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!

DBS: 43% jump in earnings! Be a millionaire!

In a video I produced recently, I made some points on why Warren Buffett and Charlie Munger are not investing in banks now.

Then, in a video I produced in response to record earnings reported by DBS, I also made note of a few points.

For the benefit of readers who do not follow my YouTube channel, here are the videos.

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.

Do you know that millionaires' effective income tax rate might actually be lower? 

This is true in the USA and it is also true in Singapore. 

Remember how much income tax I had to pay? 

Regular long time readers might remember. 

Yes, nothing. 

I didn't have to pay any income tax. 

This is because my passive income does not attract any income tax. 

No one would have guessed that I am a millionaire just by looking at me. 

Contrary to popularized images of millionaires, actually, most millionaires are very low key people who avoid ostentatious behavior. 

Most millionaires are people who live within their means, budget and spend wisely. 

They are mostly focused on ensuring their financial independence first. 

These are habits that take discipline, but ones we can all adopt to begin growing wealth. 

If these facts prove anything, it's that every one of us can strive to become a millionaire. 

And many of us can become millionaires. 

From 2012 to 2022, the number of millionaires in Singapore grew 40% to 240,100. 

This is according to a list published by investment migration company, Henley and Partners, together with global wealth intelligence firm, New World Wealth. 

In the World's Wealthiest Cities report, Singapore is now in the fifth spot. 

Millionaires are high net worth individuals with investable wealth of one million US dollars or more. 

So, it excludes the value of our home. 

Don't be envious of millionaires. 

Unless severely disadvantaged, all of us can be millionaires. 

There are many millionaires in our HDB estates and they lead simple lives. 

We might not know much about them because they are not very talkative. 

They are not crazy like AK who talks to himself regularly. 

Millionaires in our HDB estates are more common than you might think. 

People who have above average income would often tell me that it is difficult to build wealth in Singapore. 

However, if they were to examine their lifestyles, they might be surprised at how much money they could actually save if they were to make thriftier consumption choices. 

From experience, I know it is possible to build wealth more rapidly in Singapore simply by avoiding extravagance and excesses. 

Some readers who decided to make changes to their consumption choices with an eye on wealth building wrote to me, happy with their progress. 

Get the whole family in on the project and the success rate would be even higher. 

Remember, it is always the toughest in the beginning but if we are determined and disciplined, we can become wealthier. 

For most of us, the road to becoming a millionaire will have to start with baby steps. 

"The Millionaire Next Door" is a book which is a must read for many people. 

In fact, I would go as far as to say that the majority of the population should read it. 

So, do you want to be a millionaire? 

If AK can do it, so can you! 

Related posts: 

1. Income tax payable? 

2. STE: The millionaire next door.