F-You Money

Recently, I learnt a new term known as "F-You Money". The concept is entirely familiar to me, but I never thought of using such a straightforward, in your face term to describe it.

You can read this article to understand F-You Money in all its glory.

Interested?

This guy wrote one of the simplest, no-nonsense article about the path to wealth accumulation, and I highly recommend you read it.

One small regret I have was not bookmarking down a lot of good financial articles I came across this year. I'll try to jot and compile these down into a list in the future.

10 Years - Road To Financial Independence

29 years old! How quickly time flies.

This is one of the most "turbulent" year of my life, with many obstacles and down period. Looking forward to the 2 weeks year end leave to recharge and re-organize.

As I don't forsee myself settling down anytime soon, there are few "life goals" I can make aside from financial ones. On the positive note, perhaps that isn't such a bad thing.

Come January, I will officially kick start my 10 years master plan to financial independence.

Having worked for 3+ years,  I have reached a stage of relative stability - No debts, sufficient emergency funds, mini war chest and decent portfolio. I also just completed my first full year of investing, and while the results weren't pretty due to the minor market crash, I have learned many valuable lessons. It's also lucky that I'm experiencing a market correction early in my life.

I have mapped out a plan based on how much I can inject yearly, a conservative yield of 5% dividend and 5% capital gains, roughly based on this calculator. According to my calculations, it'll be 10 - 12 years until I gain financial independence. (Hopefully before I reach 40!)

*All these are based on assumptions that I remain single, don't purchase a property or raise a kid. They also excludes any wage raise, inflation and CPF calculations. Anyway, I shall write in more detail in the year end tabulation.

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What does it all mean then? Am I going to retire then?

Actually, financial independence has nothing to do with retiring. It got to do with the freedom of your life.

I've seen many people around me "suffer" from poor financial status, either minor or major.. They are scared of losing their jobs at 40 years old because they have no savings. They endured humiliation and pain because they have families to feed. They developed health problems but can't take time off to rest. They give up their dreams because their passion can't feed their lifestyle.

I really hope I don't become like that.

Who knows what will happen by the time I'm 40?

Will I still have passion for technology? Will I still have the the energy to do what I am doing now? Will I still be fit and healthy?

Or will I have developed new interests? Maybe I'll rot at home. Maybe I'll travel the world. Maybe I'll just continue working as normal.

The point is that whatever decision I make, money would no longer be a factor in it. I will have total control of my life.

The Misunderstood Path of Frugality

Respected blogger Kyith from Investment Moats shared the story of how a man paid off his house mortgage in 3+ years by living a life of "poverty baseline". It's an extremely educational and enlightening read.

Instead of applauding and learning from him, the internet condemn his story with things like how he has no life and is a slave of money. I found it laughable.

The reason why we live a frugal life is exactly the opposite - we DON'T WANT to become slave of money. We can't afford to not be disciplined if we want to escape the money cycle while we are still young and energetic.

To re-quote from Felix (another 1 of my respected blogger):

"This current generation YOLO too much. YOLO can be meaningful at times, but often it is nothing but short term gain and long term pain.

YOLO after graduation, don't work, go travel a year. That's financial suicide.

The right way should be work 10 years, build your golden nest egg, and let your eggs give you a free holiday."

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I could not agree more.

It's all about discipline and delayed gratification.

And that is exactly what I am trying to do.

A 10 years path to financial independence.

Road To Financial Freedom

Earlier this year, I completed the financial book by Tony Robbins, Master the Money.

It's a pretty good read, similar to his other classics like Awaken the Giant Within. The most important concepts he advocates are exactly what I believe in: long term investing, avoiding management funds with high fees, compounding your money today for the future.

The specifics are more applicable to United States, but the concepts and ideas are much more important. (e.g. Their 401K can be thought of as CPF in Singapore) Anyway, I don't intend to do a thorough review of his book.

I just want to borrow his ideas of "financial milestones" and expand upon them for my own purpose. In the book, Tony describes 5 major financial milestones, and I altered them slightly into smaller steps for the milestones of my life.


