5 pains of real estate investing to consider before investing in your first real estate

There is no doubt that many, many people loooooooooove real estate and property – I’ll share the upsides of property investing in another post. Today, I’ll share 5 pains of property investing, and they are:

High upfront costs

Here in Singapore, to buy a property, it’s one thing that properties here are not that cheap – we have government flats that are hitting $1M in price; and private properties are often above $1M depending on the size and location.

To start off, you need to fork out a deposit of 20%, so that’d mean for a $1M property, you need to have at least $200K in cash and/or CPF; and that’s assuming you can get a bank to loan you for the remaining $800K. That’s why not many people are buying more and more properties (at least in Singapore).

Not liquid

Another term for this is “illiquidity”, which means that you cannot sell your house in one day. If you want to sell your house, it’d take weeks if not months to complete the sales process, and at least 3 months after before the money gets banked into your bank account.

Risk of problem tenants

If you’re the one living in it, then this is not an issue…but as landlords, facing problem tenants is bread and butter part of the program. You may get squatters who dont want to leave your home, or people who trash your home. Imagine if your tenant’s 2 months security deposit is a small, pale comparison to the massive damage done to walls, kitchens and toilets.

My mum had her rental home in Seremban slightly trashed by a nasty tenant who decided to break her basin and went missing on us.

But if you’re in the business of landlording, it’s nothing new, just sort it out or get your property manager to sort it out for you.

Maintenance hassle

Things break down in the house, such as

  • pipe leaks
  • stuck toilet
  • air con spoil
  • fridge spoil
  • gas leak
  • wiring

So many matters that can break, will break with normal wear and tear.

Associated expenses and fees

There are a number of expenses and fees that are associated with landlording:

  1. rental income tax
  2. property tax
  3. agent fees (rental, sales or purchase)
  4. legal fees
  5. stamp duty
  6. maintenance

I prefer something more hands-off

I lean towards more passive income investments such as dividend stocks and index funds that pay me a good % dividends or growth every year, that’s typically banked straight into my bank account. All I do is open my bank account and go “oh, got dividends!” lol =)

But that’s my personal preference.

How to earn more as an employee

Sometimes we feel trapped as employees to earn more – the company may say “we’ve maxed out our budget”…but I can tell you, as a business owner, that if you come to me and tell me

I’ve an idea that may be profitable

I’d be happy to hear my employees out, and let them execute it and share the profits with them after deducting expenses and taxes. Not a hard decision for me, if an employee come to me and share this with me. We can provide some resources but it has to be helmed by the employee.

Less risk for them, less risk for the business, but everyone gets to share. In fact if the idea does well enough, I will do a spin-off by creating a business and giving them some shares (equity) where they can buyback with certain targets.

I think that’s fair and works for everyone.

If not, then a side hustle it is

The era of internet as well as sharing economy has changed the side hustle landscape for all if not most of us. Think about it, some “easy low hanging fruits” are

  • Spare room: rent it out or AirBNB it out
  • Storage space: rent it out
  • Food / parcel deliveries
  • Driving people around using Uber, Lyft, Grab etc
  • Tutoring
  • Errands

If not, then you can do the traditional low hanging route, such as

  • baby sitting
  • lawn mowing
  • snow shovelling (seasonal though)
  • tutoring
  • etc

Take it one notch higher

Those I mentioned earlier are low hanging fruits that just work, but there’s others too that you can consider which you can grow well

  • trade skills: handyman, electrical, walling, plumbing – skills that people pay lots for convenience
  • sales skills in the world of properties, insurance
  • learn to build an online business with this platform

How to invest aggressively to become rich?

The biggest key to becoming rich and wealthy

in one single philosophy: investing consistently, carefully yet aggressively.

  • consistent means to do it constantly, without giving up and slowing down
  • carefully means to do your due research and diligence without just blind following or random
  • aggressively means to choose higher returns balanced with risk and time

The 3 pillars of wealth

Investing aggressively has “only” 3 pillars that will bring you closer and closer to your wealth goal, which is:

  1. earning more
  2. saving more TO
  3. invest more (including reinvesting returns)

And guess which of these are the MOST important of these 3?

.

.

.

.

.

.

That’s a trick question actually, all 3 of them are equally important and work together to bring you wealth.

  1. If you dont earn more, you cant save more and you wont be able to invest.
  2. If you cant save, then you’d never be able to invest.
  3. If you are not able to bring yourself to invest, then you’d be like most loser savers: your hard earned monies will lose their value over time due to inflation.

The biggest piece of the wealth puzzle

There is two “secrets”, there is a sort-of gentle hierarcy.

