Category Archives: Passive Income

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4 lessons I learn from playing RISK

1. You can choose the best strategy, but the outcome will still depends a bit on luck

I spent a lot of time on the RISK game and kind of figured out the best strategy to win the game at its hardest level. However, the strategy only INCREASED your chance of winning, not GUARANTEE your victory. It is the same as our strategy for early retirement, you might be saving 50% of your salary, optimise your spending and invest the difference, but the end result sometime still depends on how the economic is performing. This is especially true when we are just starting to execute our early retirement strategy.

2. Someone at some point of time will disrupt your plan.

RISK is an interesting game, because you are facing 6 others opponent at the start of the game, you might have some plan in mind but someone at some point of time will disrupt your plan. While you on the way to conquer Africa, some computer player will attack you at your weakest link to break your occupation of that region.

Interestingly, it is similar scenario to whether we are talking about eating healthy or saving money. Imagine 5 friends having a gathering, if 4 of them is watching their spending closely and the remaining one just spend his money like no tomorrow, the 4 person won’t criticise the spending person. But if the trend reverse, interesting conversation start to happen, the 4 spending person will start saying things like “I rather spend a bit more money to enjoy myself” or “What is the point of saving so much if you cannot enjoy your life?”.

3. If you cannot join them, beat them!

In the game of RISK, since I am playing with computer, there is no way for me to convince the computer to join me for my game, the only way for me to survive and thrive is to beat all my opponent during the game. However, in real life, you should try your best to convert people around you to join you in your early retirement journey, bring out your best argument by living happily without spending all your earning at the end of the month.

4. Things will get easier and easier once you pass the initial phase.

In the game of RISK, once you passed the initial fighting phase and occupy one of the region, things get easier. Your supply of army at each round increased, your chance of victory increasing by each round. In the journey of early retirement, your job get easier and easier once you build your first passive income source. As your passive income increase,  your freedom increase.

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Why am I saving money?

This is one of the most important question you need to ask yourself before you start doing anything about your personal finance. Always start with why first whenever you started anything. Why are you learning a new skill? Maybe because you want to embark in a new career. Why are you start running? Maybe because you want to have a better health to accompany your kid during his growing journey.

So, why are you saving money? Because you really do not have much material needs? Because you want to save up for that year end trip? Because you want to buy some asset and redeem back your time freedom from working life? Or maybe you are saving for a house payment after marriage. Whatever it is, without a clear reason behind your action, very soon you will feel that saving money is a sacrifice.

For me, I have passed that phase long ago. I realised I value time freedom so much that I don’t feel sacrifice when I am saving money. In a matter of fact, I actually feel very proud to be able achieve an increasing saving rate although my income remains the same, imagine how fast will my progress will be when my income level rising over the time. My best bet now will be working super hard and super smart to increase my professionalism and my income.

The idea of multiple stream of income has became more and more popular as more and more people value freedom and they realise that they don’t want to work in an unfulfilling job all their life and place the control of their life on the hand of another person. However, what this idea fails to capture is that we should build the multiple stream of income one step at one time. Focus on your regular job, sharpen your professional skill and making sure that you main source of income is stable and strong enough before explore other source of income. It is always your main job that has the most potential to earn you the most money compare to whatever side line you try to pursue during your night time and weekend. No doubt there are people who are able to create large income source using their night time and weekend hours, but they are in the minority. For the most of us, our best bet is still with our day job.

Back to the topic of saving money. Change of mindset is a must. And reading and implementing those saving tips that spread all over internet is not helpful. For example, instead of shopping around for the car that provide the best value for your money, try bus, MRT or bicycle. Instead of comparing between various value phone plan, choose a basic phone and prepaid card. Maybe you would say most of the people are holding a smartphone, what is wrong with that? Why am I asking people go back to ancient time and use those ancient phone with limited function and unpressable button. As I mentioned in my previous post, a $42 monthly commitment required you to invest more than 10K into an investment vehicle that has a return of 5%. With this calculation in mind, I certainly think twice or even thrice before I sign my name on any dotted line.

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Don’t retire early

Every now and then when I talk to people about this blog and the idea of early retirement, the positive people would maybe excited for about 5 seconds before they told me it is impossible to achieve early retirement in our generation. Actually, if their idea of retirement meant inactivity or doing nothing at all, they are almost correct. Because even thought I haven’t achieve the financial side of freedom to early retirement, I knew that even I manage to get my investment to support my expense in future, I won’t be sitting around doing nothing either.

