Early Retirement Plan Step 1 - Reduction of Spending

Dear readers, this is part one of a multiple part post. In these posts, I will be discussing the steps to be taken to achieve an early retirement, mainly in the context of Singapore but I'm very sure it applies in most countries as well. These are my views and beliefs which you are welcomed to share.. or not. Either way, you comments and criticism will be well accepted.

I feel that many of us these days are more enlightened to the fact that there are ways to escape the much mentioned rat race. Many personal finance bloggers have been popping up in recent years stating the merits of proper financial planning, frugality, saving and investing of money. I have read through dozens and dozens of them and I definitely share their thought. Some more than others.

There are many schools of personal finance beliefs, many are mixes and matches of one or the other. Everyone has to seek and find the right mix of beliefs and strategies to match their lifestyle and circumstances. There is no such thing as a definite path, there are many.

As for myself, I subscribe to the belief of an early retirement which will be achieved through being frugal, avoiding excessive consumerism and careful investing for passive income which brings me to my step 1.

No matter how much money you earn, be it a $1000/month to $100,000/ month, you will never be rich or financially free if the amount of money you spend exceeds the money you earn, even by a single dollar. To remedy this fault, there are only 3 routes you can possibly take, besides windfall gains. They are either to cap your spending and increase your earnings, cap your earnings and reduce your spending, or the best option which is to increase your earnings and decrease your spending.

For the majority of us common folks, increasing our earnings would not be easy. Ways to do so would be to get a second or third job, ask for a pay raise or start a side business. These methods would either be tough to administer or would take too long, which might cause your interest of being financially free to wane.

What would be an easier and more immediate path would be to reduce our expenses and be more frugal. Studies have shown that most of our purchases end up as waste. This means that we are not effectively utilizing what we purchase. If we could cut these waste and purchase only what we could effectively use, it would not only save our wallets but also the earth simultaneously.

Taking a look at an example close at hand would be food. If like the majority, we buy so much of it and end up throwing away the excess when they expire while continuing to buy some more. This is an endless cycle. What we should be doing is to make sure we finish up whatever we have purchased before going out to purchase more. One simple way of making sure you do not waste is to monitor which products are expiring and use them first.

Another example would be electronic products. These things get obsolete so fast and since they have become such a major part of our lives, we find it very difficult to live without them. As part of the consumerism movement, we are programmed to keep up with the latest gadget even though the changes and upgrades to them are ever so minor. We love being trendsetters but this is something that we have to change if we want to reduce waste and increase frugality. We should use our gadgets till they are no longer useful.

There are millions of other examples that I can list out but I'm sure that you are able to think of them.

So for today, list out your list of things that you commonly spend on. Break them down into 2 categories, needs and wants. The list under wants should be cut down first before the list under needs. Make the choice and effort to really reduce these expenses. If you are seriously and truly searching for an early retirement and/or financial freedom, start by following step 1 and you will be a step closer.

I am pretty sure there are many items which can be reduced and many items which can be used more effectively without the need to consume more. I am looking forward to hearing your thoughts on this matter.

As always, save more, spend less and invest wisely.
P.

The Overflow System

Everyone has different ways to save money. Some segregate it by the amount needed while some segregate it by the differing levels of priorities. Whichever your case or reason for saving is, we all have to admit that having that savings is important. Save to invest, save to buy something nice, save to go on a holiday or saving for retirement. Everything starts with putting aside that 1st dollar. I do not know what methods you use but here is what I do.

Firstly, I come up with a list of all the things that I would require the money for - just for stuff with larger monetary outlay. For example :

Annual fixed expenses - For insurance, road tax and stuff like that.
Emergency funds - For unexpected expenses like hospital bills, home repairs or unexpected loss of cashflow.
Large Scale Holidays - For example, I want to go on a month long holiday in 2020 to Alaska.
Impulse Funds - For rare occasions when I feel like I deserve to indulge as I rarely buy stuff anymore - even gadgets. I'll just let this fund grow till I eventually want or need to buy something.
Renovation Funds - As I am getting my new home soon, in hopefully about 6 months, I would need money for renovation and furniture. Now, my home is something that I do not want to stingy with as it would be where my wife and I would be living so I guess I'll need a reasonably large amount of funds here.

