Month: August 2022

You can figure out your passive income and financial independence game (and achieve it too)

One very important concept I want to share with you today is that you can figure out your passive income and financial independence game, as well as achieve it. It takes patience and some thinking and planning, which will take at most 1-2 hours if done quickly.

Of course, if you’re doing it for the first time, it can be overwhelming because you may just not know when and where to start…but that’s what happens with all new projects isnt it?

Like if you decide to go on a holiday, you’ve gotta plan, research what to do, weather, and buy the tickets and accomodations and go.

Eat that elephant one bite a time

I like to use this example because personal finance, financial independence and passive income matters can seem so big and daunting, like an elephant. So take it bite-by-bite, aka one step a time.

  1. First, how much do you need to retire? What are you spending money on? Is it $1000/month? $2000/month? Take a look at your last 3-6 months of expenses and calculate from there.
  2. Is there anything you can cut out from your spending? Perhaps you’d been spending on stuff that you dont really care about? Cut out the largest 1-3 expenses that you dont care about. More or less? This is very dependent on where you live (cost of living place) and your spending habits.
  3. Then average out your monthly expenses last 3-6 months. From here, you can extrapolate how much you’d need average on a year. Say you need around $2000/month, which is $24000/year.
  4. Then, figure out how much you need invested to get $24000/year. Of course that’d mean you can get a simple $2000/month job too, but that’s active working.
  5. If you want to retire, then like me, you will need to build or purchase assets that will pay you regularly, such as dividend stocks or rental properties or even online business. Choose ONE that works best for you. The easiest for me is dividend stocks. So assuming I need $2000/month to retire, that’d mean I’d need $24000/year to retire. Assuming I like dividend stocks and that my dividend stock portfolio pay me 5% per year in dividends, that’d mean I’d need $24000/5% = $480000 in dividend stocks that pays me 5% in dividends
  6. Working on your passive income portfolio. Choose one that you’re comfortable with. Is it dividend stocks? Is it crypto? Is it financial instruments like insurance? Or rental properties? Whatever it is, choose just one to learn, practice and master.
  7. Then I’ll have to figure out how am I to amass $480K? The most logical would then be to slowly work, save and invest as much as possible. If I can save $18K/year and I can reinvest every single dividend, that’d take me 17.5 years. If I throw in bonuses and side hustle to a total of say $30K/year, and reinvest every single dividend, it’d take me just slightly more than 12 years to achieve my $480K target.
  8. I’d layer some buffer, just in case. To me, this can mean increasing my portfolio by at least 25-100++%, depending on how much risk tolerance I have or how bored I am
  9. Rinse and repeat.

Then what?

I dont know bout you man, but there’s so much you can do or not do.

Maybe retire your spouse if you’re married.

Or travel.

Maybe move to another country.

Or do philantropy works and volunteer. Teach and mentor.

Maybe pursue something you’re interested in, be it obscure or “useless” skills or fun stuff.

Learn a different language, even cryptocurrency.

Start a new project.

Become a preacher to serve God’s calling in your life.

Do deep work that you care deeply about, be it changing the world or climate change etc.

Whatever.

What financial freedom is

Financial freedom is hard to understand by itself, because not many people think about it, much less take consistent action or had achieved financial freedom.

Let’s talk about what financial freedom is not – most people are actually in financial bondage or financially stuck. They HAVE to work to pay bills, or keep the hedonistic treadmill going. They have debts which are either not going away or keeps growing in size. They don’t have the freedom to stop work at all.

Conversely, financial freedom…is about having the option to choose to work or not. Pursue something interesting or not. Create or not. Sleep in or not.

