I have not really been reading much finance/investing books recently. But Anthony Robbins’ Money: Master The Game caught my eye from a year back and I finally got my hands on this book from the library recently. I am one-third through and I really enjoyed it (a review is on the cards).
There was one concept which I felt was truly useful. Instead of treating financial freedom as ONE BIG GOAL (with an impossibly large figure attached), he broke it up into 5 different stages. That way, we can celebrate “small wins” on the way and maintain momentum and motivation.
And the 1st stage, Financial Security, is the most important and attainable of them.
What is Financial Security?
You might not consciously know it. But the most primitive reason behind our habit of saving money is definitely security. Security for yourself, your spouse and your family. And in the personal finance world, security likely means not having to worry about all these basic needs:
- Home Mortgage
- Utilities Bill
- Food
- Basic Transportation
- Insurance Costs
Achieving Financial Security is definitely something to be euphoric about.
“How amazing would you feel if these five things were paid for as long as you live, without ever having to work to pay for them again?”
How Much Would You Need To Attain It?
To give you a better idea of how much you need, I will present my numbers. (As I have almost always unabashedly done for the past 3 years…)
Home Mortgage: $500
The monthly mortgage of our 5-room Punggol BTO flat is around $1,000. If you divide it into two, my portion would be $500.
Utilities Bill: $150
The conservancy fees ($70), the electricity, gas and water bill ($100) and the broadband charges ($30) add up to about $200 a month. If we include handphone bills, it’s approximately $150 for each of us.
Food: $450
This is quite inflated since I really think I can eat very well on $10 a day. Some fruits and nuts for breakfast would actually cost less than $1 per pax. We could probably still dine out a couple of times a week if we mix in a bit of cooking. Not to mention $15 a day.
Basic Transportation: $150
To be honest, based on my current lifestyle, it’s probably closer to $50/month for me. My students either come over to my place or most of them live within walking distance from my home. But well, I know I am a big anomaly here. And well, I actually provided a buffer of 5 cab trips to make this category more reasonable.
Insurance Costs: $150
Our relatively low insurance costs are well-documented here. It’s less than $100/per pax for our household but I understand that some might want to purchase some critical illness plans on top of hospitalisation plans. Or perhaps even some whole-life. My view is that $150 per month for basic insurance should be more than enough.
Total: $1,400/ month = $17,000/year
I am not going to assume a 10% return since that’s highly optimistic. Heck, I am not going to even use a reasonable 7% return which you might be able to receive from yields alone with a portfolio of high dividend stocks/REITs.
Instead, I will base it on real returns of 5% (by purchasing the STI ETF now, you will already get close to 4% yield). Which means I will multiply what I need by 20.
And my magic number is … $340,000
A Worthy First Long-Term Financial Goal
So yes, you do not need $1 million to have the awesome feeling of not having to worry about your basic needs. In fact, if you have a similar expenditure pattern as what I have painted above, you only need 1/3 of that million.
Assuming you’re starting out with nothing at the age of 25, saving $500 a month or $6,000 a year for 27 years would give you $340,000 at the end of the day (at a rate of return of 5%). If you are able to triple that savings (not all that impossible), it would just take a mere 13 years, a little over a decade. You haven’t even touched 40 yet.
And well, if you are earning $100k a year, saving 50% of that would get you to the target within 6 years’ time! 6 years to reach a significant financial goal, that really isn’t too far off!
I am glad that I am halfway towards the $340,000 that I need. Hopefully, within the next 5 to 8 years, by saving $20,000 a year and compounding it, I would be able to attain Financial Security! I could then aim for more lofty financial goals along the Financial Freedom spectrum.
So, what is your magic number and what are your plans to achieve it in the foreseeable future? Write it down and let me know!
Hi 15hww,
My basic is about 2360/mth, mainly from my more expensive mortgage that I am servicing. Based on your parameters, I’ll need about 470k. I likely need about 5 yrs too, but likely I’m going to take it easy and maybe need 10 to 12 yrs haha
Hi LP,
The thing about the mortgage is that once you clear it, (and if I am not wrong, it could be within a decade for you), the number could drop by a lot.
So my intuitive feel is that even if you take it easy for the next 5 years, you might already have hit the revised target.
It might appear risky to you, but if you were to refinance it at 2.6% for thirty years again, the monthly mortgage would come down a lot and that might be a better figure to use for the article’s illustration.
Definitely not a suggestion, but interesting to ponder over theoretically, since there’s some form of arbitrage with returns at 5%.
Young man, wonderful job there.
This is one of a kind, putting yourself down as a typical Singaporean. Your numbers are realistic, real hardcore stuff no bs. Congrats.
Only thing that can vary from person to person is entertainment and enjoyment. This covers life realism of travel, entertainment, social outings, church donations/ charity, and others. Men does not live on bread alone….
Hi Frederick,
Thanks for your kind comment.
True that men does not live on bread alone. That’s why I didn’t advocate retiring after achieving financial security.
Nonetheless, financial security will likely bring a smile to man’s face in the morning, knowing that he is not working to fulfil basic needs. The income from work will be for travel, entertainment and other categories you mention, the frills.
Yeap!
Take one financial goal at a time towards our financial independence and we are strong enough not to fall into residential home upgrading mindset.
