Passive income as much as earned income? Get rich slow!

This is the transcript of another video I produced recently.

Again, this is for the benefit of people who do not follow me on YouTube or prefer reading to listening.

When I started work in my mid 20s as a young graduate, my pay was $3000 a month. 

In my 30s, my pay was around $5000 a month. 

Now, if your question is whether someone who makes the median salary in Singapore can retire early, you just have to look at me. 

Apparently, the median salary of people from age 30 to 54 in Singapore is between $5000 to almost $6000 per month, according to the Ministry of Manpower. 

Then, there is CPF contribution by employers which is not included in this figure. 

If that is included, then, monthly income is actually higher. 

Putting aside the topic of CPF which is another topic I blog extensively about, is it possible to do anything with a salary of $5000 to $6000 a month over 25 years to ensure retirement funding adequacy? 

I have many blogs on how average income workers can become rich. 

Why do many average income workers find becoming rich impossible? 

Do you believe me if I were to say it is not because they make an average income? 

The truth is many of them find this impossible because they can afford so many things in life and would buy them once they can afford to. 

This is why they cannot afford to stop working. 

Spend all the money we make and we will always be poor. 

Borrow money to fund our lifestyle, we will be poorer than poor. 

Then, for average income workers, how to become rich? 

Take for example making $5000 a month and taking home $4000 after CPF deduction. 

Do you believe me that at some point in time we could actually be saving all that $4000 every month? 

This is even if our take home pay did not increase in the future. 

Start by religiously saving 50% of our take home pay. 

That would be $2000 every month. 

If we were to invest for income and if we were to get an average of 5% dividend yield per year, we should be paid approximately $1200 in dividends in the first year. 

That is like paying ourselves a bonus of $1200! 

Imagine reinvesting the dividend in addition to $2000 a month from our take home pay, it would be like saving $2100 each month instead of only $2000. 

At some point, we would be saving and investing $4000 each month.

All this because we started saving $2000 each month and investing for income. 

Like in Economics class, this example is unrealistic because we have to hold everything else constant. 

However, like in Economics class, this little exercise demonstrates how it is possible to create sufficient passive income to replace our earned income. 

The strategy needs discipline and patience to see results. 

"Someone is sitting in the shade today because someone planted a tree a long time ago." 

- Warren Buffett 

All of us have to work with what we have been given although there should be no stopping us from trying to change our circumstances for the better if we want to, unless we are severely disadvantaged. 

I actually believe that we would have a hard time finding people who save half of their take home pay consistently for even a few years. 

However, take this as an inspiration. 

If AK can do it, so can you!

Related post:

Don't depend on wages!

F.I.R.E. lean or shaky? AK still worried? Confession.

Change is the real constant in life, many would say.

Back in June 2020, I published a blog on how worried I was. 

Why was I worried?

Dividends from my investments during the COVID-19 pandemic reduced pretty significantly.

The central banks were also lowering interest rates again in order to keep their economies alive. 

That meant even lower interest income for my fixed deposits.

It was a double whammy. 

Without an earned income, the double whammy was pretty impactful for me.

Fortunately, being a worrier, I built buffers before retiring early so many years ago.

I had an emergency fund which I was prepared to dip into if things got even worse in the same way our country dipped into our reserves during the pandemic.

It is imperative to hold a buffer against possible crises.

Our country has reserves and we should have emergency funds.

Readers who have been following my blogs for some time know what I say about regular folks like us keeping our needs simple and our wants few if we want to achieve financial freedom earlier.

It means to live well below our means.

There are people who then retire early once their passive income is able to cover their basic necessities in life with very little or no room for error.

They call it lean F.I.R.E.

I think it should be called shaky F.I.R.E.

OK, maybe I am just mental but I like to have buffers in case things go wrong.

If I didn't have buffers, with reduced dividends and interest income during the COVID-19 pandemic, I might have had to look for a job in a very difficult environment.

Just thinking of the possibility is giving me an anxiety attack.

Yes, PTSD moment right there.

What is the opposite of lean F.I.R.E. then?

Fat F.I.R.E. sounds unhealthy but maybe that is what it is.

While lean F.I.R.E. is about having just enough passive income to cover basic necessities in life, I suppose fat F.I.R.E. means being able to afford some luxuries as well.

There is a limit to how tight lean F.I.R.E. can be while the sky is the limit for fat F.I.R.E.