Secondly, I would determine the level of importance and the amount of time I have before I would have to utilize the fund therefore setting its priorities. Here is an example

1) Annual Fixed Expenses
2) Renovation Fund
3) Emergency Fund
4) Large Scale Holiday Fund
4) Impulse Fund

The reason I did not put emergency fund as my top priority is because I have already set that aside and will only top it up should I ever utilize it. The large scale holiday fund and impulse funds share the same level of importance so any funds flowing into them will be split 50/50

Anyway, here is how the overflow system works. When funds come into the bank, a portion 1 of it would firstly be set aside for monthly expenses. Portion 2 would be set aside for savings and investments. The third portion would then be put into a holding account. This holding account would then be put to fill up the items on the list. Starting with item one. When that reaches its target, the funds would then overflow to item 2 and so on and so forth. It might sound a little tedious or complicated but once you get used to it, its quite a good way to do things. I love having a system so I don's miss out on important stuff.

How do you prioritize and save for items on your list? Sharing is caring - so please help each other out with ideas.

As always, save more, spend less and invest wisely.
P.

Click - Fastforward the week, or two

We all have those kind of weeks where time seems to crawl, things don't go right and you can't stop feeling nauseous. I often wonder why some days seem longer than the rest. And also why do bad things always seem to happen at once. These days, I often feel like fast forwarding time by a week or two.

The reason for all these negative feelings, in my opinion stems from having to work 5 days a week. My ideal workweek would consist of 3 workdays where every hour would be utilized to the max. Currently, there are pockets of idle time riddling through my work hours. As time goes by, I feel that its getting harder to bear. I wonder how you guys feel about your work week? Is 5 days of work too much or too little?

I have thought of a few ways to counter this negative feeling and change my life a little, some drastic and some minor changes. Not sure whether they will work but I might just give it a go in the near future.

1) Quit my job and work part-time/freelance.

2) Request to work lesser days for a lesser pay, make up for loss cash flow by working or doing something more enjoyable part time.

3) Take a break and go for a short getaway to recharge my batteries.

4) Take a long break - like 6 months - and backpack. (would love to do this but... so many reasons I cant afford it - later retirement date, new company, new house coming up, planning for kids.... sigh..)

5) Suck it up and take it like a man.

Have a few more ideas which are too ridiculous to be listed here lest I get flamed. Anyway, I would appreciate it a great deal if anyone could give me ideas to mitigate the negative feeling. I'm pretty sure many of you have felt the same way or are feeling the same way right now. I know we all have to go through this work life to earn enough for retirement, but some days... you know? Enough of my rants, thoughts please?

As always, save more, spend less and invest wisely.
P.

Job Loss - Utilisation of the Emergency Fund

Dear readers, I was just thinking to myself how I would handle loss of income should both my wife and I happen to be jobless at the same time. Not that it is happening now, but who is to say that it will never happen.

My wife and I are currently in the midst of starting a new company and we have decided that in order to increase the success rate, she would have to quit her current job. The reason as to why her and not me is because she knows the sector way better than myself. Therefore during these few months ( 4-6 ), we will be relying only on my income which means that our savings and investment amount will be cut down by a lot.

I was thinking, what if during this period of time, I was to lose my job as well. Would it be as disastrous as  I  think it would be? Upon careful consideration, I do feel that the emergency fund would suffice for these 6 month. We would have to cut down on eating out or going for holidays as my planned emergency funds was supposed to cover just our basic needs - plus or minus.

Everyone has different needs to be drawn from the emergency fund. Here are mine should I have to ever utilize it. - Fingers crossed that I will NEVER.

1) Car Expenses - About $300 ( should be a lot less since won't have to commute to work.)
2) Utility bills - About $250
3) Food - $700
4) Wife's Transport - $150
5) Mobile - $60
6) Cable - $50 ( would most likely cancel this, but would be a good replacement for going out which would cost more money)
7) Toiletries  - $50
8) Condo Fees - $350

Total a month would be about $1500-$1900
6 Months would be about $9000 to $11400

I used to be pretty paranoid about having a huge emergency fund to last me a long time, somewhere along the line of 2 years worth. However, I have deemed it to be totally unnecessary and have cut it down to about $15k. The rest were put to better use in investments.

How much emergency funds do you think is enough? 3 months? 6 months or like the old me, 2 years? What are your basic needs and how much can you cut it down to? I'm sure I can cut mine down by quite a bit but I do not see the point as I do not feel that both my wife and I would be out of job at the same time for too long a period of time. An emergency fund is a definite, the question is how much.

