Tag Archives: early retirement

Don’t let debt control your life.

I was meeting one of my friend and had a few hours talk that day. One of his idea intrigued me, which is about how took up mortgage and car loan make him a better person, a more responsible person. His argument to me was with more loan/mortgage, he felt he had more responsibility financially. It motivated him to work harder, went out to work more often, earned much more income. As the conversation get longer, I started to feel more and more uneasy with his ideas. Somewhere inside me feel that maybe he got the sequence wrong, it was not those debt/mortgage that made him a better person, he became a better and more successful person before he can afford those loan/mortgage.

It is a popular idea to divide debt into good debt and bad debt nowadays. Good debt by definition is the debt that can earn you money, create more cash flow for you, bad debt is the opposite side of good debt. Accumulate bad debt is easy, just go out there and buy that fancy car or that latest gadget on the shelf on credit when you have no idea how to pay off the other two credit card that you has used up their credit limit. Good debt is a bit tricky, I read a few books on this, and I still confuse. The idea seems to be you borrow money  you don’t have to invest in investment vehicle that nobody can guarantee its return. If return on investment of that vehicle is higher than the interest on the money you borrowed, you are called ‘leverage’ else you are ‘over leverage yourself’.

Right now, I am not ready to take on double risk for my own personal finance planning. Saving accumulation still the number one priority on my list now, professional development for a higher paying job is second on the list. Sometime I get into discussion with friend about whether high saving rate or high income is more important, that discussion always ended both parties agree that both are important. With living cost in Singapore maintain at certain level, you cannot have a high saving rate if your income is too low. In theory, a person with a monthly income of 10K, A and saving rate of 80% is having the same live style as another person with monthly income of 2K, B and no saving. In this case, if B is able to increase his income without increase his expense, his saving rate will be growing without his knowing and not affecting his life style.

Back to the topic of debt, sometime people don’t realise the effect from their purchase. Take smartphone as an example, a decent smart phone can cost up to $1000 now. Assuming a typical consumer change their phone every 2 years, which means he has a monthly instalment of about $42. This instalment is permanent unless his behaviour changes and stop chasing the latest gadget every two years. Now let’s see what did he gave up for that smartphone. In order to produce that same $42 every month with a investment vehicle that return 5% per annual, he need to invest ($42 x 12)/5% which means $10080 invested.

Of course I am not suggesting that you are not allowed to buy a phone unless you have $10080 accumulated in your investment. You are free to spend your money anyway you want since you have put in the hard work to earn that money. I just hope that before you make decision that will affect your monthly cash flow, you are fully aware what are you buying into and you are perfectly comfortable with that.

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4 Pillars of Early Retirement

The journey to your early retirement doesn’t have to be complicated, and sometimes it doesn’t require big change to your life. You simply be more aware of the decisions you made and doing more and better the things you have done right so far. Basically there are 4 pillars you need to take care of before and during your retirement:

1. Income Generating Ability

Money plays a very important part in your everyday life nowadays. Gone are the days where human can survive on the land they reside on and the environment around them. Unless you inherited a big pile of money, we all need to start from the same starting line when come to generate income.

If you were like me, you would be working for a company serving their customer. For the most of us, this the primary way for us to generate income. As saving rate is very important when we talk about retire early, the amount of income you are able to generate every month directly affecting your pace.

For example, it will be easier for a person who earning $120K per year to achieve 80% saving rate compare to another person whose annual earning is $24K. Although monthly income plays a very big role in determines the speed you get to your retirement, there are 3 other crucial pillars in life you need to develop.

2. Investment/Money Management Skill

I recall from some book I read before that financial education is very important in today world. Although I don’t agree his condemn on saving money, his words make some sense about getting ourselves financially educated. Currently I am reading few books recommend by people in this forum post, there are a few online free courses on investment and money management too.

3. Life Skill

Time is money. If you have a lot of money (like few millions dollar), you can really buy your way to your retirement. If you are normal person like me, you will need to invest some effort to learn skill that enhance your life without spending money (or maybe little money).