If I am a very sensible person, I would live like I am on lean or shaky F.I.R.E. when I have already achieved fat F.I.R.E.

This is because we don't know what we don't know.

However, I am not very sensible, so, I live in a shoebox condominium and I own a car, both of which are so expensive in Singapore.

Hence, when things took a turn for the worse like what happened during the COVID-19 pandemic, I worried as I also wished to provide my parents with greater financial support.

Don't be like AK.

Be sensible, very sensible.

Anyway, two and a half years later, how have things changed?

Things have changed a lot.

I have made changes to my investment portfolio in the last two and a half years.

The aim was to have a more resilient investment portfolio.

Passive income received from my investment portfolio has grown significantly, year on year.

Inflation has shot up and it has remained elevated.

Interest rates have increased rapidly as central banks try to tame inflation.

Cost of living crisis has become a trending topic for some time now.

However, this development is good for the financially prudent people who have been living well below their means.

Inflation affects them too but not by very much as they are used to keeping their needs simple and their wants few.

Higher interest rate is good for them too as they have ample savings in the form of a meaningful emergency fund and also a float.

Interest income is not a negligible sum anymore.

I see my interest income increasing many folds. 

In fact, the percentage increase is very much higher when compared to the increase in dividends and distributions received from my investment portfolio, year on year.

So, is AK worried no more?

I shared in a recent blog that we could see a recession this year and with inflation staying high, we could see stagflation.

So, people like AK might be quite comfortable now but don't be complacent.

Give ourselves a little treat from time to time but don't overdo the "revenge spending."

Remember, swans are not always white in color.

It is safer to stay worried!

Wishing all readers good health and abundant wealth in an energetic Year of the Rabbit!

Essential reading:

Survivability and opportunity...
Recently published:
Using CPF-OA for 4% T-bills...

References:
1. Worried as dividends and interest income reduced.
2. Largest investments updated (4Q 2022.)
3. Full year 2022 passive income.

YouTube! Level up! $1.3m! Average but rich!

Restarting my YouTube channel a few months ago, I didn't think it would stick.

When I started the channel 12 years ago, it was just to share some of the videos I took while on vacations.

That sputtered out pretty quickly.

Then, 2 years ago, I thought of sharing my adventures in Neverwinter but not many readers were interested.

8 months ago, although I suspected that not many readers would be interested, I thought of sharing some Genshin Impact gameplay.

It should have ended there.

However, I went on to experiment with making "audio books" or "audio pages" to be more exact as I kept the videos very short.

Without really knowing it, I have been doing this for 8 months now!

Stunned like vegetable!

Like I told a fellow blogger recently, in my retirement, I am a bit spoilt.

If it isn't fun, I don't do it.

If I were to do something these days thinking about the money it makes or the money it might make, I doubt it would stick.

Yes, it is about work if we want to and not work if we have to.

Alamak.

Wrong word!

Not "work" lah.

OK, it is about having fun if we want to and not having fun if we have to!

This truly is levelling up!

Bad AK! Bad AK!

Anyway, after 8 months as a YouTuber, sort of, I have received some interesting comments from viewers.

Yes, now I get to say "viewers" instead of "readers" too.

Alamaks!

AK's videos no need to view one.

Only need to listen.

Oh dear, another wrong word.

OK, not "viewers" but "listeners."

One listener, CTH, sent me this comment today:

I am 48y old this year. 

Should have $1.3 million in my CPF by 65y old. 

Keeping fingers crossed. 

Been staying dirt cheap in mini HDB flat too small with wife and 2 teenagers kids (16y n 14y). 

Love the government subsidies and low property tax. 

Don't even know the pain of COE for a car, lol. 

People laugh at our cheap lifestyle for close to 2 decades. 

Your blog keeps us going. 

See you around. You're the man. :)

In response, I told CTH that financial prudence and patience will be rewarded.

All in good time.

We are all wired differently and have different circumstances.

However, unless we are badly disadvantaged, most of us in Singapore can be financially free if we do what is within our abilities to do.

It depends more on whether we have the willpower to do it.

This reminds me of another reader's story which I shared in this blog:

More passive income than "richer" friends.

To everyone on the journey to financial freedom, remember that average income workers can be rich too:

Average income workers have a choice to be rich!

If AK can do it, so can you!

AK's YouTube channel: HERE.

Recently published:
Largest investments updated.

An example of my vacation videos:  

An example of my Neverwinter videos:  

An example of my Genshin Impact videos:  

Good luck and have fun!

