Income and taxes

Click on the pics to get the BIGGER picture!

Personal tax time is upon us again, and I have been receiving calls asking about your dividend income, bonuses and director's fees declaration in your IRAS Form B1 either online or hardcopy form.

For those whose year end closing is on 31 December 2007, you have many queries on whether you should declare director's fees or dividends.

For those year ending EARLIER then 31 December 2007 who have yet to submit their accounts for filing, please do so soon!

One popular question:

How to know if I should pay myself a salary, how much, and the company owes me money, can I ever get it back and how?

Answer – There is no straigthforward answer, however, one very popular scenario happens as follows:

Good debt vs Bad debt

From an article in our local newspaper -
"Interest rates come to 3 per cent to 4 per cent for housing loans, about 6 per cent for car loans and about 8 per cent for renovation loans. You pay about 20 per cent for GE Money EzyCash and 24 per cent for credit cards"

"Instead of using his savings to pay off his housing loan as quickly as possible, he channels his cash into higher-yielding investments such as shares, land banking and traded endowment plans."

In this comparison, it would seem that taking on loans for housing is considered to be BETTER. But is it?

I will NOT disagree with this person's financial strategy, but this is NOT a strategy for anyone who does NOT understand debt.

Why?

Debt whether good or bad depends on whether you can afford it. A good debt taken at valuations that is not reasonable will lead to trouble, no matter how good or bad.

I've come to know of properties bought during the 1998-99. It was purchased at $820,000 and now almost 10 years later the property valuations are still languishing at least $100,000 BELOW when it was purchased.

Now in the year 2007, people are bullish again and feeling "proud" of their investment strategy in properties.

My personal advice? There is NO FIX STRATEGY or a blanket "sure win" way to wealth and financial freedom.

There is NO GOOD DEBT.

But there are debt that you HAVE to take, like an affordable mortgage. Or a student loan, maybe even a debt to pay off another debt (transfer balance)..etc.

At the end of the day, having no debt is better than having debt.

In general a mortgage for a property is cheaper than say, a credit card debt, but does that mean you got to "max out" the loan available to you? No!

So, remember, "good" is relative.

Cheerio!

ETFs vs Unit Trusts

Alot of people DO NOT know the difference in fees charged for ETFs and unit trusts.

Aberdeen China Opportunities Fund is a Unit Trust.

Click on the picture to see LARGER image.

Where do you stand? Financially.

Many years ago, I read this book How to Grow Rich by Frank Newman and Dr. Muriel Newman. I thought that I could "beat" the odds and attain wealth earlier.

I guess most of us tend to "follow" this graph trend, although the $ in value would differ and the perception of whether you are wealthy or not is quite relative.

To see where you stand, I would cite the "wealth ruler" based on Robert Kiyosaki's book "Retire Young Retire Rich"

On page 102, he states:

Upon retirement at age sixty-five, the income WITHOUT working falls into these categories:

Poor $25,000 or less per year
Middle class $25,000 - $100,000 per year
Affluent $100,000 - $1M per year
Rich $1M or more per year
Ultra-rich $1M or more PER MONTH

So, where do you stand today?