Tag Archives: save

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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What does retirement means to me

I am born in year 1981, age 33 this year. There is a term used to describe people born in my birth year, Generation Y. For me I believe it is just a convenient way to categorise people when organising a marketing/sales promotion event. People in every generation is still mainly influence by the macro economic situation they are in  during their living, for people live in wartime, survival is the mostly talk topic, how to create food and fulfil our needs with minimum resource was not deem as cheap skate but a virtue.

People who grow and live in time when there is no war but stable economic year by year have much different mindset. Working for decades to enjoys life for a few years or months is the norm in that generation, people mostly stay in one company for decades, collect their pension after decades and start enjoying life.

We who are living in unstable(some call it dynamic) economic environment has a much different inspiration. Many of us won’t be staying in one company for decades, maybe not even years. We are in the greatest time but also in the worst time in the history. Every few years come a financial crisis, every financial crisis bring about lay-offs, retrenchment and at the same time bring about some great investing opportunity. Our society has divided between those has and those has-not. It is not longer young people that remain working and old people who are retired. We see more and more young people(some early 30s) retire in their own term and we see more and more elderly are forced to work beyond traditional retirement age,  maybe even till their death.

In order to survive and prosper in today society, we need to figure out how does the money system works. Saving without investment obviously does not solve our retirement puzzles these days. With the inflation remains high and strong, our saving can easily be eaten up with our knowing . There are a few traditional ways in investment, namely stock market, real estate and business(I meant run your own business here). In order to survive and retire in our generation, it has became mandatory for us to invest our money wisely. Stock market has become the favourite of the investor(in loose term) due to its lower barrier of entry compare to real estate and business. However it does not means it is easy to master the art and science of invest in stock market.

In most simple term, buying a stock is buying a piece of a company. You casting a vote of confidence into the company of your choice, betting that it will earn a profit and share with you that pool of money it earned from its operation. If you are determined enough, consistently putting money into stock market and buy some large corporation stock for long term can bring you great return. After certain number of years, the return/dividends from your stock holding will exceed your annual expense. By this time, we enter the door of financial freedom, we take back our time, we can decide what we want to do with our day. I believe everyone will be a even more efficient and effective worker if it is their choice to spend their time in office rather in the park.

Having the choice to do the things that you find it meaningful is the most important benefit I like to have in my retirement period.

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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 Save and Spend Money

It is pretty difficult to not spend any money at all to survive in the world we are in right now. And it is important for us to strike a balance between spending and saving money because most of us does not have unlimited amount of money (who does?).

There is always one more bill that waiting for you to clear every month and you never seem to get ahead of them, instead you seems to getting more and more far behind them. You start to feel frustrate about current situation and lose hope in the future, and you cannot imagine you retirement life (if there is any).

Sometimes, it is very difficult to strike a balance between spend and save money because they always seems conflict with each other. Do a little exercise below and see if helps:

1. Take out 2 pieces of paper, one titled Spend, one titled Save.

2. On the Spend paper, write down the first answer come to mind when you ask yourself “why did I spend money?”.

3. Then continue to question the answer pop up until you run out of answer. E.g. if the answer to “why did I spend money?” is to entertain myself, ask yourself “why I need to entertain myself?”

4. Do the step 2 and 3 for the Save paper.

5. Most of the time, the final answer should be quite close meaning to each other (healthy vs lively or happy vs enjoy).

6. While looking at this 2 papers side by side, checking that feeling written on it, observe how your feeling changed when you are reading them.

7. Tell yourself that spending and saving are both aiming for the same end result, after this session both of them will combine together so well, working together so well to help you achieve better financial habit, help you gain more focus on achieve your purpose and erase those internal conflict in you when you are making a purchase decision.

This little technique has helped me to increase my saving rate and clear my debt. And I hope it can help you achieve better (or suitable) balance with your spending and saving too. Let me know if it helps.

Thanks for reading

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A Very Small List Of Saving Tips

1. Start an exchange network or join one
Everyone of us has some skills that other people don’t have. You might be good at repair water pipe but sucks at computer. Why don’t you trade your skills with them?

2. Use the library
Library in Singapore is very well developed, contains many resources for your consumption. Use it to slash your spending on  books, video or newspaper.

3. Take part in lucky draw
Take part in lucky draw from the free newspaper like Today or my paper. Get some free entertainment from the marketing budget of those big corporation.

