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.

Early Semi Retirement - The best of both worlds.

How often have you wished that you were able to do what you love and still have enough money to see to all your expenses? Kudos to those who are currently loving their jobs they are at but many of us are stuck working at places we have no wish to be at.

We might not dread going to work, but that does not mean that its the place to want to be at the moment either For us who do not yet have a big enough investment fund to retire, one of the options that we have would be to semi-retire. However, I am going to have to remind you that tradeoffs would have to be made to get there. These tradeoffs and problems could come in many forms, most common of them are:

• Less income coming in every month - This could be mitigated by building a passive income enough to cover half or the entire of your expenses.
• Spousal disagreement - If you are married, you have made a choice that every decision you make involves 2 persons now. Make sure your spouse is agreeable with the choice that you are makingso as not to cause any future disagreements and resentment.
• Emotional Abuse from others - This would most probably happen if you are young and not of the "proper" semi retirement age. That is why, before making the choice, you have to give it very very serious thought and once you have decided, hold on to your choice and never let anyone talk you down. There will definitely be people who don't understand, people who are angry with your choice or people who are jealous of what you are doing just because they do not have the courage to seek what they desire. Let me remind you this - THIS IS YOUR LIFE, not theirs. If you succeed, it is YOU who succeeds and if you fail, it is YOU who fails. Do not let anyone choose your path for you else you will resent that person greatly in the future.

There are many ways to get there, it all depends on what you are seeking to attain. Having an extremely early semi retirement does not mean you just laze around and do nothing - (you could if you want). It means that you have the time to do what you love doing. Be it learning new skills, being able to have more time for your hobby or being able to spend more time with your family.

Its not all just fluffy dreams, it can definitely be achieved. But careful plans have to be made, you must be confident that your finances can hold up, you must acknowledge that you cannot afford to spend as much as you did when you were working full time and you must definitely have a contingency plan. Here is a check list of the things that you need or will have to do.

• Emergency Funds - This is important whether you are still working, semi retired or retired. You never know when an emergency would strike so this fund would definitely come in handy till you figure out your next move. Only you can know the amount of funds to have here. If you have the ability to reestablish your cash flow fast, you will require less.
• Cashflow - If you are partially relying on dividends, you will have to be very careful as it does not come at an equal amount every month. Make sure you always have a cash pool to fund those months you have less.
• Boss's Agreement - This is the most important actually if you do not intend to leave your current employment. You would have to somehow convince your boss to allow you to work part time. If this does not work out, you could always find a less stressful part time job that you enjoy.
• Medical Insurance - I feel that this is an extremely important item that you should acquire as you might not be receiving it from your regular employment. Having unexpected medical emergencies could derail any plan.
• A Plan - It goes without saying that you MUST have a plan, how you are going to fund your expenses, what are you going to do after semi retiring, what backups do you have and what are you going to do when if you do not succeed.

After all is said and done, we must all be realistic. Not everyone is cut out to be able to do this. Some might not want to give up buying luxury goods and  some might not yet have enough assets to risk carrying this out. We ourselves know best what is possible and good for us. Let's all strive to achieve an early semi-retirement followed by a full retirement soon. Let us not conform to what society tells us to be, let us not be brought down so easily by the hurtful words of others. Let us have the greatest gift of all - CHOICE.

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

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.

Know When To Alight

Dear Readers,

I'm pretty sure that like me, most of you have a set retirement date and amount of money you want to have at retirement in mind. However, can you honestly say that when you eventually reach that much awaited point in your life, you could just stop what you have been doing for say 20 years and start a 'new' life?

I wonder what I would feel at that time as a person who likes to have a large margin of safety. I guess I would wonder to myself as to whether I have sufficient funds to allow my family to live comfortably. I would also ask myself what I would do with so much of my time. I do have a list of things I would love to do now, but would it be the same 15 years down the road?

Anyway, what I wanted to say in this post is that, besides having enough money, there are other things to consider before alighting at your retirement stop.

