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This is the transcript of a YouTube video I produced recently.
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In 2017, I published a rather controversial blog which shared the story of a couple who chose financial freedom over home ownership.
OMG!
What did I just say?
Isn't home ownership part and parcel of financial freedom?
Well, it depends.
Anyway, some readers didn't like the blog.
It could have hurt their vested interests, if you know what I mean.
So, if you are one with vested interests, you might want to stop listening or reading now.
I don't want to upset anyone.
I might have upset some people before but it was never my intention.
Still here?
Still here?
OK, since you are still interested to find out more, just take this as another perspective on how to achieve financial freedom.
So, back to this couple who chose financial freedom over home ownership.
They are in their thirties and, well, they are retired.
They can work from anywhere in the world that has good internet access.
They are able to move to anywhere in the world where housing is relatively cheap to rent.
Footloose, they move to any country with an attractive standard of living, while having a relatively low cost of living.
This lifestyle must sound pretty attractive to many people, including Singaporeans.
This is probably because it is attractive.
It is probably why many Singaporeans are thinking of moving to Johor in Malaysia to live.
Not being bogged down by high costs of living especially the high housing costs in Singapore, they could possibly fast forward their journey to financial freedom.
Not being bogged down by high costs of living especially the high housing costs in Singapore, they could possibly fast forward their journey to financial freedom.
What about people who want to stay in Singapore?
Singapore is relatively more expensive but there are many things to like about Singapore.
Well, for those of us who choose to stay in Singapore, we could become financially free faster if we avoid over consumption in housing.
Very often, people over consume when it comes to housing.
Not surprisingly, they might also be the people who find financial freedom out of reach.
This could be even though they might be enjoying higher than average earned incomes.
Often, it has to do with peer pressure.
Keeping up appearances is more than just financially destructive.
Do you believe me when I say that when I tell people I downsized from a two-bedroom apartment to a one-bedroom apartment, most of the time I would get a negative response?
Do you believe me when I say that when I tell people I downsized from a two-bedroom apartment to a one-bedroom apartment, most of the time I would get a negative response?
When I told my banker that I bought a small car, he said the same thing my dad said, that he would not buy a small car unless he could not afford a bigger one.
When we think about it, it really has to do with peer pressure and keeping up appearances, but it is also how we deal with it.
In a recent survey, results showed that homeowners generally scored lower on retirement readiness than those who live in rental homes.
Nearly 30 per cent of homeowners surveyed saved less than 10 per cent of their salary, and their median retirement readiness score was placed at the “very low” level.
“These results suggest that homeownership does not guarantee retirement security, especially if an individual is not saving enough for retirement.
“These results suggest that homeownership does not guarantee retirement security, especially if an individual is not saving enough for retirement.
While a property is usually considered a financial asset in the long term, it is essentially still a liability until its mortgage is paid off.
“An individual with most of their retirement savings tied up in property assets could be facing a less-than-ideal retirement, since this property wealth does not contribute to retirement income.”
So, subscribing to this idea that our homes are investments could be misguided.
In order for this to be a good idea, we must be willing to monetize our homes in one way or another.
We must be willing to rent out the spare room or rooms, if available.
We must be willing to downsize or downgrade to unlock value, if any.
This means going to for a smaller apartment or to move from a private apartment to a public flat later on.
It doesn't hurt to have some advantages in life but unless severely disadvantaged, all of us can be financially free.
It doesn't hurt to have some advantages in life but unless severely disadvantaged, all of us can be financially free.
Know ourselves.
Know our circumstances.
We especially do not want to do something to keep up appearances.
If we want to be financially free, focus on cash flow.
Don't end up being asset rich but cash poor.
If you want an example of this, just think of AK spending his early retirement playing computer games!
I am not going to say if AK can do it, so can you.
You might not like computer games.
However, we can definitely spend some time talking to ourselves to come up with a plan.
If AK can talk to himself, so can you!
Reference:
More passive income than "rich" friends.
More passive income than "rich" friends.
Bloggy Award
9 comments:
Hi AK,
It is a real bummer to be in an asset rich but cash poor situation. But often people in such situation do have solutions. They are better off than others who are both asset poor and cash poor.
In this respect, I find this piece of advise from Robert Kiyosaki to be very useful. He said dont buy the biggest house you can afford, but split the money to buy the home you need and use the rest to buy another to generate income (rental).
