Financial freedom: A Picture Paints a Thousand Words

The more I write about financial freedom, the more I believe that the framework behind it is simple in theory but difficult in practice.

It is encompassed in the diagram above and has been mentioned many times in Five Cents Ten Cents.

The challenge facing many of us in terms of achieving financial freedom is in trying to work on all these three areas in our lives successfully. It is tough to tackle each of them but to be able to juggle all of them and to have successes in all requires patience, hardwork and a little bit of luck.

Live within your means

If you earn $1,000 a month, try to live within this amount. If you earn $3,000 a month, try to live within this amount. If you earn $5,000 a month, try to live within this amount. If you earn $100,000 a month (why would a Minister need to read my blog?!), try to live within this amount.

As a general rule, the more you earn, the more you should be able to save assuming your lifestyle habits do not change drastically. But the reality can be different as we suffer from lifestyle inflation where our expenditures quickly increase in the same if not higher proportion that our salary or business income increases.

Living within your means requires you to make conscious choice of NOT increasing your lifestyle expenditures drastically when your income increases. This is difficult for most people as many earn to spend and are trapped in this work-earn-spend-work-earn-spend cycle unconsciously.

Save and invest

In a period of low interest rates for fixed deposits and treasury bills, it is indeed hard to find risk-free or virtually risk-free investments that give you high returns. Nowadays 1% to 1.5% is the name of the game until MM Lee's "golden age" promise is fulfilled.

The save and invest part of financial freedom requires you to both live within your means to generate the investible savings. To some that is the easy part. The hard part is the investing. Too many of us have experienced realised losses in stocks and shares and other riskier assets. Investing successfully is HARD. Bad investment decisions can set you back YEARS in achieving financial freedom. But it can be done if you invest in learning as much about investments as you would into your favourite hobby.

Grow your means

Study hard. Get a good qualification and earn more money. That is still true to some extent in paper conscious Singapore. However, growing your means also requires you to develop your own inate talents, skills and abilities to the apex of your development potential. Learn more about your career prospects, the industry you are in. If you are in business, the external environment, the Michael Porter SWOT (strength, weakness, opportunity and threat) analysis to see how your business can survive and thrive given the operating parameters in front of you.

For those who are in employment, globalisation brings with it risks and rewards. Lifelong employment is gone. Look for lifelong employability or better yet, multiple streams of income.

What does it mean for you

Like an organisational excellence journey towards Singapore Quality Class or Award, we need to benchmark ourselves to the best standards for achieving our dreams of financial freedom. This benchmarking and more importantly, continuous learning needs to see us growing in all three areas:

1. Live within your means
2. Save and invest
3. Grow your means

There is no shortcut. There is no magic bullet. There is no quick-fix.

We need to continue to live, breathe and dream financial freedom through the framework given.

It is continuous. It is a journey. It is within your realm of possibility.

Be well and prosper.

Financial freedom: Revisiting the Lessons Learnt

The more I travel along this journey towards financial freedom, the more the pieces are starting to click together.

What has happened in the last 4 years

My Excel worksheet skills are improving bit by bit as I use colour, conditional formatting, formulas and functions to jazz it up with both functionality and form to suit my approach towards tracking my networth and recording what are my investment returns (or losses!) for the last few years.

Hits and misses with stocks and shares

The journey is not always smooth. Some of my equity investments were more punts than long-term investments based on fundamentals and I had to take in some realised losses to trim my portfolio back to a more comfortable 28% cash and cash equivalents and 72% in equities as well as to remove under-performing shares bought at over-valued prices vis-a-vis the market and their fundamentals.

Developing small sources of alternate income

On the positive side, my forays into developing multiple sources of income is bearing modest fruit as AdSense helps defray the costs of broadband access. A bit of luck could be attributed to my foreign currency fixed deposit that yields a very high return relative to Singapore fixed deposit rates as I went in at a good exchange rate rather fortuitiously.

Understanding simple rules of thumb in finance

I also learnt more about the Rule of 72 which is a quick rule-of-thumb to determine how long your investment (or debt) doubles at a given interest rate. If you could get a return of 10% per annum compounded, it would take you approximately 7.2 years (72 divided by 10) to double your investment. If you could get a return of 2% per annum, it would take you closer to 36 years (72 divided by 2) to double your money. An 8% difference translates into 28 plus years to double your money.

Balancing between present wants and future needs

I also realise the importance of balancing my present wants against future needs and to live a little today and not be an absolute Scrooge when it comes to living within my means.

As I continue towards this journey towards financial freedom, it is with excitement and anticipation because my modest achievements have helped me gain a small degree of confidence about my ability to survive and thrive in Singapore Inc.

Paying off my housing loan

This is one of the most satisfying intermediate milestones in my journey towards financial freedom. I am thankful for my parents for their help in an interest-free loan which I have paid off in full. I don't claim to have been able to do it so quickly without their help. Their support advanced my plan to clear my loan by 2-3 years even though I have repaid them.

Understanding the fundamental principle behind financial freedom

There is no quick fix to achieve financial freedom. It is to live within your means. To save and invest prudently. To grow your means and ultimately to reach a stage where your passive income from your investment assets more than covers your living expenses. That is where you have "made it".