I am 32 years old this years, let say I get my investment up and running to support me financially in 10 years time, I will be 42 years. By then I am still relatively young in the society, and I will have much more knowledge and energy to serve the society so I don’t think I will be sitting around at home and reading newspaper and watching TV all day long. The thing is the definition of retirement in today world should change, it should not means inactivity or expiry of a person, it should be a member of society gain his time freedom to pursue important things in his life. It could be his family, traveling plan, social activity, his job(yes, there are people love their job and doesn’t celebrate every Friday and blue every Monday) or just serving his community.

Also, I think early retirement or not, we all on the journey of  life. Even you think you are going to work for a much longer time because some choices you made in the past, there is nothing to be sad about. We all have our own way to contribute to this society, some of us done it with our job, some of us volunteer, some of us run a business to provide goods and services and some of us taking care of our family. It doesn’t means that early retiree is better than you because they can retire earlier than you, it simply means that they made the decision earlier and decided to make it works for them.

There are sacrifice to make, things to set aside, events to miss in this journey. You are the only one can answer whether are all this effort worth it? Are you really ready to commit to this goal? Remember, it is not only the big ticket item you need to be mindful, you have to be really looking all area of your life to make it works.

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How much is house costing me( or you)?

As I written in previous post, I bought a house with the price tag RM 196,000, it make me wonder how much is this house costing me in absolute cost and working years.

I listed the the cost involved so far and interest I expected to pay if we pay the mortgage off in 10 years.

Deposit :RM1,000

Insurance :RM4,530

Lawyer fee :RM3,100

Disbursement :RM1,130

House loan :RM196,000

Housing loan interest for first 10 years :RM 78,122.68 

Total :RM 283,882.68

As I am sharing the ownership with my sister, my part of responsibility will be RM141,941.34 and that is excluding all the renovation cost , maintenance cost and car cost which might be coming along when my parent move from village to a small town.

Since I am working in Singapore right now, I will use my saving rate in Singapore currency and the current exchange rate to calculate the real cost of my future house.

Current monthly saving amount: SGD 1,500

Exchange rate: SGD 1.00 to RM 2.50

House cost in SGD = RM 141,941.34 / 2.50 = SGD 56,776.54

So, I will need about 38 months of work to cover that cost of my house. Not to mention the opportunity cost I will need bear during those 10 years. 5% of SGD 56,776.54 will give out SGD 2838.83, that is one good passive income to hold on 🙂

Situation here in Singapore is a bit different, a small simple 3 rooms flat here is priced at SGD 330,000(I am talking about minimum). With median salary now at SGD 3,000, it is no wonder not many people staying in Singapore now think they can retire early in Singapore. Besides that, there are other influences here to that make it difficult to retire early too.

It is kind of socially unacceptable for man to not working here, a man look weak without a job here and not many man can accept that.

Secondly, it is very consumer/spending driven here in Singapore, this country is importing everything and we can buy almost everything we need in our daily live and a little bit extra. There are all kinds of interesting product and services that waiting there for us to spend our money on them.

Thirdly, supporting old age parent is expected here in Singapore given there is no solid retirement support system and I think the problem will be even bigger in the future. You might be thinking your living cost will be lower after you paid off your mortgage but the medical cost kick in in old age, so expect more spending during your parent old age (and your own old age).

I just realized I am a bit out of topic here, the points I want to make here is view your house as a liability before you pay off your mortgage and don’t think the house price is always going up. Only buy when you are ready, sometime renting is not a bad decision either.

What do you think?

 

 

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What is mortgage teaching us?

Mortgage is one of the loan that having the longest loan tenure, lowest interest rate and most neglected commitment. I guess it is partly because it can be extend to 30 years or even 35 years and its monthly payment is so low. There are even countless advice teaching us how to choose a suitable loan package, how many percent of our salary should we direct to mortgage payment and how much we can afford.

For the past one year, I have been looking around for a place for my parent who are now staying in Malaysia. This was not in my retirement plan before because investment income is more important to me. To me, having investment income actually more stable than buying a house now. For example, if you are paying RM 989.74 a month for your RM 200,000 mortgage for 30 years, you are paying in total RM356,307.44. The interest of the mortgage alone has cost you RM 156,307.44 over 30 years( see image below, calculation from http://www.calculator.net/).

mortgage cost

At the other hand, RM 240,000 invested in an investment vehicle with 5% will give us RM 12,000 yearly and cover that mortgage for years to come. Currently, my savings is still quite low after paid off my student loan. I am still in the stage of saving money to accumulate at least certain amount of capital before I can try my hand on investment. There are many resources on the web now that provide basic knowledge on investment, teaching us what is stock, option,mutual fund, index fund, etc…  I am planning to spend some time on learning all these basic before I start putting in my own money into any market.