"Lying flat" is better than financial freedom?

I just watched a YT video on the "lying flat" movement that originated in China.

What is this?

"Tang ping (Chinese: 躺平; pinyin: tǎng píng; lit. 'lying flat') is a... movement in China beginning in April 2021. It is a rejection of societal pressures to overwork , such as in the 996 working hour system..." 

Source: Wikipedia.

996 means working from 9AM to 9PM for 6 days every week.

Apparently, the movement has even moved to the USA which is partly why it is harder for American businesses to find workers now which contributes to inflationary pressure as well.

"Lying flat" is different from achieving financial freedom.

It is about living a very low maintenance life to make our money last for as long as possible without having to work and then going back to work when we have run out of money.

Then, go back to "lying flat" until our money runs out and then going back to work for some money.

Many things boggle my mind these days but this idea of "lying flat" takes the cake.

Some readers might remember that someone said that financially free AK should be ashamed of himself.

See: 
Financially free AK should be ashamed...

I actually felt pretty good about myself after watching the said YT video.

One of the things I always say is that everyone's life can be and should be better.

Is "lying flat" a better life than working towards financial freedom?

Hmm.

Watch the YT video and decide for yourself:

Mind boggling.

While a low maintenance lifestyle sounds appealing to me, I don't think "lying flat" is the way to go.

I have always believed that we should work hard and plan for a good retirement.

People who are "lying flat" now will probably have a big problem in their old age and they could become a burden to society.

It is not just dangerous not to think ahead but it is also socially irresponsible.

Very short sighted.

Since people who are "lying flat" do work sometimes, is it a form of semi-retirement?

Well, maybe.

While I agree that a 996 work culture is bad, "lying flat" sounds like escapism to me.

People who are "lying flat" work whenever they need to while people who are "financially free" work whenever they want to.

I have also mentioned "wage slavery" in my blog many times before and how we can free ourselves.

"Lying flat" does not free us from "wage slavery" but instead shackles us forever as wage slaves.

Having pleasant dreams while lying in bed is quite nice but "lying flat" could lead to nightmares.

References:

1. Freedom from wage slavery!
2. Die faster if we work harder?

3. Plan early for retirement.

Investors eat crusty bread with ink slowly for peace of mind.

Older readers will remember an older blog of mine which asked

"How to have peace of mind as an investor?"

In that blog, I suggested that we should

"Eat bread with ink slowly."

Using mnemonics, it stood for:

1. Emergency fund.

2. Borrowings.

3. War chest.

4. Income.

5. Sizing.

If you cannot remember the details or if you are new to my blog, you might want to read the blog: HERE.





Actually, there is something missing from the list and I have been thinking of doing an update for a while but long time readers of my blog know that I have such a busy life.

This week, in fact, I have spent tens of hours adventuring in a new world.

Yes, a new world.

It is likely that I will spend hundreds of hours in this new world in the coming months.

It is an ARPG this time which is quite different from the MMORPGs like Neverwinter and Guild Wars 2.

ARPG stands for action role-playing game.

The name of this ARPG?

Path of Exile.







Once Mod 18 in Neverwinter goes live on 21 January, I will be busy adventuring in Avernus, the first layer of the Nine Hells of Baator.

Path of Exile and Guild Wars 2 will provide me with alternative worlds to adventure in each time I wait for new Mods from Neverwinter.

I can never be bored in retirement as I enjoy adventuring in such fantastic worlds.

The amazing thing is that I don't have to pay a single cent (and I don't) in order to enjoy these larger than life adventures.

Some people say:

"Aiyah, you can do this because you are rich mah."

This might sound a little sour but, to be honest, they are right.





We want to be financially free so that we do not have to exchange the most precious resource we have (i.e. time) for money anymore.

Why do many average income workers find this impossible?

Do you believe me if I were to say it is not because they make an average income?

If you are a new reader or if you don't remember, read this blog:

Average income workers have a choice to be rich.






To be richer, learn to be better savers first.

This brings me to the crux of the blog or in this case, the "crust".

"Eat crusty bread with ink slowly."

Using mnemonics again.

The letter "C" in the word "crusty" stands for CPF.

I have said in many blogs before that having a rather significant safety net allows me to invest the way I invest with peace of mind.

My CPF savings is a very big part of this rather significant safety net.

In fact, I said that the CPF would continue to be an important part of my passive income strategy even after I had made $1 million in dividends from my many investments in equities and trusts.

