My Way of Wealth

source: challengebug.com

Recently I received an email from a reader of my blog. With her permission, I will share on our exchange:

“Hello, I have enjoyed reading your articles and thank you for sharing your experiences and life stories. I read that your passive income was 29k, I am really impressed. May I ask if this amount includes interest from your CPF ordinary , special and medisave accounts? Thanks once again.”

My reply:

Hello. Thanks for reading the blog article. I have slowed down in my writing recently. I write for pleasure and to record my random tots. Guess I will write again when I feel strongly about something. 

The passive of 29k was for 2014. I record all my incomes and expenses. I am expecting my 2015 passive to exceed 2014’s. In the end, I am aiming to reach at least 100k pa of passive income. 

The amount excludes any from my CPF. I do monitor my CPF and use my OA and SA portion as the bond components in my overall portfolio. The SA interest of 4% is attractive enough for me to max out the account. 

My passive income comes mainly from stock dividends, bond income from NTUC shares, forex profits and cash interest. I hardly sell any of my holdings and have added to my positions recently amidst all the volatility. Even so, I am only about 23% invested into the market. This is up from my 17% at the start of this year. 

Financial Independence (FI) is when you don’t have to depend anymore on earned income. It happens when our passive income > expenses. Always aim to increase your passive income wisely, and lower your living expenses, and the FI journey will be shorter. 

Hope the info helps. I wish u a successful journey toward FI. It is definitely possible, as long as u stay disciplined and keep moving towards the goal 🙂 

*****

The reader will be more impressed when she reads the blogs of AK and Christopher. They are well known financial bloggers whose annual passive incomes > 100k easily. AK is still gainfully employed and Christopher is pursuing his second career in law now. Comparatively, I am still in my infant stage. But slowly and surely, I am building my passive income to mimic theirs. 

In the recent stock market volatility, my portfolio has also taken a hit. But I have chosen to buy more stocks. I do not think we have seen the market bottom yet, but I am comfortable to buy as long as the stocks are fundamentally sound. My stocks form about 23% of my total portfolio now, up from the 17% at the start of the year, despite me adding over 130k since. I am regularly funded by my passive and earned income, which keeps me financially sound. 

I have worked for about 17 years. After making countless mistakes and learning continuously from books and other wiser people, these are my insights when I look back in hindsight. 

1. Work hard and earn as much as possible (先栽树 后乘凉)

I started working with a monthly pay of $1900. After 17 years, my annual salary exceeds 120k. I know many people who earns more, but what I make is enough for my needs. 

Looking back, it seems that I had planted my seeds of a good income through my academic success, staying long enough in my job to move up the corporate ladder, and working diligently for my promotions. As a result, my salary has increased through the years. Today I am able to enjoy the shade of a strong financial tree, that provides me the capital to invest. 

2. Save as much as I can (少壮不努力 老大徒伤悲）

It is not what u earn but how much u save that matters. I used to spend frivolously when in my 20s. My mum’s departure woke me up. I gave up my car a few years ago and have streamlined my expenses. Now, I live simply and do not waste unnecessary cash to impress people that don’t matter to me. 

In today’s materialistic society, it may seem common to spend on expensive meals, the latest gadgets or luxurious staycations. This feels normal when everyone is doing it and posting their “achievements” online. But there is a distinct line between needs and wants; spending accordingly will make all the difference in the long run. 

I read a recent article about how society is constantly bombarding us with messages to consume and compare. And this “keeping up with the Joneses” is why so many are financially troubled. I like this quote: “when growing up, being happy is a simple thing. Now, simplicity is a happy thing”. 

3. Learn to invest, and Invest (学如逆水行舟 不进则退)

No one cares about my money more than me. After all these years of managing my own money, I have grown financially savvy and can hold my own against profit driven financial consultants. I do not succumb to scams and am able to invest my own money in instruments that suits my personality. 

Money left in the bank will eventually lose its value to inflation. It cannot stay there permanently. But there are times when it is best to have little skin in the market. We must recognize when to do nothing and when to commit everything. Knowledge and experience will empower you to know the times to be fearful, and the times to be greedy. 

4. Fast track progress every few years （养兵千日 用在一时）

The last great opportunity was in 2009 during the global financial crisis. Many people lost but many others made fortunes. Before that, there were the years of 2003, 2000, 1997 etc. 

The point I am making is that opportunity comes regularly. You just have to learn to recognize it, use it and fast track your FI journey. That is the time when cash is indeed king. Is the recent volatility the start of another opportunity? Are you ready if it is?

*****

And this is my formula for wealth building, my 添财之道. 

“In short, the way to wealth is as plain as the way to market. It depends chiefly on two words: industry and frugality. Waste neither time nor money, but make the best use of both. He that gets all he can honestly, and saves all he can, will certainly become rich.” 

Benjamin Franklin, The Way to Wealth, 1758.