Tag Archives: retirement planning

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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The Only Number You Need To Pay Attention To If You Want To Retire Early

So, during my journey to early retirement, we talked about tracking spending, earning extra income, reduce your spending and calculate how much does your life worth. But amazingly, there is only one number that you need to pay attention to if you want to retire early (as soon as immediately!!!).

What is the magical number am I talking about here? That is your saving rate, which means the percentage of your income you are saving up. Before we talk about how many percent you should be saving, let start with some basic first.

Simple Math of Emergency Fund

If you are saving 10% of your income (no many people saving this much), you will need to work 9 years before you can take one year off (either voluntarily or not). If you raise your saving rate to 20%, you only need 4 years of work to take one year off. If you are really frugal and save 75% of your salary, one year of work will give you 3 years of off time.

By now, you might be thinking “chey! Another nagging blog post asking me to save as much as I can to enjoy delayed gratification later, I also knew that!” Interestingly no, that is not my suggestion here. Retirement planning should be unique to different individual and only you yourself know what is important to you and what is the price are you willing to pay for it (in term of money or time).

You can easily get all the hard, cold calculation on the web telling you how many years you will have to work before retire if you are having certain saving rate (one of them is here, you will need to scroll down to see the table).

What I am proposing to you is ignore those numbers first, put aside all the calculation, and look at these few area of your life which I think is more important to you right now:

 

Job (The activity you do to get paid)

I will assume most of you will be still working for money and your job is taking up most of your waking time. The question you need to ask yourself when you embark this journey to early retirement is “Am I running away from something (your job) I hate or am I fighting toward something I want?” I hope you can see the difference here.

Although the result of both motivation might be the same (retirement) but the end point can be quite different. In order to determine your motivation, you can play this “now what” game.

It is very simple, image you have now retired, ask yourself the question “now what?”.  If you can come up with more than one answer and they are not consists of “I finally don’t have to do XXXX now” or “Finally I can quit XXXX now”, you are doing fine.

 

Family

Early retirement is a gift, a gift you can give to yourself if you work really hard toward it. But don’t forget you are not alone along the journey, your parent is with you, you might find a partner, raise a baby.

Depends on your value, it might be perfectly ok for you to delay your retirement because you want to give your children the best (and most of the time also the most expensive) education he/she can get.

 

Yourself

You are the center of all this, of course you need to consider you own needs and wants. You will have to fulfill your own needs and wants before you can provide for someone you love, this is not selfish.

Life is unpredictable, although you can retire under 3 years if you save 90% of your income but important point is will you enjoy the journey along the way? Will 17 years of working and 50% saving rate sound more reasonable to you?

You call.

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