The hard thing about financial freedom

There’s a few hard things about this concept of financial freedom, which is

  1. It’s too far away. Many people take the “I’ll cross that bridge when I get there” because they can’t grasp the concept of “saving and investing for 10-20 years to retire by 40”. It’s hard to envision, so many people just work and keep money in the bank. They fear they save for 10 years and then they die so it’s all for nothing.
  2. It’s scary. It can be hard when the price of dividend stocks go down during corrections and crashes (funny, I take it as good stuff on sale) so they prefer to avoid this pain of losing value though it’s short term. This point is linked to point #1, where people tend to be short term.
  3. Not many people do it. So it makes it unusual, which makes it hard for people who prefer to follow the herd. This means that most people cant achieve financial freedom.
  4. It’s not taught in schools or most families. That’s why most people are broke and struggling. People (are) try to be nice, but the world and market doesn’t work on that – there are very specific principles to become and grow richer, which is to accumulate more assets. In fact, people are taught to be poor eg concepts such as “living below your means”, “save”, “dont take risks” and the most common “the rich are wicked” causes many to have conflicted thoughts about money.

Honestly there’s a lot more of this which I will cover in another post, that’s all for today. Food for thought.

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How does passive income work?

Simplest explanation

The “easiest” way to explain passive income is to compare it to what it’s not, in this case, the opposite of passive income is typically getting paid dollars for your efforts and hours. Most employees are paid active incomes, and if they ever get laid off or too sick to work, this type of active income stops. ie active income is paid or payable only when you turn up and work.

Passive income is income that is paid to you regardless of

  • you turning up to work
  • you putting in more or less work (in some cases, some passive income can increase with more works and efforts, I’ll cover this in a bit)

And this is the main reason why I like passive income and most of what I do is geared towards

  1. increasing the amount of passive income streams
  2. increasing the amount of passive income paid
  3. decrease the amount of recurring expenses whenever possible

How does passive income work?

Generally passive income is made by building or acquiring assets or businesses that provides value even if you’re not there. Examples are:

  • rental homes where tenants can use and live even if you’re not there
  • businesses with employees that can serve customers even when you’re not there
  • online businesses that uses technology to provide value eg information
  • etc

How to generate passive income

There are 2 very broad ways of generating passive income: build or buy assets that generate you passive income and they are:

Buying assets that can generate you passive income.

Assets are anything that can and does make you money without you working it.

One of the simplest examples are buying dividend stocks, such as REITs, ETFs or business trusts, and in turn, they will pay you a percent of their profits every 3, 6 or 12 months. These dividends can vary from 1% per year to high levels of 8-10%.

Dont just choose high-paying dividend stocks only, because dividend payouts need to make sense and be sustainable.

Other assets you can buy to generate you passive income:

  • rental-to-lease (rental) properties, vehicles, carpark spaces
  • intellectual properties such as rights of songs, books / ebooks
  • etc

The easiest is generally dividend stocks because it’s the least amount of direct work (most passive, in that sense).

The 3 problems with buying assets for passive income

  1. you need a lot of it to generate a meaningful amount to sustain yourself (moreso if you have dependents)
  2. that’d mean more money and/or more time to accumulate
  3. rental properties can be illiquid (hard or slow to sell); stock prices can fluctuate

even that being said, I am still happy with my dividend stocks. In Singapore, dividends are non-taxable so it’s really delicious when it gets banked directly into my personal bank account. If prices drop, I just buy more =)

Building assets is the key to wealth and passive income

The fastest way to wealth and more passive income is learning how to build assets, for 2 reasons:

#1 Direct

If you can build assets that put more and more passive income in your bank account, that’d directly and immediately add to your passive income bottomline, and this is very valuable, leading to

#2 Buyers who will pay premium for your assets

Say you build a business (online or offline) that can pay your $1000/month – do you know that there will be buyers that will pay a good 40-50x of that monthly net profit?

So

  • a business that makes net $1000/month you may be able to sell for $40,000
  • a business that makes net $5000/month you may be able to sell for $200,000
  • etc

Which you can then take the sales proceeds to buy more passive income stuff instead AND then build more passive income assets.