As always, save more, spend less and invest wisely.
P.

No one Likes the Downside.

Dear readers, we have often read or heard about the positives of having an early retirement. Some might feel that it's pretty easy to achieve, but is it really? The answer is no, unless you have a huge inheritance, strike the lottery or invented a cure for cancer.

The road to an early retirement is filled with sacrifice, people putting you down and loads of complaining and grumbling. Here is a list of downsides that we might experience depending on our individual situations.

The Want That Now Syndrome - As humans, we are often tempted by advertisements of new and interesting "toys". Companies spend millions to create and cultivate this 'want that now' syndrome in all of us. However, in order to retire early and still maintain our current level of lifestyle, we have to learn to cut off this habit. We have to sacrifice what we might want but not need now in order to have an early retirement with all our needs satisfied. You might not have what your friends are having now, but 10 - 20 years down the road, they will not have what you will have then. Freedom.

Where's Dad/Mom? - This might not be applicable to most people, only to those who are really hardcore about early retirement. I would not say whether this sacrifice of current family time is right or wrong. It's a matter of your personal preference and priority. However, I do have something to advice. If you sacrifice too much family time now, you might not have the chance in the future to spend time with them. Second or even third jobs will bring in that extra money and cut that time to retirement down. Worth it or not, you have to decide.

When I grow up, I want to be a... - It extremely rare to have everything in life, God is fair. You win some you lose some. More often that not, we have to sacrifice what we always wanted to do or be in order to achieve a goal, which in this case is early retirement. To achieve early retirement, we first have to get at least a moderate paying job. Being a writer or an artist probably won't get you there - unless you are some kind of a genius in that field. We all have to be realistic. We might have to get a job we do not like so much but pays well in order to have enough money to invest for an early retirement.

Vice President XXX - A high post would be something that we have to admit will not be attained if we are to choose early retirement. We would be retired before we are able to reach that level. There is just not enough time. One of the traits to reach early retirement is to be contented. Knowing when is enough. Well, technically you could still hold a high position in a company and still be retired. It all depends on what your definition is. It could be - Not working for the rest of your life OR Having the CHOICE of not having to work when you do not want to. I prefer the latter as working kinda keeps your mind active. Working whilst retired takes out all the stress and pressure of having not enough to survive. ( I hope you understand what I'm trying to say)

Why's the Grape so Sour?? -  I think that I have talked about this point in a previous post. People are always jealous of what they cannot have or achieve. They will try to talk you out of it, say nasty things behind your back or simply ignore you. Guess what, we should not care. It's our life and we own it. We should live or die by our very own rules and choices. If you have made the choice, stay committed no matter what. No one every achieves anything by backing out of everything.

There you have it, some of the down sides en route to an early retirement. Hope you get pass all these downners and emerge victorious. All these are temporary. Freedom( If well planned) is forever.

As Always, save more, spend less and Invest wisely.
P.

Want Something? Do Something!

We are all creatures of comfort, we love to dream and talk about having this and achieving that. We all know that talk is easy, talk is cheap but we stick to it without any form of action anyway. How many times have we seen someone else selling an idea we had years ago but did not put in the effort to get off our butts to kick start something?

Why is it that we do not always have enough drive to get something started? Majority of us would cite reasons such as:

• It might not even work or sell.
• What if I fail?
• I do not know how to do this?
• How do i even start?
• What if no one supports my idea and people start laughing at me?

From what I see, it boils down to 2 main issues, fear and laziness. Sometimes, we just need to want it bad enough or be pushed to the edge to give ourselves no choice but to bite the bullet and jump in. Would you want to put in the effort and take the risk of starting your own company if you are currently having a secure job with a comfortable salary?

How about if you just found out that your current employment company was going to fold soon? Would you be pushed to take the leap and start your own because you have nothing to lose? ( Just an example )

What I'm trying to say is that, if you do not have that drive to get something done, you have 2 choices.  The first is to find a partner who is action oriented. Someone who will get the ball rolling and push you along as well. The other is to develop a mindset that to start that something is what you really NEED and have no choice but to push yourself off the edge.

Whatever the method and whatever the reason, the most important part of anything is the 1st step. Without it, no one is going to get anywhere. It relates to everything from your new start up, your savings plan or even getting the leaky faucet fixed.