Renting or buying is always a debate topic when we are talking about housing. One simple rule of thumb when you are deciding whether to rent or buy a place is the property price. It is wise to rent when the property price is high and it is wiser to buy a house when the property price is low. How to decide whether is the current property price high or low? It depend on you, if you think you can afford the house, it is low, else it is high. It might sounds like a irresponsible advice here but it is also true because everyone situation is different. Only you yourself can decide whether you can afford a house, keep in mind that buying a house involves cost during the transaction and also renovation cost before you are even in the house.

Renting a house will not give you all this cost and you are free from all the hassle that come from owning a house. Another benefit come with renting house is you can choose your neighbor. If your neighbor happen to be some crazy people that like to making noise during the night, you can easily move to another place when your rental agreement expired.

 

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How to spend your money

Every now and then I heard words from people like “what is the point of saving money and suffer?”, “Money earned are meant to be spent”, “Enjoy life while you can”, or “Money is always dropping in value, might as well spend it now rather than later”.

The keyword in the statement “what is the point of saving money and suffer?” is suffer, I am totally agree that we should not suffer on the journey to early retirement, but I cannot see the link between saving money and suffering.

The keyword in the statement “Money earned are meant to be spent” is spent. I also agree eventually we will spend our earned money one way or another, but I believe it is very important how to spend our money.

The keyword in the statement “Enjoy life while you can” is enjoy. I believe most of us like to enjoy life more than we like to suffer, but I also believe we should not link enjoyment to big spending. Time spent with friend and family, time spent with church mate in gathering, time spent in church or time spent in free public event sometimes bring more enjoyment than concert, beach party. At least it is applicable to me. 🙂

Last but not least, the statement “Money is always dropping in value, might as well spend it now rather than later” is really making 50% sense. The first part of the statement is definitely true for the past few decades, money is always dropping in money due to inflation, change in fiscal policy(every heard of QE4?). For the second part of the statement, I think instead of spend off our money, we should direct them to earn more money for us. Make them our strong soldiers in market and produce more soldier to defense our personal finance castle.

In my opinion, there are three ways to finance our spending.

1. Pay on credit

This is the easiest way to finance a spending and also the fastest way to build up your debt. The 24% p.a. interest on credit card and all the late payment will quickly build up to a huge amount of debt without your knowing if you are not careful.

2. Save and pay

You know what you want to buy, and you get the price of the item. You start save up your money every month. At the end of few months or few years, you buy your target item with your saving. You wiped out your saving but you don’t incur any debt too.

3. Invest and pay

You saved up your money, you invest in a investment vehicle, and you get paid with interest(indirectly from people using method 1). You finance your spending with your investment income. By using this method, you don’t incur debt, built up your capital and own your target stuff.

So, which method do you prefer?

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How To Get Started In Forex Investment

I realized I have not written much about income generation. Although it is very important to live a frugal life and watch your spending closely, but the income side also very important in the formula to early retirement. With same level of frugal spending, a normal income level can helps you retire in 10 years, but with a high income, you might achieve the retirement in 5 years.

Normal income + frugal life style = early retirement

High income + frugal life style = extremely early retirement

So, I did a simple question and answer session with my friend, Samuel who has some experience in forex investment. Below are the questions and answers; you can take a look if you are interested in learning forex.

1. How did you start your forex investment?

I started my forex investment purely through guessing the market; it is more like a gamble than investment. I lost about 100 dollars during this guessing market period.

After this, I started to source for robot that makes the trade for me automatically based on some preset algorithm. Unfortunately, the robot I purchased was even worse than my instinct; I lost about 200 dollars using the robot.

 

2.  What is the tool you using now for your forex investment?

I am writing my own robot now for my forex investment. I am still perfecting the investment algorithm in this robot. It has been almost a year now.

 

3. Do you have any resource recommendation for the beginner?

Beginners can go to www.babypips.com to learn more about forex. The website offered free lesson that teach about the basic of forex and things that investor should pay attention to.

 

4. What are the things you think beginner should take note when they start?

– It will be better if they can attend the entire lesson on www.babypips.com and learn the basic of forex before start their own investment.

Setup a demo account and try trade for at least 6 months to learn about market trend

– Prepare to lose some money when you doing the real trade.