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Simplify your personal finance (easier to do and maintain = faster to achieve your financial goals)

It’s very easy to dream big and talk big when it comes to personal finance, you’d hear people throwing out things like

  • I’m gonna make $1M!
  • Six figures per year
  • yada yada yada

But let me tell you something that cannot be underestimated, which is our human psychology.

Easier to maintain = Easier to do = Higher success rate

This aint rocket science.

It’s like telling me to take 98 steps to do something versus 5 steps to do something, which do you think will be easier? Of course it’s the 5 step one, duh. Another thing is sometimes we humans like to make things difficult when the easier way is the easier way.

The less complex and simpler, the easier it’d be maintained and achieved.

5 steps to simply your personal finance game

  1. ONE credit card: whichever rocks your boat (lifestyle, cashback, travel, gas, groceries, online shopping)
  2. ONE bank account: whichever bank account gives more benefit
  3. ONE investment vehicle: index funds work great (there are many other options such as cryptocurrency, dividend stocks, rental properties, insurance etc) but start with one
  4. ONE way to save more: choose one area that you find you dont really care as much about and it can be cutback.
  5. ONE way to spend more eg personal trainer, higher quality food etc

How I apply myself to the same simplicity

  1. ONE credit card: cashback because it’s simply more practical. I used to accumulate air miles but discontinued it because it’s such a hassle to redeem and redeemable flights tend to be the more inconvenient timings which I dont like.
  2. ONE bank account: whichever bank account gives more benefit, I dont really care. Just one bank account will do, no point having more and paying more maintenance fees.
  3. ONE investment vehicle: my all-time favorite are dividend stocks because it’s less maintenance, the dividends just get sent to my bank account on a regular basis (AND in Singapore, dividends are tax-free! Delicious. Crypto is my 2nd favorite and the tech is one thing, but it’s a powerful growth asset class (with lots of volatility though)
  4. ONE way to save more: we cut back on eating out at restaurants simply because we dont particularly enjoy that and dont care for it
  5. ONE way to spend more: taxi/uber, home deliveries, flying regular office hours, durians (yum)

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Recovering From Covid-19 (we couldn’t escape…and finally got it)

Today’s post will be a short one, and I will be sharing the longer version one we fully recover. For me in a nutshell,

  1. Days 1-3: high fever 38 degrees + tiredness then progressed to
  2. Days 3-4: normal temperature but diarrhea and tiredness then becoming
  3. Day 5 onward: phlegm (lots of coughing) + tiredness + some sort of mental/brain slowness (here now)

It’s a little hard to write or think more than basic things like food, messages. Heck, even speaking is a little laborious.

Will end this post here for now.

The brain slowness thing is annoying. The nice thing is we’re here together, and it’s not that bad ie we’re not gonna die from it. Some inconveniences for now but we’d live.

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Why you MUST having personal accident insurance (affordable and useful)

I had a bad back sprain on 31st July 2022 because…I bought some fruits. For a gathering. Imagine my doctor’s and insurance agent’s face when I told them how carrying some berries sprained my back, lol.

But yeah, no matter how mundance the reason for my back sprain, my personal accident insurance covers my medical and physiotherapy bills (up to a certain extent, of course), which is very useful for me.

Accident plan insurance can be fairly affordable

Currently, I pay $50/month for this coverage, and though I dont like to get injuries and painful accidents, accidents do happen. With this coverage, I can get thousands of dollars cover for medical and physiotherapy treatment in the event of injuries.

This means that whenever these dang unforeseen injuries and accidents happen, I know I can get medical treatments to heal myself to the best level possible, rather than just “wait for it to go away“.

Waiting for injuries to heal naturally…is a crap way of handling injuries. For very, very mild cases, sure. But for medium cases and above, because I am in the line of physiotherapy, hand therapy etc, I know that unmanaged and untreated (or delayed treatments) will 100% lead to sub-par strength, mobility and function eventually. Even disability and chronic pain.

It’s never a good idea to ignore injuries and pains in the hopes it’d go away. Always consult a physician and physiotherapist.