 Get something that you have been procrastinating on done today, take the 1st step, no matter how small and get the avalanche flowing.

As always, save more, spend less and invest wisely.
P.

The Tiny Ship Sinking Holes

More often than not, as we look back at the past months expenses, we are able to see what the major portions of our money is spent on. All those large purchases are easy to spot however, it's the little tiny ones that are slowly doing the damage. It's the many tiny little cuts on your financial body that hurts the most.

These tiny expenses are those that we deem too tiny or insignificant to bother about. But over the long run, can accumulate to quite a substantial sum. Everyone has these cuts I'm sure, even the thriftiest of us. Examples of these tiny leaks are as follows:

• Forgetting to turn off electrical appliances when you are not using them.
• Food wastage.
• Credit card annual fees.
• Phone or cable contracts that are above what you need.
• Too much snacks (Harmful to both body and fiance)
• Leaky water taps, pipes or toilet bowls.
• Taking long showers too often.

These are some of the examples that I have thought of. I have to admit that i am guilty of some of them, especially showers since its so darn hot and humid here in Singapore. These are habits that we have formed over the years which are bad. We have to try our best to either reduce these habits or cut them off completely.

Patch the tiny leaks and holes in your financial ships as soon as you can, lest it sinks you before you are able to reach your port of freedom.

As always, save more, spend less and invest wisely.

Emmotional Spending - A.K.A Retail Therapy

How often have you succumbed to this? What the hell is retail therapy? I feel that it is just another term coined by marketers and advertisers to make us feel as if we can reduce stress and be happier just by spending more money.

I know that most of us work 8 to 10 hours a day, 5 to 6 days a week and all the workload can cause a lot of stress and unhappy feelings. After a hard week at work, we all feel as if we need to reward ourselves. And what better way to do that than to spend, spend and spend. But hold on. Is that you thinking or is that what advertisers and marketers want you to think? We get fed with a whole lot of garbage advertising day in day out. They know best how to lure you in. Words such as pamper yourself, you deserve this, only the best for you etc etc...

Even the best of us are guilty of having done this at least once in their lives. I'm not saying that this is necessarily bad, but please don't overkill and go on a therapy rampage. All you will get is buyers remorse after. It's the guilt after the shopping blood lust wears off. So why substitute one bad feeling for another?

How does your emotions affect the way you spend? Do you spend more or less when you experience certain emotions? Everyone has a different emotional spending habit. As for myself, it goes something like this:

• Sad - Don't Feel like spending a single cent, I kinda retreat into myself and stone.
• Happy - Feel like spending on something nice for someone to let them share my happiness.
• Stressed - Spend on drinks and food.

Before you ask, no, I do not only have those 3 emotions or feelings but those are the most general ones. Once again, don't let your emotions take a toll on your budgeting. Counter this by setting up a bad mood fund - Read more about it here. It is basically a fund set up in a separate saving account to spend without guilt when you are in a mood. The emotion attached is called bad because I assume that most people spend more when they are in a bad mood, hence the need of "therapy".

So, how does your spending habits change in light of different moods and situation? Please share so we can give and receive advice on how to better manage excessive spending. We are all here to help each other out.

As always, save more, spend less and invest wisely.
P.

Difficult to Retire Early in Singapore - If you are A dude.

During the week, I happened upon a forum post on an Early Retirement Extreme site. The topic starter was a Singaporean man who is searching for ways to achieve early retirement in Singapore but has yet to do so. What caught my attention was a reply from someone is Australia who has stayed in Singapore for a period of time.

He said some things which caused me to ponder upon some of my decisions, although i will try not to be wavered in my decision - My life my rules..cant rem which advert was that from. Anyway, he said that its difficult for the male gender to retire EXTREMELY early in Singapore due to several reason. Here they are(taken directly from forum):

• Patriarchal society. If you are a man - not working is just not the done thing.
• Very consumer driven. Singapore is wealthy and people live well, dress well and drive nice cars. There is also a distinct lake of 'Bohemia' and weirdness which makes being different frowned upon. This is a country that has laws for everything. You cannot chew gum and if you do not flush the toilet in a public place and caught you are fined.
• The other issue is this idea / cultural thing that one must look after the sons parents in old age. Lots of pressure on the sons to keep working and prosper.