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1 - Financial Stability
The foundation of any financial management. You achieve this when you have no bad debts, 12 months of emergency funds and sufficient insurance coverage. At this stage, there is no passive income to speak of. Everyone should seek to reach this asap, or a single bad accident could wipe you out.

From what I have read online, 4 out of 5 young Singaporeans have NO savings at all. That just sounds crazy to me. If you can achieve this, you are in good shape to start your financial dream.


2 - Financial Security
Tony describe this as the stage where your home mortgage, utilities, food, transport and basic insurance (the absolute basic necessities) can be paid for without having to work to pay for them again.

I feel this is the toughest milestone to reach because it requires one to start saving and investing. You need to overcome the fear of investing and the temptation of quick money, then take the first step forward. Many people I know see it as impossible, and eventually resort to gambling and other 'get rich quick' methods because it just takes too long to see results.

We see it as a huge mountain to climb, but it's not. A journey of a thousand miles begins with a single step. We are still young, and we need to take baby steps. We need to set baby goals to keep ourselves on track.

How about setting your first goal as generating enough passive income to cover all your lunch expenses? That's a simple enough start. As you reinvest your earnings and compound your money, you will grow your passive income faster and faster. Before your realize it, it'll be enough to cover your all your food expenses. Then your phone and internet bills!

I think a good time to reach this stage would be 5 - 10 years, depending on whether you are married/single (have home mortgage or not). 


3 - Financial Vitality
The third level of dream refers to the situation where you can not only meet all basic needs, but have some extras for enjoyment! When achieved, your personal items, minor healthcare, entertainment and 'small indulgence' costs can be covered without working.

For me, that'll include things such as movie tickets, video games, the occasional lottery tickets, social functions (e.g wedding dinners) and dental/doctor trips.

Personally, I feel this would be a breeze if you are already at stage 2. You probably take half the time it takes to go from 1 to 2.


4 - Financial Independence
The most well known form of the financial milestone. Financial independence is attained when your passive income is sufficient to provide the same lifestyle you have today without working.

Congratulations! You can now afford to quit your job and "shake leg" at home. You don't have to worried about getting laid off, or struck with emergencies anymore.

For me, it would include all my recurring expenses + my average major purchases (like IT gadgets, vacation) for the year.

On a side note, it's important not to lose yourself after attaining stage 4. Remember why you started out on this journey in the first place.


5 - Financial Freedom
The ultimate financial dream - not only can you cover your current lifestyle, you have enough passive income to cover your "desired lifestyle" (throw in your luxuries)

Yeah, throw in your multi-million bungalow, Rolls Royce and the likes.

This varies greatly from person, and if your current lifestyle is already your desired lifestyle, then 4 and 5 would be the same. Who is to say you must want a big fancy house and car?

I wouldn't even want to think about this stage at this moment. I feel there is a bit of a "dream" factor built into this one, to have something to work towards after achieving financial independence.


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As you can see, it becomes obvious why I have been diligently tracking my expenses. It lets you know exactly how much you need per month to meet your financial milestones!

For my personal journey, I planned to introduce a "100% margin of safety" as a conservative buffer. This is mainly due to guard against future increase in expense and financial turmoil. In other words, I must achieved 100% passive income above the stipulated amount before I considered myself to have reach the milestone.

A journey of a thousand miles begin with a single step. Take that first step today.

Revelation - Financial Management

Financial management is a complex subject, and it's often hard to put yourself in another shoes because everyone's circumstances are so different. It's also a topic where you can easily 'offend' other people and receive tons of backlash.

"How dare you criticize/judge me for not saving? You don't give as much to your parents."
"You are single while I have families to raise. It's not possible to save."
"You earn more than me blah blah blah..."

Etc... you get the idea. Of course I think there are really genuine, serious cases out there of people  struggling to make ends meet. Their income is not enough to suspend bare necessities. What I am describing here excludes them.