In my view, cooking skill being one of them. Other skills that I deem essential are cycling, various house improvement skill (paint your house, plumbing, flooring, appliance installment, etc…) and planting(grow your own natural food, good idea?).

4. Frugality

This is one of the trickiest pillars that hold your early retirement. With frugality (whatever your definition is for this word) in place, you won’t need as much income to fund your retirement. I am pretty confident I am doing quite well in this pillar. My expense last month is as below:

Rent: 8.51%

Parent: 8.76%

Food: 7.09%

Transportation: 3.55%

Credit card bill (2 more months to go!): 6.17%

Change to RM: 3.55%

Others: 0.5%

Saving (all going to loan repayment): 61.78%

I foresee my expense will go lower after I pay off my credit card bill and personal loan from my sister (thanks sis!). My transportation cost will go down also if I successfully execute my experiment.

So, I estimate my expense structure will be:

Rent: 9.22%

Parent: 8.76%

Food: 7.09%

Transportation: 1.77%

Change to RM: 3.55%

Saving: 69.61%

I am pretty happy with my progress now (retiring in 8.5 years sounds really good.^^). But I want to go further. I hope to achieve 80% saving rate and retire 3 years earlier. My focus now will be on increase my income because I think I have nothing to shave from current expense structure now and the only way to increase my saving rate now will be either increase my income or create another auto pilot income source.

Now is your turn to make decision. Decide which path you want to take to increase your saving rate and have more freedom now.

 

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Be Unrealistic To Retire Early

I am a fan of early retirement extreme, its idea of retiring early in 5 years by pump up saving rate to 80%, equips ourselves with various life skill and making the suitable life style choice sounds pretty solid and doable to me.

Retire in 5 years?
However, I do understand that what I am going to embarks sound foreign to maybe 99 or even 99.5% of the population in Singapore. My conversation with friends about this idea of retire early always came back with questions like “can it be done?” ”What are you going to do with all those free time if you succeed?” “Working is very important, retire early is just being lazy.”

Another common objection I received is the living cost is so high nowadays, you can forget about retire without a high paying job. I must say I agree to certain degree that living cost is high in a country like Singapore, but I do believe that are ways for us to reduce our living cost to the minimum without sacrifice the quality of life.

Learn Life Skills
It is helpful to learn things like cooking a simple meal, mend the pant or bag instead of buying a new one, cycling to get groceries instead of driving or making effective DIY cleaning product from low cost ingredient. As you growing your life skillset, you will realize you don’t need that much money as before because you don’t need to spend money to buy solution for every problem you encounter in life.

Another added side benefit might be the increased fitness level when you cycling or walking more than before. You are using your arm and your leg power now to transport your groceries instead of car, and lets admit that life is easier when you are stronger and healthy. You moved faster, complete work efficiently, and recover from sickness (if you still fall sick) earlier.

Getting Ready
It is not easy to be retiring early. Depends on your situation, you might need to get ready for the changes coming your way if you decided this retirement deal sounds good to you. In my opinion, first thing came to mind when talking about retirement would be the finance resource. Where is the money going to come from? Personally I prefer index fund or big stable stock that give out dividend. The reason why I prefer those two investment vehicles is because they are truly passive and might have a higher chance that give me stable income source when I retire. Property in Singapore is crazy right now, and people with a middle class salary like me are priced out from that market. It is the playground for the rich.

Another thing you might want to prepare yourself would be the noise from people all around you and most probably the one closest to you. Because this early retirement extreme idea is still in its very early stage, not many people has heard of it and believed it can be done. So be prepared for doubts, excitement and enlightenments that coming your way. If you managed to convince one of them that this is an excellent idea, you can always refer them to this site for more information.

Find A Support Group
Of course, when you are just getting started on your journey to early retirement, it is important to get support from people who believed in what you believed and doing what you are going to do. There are many forums around the Internet that packed with people like you and me who either achieved early retirement or still on their way to it. One of the forum I frequent is ERE forum, I like communicate with people there, discussing about our progress, getting encouragement from people there when I cleared my debt, reduced my food cost or giving away my stuff.