• Friends - I'm talking about close friends that have been with you through the years. You having an early retirement does not mean that they too are having one. Will you have to look for new friends to participate in all the activities you planned for during your extra time in retirement?
• Health - Are you healthy? It affects everything, from the amount of money you will have to spend to the changes in your mood. Make sure that you are well covered insurance wise and also please eat healthily and exercise more so as to keep a healthy body. ( Note to self : Please practice what you preach)
• Family - Are your immediate family members supportive of your decision? Is your spouse going to continue working or is he/she going to retire early as well? I feel that everyone in your immediate family should be comfortable with the situation if you are to have a happy and early retirement.
• Career - Are you ready to leave your career behind? Something that you have been working hard for through the past decades of your life? If you are not, you could consider semi retirement first before the transition to a full retirement. Anyway, I feel that we should not let our careers define our lives. Straying a little bit from my point here but I was wondering, at the moment, if someone asked you what you do, without a thought, you would say Engineer or accountant or doctor. What happens when someone asks the same question after you have retired at a young age? Er, I do....things I like? I do..Life? Anyway, just a thought, no further thinking required. 
• Hobbies - What are you going to do during all that free time? It's not as easy to fill as you think. I once took a 1 week break and realized that it's extremely boring not to have a goal in mind. What's worse was that I was the only one I knew that was not working that week so in a way, I was alone. Perhaps a preview of early retirement if my wife continues to work. - I'll have to reconsider a full early retirement until my wife retires as well. Actually these days, I'm more inclined towards a semi retirement as my wife and I should be starting a business of our own real soon. Fingers crossed it works out.

So there you have it, some pointers to consider in order to make sure that you are ready when the time comes. I wish you all the best whether you are just about to start your journey or are towards the end of it.

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

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.

My Fears Related to Early Retirement

I have often wondered how would people around me feel or perceive me should I tell them that I will be retired before the age of 40. Most would just assume that I either struck the lottery, inherited a massive amount of wealth or that I command a massive paycheck. All these are not true. Early retirement, for me is gained by saving hard, cutting the amount of money I spend and also taking the effort and time to find the correct stocks and bonds to purchase.

I also have this fear that should I retire early, especially in Singapore, many would see me and those like me as lazy. Questions would start flooding in, from both relatives and friends. "Why don't you continue working to earn more money?". " Why are you doing non constructive stuff". "Why are you no longer a productive member of the society?" .... So many whys. Well, @!$!@4 you that's why. Just kidding.

I seek early retirement because I do not want to work the best part of my life away. There is only a finite amount of things you need to purchase in life. I want to live, do the things I want to do while I am able. I want to be able to travel without fear of work piling up while I'm away. I want to be able to have a 2 hour lunch followed by a 1 hour stroll and not a 1 hour lunch. I want to be able to take the lessons and courses I have been wanting to take but have no time for. French, bike, diving and powerboat. All these things and many more. You get my drift.

Working will usually drain you of your energy, and at the end of the day, all you want to do is laze on the couch and watch some TV. Is that how you want to live you life till you are 65? I damn well do not.

Therefore, I have come to a conclusion. I will only care what the people directly affected by my early retirement think - A.K.A. My wife and future children. I feel that as long as we are happy, and my wife and I are able to provide for all our and future children's needs, other people can say anything they want and not mean a thing to me.

You know yourself best. If you have set an intended course, do not let anyone sway you from it. Many will sway you out of jealousy. Do not be brought down by their petty remarks. As long as you and your family are happy and contented, nothing else really matters.

Phwoar..really needed to let that out because it has been bugging me for quite some time. Sorry for the rant.

Anyway, as always, Save more, Spend Less and Invest Wisely.
P.

Set Mini Crossover Points to Spur you towards the Ultimate Crossover Point

The ultimate crossover point is when your passive incomes are finally more than your total expenses. This is when you know you have reach financial freedom. At this point, you will no longer be bound by the need to have a job. You will have this very special reward called choice. Choice to work or just to stay at home the entire day. Choice to travel for an entire year and choice to never work again.

The only problem is that the journey to this crossover point is long and tedious. Different people set different points as spending and saving needs and powers are different. For example, if you spend very little and save a lot, you will reach your crossover point very quickly. And if you spend a lot and save very little, you will reach your crossover point very late in life or never at all. No pain no gain.

However, for the average folks like me who save a decent amount and are not mad spenders, the journey would still be quite a long and arduous one. To keep ourselves motivated and to prevent the thought of giving up, we should set mini crossover points. These are like mini goals to reach, one step at a time.

Here are some mini crossover points to help you generate more ideas.

1. Positive Net Worth - In Singapore, I assume that when we get a house, we will fall into negative net worth. Getting back to positive net worth will require work  but will definitely be a welcomed crossover point.
2. No Debts - Another point to cross would be to have no debts. Student debts, credit card debts or renovation loans.
3. Passive Income to cover certain Expenses - Break your expenses up into different categories. For example, telephone bills, water bills, electricity bills or groceries and such. Every time your passive income cover one of the expenses totally, you have reach a mini cross over point. It feels good to know that at that point, you will never need to worry about paying for that expense again.