Anyway, here are my observations:

I've known people who have worked for ~10 years or more, and doesn't have >3months salary worth of savings. I also know people who prefer to drag their school loans for as long as possible, paying the minimum each month and pay an additional god knows how much in interest. Then there are people who have no qualms about splurging on expensive vacations then claiming they are poor. This is something I am totally unable to comprehend.

These are views that I keep to myself, because you can see how easily they can be offensive to others. I have no business meddling with how they wish to spend their money.

I see people around me claiming they don't want to work until they die, yet they're not even saving/investing at all. What do you expect? Strike the lottery 'someday'? If you can't save now while you are young, do you think you can save later when you've got families, aging parents, worsening health, more commitments? 

To me, I am very clear on my financial goals and my strategy to achieve them. There are more than one way to Rome, and I don't claim mine is the best. Some people work harder to increase their income, some live frugally to cut expenses, other choose to start their own businesses. It is just what you choose to sacrifice, and I stood by my principles and beliefs.

Still think it's impossible? Again, you can look around the financial blogosphere for inspiration. Take a look at "Budget Babe", who saved $20K a year on a $2.5K salary. Or "Dividend Mantra", who had nothing at 28 years old (2009), and in 6 short years has built up a portfolio generating $5000+ per year. How about this janitor who amassed $8 million dollars by simply saving and investing over 65 years?

You might be thinking that's stupid cause there's no point being the richest man in the graveyard. Well, I don't plan to wait that long either. And we don't have to.

I think most of us here earn more than the janitor. If we just practice a little delayed gratification, avoid bad debts and big purchases that will lead to financial ruin, it is very possible to achieve financial security in 10 years, and financial independence in 20 years. All these without "going overboard". By that I mean still enjoying life in the process, not de-voiding yourself of all pleasures of spending.

Most of us are not lucky enough to be born with a silver spoon or blessed with a super high paying job. We need to plan the first half of our lives carefully to escape the rat race. The goal is not to amass mountains of wealth to show off or compete with others, but to generate your personal income stream so that finances no longer becomes a factor in the future. You can finally afford to choose a job you love without consideration of the salary. You can finally sleep in peace knowing you are prepared for any emergencies.

If you look far in the future, you will see that starting today is definitely worth it.

Revelation - Investing

As I got more into investing over the past year, it has also become a more prevalent topic in my life. I have made many observations about how people around me react to this, and I think quite interesting. I'll break down these observations into 2 separate posts, this one on investments, and the other on financial management.

When it comes to investing, I have encountered 2 major groups of people in my social circle.  


Those who are completely uninterested in the topic 
They view investing as something dangerous, risky, and roughly equivalent to gambling. I think maybe they watch too much drama, or news of people jumping off buildings during financial crisis. I was such a person in the past - and today one of my biggest regret is learning about investing 10 years late.

Do you know that $100 now can only buy $50 worth of things in 20 years time?

Do you know that if you invest 'conservatively' in the market, your $100 will grow (past on historical results) to $400 in 20 years?

People spend 8-10 hours a day working, 40+ hours a week working and they don't even spend 1 hour a month to learn about growing their money. That 1 hour is worth much much more in dollar value than your salary.


Those who speculate/do trading
I think these are the people who give investing a bad name.

These are people I know who time the market actively, buying/selling based on chart patterns, some even buying without even knowing what the company (usually penny stocks) do. Worst: Some employ leverage and trade using borrowed money. My intention here is definitely not to laugh at them, although I think some of them feel this way. In fact, it pains me to see people I care about sink deeper and deeper into the hole.

Studies have shown again and again that 95% of traders lose money. On the other hand, if you invest your money in the market for 20 years at ANY point of time, you would never have lost money. Time in the market matters, not timing the market.

Even the best fund managers and companies in the world, who do these as their full time job, have gone bankrupt from speculating. Do you seriously think you are better than them?

I think that is the problem with 'young people' nowadays? They want to get rich fast, and they want to get rich NOW. (yeah it makes me sound like an old man)

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Whenever I tell people I am investing, they automatically categorize me as the 2nd type.