Now, when was this?

This was back in October 2016.

See:
The AK passive income strategy after making $1 million.

So, to have peace of mind as an investor, not only do I eat bread with ink slowly, I choose to eat crusty bread with ink slowly.

1. Emergency fund.

2. CPF.

3. Borrowings.

4. War chest.

5. Income.

6. Sizing.






I rather like this update.

Definitely sounds complete now.

Sounds a bit more yummy too.

Sedap!

Don't you think so?

Related post:
CPF is all we need unless we are very rich.

Give me the freedom to enjoy life!

Reader says...

Excluding cases where they need to work to have the $ to pay bills, be it for self, family or descendants.

Most of the people I know in their 50-70’s would prefer working than the so-called relax life.

A granny lament she would rather work than “enjoy life” at home.






2 other aunties I know of took up a 4-5 hour/day job after retiring.

Their jobs are not the physically demanding kind. It’s mostly light duties in a comfortable pace environment.

Not everyone views work the same way, like a chore.






AK says...

Of course, not everyone is lazy like AK. ;p

I am not suggesting nor would I ever suggest that everyone be like me.

What would happen to Singapore then? :o






"If AK can do it, so can you!"

It isn't a war cry for people to achieve financial freedom and become a full time gamer like me.

It is simply an encouragement for people to achieve financial freedom because being financially free gives us options.






Simply put,

We want to work because we want to and not because we have to.

Financial freedom affords us this enviable position in life.









If we are working because we need the money, how like that?

If we are working because we want the money, why like that?

If we are working because we simply enjoy working, why not like that?

Give me the freedom to enjoy life!









Related post:
Average income workers can be rich too!

Moved in after 2 weeks and an $8,000 renovation.

I shared in Facebook how I spent $8,000 doing up my apartment 6 or 7 years ago and moved in 2 weeks after I got my keys.

Someone asked me how did I do it and whether I could blog about it.

I did a quick summary in Facebook in the wee hours of this morning and I am doing a cut and paste here since the majority of you guys (and gals) don't follow me on Facebook.

"Terrence, it was so many years ago. There isn't much to write really... Lights >$1K... Curtains/Blinds >$1K ... 26" LCD TV, Medium size 2 door fridge, top loading fuzzy logic washing machine >$1K... Furniture from IKEA (Queen Size Bed/Single Bed/Mattresses, 2 Seater Sofa, Dining Table + 4 chairs, TV Console, Shelves, Side Tables) >$2K... Painted the place myself in one weekend... :) 

"It really depends on what we can accept. Many people told me IKEA furniture CMI but mine lasted >4 years and when I sold my place, the buyer asked to have all the furniture. Still good. Just imagine that the money I spent on all my furniture cannot even pay for a bed or a sofa for some people. -.-"







"I am not saying that I am right and they are wrong but there are choices. The same goes for electrical appliances. I spent less than 2K on washing machine ($299), fridge ($499) and LCD TV ($699). For some people, their TV already costs $2K (or more)!

"Very often, I see people trying to keep up with their friends and relatives. "They have, I must also have! If I don't have, I will lose face!" Big problem if they think like this especially if they cannot afford it. Even if they can afford it, should they spend that money?






"To me, it wasn't about affordability although I could afford better. I could put the money to better use. People laughed at my TV back then. It was CHIMEI brand. My Taiwanese friend told me it was Taiwan's 2nd biggest brand. Good enough for me. 26" LCD TV at $699 7 years ago was a very good price. I think SHARP would have cost 50% more.

"I don't think I was extreme in delaying gratification but I did delay within reason. Why use our hard earned money to buy a super high tech TV when we could get one "free" later on with passive income generated by our investments?"

We have choices in life.





We can choose to be 
"Under-accumulators of wealth (UAWs)"
or 
"Prodigious accumulators of wealth (PAWs)".
Source: The Millionaire Next Door.

"I have been labelled a person with a peasant mentality when it comes to wealth building... Unfortunately, I was not born with a silver spoon in my mouth... I can only do what I can with my limited resources to move upwards."
Source: To be a happy peasant.







As long as we are not severely disadvantaged in life, this is definitely something which all of us can do. 

If AK can do it, so can you!

Related posts:
1. A reader in his early 20s.
2. The secret to avoiding financial ruin.
3. From rich to broke.
4. If we are not rich, don't act rich.
5. Not enough money to be married.