In my opinion, in the beginning, the most important of the 3 is the ability to earn more consistently, over time. Through work and/or business. If you’re like me, starting out with nothing (or worse, debt, like me), then you will have to find a way to create a consistent surplus of cash every single month.

Either you spend less, earn more OR spend-less-while-earning-more (this is my preferred option).

The goal is to create a large and consistent surplus every month so I can dollar-cost-average (DCA) into the investments of my choosing, be it

  • stocks including dividend stocks, REITs, ETFs
  • real estate
  • cryptocurrency such as bitcoin (BTC) and ethereum (ETH)
  • others

My (and your) first goal is to keep investing patiently into appreciating assets such as I mentioned above, until their value and profit reach a stage where I can live off the dividends and profits, and that’d lead me into the 2nd secret, which is to make sure my investments dont lose money and equally as important, keep growing in value.

Choose something that works for you, and go for it.

What to do when people who save money become losers?

The irony of this is when I was young, I was taught again and again by my

  • teachers
  • parents
  • banks
  • news papers
  • etc

that I need to save money…BUT!

The older I get, the more I realize that savers (people who prioritize saving only, without investing) will become losers. It’s a harsh word and harsh way of putting it, but I make no apologies for this.

The #1 reason why savers become losers

…is because of inflation that serves to decrease the value of your money. Inflation simply means that $100 today dont carry the same value over time. It may become $90, $80 or less.

It’s not obviously mentioned, but the easiest way to see and experience this with your own eyes is to observe. Say 5 years ago, what can $100 buy for you? Maybe use the example of food or groceries, where it’s easy to compare. Today, what can you buy with $100?

The 2nd more problematic issue for savers

Savers…tend to be fearful of making the wrong decision. So instead of having to choose to invest or not, they choose not to invest. At best, they should at the very least, invest in very conservative stuff, such as fixed deposits – which may give you a few % return per year.

What I’m trying to drive at is to not be stuck in your mental and emotional prison of fear that’s holding you back from investing. It’s a skill that will improve with both knowledge and experience-in-action. You can learn and improve on it, like any skills.

Just choose one that you understand most easily or are more intuned with, be it

  • stocks including dividend stocks, ETFs, REITs
  • real estate
  • cryptocurrency such as bitcoin (BTC), ethereum (ETH)
  • etc

If not…your money will keep shrinking

People who only know how to save will always be losers today and in the end.

Because market forces and inflation will continue to happen even if they cling to every dollar. Yes, savings remain important, but at the same time, with equal importance, you need to invest those savings and make every single dollar work harder and harder for you

#1 Biggest money mistake young men make and how to avoid it

The #1 biggest money mistake young men make…is simply not having a plan for their money.

This is the first and foundational problem, which leads to:

  • wanting to impress others, so they spend lots of money on branded clothing, saving for fast cars and watchs
  • wanting to fit in, they spend all they have to hangout at “cool” places
  • etc

These are really bad money moves that young men make, which will haunt them till they’re in their 30s or even 40s, because debt can and will snowball, and if you just pay the bare minimum, it can take you years and years.

Don’t do that bros.

Instead, you have something that many of us “old ones” (I’m 40 this year) dont have, which is time. Herein, many young ones start to roll their eyes and tell me “so what?”

Man, if I could trade you all my money to get my youth back, I would. Because the truth is that time is the only thing you cant buy. You can save time by outsourcing and delegating, but you can NEVER buy time back. And that’s why I value time so much, and tell those younger than me that they have so much they can look forward to.

That special thing that young ones have that we oldies dont have is this thing called compound interest. This itself will blow so many things out of the water, not to mention living long enough to see new technologies.

Now, back to compound interest.

If you can get a standard return on investment of 7% per year, that’s mean that you can double your money in 10 years. Now lets run a case study, say that you invest $100,000 once off when you’re 20.

If you double that every 10 years, that’d mean:

  • $200,000 when you’re 30
  • $400,000 when you’re 40
  • $800,000 when you’re 50
  • $1.6M when you’re 60
  • $3.2M when you’re 70
  • etc

And that’s “just” a once-off $100K investment. Imagine every year you can invest $100K, and every year the amount grows – this is the superpower of the young, which is time, with a

BIGGGGG BUT (two of them)

#1 Earning more

Of course no one has $100K lying around, especially when you’re young right?

WRONG!

Go out there and freaking hustle and work. There are so many opportunities available, the catch is you have to freaking do the work.

I could list down hundreds of examples, the crux of it is that you have to work, course correct with feedback and improve, and keep going forward in earning more and serving others.

#2 Saving and investing more

Now with the additional income, if you dont save and invest the surplus, then it’s not gonna compound and grow. You got to actively and manually take out a budget, pull out the fund, research whatever investment that works and rocks your boat, and pull the trigger.

And you keep on repeating again and again and again.

