Financial freedom - The Choices You Make

Financial freedom is a journey and not a destination. So long as you spend within your means, save and invest and enjoy the ride towards reaching your goal, you are doing what is necessary to achieve higher net worth for now and for the future.

For us to stay on the path towards financial freedom, it is not the big decisions you make now and then but rather the small, controllable decisions you make each and every day that is leveraged to positively impact you on your road towards being financially free.

Spend or Save: You Decide!
It is not rocket science. The key decision every day to move yourself towards financial freedom is the decision all of us face: spend or save?

Sounds deceptively simple, doesn't it? Experience has taught us that it is the simple things done consistently over the long term that yields superlative results. The key to taking that positive step towards financial freedom is to build up your financial habit of making a decision to save more than the decision to spend.

It is not a 100% spend or 100% save strategy. It is simply recognising that if you tilt your decisions towards saving more than spending, i.e. to live within your means, you will find your nest-egg comprising investible savings and investments growing.

The story of the rickety old computer chair and the PDA phone
As I type this, I am sitting on a old computer swivel chair at home. It is easily 3 years old and I bought it for less than $100 at IKEA. Now, it is due for replacement and I intend to replace it. The trick is that I am replacing it when it goes completely kaput or breaks down completely. Even as it was showing minor signs of wear and tear but could still function safely, I continued to use it and use it and use it!

Look at the things around your house? If it can be used, just use it until it breaks down and then change or buy a new one. By doing this you end up delaying your purchases and delaying spending. The concept of time value of money means when you save more now, it translates into a higher return later. My PDA handphone is the same. I have used it for close to 2 years and it still works well. I have been tempted to change it given how fast new phone and pda models come into the marketplace but I resisted this temptation.

Some of you may scoff, aiyo Panzer, why so stingy? Isn't spending part of living? Those of you who scoff at me are also right. I don't dictate how you should live your life. Remember, it's not about who is right or wrong just how your behaviour between choosing to spend or save affects your goals towards financial freedom. If you operate on the assumption that you will work until the statutory retirement age and rely on your CPF plus home to retire. By all means do it and tilt your spending/saving ratio to the point that satisfies you.

If, however, but no small coincidence, you come to my blog because you, like myself, WANT TO RETIRE WAY BEFORE THE STATUTORY RETIREMENT AGE, then your decision to save/spend every day will have an impact on when you can do so.

The journey of a thousand miles start with a single step
Wise sages have opined that the journey of a thousand miles starts with a single step. I'll add that single step has to be followed consistently by another step, and another, and another before we come to our destination of being financially free, where before our statutory retirement age, we can rely on our passive income for living expenses and do whatever we want with our time.

But in the meantime, enjoy each step you take towards financial freedom. Do enjoy yourself a little as Chinese New Year is around the corner and I wish you, as always, be well and prosper!

Year-end bonuses are here!

What are you going to do with your year-end bonus?
November and December are the months when the school holidays start, people clear their annual leave and dream about what they are going to do with their bonuses.

Different organisations pay different amounts for the year-end bonuses. Tight-fisted employers may pay nothing. Generous employers may pay the 13th month (i.e. 1 month) plus something extra. Other employers may benchmark year-end bonuses to performance and pay handsomely to their rainmakers or those who make a lot of money for the organisations or exceeded their key performance indicators. No matter the quantum of the year-end bonus, if you are fortunate enough to receive this windfall, you have to decide what to do with it?

Spend or save?
The key issue facing all of those who are receiving some form of year-end bonus is... SPEND or SAVE? How much to spend/save and how not to feel guilty about our decisions. If you have been following my blog, you will realise that it is not about what decision you make, but it is about how that decision brings you closer or further away from your financial goals.

If your goal is to live life to the fullest and have $0 to your name when you die, then you will probably consider spending ALL of your bonus because that is how you want to live your life.

If you goal is to retire BEFORE the CPF withdrawal age of 62 or 67 or whatever the gahmen decides after the next general elections, then you have to set aside SOME or even ALL of your year-end bonus towards savings, paying off debt or investment.

There is no magic formula on how much you should save or spend. It is entirely up to you to determine from 0% to 100% in either direction.

Panzergrenadier's year-end bonus decision for 2007
Ordinarily, my own rule of thumb is to spend 10%-20% of windfalls and save the remainder for investment. This year, I have decided to tweak my rule in the opposite direction because my own life circumstances will be changing. A new addition to the family will be coming early next year and I need to plan for my revised transportation needs and wants. I have been using the public transport system since the day I started work until now. However, given that I want to transport my family in better comfort next year, I have earmarked a lot of my year-end bonus towards financing a vehicle.

Some of you who have read my posts about not driving would be horrified! What heresy! Wasting your retirement fund on a car! Horror or horrors! :-)

Whilst I would have loved to continue to retire earlier based on my current rate of savings, I realise that I would probably need to shift my plans to retire earlier than 67 but later than what I wanted to. This is because I have decided that I WANT to drive to give my family a better way to get from point A to point B. No excuses. It is a WANT and I am not ashamed to say so.

Life is about balancing between the wants of today with the needs of tomorrow. I have decided that I have used the public transport system long enough and should live life a little better by paying (through my nose! haha) for a car and subjecting myself to the joys or ERP, COE, road tax, insurance, parking etc. So, for once in my life, Panzergrenadier is choosing to give himself a bit of luxury in transportation.

The rest of my frugal lifestyle remains. I still own only 3 pairs of watches of which 1 is sponsored by Mindef being the token of appreciation for my 10 years of reservist service while 1 was a gift for my birthday. The other watch that I bought costs all of $35. I hardly buy new clothes except during Chinese New Year and the Great Singapore Sale. I am happy to consume vegetarian food for lunch that costs only $3.00 and I go jogging in my Mindef sponsored New Balance running shoes for recreation and to destress while keeping fit.


What will your year-end bonus be doing for you?
There is no right or wrong answer. You alone determine how your year-end bonus is to be used. Making capital repayment of your outstanding mortgage loan. Going for a trip to Japan for a holiday. Buying the latest iTouch from Apple. Having your home renovated to look like the latest IKEA catalogue.

Your bonus.
Your rules.
You decide.

Be well and prosper.