– It will take about 2-3 years to learn most of the market trend, and don’t be surprise whenever a new market trend appear or a spike in the market

 

5. What is your plan going forward?

I will continue spend time on perfect my investment algorithm of my robot until it provide a steady income source.

 

6. What suggestions you want to give to parent like yourself consider the higher commitment level they are having?

– They should discuss among themselves and must agree on what they want to do or achieve in forex investment

– Distribute the work. Have a mutual understanding on who should do what.

 

 

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6 Questions You Need to Ask Yourself Before You Plan For Your Early Retirement

The idea of early retirement seems foreign to lot of people around me. They either never heard of it before or don’t believe it can be done. Not surprisingly, most of my young friend never heard of that idea, and most of my mature friends do not believe it can be done.

Flipping through my life so far, I saw a clear pattern how the “system” want us to live our life, I concludes them into the 9 items as below:

1. Get a student loan
2. Get a degree
3. Get a job
4. Get a house (it is really a mortgage)
5. Get a /some credit cards
6. (Maybe) get a partner
7. (Maybe) raise a kid
8. Get a lot of stuff
9. Get frustrated with life

Most of us have our own share from the list above. Some of us might have the opportunity to obtain a degree, so they avoided item 1 and 2. Some of us might choose to be single and skip item 6 and 7. But I think most of us still take up item 3, 4 and 8, and hopefully not 9.

So, what should we do? Do you want to follow the trend and receive item 9 as your final gift at the end of your career life or you willing to make some changes now to avoid that?

Before the change, there are some questions I took out from the book “ Early Retirement Extreme” which I think we need to ponder them ourselves.

1. Are you completely happy with your life?

Are you completely happy with your life? Person who has a perfect life style rarely embraces the idea of change (I also don’t see why will they do so). But, how about you? Any part of your life you are not happy with? A boring job that doesn’t give you the sense of fulfillment? Lack of time to spend with your partner or your children? Give it some thought.

2. Do you want to live on a solid foundation?

Are you making your end meet every month? Struggles though your bill at the end of every month? Are you worried about your future? If you want to live on a solid foundation, you will have to build it yourself (or with your partner). Many people started their career life not on a solid foundation; it usually started with a student loan and as the time go by, more and more debt commitment (a new car every few years, or a expensive designer bag every quarter) stack up on their back, and these are the same people that complain they can never retire. But this is not you; you will take up responsibility of your financial future by tracks expense, clear your debt, and make investment.

3. Do you want to start a business?

What is your passion? Do you have some interest that you have no time to pursue? Are you care about certain group of people in the society and you like to do more for them? Do you have a business idea that you think it will benefit many people?

With a solid financial foundation, you can focus on building your business without worry about the day-to-day expense is piling up. If you business manage to take off, it is even better. You benefit more people by bringing a beneficial product to the market, strengthen your own financial tower and give others an opportunity to build theirs.

4. Do you dream of doing instead having things?

Do you own a lot of stuff right now? Do you still feel the excitement when you made that purchase now? How long does that excitement lasts? Do you want to spend your life paying off that 30 years mortgage and leave nothing behind after your finite time in this world?

Does your job help you on your inspiration to do something or build something for the world? Will it help if you can have more time to do the thing you want, whatever it is?

5. Do you believe life is an adventure?

I will say most of us lead quite a predictable or boring lifestyle. 5 days a week, we wake up in the morning, rush through the peak hour traffic, finish up as much work as we can at office, totally out of energy by the end of the day.

Do you think life is an adventure? Do you want to build something based on your creativity? Young people nowadays are getting creative in designing their life; they don’t opt in to the traditional retirement planning anymore. They started a creative business; build up online income stream to support themselves rather than working for decades.

6. Do you want to make a difference?

There are a lot of problem in out society right now. Whatever haven been discovered so far is just a tip of the iceberg. Society needs more people to take part in caring for our disadvantaged group, reduce wastage of food and lower down the level of pollution.

Do you have issue that you care about but unable to contribute more because you were drag down by your financial commitment or your spending habit?
Conclusion:

So, what do your think? Do you think you want to start planning for your own early retirement now? I hope I have given you enough belief in the idea of early retirement in this post and enough courage to take this path of less traveled.

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A Very Simple Early Retirement Plan

Although I am still in the debt-paying phase of my early retirement journey, I am constantly searching for profitable investment opportunity that is simple enough for me to take advantage when I am done with current phase and moving into investment phase. Some ideas were given to me through word of mouth, newspaper and blog:

Property

Property market in Singapore is really booming for the past few years where we see a price increase up to 2-3 times of the original selling price. And this is happening all over the island and no one know when will the party ends. Increasing property price create an investment opportunity but the high property price also means a higher barrier for normal people to invest.