Retire earlier and richer than you thought possible

 

I know I threw out some bigger numbers out there, say $100K investing per year. Some people will have sparkly eyes and gleam and say “that’s what I want” – if that’s you, go out there and get it done. And let me know when you get there.

Some of you dont need so much. Some of you “just” need $50K a year. Sure, do that then. It doesnt matter to me if you’re wanting to aim for $50K, $100K or $1M – what matters to me is that you dream and you freaking do what it takes to get you closer and closer to your dreams.

Don’t just close your eyes and dream without doing, that’s just foolish dreaming. If you wanna dream, then do it right – map it out, break down the large tasks to smaller subtasks, and keep trucking on.

Two things you need to do consistently to become richer

I grew up middle-class to poor-ish, and I remember my mum telling me how embarrassed and guilty she felt whenever she saw me and my brother standing in front of the glass window of Kentucky Fried Chicken (KFC), looking at people eating. I can still remember the moment, like I was there myself.

  • that delicious looking fried chicken in the paper basket
  • the steam that rose up from the heat of the freshly fried chicken
  • the coleslaw and mashed potatoes
  • the droplets that formed on cups of the drinks looked so refreshing

I was just hungry and greedy, and fast food restaurants like McDonald’s and KFC were a luxury.

I…learnt to not ask for my parents what they couldn’t afford.

I learnt to “make do” with what they could afford.

…because I dont want to see the look of embarrassment and guilt on their faces.

I didnt know how to put it to words when I was young, but I could tell that money was both a frustration and pain to them, and that they did their best. So I didnt want to make it any harder by putting on “stupid demands” on them.

After all, I was just a kid right.

I love my parents and I dont want them to suffer.

I told myself that I would study what they could afford, and do what we could afford.

And that, was a trap with a silver lining.

The trap

The trap is:

  • starting to think of living within my (and my parents means)
  • not asking or yearning for more and suppressing my desire for more, for fear of making my parents feel bad

This is a good way of surviving, and just live with it, but the biggest issue of this was that I would just be a floater and learn to say “what to do, it is what it is” instead of pushing to learn and grow and think of how to get what I want.

The silver lining

The biggest upside of picking up this habit is that I gain this…patience sort of non-chalance, where I dont get too hung up on losses or potential losses. This has taught me that even if I had to

  • capitulate
  • cut losses

as long as it will bring me closer to my overall medium and long term goal, it is fine.

It kept me from wallowing in self pity or blaming others, and instead, learn that there are “losses amongst wins, and as long the wins are greater than the losses” it is profitable.

I’m 40 years old this year, and have long decided to not live within my means. I do not need to be a billionaire to be happy, but boy I want to not worry about money so I’ve not just read books, but I’ve put to action consistently since I was an occupational therapy student in 2002.

That’s 20 years ago worth of tried-and-tested wisdom.

Here’s the two things that you need to do consistently to become rich (or richer) beyond your normal life.

Step 1: Build a cash / profit surplus

The easy way to do this is by cutting back on expenses that you dont care about. Maybe you spend $500+ a month on frivolous stuff that you couldnt care less about, such as

  • $8 bubble tea x 20 cups a month = $160
  • top of the line internet $100 a month when at $50 a month one will do = $50
  • buying clothings / accessories / stuff that you will not wear and throw away = $300
  • insert whatever shit you spend on that you dont care = another $300 maybe

That itself is $810 a month.

If you can carve out $810 a month, that’s plenty for the next step.

For others, maybe you’re tight financially already, and cant squeeze out anymore. If that’s you, then you need to earn more, and earning more is my favorite game anyway.

The biggest 3 upsides on earning more? Number 1: you learn and grow so much more than sitting down watching netflix. Number 2: you will meet more people who may end up being clients, friends or even loved ones and Number 3: there is no earning limit.

Step 2: Invest the profits

Take at least half of the profits to invest into boring, slow investments that you understand, such as

  • dividend stocks
  • REITs (real estate investment trusts)
  • rental properties

these will provide cashflow which you can reinvest.

The other portion, put into higher risk speculative growth assets such as

  • growth / tech stocks
  • cryptocurrency such as bitcoin, ethereum, cronos coin, RVP
  • etc

The goal of high growth speculative investments is to grow your investments 10-100x, which you can then route some profits into boring slow investments. Of course higher risk growth investments can go south too, so do your due diligence.

Dont stop there

Like any good boxers, to win, just a single 1-2 isn’t enough to win.

If you want to win, you will have to practice like mad over years. You will have to compete, and throw thousands of punchs and even take beatings, but you know what.

Champions dont stop there.

You keep going, after after your first beatdown loss.

You keep going, after winning your first break.

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.

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)

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.

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.