LeanFIRE: A worthy goal for any man

I DO NOT TIRE OF SPEAKING OF THIS.

I’ve been sharing FIRE and leanFIRE for years

FIRE meaning financial indepedencen, retire early….and it’s even more important today, in light of

  • COVID-19 that up-ended the entire world
  • Russian’s illegal invasion into Ukraine and terrorizing Europe and the world
  • China’s extended zero COVID policy (and not keen to bring in “western” vaccines)
  • the great resignation
  • how so many companies shrunk and terminated so many employees

If you have started your leanFIRE journey for at least 10+ years:

  1. you’d have an overall lowered and leaner lifestyle of lower expenses
  2. you’d have amassed an amount of cash-paying assets, be it dividend stocks, REITs, rental properties etc

which would help to make you a little more resilient towards these sudden world changes past couple of year.

Mathematical assumptions

Assuming you’d been living off $2K/month (so total $24K/year) and investing $2K/month (so also $24K/year) into dividend stocks.

Assuming the dividends are 6% per year, and you reinvest every single dividend dollar, by the end of 10 years, you’d have: $335,319.42

Your dividends of 6% of $335,319.42 from year 11 onwards will be $20,119.16. Divided by 12 months, that’d be $1,676.60 dividends a month.

That’s not bad, if you’re “only” spending $2K/month, because $1,676 is “only” 16% short.

Is 16% short okay, Nigel?

I take an optimistic approach, because frankly, you’d already have 84% of living expenses sorted out with your dividend income. The shortfall is around $330 bucks. A MONTH.

ANY part time job or side gigs can cover that short fall, because you’re very close to leanFIRE / coastFIRE.

So yes, 16% short isn’t too bad in my books.

So even if I lose my job, I know and am assured that 84% of my expenses are sorted, I just need a little part time work to cover that shortfall. If I still have a job, I’ll keep investing $2K/month and reinvesting the dividends for a good 3-5 years (up to a buffer of at least $3K/month in dividends).

Get delicious dividends (literally free money)

Ah, I remember receiving my first dividend – it was a mix of euphoria and orgasmic even.

This is the closest thing to a true passive-passive income. Dividend stocks are public listed companies that focuses on paying out a big percentage of their profits to shareholders for tax benefits. There are market fluctuations where the price of the dividend stock can go up or go down (or both), and they will pay out their dividends every 3, 6 or 12 months (so that means 1X, 2X or 4X per year).

There’s 2 ways to this:

Dividend stocks per se

These are the stuff I’m typically referring to in this article, and they typically will pay out the dividends automatically into your bank account when it’s dividend paying time. There’s so many to choose from, be it

  • by country (every country has their own, and many)
  • by sector (hospitality, REITs, trusts, telco etc)
  • by payment frequency
  • by stability of dividends

Growth stocks

Some had emailed me to tell me that dividend stocks and growth stocks are similar, in the sense if you choose growth stocks that historically have been growing 5-10% per year, you can actually “trim” the 4%+ as dividends per year, and voila! Dividend stocks similar.

For me, it’s a yes and no.

  1. I’m a bit lazier, so I like it when it’s done for me, the dividends are sent to me automatically (it’s a nice feel too).
  2. Dividends give me options to take the dividends to reinvest into other assets (just more options cos it’s cash)
  3. I dont trigger fees when dividends are sent to me, but if you trim/sell a portion, you will have to pay fees

Growth stock on the other hand, it can keep compounding and growing on itself, so that’d depend on your preference.

Some considerations

  1. You need to choose dividend (or growth) stocks that are steady, in the sense their P&L have been steady
  2. The dividend rate must be stable and not inconsistent: need to be same or higher every year
  3. The dividend amount must NEVER be more than net profit

How to create cashflow that will give you more money to spend

I learnt the concept of cashflow from Robert Kiyosaki’s rich dad poor dad, and since 2003, I’d learnt again and again how important cashflow truly is. I try as best as possible to create streams and streams of positive cash flow into my bank accounts.

Like the example I gave earlier, on smart money tactics, I immediately split money into different baskets with specific functions. An example if my income is $5000/month, I will take out 20%, which is $1000/month to be put into assets that will pay me regularly be it

  • dividend stocks
  • rental properties
  • REITs
  • etc

This will be an every-month-process, and I’ll do this month-in-month out. Let me extrapolate on the example above.

  • Year 01: Every month $1000 x 12 months = $12K. At 5% ROI, my dividend would be $600
  • Year 02: Every month $1000 x 12 months = $12K + $12K. At 5% ROI, my dividend would be $1200
  • Year 03: Every month $1000 x 12 months = $12K + $24K. At 5% ROI, my dividend would be $1800
  • Year 04: Every month $1000 x 12 months = $12K + $36K. At 5% ROI, my dividend would be $2400
  • Year 05: Every month $1000 x 12 months = $12K + $48K. At 5% ROI, my dividend would be $3000
  • Year 10: Every month $1000 x 12 months = $12K + $108K. At 5% ROI, my dividend would be $6000
  • Year 20: Every month $1000 x 12 months = $12K + $228K. At 5% ROI, my dividend would be $12000
  • Year 30: Every month $1000 x 12 months = $12K + $348K. At 5% ROI, my dividend would be $18000
  • etc

And I hadnt even calculated if I

  • increased the amount I put in every month as my pay goes up / business grows
  • invested bonuses
  • reinvest the dividends

The name of the game is to keep investing into cashflowing assets again and again.