As with any endeavour worth pursuing, the reason why I have been able to achieve some of my intermediate milestones is focus. My home mortgage was cleared well before my retirement age because I was very clear that it was a high priority. Besides paying the daily living expenses, I channelled my savings, year-end bonuses and any form of windfall gains towards making periodic capital repayments. The cumulative effect of this was that with each capital repayment, the outstanding principle became lesser and lesser and the resultant interest expense also became lesser and lesser. Compound interest did the rest.

I had a clear time frame in mind and tracked my net-worth position from a consistent net liability all the way to the net asset position that I was in over those years I was repaying my loan. I did not own a car for more than a decade into working life and I continued to keep my living expenses low relative to my income level.

All this while I kept the concept of financial freedom in my mind. I filled my conscious with books on personal finance, on being frugal and sometimes bordering on stingy! ;-) I also focussed especially in the last year or so on health and to keep myself fit and healthy to enjoy a better quality of life and to keep medical costs low by seeing the doctor less.

Financial freedom is within my grasp. I am fairly confident that I can reach it with the support of my spouse, family and close friends who share my philosophy towards life. My time horizon is realistic. It is not a overnight journey. It is a journey measured by years. Measured by the growing up of my daughter (coming soon!). Measured by a corresponding improvement in the quality of life as financial burdens become less heavy over time.

I truly wish you can also join me in this journey, to find your own pathway towards your goal in financial freedom.

Be well and prosper.

Financial Freedom: Thriving in Singapore Inc.

It's budget time in Singapore as the Finance Minister has announced that Singapore has achieved a budget surplus of $6.4 billion in FY 2007/2008 resulting in the Government being able to give back some of the monies back to the rakyat (people) in the forms of various top ups and growth dividends.

In the land of plenty, more of the plenty goes to the TOP

The one thing I cannot wrap my head around is why in a country where we can invest billions in Shin Corp, Merrill Lynch, Citigroup and UBS, public assistance was only grudgingly increased from $290 to $330 (13.8%) while ministerial salaries went up 21% and mind you, it is 21% of 2-3 MILLION DOLLARS.

I can only draw one conclusion in my simple mind, that is, MAKE HAY WHILE THE SUN SHINES.

Singapore Inc is a place for you and your family to be financially free

Singapore Inc is a place to HUAT HUAT and HUAT. We are the epitome of social darwinism with those who are on the growing side of the income divide doing better while those on the losing side of the income divide suffer the full impact of the 6.6% inflation cushioned by the Governments "generous" handouts of GST rebates, growth dividends and top-ups.

Forget charity. Forget sharing the pie. Forget lending a helping hand.

Our country's values are greed, avarice and materialism. Money (and connections) talks. Everything else comes secondary. In a place where welfare is a "dirty" word, the only welfare I see is to take care of my own personal welfare.

In this quest to be on the winning side of the growing gini coefficient, I have decided to really focus and channel my energies into my own family and to achieve financial freedom LONG BEFORE THE STATUTORY RETIREMENT AGE.

CPF Life should be irrelevant to me as I intend to have passive income exceedingly my lifestyle needs before the mandatory retirement age.

Why such selfishness and focus on yourself?

For too long I have also led to believe in a kinder, gentler Singapore. A Singapore where the national pledge means something. The reality I see with my very own eyes told me a different face of Singapura.

2.5 years of full-time National Service in a combat unit gone. 10 years of annual uninterrupted reservist cycle of 7 high-key in-camp training (ICT)and operational duties defending the country and 3 low key ICT spent crawling through mud and drains in an assault course. For what? To grow the GDP so that our leaders can enrich themselves whilst letting Singapore sink in the population increase that sees us to hit 6.5 million eventually from countries such as China, India, South-east Asia?

Even MM Lee Kuan Yew himself admitted that many PRC take Singapore PR status as a stepping stone towards emigration to the US, Australia and other more developed countries.

The soul of singapore is Financial freedom

The message has never been starker now. In the land of plenty, equality takes back stage because we are a winner takes all society. The rich WILL get richer and the poor can go eat unbranded bread and unbranded rice as PM Lee admonished us that "Bread is bread and rice is rice". That's "rich" coming from someone earning $3 million a year.

Why do you want to achieve financial freedom?

I want to achieve financial freedom because I see this country as what it truly is. A place to make money and a place to gear up your children to take on a brave new globalised world where making money through value-creation in the new economy is the order of the day. Forget nationalism, patriotism and all the other idealogical 'isms out there.

The State expects you to take care of yourself. So you should listen to the State and take care of yourself but getting yourself out of your housing debt. Get out of your car loans asap and especially your unsecured credit.

Improve your means, live within in and save and invest. Grow your investible assets to the point that the passive income generated from your investible assets is more than enough for you to live on. When you reach that stage, you are financially free. You can do anything you want then because this country will WORSHIP you for your contributions to GDP through GST, ERP and other fees and charges.

There is no capital gains tax and since the abolishment of estate duty, you cannot take all your wealth with you but you can give it ALL tax-free to your next generation.

Isn't Singapore a great nation for financial freedom?

Be well and prosper.