Choose Things That Excite You
I am reading the four-hour workweek book from Timothy Ferriss now, and I like one of the ideas he mentioned in his book. If you are not getting ahead or having the success you think you should be getting, maybe you have been asking yourself the wrong question. Asking yourself “What do you want?” or “What are your goals?” and thinking hard for the answer obviously not working for you right now. Instead of using ambiguous questions to confuse yourself further, maybe you can ask yourself “What would excites you?” or “What would brings you the most joy?” Is it bringing up your children? Is it the project you are working on right now? Or is it a place you have been dreaming to spend your time there?

Everyone’s answer is different. For me, being able to spend my time reading my favorite history book, trying new recipe and baking cake certainly bring me joy. My current job also gives me many opportunities to learn new technology and the colleagues around are all very helpful and sometimes inspiring. However, for most of the people, their choice will be picking up more activities to fill up their free time when they are free from their job. But this does not means that you need to quit your job immediately when you achieve financial independence. If you really love your job and you think that is a good way for you to contribute to the society, keep up the good job at your job and continue to give your best to the company. I have met few people who really love their job, and they can talk about their job all day long, promoting their company as the greatest company in the world. To me, that is a blessing.

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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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How To Monitor Your Journey To Early Retirement?

Ok, you track your spending closely, avoid accidental expense, clear your debt, reduce spending using the “real” hourly pay tactic. Now, you want more, you want more indication that you are on the correct path to early retirement.

It turns out there is such tool, and you have probably seen it before. That’s right, it a chart. What I am going to introduce in this post is a simple chart I used to chart my financial progress.

Being a technical person, I used Excel sheet to do this task for me and this is how my chart look like after 6 years of feeding her my number:

My Chart for 6 years

My Chart for 6 years

There are only 3 numbers you need to fill in every month in this chart:

Your Total Income:
My method is a bit different from the “Your Money Or Your Life” book; total income in my definition includes your saving from previous month plus your total income this month.

Your Total Expense:
You can copy this number from expense tab of your expense-tracking sheet (if you don’t know what is that, read this post).

Your Investment Gain:
This is the part where you fill in your monthly investment gain. If you are getting paid yearly from your investment, divide it by 12 and enter the number here.

So, what are the benefits having such a tool? Why would anyone want to monitor another chart when they already done a good job previously?

To me, there are 2 benefits:

Clarity
By using a chart like this, it gives me an overall view of how is I doing financially. I am not having any guesswork when I want to check my progress, I just open up my chart and everything that I need to know is there.

Joy
To me, looking at all those lines on the chart is already a joy, especially when there is a upward trend in my saving line while my expense line remains low and flat.

So, I hope I have convinced you the importance of having a chart to monitor your progress and also the benefit it can brings you. You can download it here or look for it in my resources page.

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How To Reduce Your Spending and Increase Your Happiness?

Track Your Expense

So, you have been tracking your expense for maybe few months now, and you got your own answer to the question “ Where are all my money gone to?” You know you have feed that little cute vending machine near your office way too much money for whatever value it provided you.

Looking at your “real” hourly pay you are getting now, I bet it should not require any effort to convince yourself that which expense is essential to your long term happiness, worth the life energy you pay for it and which expense is nothing but impulse purchase that provides only short burst of satisfaction to you.

Ask Question

Ask yourself the right question to determine your spending plan. What is the more efficient way to use my money and my time? Buying expensive junk food as lunch at work place and gobble down the food without knowing its taste or cook your own less expensive healthy lunch and enjoy every mouthful of your food? Spent your time in your car stuck in morning peak hour traffic jam or cycle to work with a decent bike and get some exercise at the same time?

The word necessity means different meaning to different people at different phase of their life. The principle to retire earlier is simple; there are only 2 variables involved, your passive income and your expense. You can work toward increase your passive income or learn how to reduce your expense. I recommend you direct the money you saved from reduced spending toward paying off your debt if you are holding any or invest for passive income to achieve your early retirement goal, at least this is what I am doing right now for the time being.

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