And in a way, we have done that even without knowing about RK's advise nor who he was. But in S'pore's context, those who have bought big houses eons ago are the big winners. Although our cash flow is healthy, in terms of networth, we certainly lost out to friends who bought big home at the start.
My friends with big homes (eg., semi-Ds) could easily downgrade to two to three condos and earn rental incomes. And indeed, many of them actually did that upon retirement. Just this year, a 65 yo friend sold of his penthouse at $3.8M to downgrade to a smaller condo apartment. A 55 yo colleague sold off his terrace house for well over $3M to downgrade to a 5room resale HDB and this paved the way for the wife to retire.
So as you can see, the solutions are there for asset (especially home) rich people to monetise their asset if they so desire or need to.
From what I observed of friends and colleauges of my cohort (am 62 this year) are these "benefits" of buying big homes in the early stage of our working life....they lived simply because a big portion of their salaries were channelled to pay their home mortgages, they tended to work longer thus amassing more wealth and their property values grew multi-fold.
Hi MSI,
Oh, for sure, being both asset poor and cash poor is worse than being asset rich and cash poor.
However, this blog is geared more towards people much younger than us who feel that private real estate in Singapore is out of reach for them now.
They should know that they don't have to pull out their hair trying to follow the footsteps of older people who became rich buying private real estate in Singapore. :)
We are very fortunate that Singapore has developed into a prosperous country but it hasn't been totally positive for everybody, unfortunately.
From my YouTube channel:
Kevin Ho
I subscribed to your beliefs and that is why I am cash rich in dividend stock and just a small place to stay with the intent to be totally mobile in whichever cities I want to be staying for either short or extended period when I retire in 6 years’ time .
AK
In a crisis, it is hard to pack a house in our luggage too. 🤣
Dear AK
Nice piece, thank you
Property as an asset is still good priced rgere is positive cash flow, either after your mortgage outgoings are lower then rent minus expenses or still ideally, if owned outright and producing income. Primary residence is ok to count towards net worth but it is not “enjoyed” until you monetize it
Sadly, this is difficult to do when you are younger and have family commitment related expenses
Nevertheless, it is a laudable objective to own real estate as long as there is direct cash flow or indirect benefit such as saved rent and hopefully capital appreciation
The latter, nowadays in SG, is not easy at all
Regards
Garudadri
Hi Garudadri,
I very much agree with you that it isn't easy in Singapore these days.
In fact, for many, it might not even be possible.
Still, young people should not be disheartened and think that they would never achieve financial freedom just because private real estate is beyond their reach in Singapore.
Of course, I am just talking to myself here, as usual. ;p
For young couple, generally BTO is the way to go. Affordable to most. Only when they try to move to acquire another property (condo) they need to perform above average/peers.
Hi Cory,
These days, being just above average would not be enough to acquire private real estate in Singapore anymore.
I remember buying a couple of condos together with my sister during SARS.
Our combined income was less than $10K a month which was still above average.
I don't think we would be able to do that today even if we had a combined income that's 50% higher than during SARS.
When friends in Hong Kong and Taiwan told me many years ago that Singapore would gradually become a place where younger people would find it hard to afford private real estate, they were sharing their experience in their own homes.
Young people could not afford to buy their homes in Hong Kong and Taiwan then.
Fortunately, in Singapore, we still have HDB flats which have also become more expensive but still within reach of the young. :)
The bar has moved higher for Condo which may not be a bad thing else excesses have to go somewhere as we get more competitive and more talented people moved up in absolute number though many not be in similar percentage but the land of the city state is limited.
Count yourself lucky to be able to buy one during SARS. I missed that one. No more low hanging fruit on property for masses with current curbs. Trying to have 2nd property for retirement income is much harder now. Is true young people in other countries could not afford to own property even in cheaper cities which also seen significant price run-up.
In fact Singapore is a role model to Taiwan when come to public housing. Unfortunately they do not have massive owned HDBs. Maybe politically unattainable due to local developers have much bigger clout. At lease they have build up recently "HDB like" for rentals with conditions. Massive structure with large community space beautifully done. I thought it was done excellently by Former Mayor Ko Wen-je. He has done the impossible. Hopefully it can be replicated continuously. https://goo.gl/maps/nqLDLez3M5hS3DDr8
Hi Cory,
Thanks for sharing the development in Taiwan.
I have not been in touch with friends in Taiwan and Hong Kong since retiring from work. ;p
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