Now that you have gotten an idea of mini crossovers, you can come up with a list of your own. I hope this helps motivate and spur you on.

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

The Rat Traps to Savings

Dear readers, to save money is one of the most important, if not the most important step to financial independence and retirement.Without this step, nothing will be achieved. No emergency funds, no investments, no safety net. So why is it that so many out there who are able to save still not saving or saving way too little?
I guess the main reason is that they have hit one of the several Rat Traps. Rat Traps are traps that stop you from getting out of the Rat Race. It traps you and keeps you there until you die. Sad but true.

For today's post, I'm going to talk more about the Rat Traps that keep you from saving money. I hope that you are not currently caught in them and if you are, I sincerely hope that you will realize it after reading this post and get out of it and eventually the never ending Rat Race.

So without further ado, here they are.

1. Ready, get set.....NOTHING 
• The hardest part to doing anything new is to get started. There are so many thoughts running through our heads that keep us from taking that first step forward. The 2 largest killing factors are fear and procrastination. For savings, it's mainly procrastination. We always have something we need the money for first, so wait. Too lazy to open a savings account, so wait. Remember, every single day you procrastinate will delay your target date of retirement. Push yourself out of your comfort zone, tell someone or everyone that you are going to start a savings plan and do it. This will push you to not procrastinate and friends and family will from time to time ask you how your plans are going, thus reminding you to keep on doing it.
2. Inconsistent Savings.
• If you are not saving on a regular basis, you will not be able to form the habit of saving. Your conviction to save will be too rubbery. You might fall into the trap of eventually telling yourself, why save and stop saving altogether. Combat this trap by setting up an automated savings account. Most banks have these and the best part is that you wont even have to think about it.
3. Eenie meenie minee mo!
• This trap is, to me, the deadliest of all traps. Conflicting goals. It makes you weigh and choose which situation is the more important one. Conflicting goals are when  you have to choose between saving for that period, or using it to go for that year end holiday you and your family have been talking about all year. If you save, you will be on target to retirement. If you spend on the holiday, your family would be happy. So hard to decide...Set your priorities right, and sometimes, its okay to compromise. The best thing you can do here is to, if you know that you are going to spend on a year end holiday, start setting money aside throughout the year for it. This way, you will not eat into your retirement portions of your savings and your family will be able to have a nice holiday.
4. I'm going nowhere..forget it.
• This is where most people get caught, they have taken the 1st step, and the 2nd and maybe even reached the 10th step. But at a certain point, you will definitely start to doubt and wonder whether all of this is worth the effort at all. Your savings and investments seem to be going nowhere. The balance doesn't even look like its moving. But please, you have pulled yourself this far. Nothing good is ever free or easy. There is a saying that the 1st $100,000 or the 1st $1,000,000 is the hardest and as you go on, it gets easier and easier. Just put one foot in front of the other and keep on going. Set mini goals in between this large goal to keep yourself motivated. Set yearly or monthly goals to save a certain amount, invest a certain amount or pay of a certain amount of debt. This helps, trust me.

Having read about the traps, can you relate to any of them? Are you currently in one? Or did you manage to get out of all these traps? I sincerely hope that we will all escape these traps as soon as possible and get on with out journey towards an early retirement. To those that are still there, don't give up. Try again and never be afraid to ask for help. We come and go from this world alone, but for the span of time that we are in it, we are not.

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

The Spine of Early Retirement

I'm sure that most of you are familiar with some of the steps you have to take to reach early retirement, but bear with me as I repeat them once again for the benefit those who do not. These steps are not concrete and you can choose to take them or not to attain your early retirement but I believe that paths are similar to these. Only difference being your personal tweaks, luck and mistakes.

Without further ado, here they are:

• Start as Early as Possible - This applies not only to those seeking early retirement or financial freedom but to everyone. The earlier you start, the more time you have to allow the magic of compound interest to work. What's more, having more time allows for more margin of error. No one is perfect therefore we should always make allowance for mistakes.

• Manage your Consumption - One of the main reasons why most people are not able to save enough for an early retirement is because they spend to much. We are all wired to consume and many of us can't help it but conform. However, there is this rebel within us that does not want to conform, we want to break free from the norm - these are the people that are able to achieve extremely early retirement. Reduce spending now, stop spending money on too much wants, stick with the needs. You do not need that new hand phone just because it has a battery life of 1/2 an hour more than yours or a screen 1/2 an inch bigger than yours. Remember, you choose your enough, not your neighbor.