Stock

Stock is the second thing come to mind when people are talking about income generating asset. If you want to buy stock in Singapore, you will need a CDP account and a broker account. I have both of them but somehow I does not feel comfortable to link my money with the fate of one single company.

Exchange-Traded Fund (ETF)

I read it first on Mr Money Mustache, after that on Tan Kin Lian blog and then Jim’s blog. You don’t link your money with the fate of one single company but the top 30 in the Singapore. No doubt there is always chance that all 30 companies fails, but admittedly they should have lower chance to fail together. One of the good things about ETF is the lower expense ratio (basically means your cost of investment) compare to the regular fund, usually less than 1% per annum.

For Singapore, I found 2 available ETF, which are SPDR Straits Times Index ETF and Nikko AM Singapore Straits Times Index ETF.  They both are having an expense ratio of about 0.3% per annum. Based on what I understood from their website, this two ETF will replicate as closely as possible the performance of Straits Times Index and can be traded like any share on Singapore Exchange. Everything seems ok with this investment except I can’t find any information about their dividend payout.

 

Ok, I think my very simple early retirement plan is getting really complex by now. With so many investment choices lying around Singapore, it seems early retirement was not so far ahead and beyond the reach of normal people like us.

So, here is what my current early retirement plan look like:

  1. Control Spending (I think I have done pretty good in this area)
  2. Clear Debt (Still working on this, 4 more months to go!!!)
  3. Invest in one of the STI ETF mentioned above (or maybe both).
  4. Keep searching for ways to builds income stream that does not require my attention (at least not full attention) after initial setup.

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What life lesson did a Chinese guy learned from a 3 hours long Indian movie?

Indian movies have been my favorite entertainment choice since I was still a small boy although I never understand what are the actor and actress talking about (actually I do understand what are they talking about through the Malay/English subtitle).

The general skeleton of Indian movie I have watched over the years is:

– There is a charming but poor male leading role.

– There is a beautiful but poor female leading role.

– There is a rich, powerful and evil man.

– The male and female leads fall in love with each other.

– The rich man takes away the poor girl.

– The male lead rescues the girl from the evil rich man.

– They live happily ever after

Until today, the scenes when the lead actor and actress dancing with the people on the street (and I meant all the people on the street) still give me a lot of entertainment value.

However, beside the entertainment value, there are some life lesson that are presented indirectly in those Indian movie I watched over the years:

1. If you want to change your environment, you have to be the changes you want to be.

In one of the Indian movie I watched before, the story is about how a little boy grow up to become a successful scientist under a father who hates Mathematics (until today I still don’t know why the father hate Mathematics so much…).

Born to a poor family, he has to work part time at young age to support the family and at the same time support his own education. There are scenes where the father literally throws away his book because the money he is bringing back is not enough for the father’s alcohol consumption. The movie goes on to show how the boy struggle through his way, promoting himself to tertiary education and became a successful scientist.

Although I used a movie as a example here to prove my point, but I think it make certain sense to you that we all encountered difficulty during different phase of our life. You struggled to pass the exam when you are in the school, you compete with others for that job you landed, and you fight with others for that promotion you have been aiming too. In every situation, the person who needs most transformation is you. You are the one need to make the changes, you have to study that book, you need to practice that job-hunting skill, and you need to show your skill.

2. The society is not darker; it is every man for himself.

I believed human are not born good or bad, we are born to be selfish. If you look at the baby, they are the most demanding human being and the most talented negotiator. Baby knows how to use tear and voice to attract attention, and they will not hesitate to snatch that biscuit in your hand if they are hungry. So, it is about survival, not good or bad.

3. Celebrate every little success you achieved.

In the Indian movie, you will see many scenes where the actors dance with the crowd. That scene can happen in the first meeting between leading actor and actress or that little boy received his university admission letter. I believed this brings out a very positive message where we should celebrate every little success in our life, and I believed positive energy brings more positive event to our life.

Not too long ago, I accompanied my mum to her check up session. When I was digging out coin from my pocket to pay for the bus fare, I realized I am short of 10 cents. Just when I was going to ask my mum for 10 cents, I saw a tiny little 10 cents was lying on the bus floor. And the good luck was not ended there, after we alighted the bus, we found another 10 cents lying on the floor, that day we received 20 cents.

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