I also think the difference between 49% SR and 50% SR is not worth it to beat yourself up over - it sounds like you've taken appropriate measures to rein in spending. As you mentioned, buying/selling are costly, you have additional taxes, and you'd still need a place anyway, especially if you expand your family.

FWIW, 1200sq feet is totally livable for a family of 4.

[tony.james]

I agree with the HY assets, sounds like you've pared down your mortgage to what it could be. I also think the difference between 49% SR and 50% SR is not worth it to beat yourself up over - it sounds like you've taken appropriate measures to rein in spending. As you mentioned, buying/selling are costly, you have additional taxes, and you'd still need a place anyway, especially if you expand your family.

FWIW, 1200sq feet is totally livable for a family of 4.

Thanks! The square footage over here is a bit deceiving. Developers use every loophole they can to artificially inflate the amount of space you pay for. My place is probably closer to 1000 square feet, as the balcony, air conditioning ledge and bay windows in 3 bedrooms are all completely unlivable but count towards my 'space'. Nevertheless, considering the price of real estate over here, I don't want to ever chase a bigger property.