In fact, many health conditions, if treated early, will have little health issues.

It’s mainly things left untreated, to fester, that often leads to bad outcomes. For example, treating cancer at early (benign) stages is always easier and better outcomes (and cheaper) than trying to save someone at the very terrible stage 4. Likewise, treating a simple injury early is much better than waiting for full rupture or infection.

2 powerful reasons for personal accident insurance

Next, the reason why I created this short video is because insurance is a very powerful tool to

  1. protect your health (which I’d covered above) and equally important is
  2. is that it can help protect your wealth

A bad injury or disease can truly wipe out a family’s wealth, and even plunge them deep into debt, without the right health insurance to protect their health as well as financial health.

I’ve met people whose families wealth and money has been wiped out, and they had to sell their homes and assets to pay for medical bills because they “dont believe in insurance”.

While its true that many people will sort of pay and dont use their insurance (which is a good thing), the function of insurance is to provide protection in the event something bad happens.

Insurance is similar to having an umbrella before rain

Kinda like having an umbrella in case it rains. If the weather’s great, sure, it’d be wasted to bring the brolly out…but if it has a heavy downpour with no nearby shelters, you will be very, very glad to have that umbrella.

This is the reason why I carve out thousands of dollars a year for my entire family to be cared for medical wise, and prevent financial crisis in the event a medical event happens.

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How to build your passive income lifestyle starting today

How to build your passive income lifestyle, beginning today

The passive income lifestyle is a lifestyle where your passive income, be it passive rental income, passive dividend income, passive business income; is more than your living expenses.

It is a very, very nice place to be in, and not only does every passive income feels so nice, it also works to lifts up so much of my pressure. Frankly, there are a lot of ways that can lead you to the passive income lifestyle (so many investment vehicles, types, opportunities), but I dont want to create more work or complexities for myself.

To me, it has to be “true” passive and simple to maintain, so I simplified the basic passive income lifestyle concept to be boring but systematic:

  1. have a steady day job
  2. save as much as possible
  3. invest aggressively into dividend stocks that pay you at least 7.5% per year (ideally 10% and above) consistently
  4. reinvest majority of dividends
  5. until your portfolio’s yearly dividend passive income is same or more than your yearly living expenses.

That’s it.

The 3 biggest factors that will impact your passive income portfolio

They are:

  1. how much you can invest regularly (this depends on how much you earn and spend)
  2. how much is the rate of return of your passive income (ideally 10% per year but 7.5% is decent)
  3. lastly, time

Time plays the most powerful compounding effect. Albert Einstein quipped, saying that compound interest is the 8th wonder of the world, and I agree.

Compound interest, simplified

Compound interest is basically how your money grow with interest return + time.

Let me show you a basic example: say you can invest $10,000 a year ($833.33 a month) into a dividend stock that returns you 10% per annum; and you reinvest every dividend return.

  • Year 1: Invest $10,000 + 10% = $11,000 end of year
  • Year 2: Invest $10,000 + $11,000 from previous year + 10% = $23,100
  • Year 3: Invest $10,000 + $23,100 from previous year + 10% = $36,410
  • Year 4: Invest $10,000 + $36,410 from previous year + 10% = $51,051
  • Year 10: $159,310.50
  • Year 15: $317,597.73
  • Year 25: $983,077.21
  • Year 50: $11,634,429.65

Instead of plain saving $10,000 x 50 years = $500,000; you can get a much bigger amount with compounding interest.

Start your basic passive income lifestyle today

  1. Save as much as you can
  2. Start investing into dividend stocks that gives at least 7.5% per year
  3. Continue investing and reinvesting the dividends

It takes time for compounding effect to work its magic, and the more time you have, the more it’d work wondrously in your favor…but conversely, the less time you have, the more obvious the shortfall. Eg a person who has 40 years to invest has a lot more time-based benefits compared to someone who only has 10, and that’s why because I dont have high earning capacity as high income professions such as doctors, I knew I needed to start a business to level up.