 How do you feel about the points that he has brought up? I feel that they are extremely valid. I do not really care much about the first and second point as I do not really care what outsiders judge me and I do not really covet what other people have. However, I realized that I have neglected to account for point 3. I have accounted for monthly allowance for when they stop working but have not done so for the later stages of their lives. Costs such as their hospitalization, their insurance or even their holidays.

So far, My plans only include my immediate family consisting of me, my wife and my future children. This once proves that plans are ever changing and we as humans must adapt. I know have to re-strategize to include all these costs which I have missed out. We learn everyday do we not?

Is there anything you have missed out on?

As always, save more, spend less and invest wisely.
P.

Dealing with Early Retirement Obsession

There will come a point, no doubt, in every early retirement preppers journey where he/she will become extremely obsessed. (At least i hope that its not just me.)

You will start counting every day and dollar you have to retirement. You will search for every book and blog for every single detail which increases your chance of early retirement. And if you are like me, you will tweak and tweak your early retirement spreadsheet several times a day before you feel at ease. Don't judge me, you will get to this point if you want early retirement bad enough.

The key point is to realize that this is merely a stage that you have to go through and that these are just the means and not the ends of your goal. I have to admit that i am still at this stage, although i feel that I'm exiting it for the next soon.

For those of you who are beginning this stage or are stuck chest deep in this obsession, here are a few pointers to hopefully help you out.

ps if you say you are not obsessed and immediately have to check your spreadsheet or  think of new methods straight after you read my blog...sorry bro.. you are.

To the therapy room ~

• First of all, like all problems like alcohol or gambling addiction, the most important step is to realize and admit that you are obsessed with early retirement. Only then can you see the full picture. Having this obsession for a short while is okay as it drives you to save more in the early stage. Dragging it out for too long is where this obsession gets unhealthy, not unlike any other obsession.

• Next, you will have to realize that after the initial stage of planning and savings, the small little obsessive tweaks here and there will at most shave a few days off your retirement. The time spent will not be worth it. You should instead be spending your time with your family. All you have to do is stick to your decided path and only tweak or tinker when you hit a major milestone or feel that your are drifting off your path.

•  Lastly, pick up as many new skills and hobbies as you can - inexpensive ones of course. There are 2 reasons for this pointer. The first would be that it takes your mind off constantly obsessing about early retirement. The second would be that these skills and hobbies are the things that will keep you occupied and your mind alert when you are finally into retirement.

There it is, my humble advice to you. I really hope it helps, however much or little.

My last parting advice would be to always share your plans, your feelings and even your obsessions with your family or spouse. I know its hard...as a guy to share his feelings..(Gals have no issue in this department..at least my wife doesn't - sometimes i think i should invent pills for verbal diarrhea).

Anyway, sharing will really bond you and take some burden off your shoulders. Remember that you are never truly alone. Family is forever.

As always, save more, spend less and invest wisely.
P.

Life & Money - Change is the only constant

Everyone should have a plan in life. It's like a lantern that will guide your path and lead you to the destination you have chosen.

Having said that, i also have to say that a plan should not be extremely concrete as throughout the many stages in life, circumstances will change. When this happens, you should be flexible enough to alter your plan and do what is necessary to still arrive at your selected destination. You might have to take a longer time, save more money or take on more risk in order to do so.

What i have said leads to what this post is really about. It's about finding that investment method or strategy that you are comfortable with which will finally lead you to financial freedom or even better yet, an early retirement.

Throughout my short investment journey, I have tried and tested quite a number of investment strategies such as trading constantly, permanent portfolio, lazy portfolio and a few others. I have to admit that part of the reason to this is because i have been heavily influenced by the books and blogs that i have read. I do not know how others view this constant change but i feel that it is a good way for me to pluck a little knowledge from each source and eventually form an investment strategy of my own to carry me to my destination.

There are still many years ahead and I am sure that there will still be many crossroads and forks in my path to an early retirement. Changes that i can control like having a kid, owning a home and increasing my insurance coverage or changes that i have totally no control of like interest rate fluctuations, the economy and natural disasters.

No matter the change, we as humans have to adapt, survive and get out of any good or bad changes stronger.

What investment strategies have you tried so far and how have you tweaked them to achieve your goals and reach your destination? Feel free to share them here.

As always, save more, spend less and invest wisely.
P.