• .Cut down on Excess Spending -  I know it's often hard to form new good habits, but trust me, this will benefit you. For just 1 or 2 months, track every dollar you spend and at the end of the month, you will be able to see where you have been spending unnecessarily. These are the parts of your spending tree that you must prune away. If you feel comfortable keeping track of your expenses by then, you can continue doing so. If not, try to stick to your current monthly expenses less those unnecessary expenses and do a follow up 6 months later to find out your monthly expense status.

•  Be Frugal - This step is an acquired taste, once you get it, it becomes something you actually enjoy doing. However i urge you to do this is moderation if you are not alone in your journey. Your significant other might not share the same joys as you in being frugal. You have to take baby steps to let them see the benefits of being frugal. What you must do to be frugal is to view money as an extremely precious resource not be to exchanged for something of lesser value. For me, i feel that lesser value means items that bring no benefit or new experiences to your life. Most of the time, these items just bring you momentary satisfaction that last for a month at most. Not worth it.

• Never Trade Early Retirement for Happiness and Family - This is the last and most important key. You should never trade anything in this world for happiness and your family. What is the point of forsaking your happiness and family to gain early retirement? The point of early retirement is to be able to have time for both. Don't be over obsessed with retiring early that you forgo your current happiness or spend so much time tweaking your spreadsheet or monitoring your portfolio that you neglect your family. You have to set your priorities right.. what is most important in your life. For me, its family, for without them life would be quite meaningless even if u have all the riches in the world.

 I know that everyone will make mistakes as to err is to be human or was it to err is human... Anyway, i hope that on your journey to financial freedom or early retirement, you will make more right choices than mistakes. Ponder upon what is most important in your life, keep it close and never ever trade it for anything this world has to offer.

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

Thou Shall Not Covet

" Look at your own life to see what is enough, don't look at your neighbors to compare. " Saw this quote or something similar at a blog  i once read. My memory seems to be failing me. Can't decide whether it's due to me getting on in age or just too many things flying around in my mind.

The quote is so true. Since young, we have been 'trained' to always do better than others. Get better results than others, run faster than other, earn more than other or get a better car than others. We often look to our neighbors to compare but is one-upping our neighbor going to improve our lives significantly? There will always be someone else to compare with and in the end, it will form a never ending cycle.

Ask yourselves this, do you really need that extra million to retire? Do you really need that new phone? Do you really need a new car? Sure, these things are definitely nice to have, but do you need them? After earning that extra million, will you stop or will you want to earn another.. and another .. and another.

The important thing is to figure out what you deem is sufficient and work towards attaining that. If you want to get from point A to point B, especially in Singapore, a Honda Civic would do as well as a Porsche. Why get it just so you can feel 'better' than someone?

At the end of the day, what stays with you are memories of the experiences you went through and not the material things that you have accumulated. Don't get on the never ending roller coaster ride of endless consumption. Know what is enough and spend the rest of your energy enjoying the rest of your life.

P.

Are you saving enough?

As per the title, do you think that you are stashing away enough money? Are you saving 30%, 20% or nothing at all? Well, it's never too late to start but be warned that the later you start, the longer you have to work and the later you retire.

The amount of your salary that you save per month is directly co related to when you can retire. Let's say you save 25% of your income per month for a year. That would mean that you have a year or retirement saved up ready to be invested after every 4 years.(Presuming you have the same level of expenses after retirement) And if you save 50% of your income, you would have a years worth after 2 years.

An example would better illustrate this. Here are 2 friends, Jon and Mike, both 25 and are commanding the same income of $5000. Jon saves 25% and Mike saves 50%. They both invest their money at a rate of 8% and require $3,500 a month to cover their expenses when they retire.( Higher expenses due to dream of traveling and fulfilling other things they always wanted but did not have time to do)

With the power of higher percentage of savings and the magic of compounding, Mike would achieve retirement at the very young age of 35. Jon on the other hand would have to slog for another 6 years of this life to reach the same level as Mike and retire at the age of 41.

Are you ready to save more now to attain an earlier retirement? Or will you rather enjoy that little bit more now and have to retire later. I choose to save more now and retire earlier. For those with partners who differ in your views of saving versus spending, you can always apply the bad mood fund and adjust slowly to an amount you are both comfortable with. I mean, there is no point in starting your journey with an argument or fight with your special someone when one of the key reasons for early retirement would be to get to spend more time with them.

With this, I leave you to ponder your priorities as you yourself know which path to take best. I wish you wealth and happiness in whichever path you choose.

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