If you want to level up to earn more, retire faster

Then you gotta earn more.

For most people who have time on their side and have a good chunk to invest monthly, they can take their time to invest regularly, ie dollar-cost-average (DCA) into stable dividend stocks. It is a good way. I take this approach one level up with my businesses which serves to help me accelerate my earning rate (it’s fun and complex too ehehe)

Quick money side hustles

These include the low-hanging fruits of app-based works such as

  • driving for Uber, Lyft, Grab
  • sending items with DoorDash or similar
  • pet walking / baby sitting
  • etc

These are the kind of work that can help you earn an extra $50-100+ a day on your schedule, as part of your routine.

Learn high income skills

High income skills are skills and work that are higher value, such as

  • property agents / realtors
  • insurance agents
  • copywriters / direct sales
  • trade skills such as plumbing, electrical

and can typically earn you $100k/year.

Scale up businesses

Scaling up a business means to grow, hire and delegate, but before we go there, let me first say that it’s not always a necessity. It’s wayyyy more complex and difficult, but of course, has the most potential. Not everyone is keen or hungry to scale up businesses, and that is fine.

An example of scaling up a physical business is if you’re a realtor, you can consider recruiting a team of 5-10+ sales agents under your belt, where you then train them and lead them to grow their own businesses under your business. The upside is that you can multiply your income exponentially…when done right.

When done wrong, it can mean you working 24/7, tired and burnt out. Or lose money.

Normally, I recommend people to either do something low-hanging such as the quick small wins type or building a $100k+ per year freelancing business, because it’s less complex. If you want to do something that can scale, you can consider starting a blogging business where it can cost a few hundred bucks a year on the side.

Blogging is a publishing business where it can become a powerful passive income business with scale, but it does take a lot of time (at least a minimum of 2 years+) for it to take traction, build followers etc. The goal is to build a good enough following who likes what you write and do, and then monetize by display ads and creating products that help your followers.

I use this platform to learn how to build my profitable blogging business.

Invest the profits from businesses and side gigs into dividend stocks

The profits I use to invest into dividend stocks (mainly as core) as well as some into high-risk-high-growth investments such as crypto. Profits from high-risk-high-growth investments are taken out to decrease risk and invest into more dividend stocks and pay for primary home.

Rinse and repeat.

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This is how much you need to live on dividends

Every stable dividend-paying stock = fruit-bearing tree

I see every dividend stock I buy and own as a fruit tree, and every fruit tree will produce a dividend fruit for me; and my overall goal is to have a big enough orchard of dividend-paying dividend stocks to live off the dividends on.

If you’re like me, there are 3 key items to consider to know how much you need to live on your dividends and retire early or do something you like, be it paying off debts of your family, retiring your wonderful wife, or marry and even having more kids.

3 important factors that affect how much you need invested to retire on dividend stocks

  1. how much do you need a month to spend on
  2. how much you can invest a month
  3. how much returns on investment you can get from your dividend stocks

They all affect each other, so it’s best to see them as a combined trinity.

Example if you spend a lot, you need to invest more every month, for a long time with high returns. Conversely, if you spend less, you can retire much faster, take less risk too.

An example, say you spend $3K a month, and take home $4.5K a month. That’d mean that

  1. Your yearly expenses = $3K x 12 months = $36K/year
  2. You can invest $1.5K/month

How much do you need to retire?

Using the same example of monthly spend of $3K/month, that’d mean you need $36K/year.

This means is that your investments eventually need to at least pay you $36K/year.

Unfortunately, because every dividend-paying stock is different, it makes things a bit more complex AND make you second guess yourself waaaaaaaay more than you should (this is the dilemma of only 1 option versus choosing from 1000+ options). The more you have to choose from, the harder it is.

Low yearly dividends = need more capital

For now, let’s assume you find a dividend stock that pays 3% per year, you’d need $36K/3% = $1.2M, which is A LOT. No one has a spare $1.2M lying around to invest.