4. Join freecycle Singapore
Singapore Freecycle (TM) Network is a place for people to give out their stuff which has no use for them.

5. Sell your old stuff
Sell off your untouched stuff for past 1 year to get some cash.

6. Create or join a babysitting support group
It might be a logistic challenge to get a reliable and trustable baby sitter for your baby. If you can create a support group among a few friends or family, that might be a solution.

7. Car sharing
It might be make more economic and environmental sense if a group of people can share a car when they are heading to same destination.

8. Have a pot luck party
Get each of your friend bring one dish for everyone.

9. Brew your own drink
Be it alcohol or coffee, I think you can find plenty of guide around the net teaching you how to do this cheaply.

10. Cut down on driving
Singapore is not that big.

11. Cycle more
Again, Singapore is really not that big.

12. Up the temperature of your air con
Do your best, I know Singapore is hot.

13. Create your own cleaning product
It is really not that hard to do this. My mum do this all the time.

14. Line dry the clothes
Save some electricity, save some money.

15. Buy groceries from cheaper place
I think you know where yo go.

16. Use internet if you are making long distance call
If you have not idea how to so this, google for VOIP

17. Cut down on TV
Device that designed to waste your time, waste your money.

18. Study the tax rules
You never know what are you missing if you never check.

19. Check out credit offer
They are literally giving out money now.

20. Complain
Complain to get a refund or exchange with a extra thrown in if you received poor service.

21. Own less stuff
You will need less space and money managing your stuff if they can fit into 1-2 suitcase.

22. Eat healthy, be healthy
Choose healthy food, move around a bit every day.

23. Learn how to fix your stuff
Be it car, bicycle, TV, kitchen, etc….

24. Buy enough clothes
Not less, not more.

25. Shop online for clothes
Compare, and you might get a better deal.

26. Inherit toy from friends
I guess this make some sense since most toy will be out dated within few months.

27. Subscribe to free trial
Emphasis is on free, unsubscribe after the trial.

28. Go open source
Software want to be free!

29. Exercise at park
And you can use the equipment there, free of charge.

30. Get bargain by book your holiday earlier
Air ticket that bought 1 year ago can be really dirt cheap.

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Why It Is Important To Define Your Enough

We briefly talked about needs and wants in previous post, why I like the idea of early retirement extreme. We know that there are no needs or wants; it is just people value that determines what kind of consumption level they want. Below is the list I used on that post:

1. Dumpster diving.
2. Heavily processed food.
3. Home cooked food from pre-packed ingredient.
4. Home cooked food from fresh ingredient.
5. Food from hawker center.
6. Food from food court.
7. Gourmet meal from restaurant.
8. Fine dining

As you should know now, the amount of money needed to pay for each item on the list are very different, literally from zero dollar to an unknown amount of dollar (I never been to a fine dining session before, so I don’t know what is the cost there). Having said that, you are not limited to choose only the lower end item from that list, in fact you can choose anyone you like. Everyone situation is different and your income generation ability is unique to yourself. Who am I to tell you which restaurant or hawker center or rubbish bin you can go to for your next meal, right?

Your number
The key point is define your ending point, this activity will in turn define your “number”, the number you needs to retire, earlier or later. Questions you can ask yourself when you are going through various needs or wants in your life can be:

1. Do I really need things from this area?
2. What kind of quality can I accept in this area of life?
3. Where can I get them at the cheapest price (or free) at the quality I want?
4. Can I learn the skill to build/grow/fix/ them myself?

Why it is so important to define your enough? Because it cost you 45 years of your life. Let me illustrate through the below table:

Saving Rate Working Years
10 51
15 43
20 37
25 32
30 28
35 25
40 22
45 19
50 17
55 14.5
60 12.5
65 10.5
70 8.5
75 7
80 5.5
85 4
90 Under 3
95 Under 2
100 Zero

Assuming you can earn 5% investment return after inflation when you are saving, you will withdraw 4% from your fund every year, you will volume down your expense during year with lower return and you want your fund last you forever. The table is showing the years you need to work with various saving rate.

How long do you want to work?
The basic idea is the more percentage of your income you saved every month, the faster you are to achieve a retirement. Say you only save 10 percent of your income every month; it will take you 51 years before you can retire. Compare to a saving rate of 80 percent, it will only take you 5.5 years to retire, this is why I am saying it is costing you 45 years of you life (actually more than 45 years).