Then they start sharing macro economic trends, simi simi patterns, simi simi penny stocks. It really is a stereotype linked with the word 'investing'. Even my own family had the same reactions. They do not believe there is such thing as buying a company 'for the long term'. To them, long term = 6 months. Growing your money means putting it into banks fixed deposits.

And hence, my observation is this:

The 2nd group of people 'scares' the first group of people from ever starting to learn about investing. And if somehow the first group of people got started, they became the 2nd group of people.


Long Term Investing

Very few of my friends actually share the same investing methodology as me. Luckily, I have a huge group of "enlightened tutors" (启蒙导师) that I follow online. It makes me feel that I am not alone on this arduous and misunderstood journey.

If you bother, take a look around the local blogosphere community: There are many examples of normal, working class 'peasants' who are recording their step by step journey towards financial independence (and some already 'reached their destination'). They are not born with a silver spoon. They are not multi-millionaires giving generic, motherhood statement advice. They are middle class citizens who got a median income job just like you and me. Just google them:

AK71 - Semi retired at 40+, with a 6 digit passive income every year yet still live a frugal lifestyle. Blogs about saving money, investments, CPF and many other topics.

Dividend Warrior - Started investing in 2008 and accumulated a portfolio generating $1000 per month by early 30s, before starting his own business.

15HWW Couple - A couple who recorded their expenses monthly, married and saved $250k before 30. Earned $8K passive income last year. (how lucky is it to have a SO who share the same financial dream as you!)

Got Money Got Honey - A 25 year old chap with a $20K portfolio, $300/year passive income who writes really entertaining articles. He has a clear goal of what he wants to achieve at each stage of his life.
  
And many more which I can't possibly list. 

As you can see, they are all at different stages of life with largely different "networth". Some started earlier, some started late, but that's not what is important at all. 

What is important is they all largely believe in long term investing, in creating passive income to ultimately achieve financial independence. Accumulating durians no longer works in the world we live in today. We need to plant durian trees where we can harvest year after year.

"Measuring returns at the start of every month from 1988 to August 2013, if the index was held for a year, there’s a 41% chance of sitting on negative nominal (i.e. unadjusted for inflation) returns. Hold it for 10 years, and losses occurred only 19% of the time. Double the holding period to 20 years however – here comes the kicker – and there were no losses." (Straits Times Index, Motley Fool)

No Shortcut To Financial Freedom

Few months back, I made a post about the lure of quick money. I didn't expect it to happen so quickly, but I heard my friend lost quite badly after one of the stock went strongly against his position.

I am not trying to gloat here, but it made me even more firm on my 脚踏实地，循序渐进 stance towards financial freedom.

I am glad I picked up poker back then - many of its theories applies to stocks, and I think I benefited immensely now that I started investing. You need to put in lot of effort to learn the science and art of the game. It's not simply a game of chance - everything is about probability, psychology and bankroll management.

You may have done your homework and foresee a high probability of success, but you still can't dump all you have in a single stock. Even if you hold AA, the best hand possible, would you bet your ENTIRE life savings on a single hand? I hope not, because even the best hand only wins 85% of the time.

I talked to him about it and we both agree it was greed. (I guess he was influenced as well) It's like a "越陷越深" thing. The more you win, the more you'll 'gamble' the next time. Your 'luck' will run out one day.

It's even worst in stocks because it isn't a level playing field like poker. No matter how confident you are of a company upcoming earnings, remember that you are but a small pawn in the market. Your 'opponent' are big banks and hedge funds with billions and trillions of dollars under their disposal. Do you really think you can beat these people? They can move markets, we can't.

Sometimes we make the wrong decision but got a good outcome (just like a suck out), or we make the right decision and end up with a bad outcome (bad beat). We can't control over the course of 1 hand, or 1 session. What we can do is to buy good companies, and hold it for the long term. Like the saying goes, Time in the market > Timing the market.

The path to financial freedom is filled with hard work and patience.