Even if you invest $1.5K/month every month, and reinvest every single 3% dividend, it’d still take you 36.5 years to reach $1.2M!

This is very painful…so how? Does that mean we give up on our desire to retire on dividend passive income from dividend stocks? Of course not!

Higher dividend yields = less capital needed

The next and better step would be to find better, higher dividend paying stocks.

Let’s again, use back the same example of needing $36K/year to retire. If you find a dividend stock that pays 10% per year, that’d mean you “just” need $36K per year / 10% = $360K.

$360K is 30% of $1.2M.

That’s muuuuuuuuuuch easier to achieve. If you invest $1.5K/month PLUS reinvest the dividends it’d take you about 11 years to achieve your goals of amassing $360K.

For a 30 year old dude, that’s like retiring at 66.5 years old versus retiring at 41.

I will definitely choose to retire at 41 compared to retiring at 66 eh.

Is it so easy to retire on dividends? What are some problems that I may face?

Technically, yes. It is mainly a numbers game, so it’s doable.

And I’m not the only one sharing about this. Google ‘financial independence retire early’ (FIRE) and you’d see that there are tens of thousands of people like me, who dont want to be stuck in a job and retire at 70.

That doesn’t mean it’s easy and linear. Of course, there are variables that can happen. Kinda like preparing for doomsday, likewise, I believe in being prepared.

Some variables and the ways I can anticipate and overcome them are:

What if the stock fail?

This is a real risk, so the issue is to either (1) not go all into just one dividend stock, which isn’t smart at all. I would have at least 15+ dividend stock and rebalance yearly to weed out poor performing ones; AND/OR (2) go into Vanguard stocks, which have historically been giving a return of 10% per year.

There are literally hundreds of other instruments out there other than dividend stocks, so find what you’re comfortable with.

What if I dont have enough?

Ah, this is an eternal dilemma, so back to maths of current expenses AND project to include inflation and increased spending PLUS keep costs low. So if I can keep my lifestyle yearly expenses to $3K/month, I will over-buffer a 30-50% at least into investment, so my investments need to payout at least $4K/month. I will reinvest the $1K/month. Depending on how safe is your number, you should buff it at least 50%. I personally will over-buff by at least 100% and diversify into different asset classes eg dividend stock, rental properties, crypto, insurance etc.

What if I die earlier than achieving this? Wont my effort be in vain?

From a practical standpoint, if you die earlier, then you dont have a problem anymore with regards to money. However, that’s if you’re single and have no one or no causes you care for. If you’re like me, having a plan, will leave a legacy (cash and more) to them, rather than leave them a pile of bills to clear. The real question is if you live and spend wantonly…but find yourself outliving your money, that would be a nasty place to be. Lastly, this is why I always recommend to “eat” and enjoy a portion of your dividends and passive income, because we need to live too to make it sustainable.

What if I lose my job / source of income midway?

Okay, that’d suck, but it wont suck as bad as losing your main source of income and have zero passive dividend income. If say your goal was to amass $360K on 10% return, midway means that you’d amassed $180K and at 10% return per year, you’d have $18K/year or $1.5K/month dividend to tide you over. Not bad, and it’d allow you some breathing space as you source for your next job. You may be able to retire in a cheaper country with $1.5K/month too.

A more important question: WHY

It’s one thing to talk about the numbers and the how, which is easy to talk about and can be easy or moderately hard to do over a period of time. A bigger and more important thing to consider is why.

What would retiring at 45 years old mean to you? It can mean different things to different people, such as

  • spending time pursuing people and projects you care about. Finally, you can pickup something you put down decades ago. Could be photography. Could be drawing.
  • travel
  • taking care of loved ones who may be sick and need you
  • retire your wife and spend more time with her just being with the woman you fell in love with all those years ago
  • take your kids to school and back, and being a dad who is present. Like really, really present.
  • and much more

The why is infinitely more important.

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