Why the huge difference with just a few more percent of saving each month? This is because what I call twin financial effect. By saving more of your income, you are at the same time reduce the money you need to survive thus it give you the double effect.

Money does not motive you?
If the money part does not motivate you to boost your saving rate, remember that all the stuff you acquire in your life require your attention, which means your time and energy. My weakest link is my obsession with books; I used to buy up to 10 books per month, it happened whether I saw some recommendation from some blog, TV advertisement or ever conversation with friend. After I set my target to retire early, I start to look at my option. What are the other solutions I can adopt to fix my obsession to buy book? I found library. Library is really an amazing place where you can find almost all the old book you want to read and the latest book came as early as 1 month after release. With increase my library card usage, I almost wiped out the expense category called book in my spending tracking sheet.

So, what motives you to cut down your expense and boost up your saving rate? Is it your children? Is it your partner? Is it your parent? Find your enough; spend your time with them.

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Why I Like The Idea Of Early Retirement Extreme

When I was searching for tips and ideas to retire early, to retire in less than 10 years, I found a growing community who embrace the idea of early retirement extreme. A guy called Jacob founded this idea. He uses his Renaissance Man concept to live for a year by spending only USD 7,000. To me, his life style is simply amazing and I admired his skill to produce some much for his daily use.

I took some numbers from his site, earlyretirementextreme.com to show his spending in year 2011 compare to mine:

Categories

Jacob

Me

Rent + utilities

USD 270

USD 200

Health insurance

USD 95

USD 10

Accident Insurance

USD 0

USD 10

Life insurance

USD 0

USD 2

Food

USD 100

USD 350

Martial art

USD 95

USD 0

Car

USD 50

USD 100 (Bus, MRT)

Dog

USD 50

USD 0

Internet

USD 20

USD 35

Student loan

USD 0

USD 83

Entertainment

USD 0

USD 180 (Books, movie, eat out)

Product installment plan

USD 0

USD 150

Medical

USD 0

USD 100

Parent

USD 0

USD 180

Total:

USD 680

USD 1,400

 

This is why I am a fan of the early retirement extreme. I have always considered myself as a frugal person and know how to use my money wisely most of the time. But seeing the table above, Jacob easily surpass me in supporting his life style (my typical spending is more than two fold of his).

Doubts
So, next come the doubts where how can a person surviving on this amount of money without going through a lot of hardship? I have the same doubts initially and I decided to find out from his blog and his books what is his life like post retirement.

It turns his life was not as hard as I initially thought it would be. He still owns things, meet friend, entertain him himself through some hobbies and having a healthy body. How can it be, you may ask. It is through the idea of Renaissance man. Instead of spend money on buying solution to the problems he encountered in daily life, he spend time learning that skill to solve the problem himself and free himself from dependence on other people if the problems occurs again in future.

His extremely low food cost sometimes bring concern from people whether can they obtain delicious and nutritional food with such a low budget. Also, with such a low budget, people think that they will miss out a lot of delicious food from the restaurant. I forgot the exact words he uses in his book, but the idea here instead of spend so much money to buy the solution (delicious food in this case) from the restaurant, why don’t we just learn the cooking skill that enable us to cook that delicious food we like?

Needs vs Wants
He also talks about the ideas of needs and want in his book. In his view, there is no needs or want; there is only people value. For example, let’s talk about food here. There are many choices (in ascending order according to price) exists to fill up our stomach:

  1. Dumpster diving.
  2. Heavily processed food.
  3. Home cooked food from pre-packed ingredient.
  4. Home cooked food from fresh ingredient.
  5. Food from hawker center.
  6. Food from food court.
  7. Gourmet meal from restaurant.
  8. Fine dining

It could be argued that eating from dumps will be too extreme and too dangerous (I agree with that too) for a life style. But I think there will be less argument that home cooked food from fresh ingredient under a good chef (hopefully is you) can provides a delicious and nutritional meal with a much lower cost compare to items 5,6,7,8.

Summary
In summary, early retirement extreme is achievable if you are willing to make the necessary life style choice and constantly improve yourself by learning more life skill.

Data Source: Early Retirement Extreme: A Philosophical and Practical Guide to Financial Independence

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