Hi CW8888,
Yup, very attainable if one doesn’t keep on upgrading the house. One could even downgrade to make it easier.
But I would also argue that if one can easily afford it, then why not?
Hi 15hww,
I’ve half way through the book too…but haven’t reach this part about setting the “Financial Security” calculation yet 😉
Hi Richard,
I agree. It’s a pretty thick book and I would at least take another week to finish it.
But I really think it’s well worth your time to finish it.
In a way, i “envy” all of you who can and has a plan to FS or FF.
Why!?
All of you should do better.
As far as i can remember i have not planed for anything at all for financial security.
Not that i don’t want to, it is just because i don’t have the academic background, so i never think of it that way.
i only know i must watch carefully how we spend & use our money.
Don’t get into debt if i can or possible.
And keep on learning to invest “surplus money” as opportunistically as possible.
i never dream of attaining FF or FS.
How can i dream when i don’t know even how to have a plan?
Yet to our surprise, we found out quite some years ago it is possible.
Now we have to preserve (have to leave a legacy – only son ma) what we have got more then to multiply it.
Hope all of you are encouraged!
Shalom!
Amen.
LOL!
temperament,
People hugging and back-slapping each other on their clever use of “look at plums to quench thirst” draftsmanship lah.
And you have to come with your “encouragement” that no plans also can!?
Shh…
Those of us on the streets know that if one can be competent in Earn More; Save More – these 2 main processes, we will do OK.
Educated people like to add technical names and padding to fill up a whole book when 4 words will do 😉
Hi temperament,
Thanks for dropping by. Your story is definitely an inspiration!
To be honest, I also accumulated a 6 digit sum without any “planning” at all. Just 不舍得随便花.
But I have no doubt that some people will benefit from a plan. Their focus can be there and they can then be motivated to “achieve” it.
I guess even myself would benefit from the extra motivation.
What is the difference between financial freedom, financial security and financial independence?
Hi Han,
Security is the basic, like what I have mentioned in this post.
Independence is when your passive income covers your current living standards.
Freedom, as the name implies, means free to pursue additional luxuries, ie. waterfront condo living, drive a Merc etc.
But if retire liao then do ximi?
Hi Pib,
If you notice, I didn’t mention “retirement” at all in the post!
One can still continue to work. But isn’t it better to “choose” to work rather than being “forced” to it?
No such thing as retire if you still got your “marbles.”
You still carry on in the stock markets.
You still watch your where your money goes and comes.
In fact have to watch even much more closely.
But start to watch more home movies and take many more short trips(holiday)
You worry about how to best, leave somethings behind.
And there are always a lot, a lot of voluntary works waiting for us if we are interested.
The poors and needies will always be with us.
If you’re planning to have kids you may need more than 5 to 8 years. We already spend that much on child care alone!
The money spent is well worth it though and we are infinitely happier 🙂
Hi Charles,
I guess if I have a kid, I will have to find a way to earn more or cut down on other areas.
I agree with you that we can’t put a price on kids. To not have kids just for the sake of an early FI or even Financial Security is rather ridiculous.
Hi 15HWW,
Wealth is time and freedom but happiness is choice of doing what we like.
Anthony Robbins know that, but he will not be able to sell Happiness advice as much as he sell Financial Freedom advice!
But if without FF, you will never happy in ur life, then it pays to go for it to feel happy!!!
As long as we know what is next important milestone after FF.
In my course of life, I witness one funny phenomenon:
Average middle class striving for financial freedom, Ultra hi net worth people striving for more business success to earn more money (not to be lavish) but to have self-fulfillment in “earning”!
Sometimes I really wondered if both belongs to the same mindset category, although they are world’s apart!
Hi Rolf,
So you’re saying without Wealth, much harder to find Happiness?
I think UHNW people are chasing after more money so that they can feel more “significant”. That is also one my key takeaways from Robbins’ book.
Sometimes, I also agree average folks like me want FI early so that we can “one-up” others. The significance monster can be scary indeed.
hi, to be honest i find your projection way too aggressive. not sure how you can spend only $450 a month on food, i assume you dont cook a lot and that health is not a top priority to you. if we just survive on eating at hawker centre, yes $450 is possible but you can’t possibly consume hawker centre everyday as you will end up getting hypertension, high blood pressure which will result in costly medical bills (you may say that insurance covers that but bear in mind that not all western medicine can cure (if after surgery, surgery will fail too), and you may need to rely on TCM to balance it out, which TCM isn’t covered).
as for insurance it would be better to project based on a million dollar term insurance, plus critical illness coverage plus hospitalization plan which can go up to $200.
lastly, looks like you did not include income tax?
I think your projection is too simplistic… no offence.
Hi CY,
$450 a month on food/per pax is alot of money spent on food. That’s $15 a day. If you spend $1 on breakfast (bread or fruits or even a combination of them), there’s another $14 left for two other meals.
And actually if you cook, the cost is going to be way lower. Even a meal with pasta, broccoli and salmon generally costs us both $10 and that works out to be less than $5 per pax!
If one dines at hawker centres everyday, I presume $300/pax is way more than enough.
The more one has accumulated, the less insurance one needs. I know some UNHW owns alot of insurance policies, but that’s meant more for wealth preservation.
I mean no offence too but I really don’t see how income taxes has much to do with the goal of Financial Security.
Really good post. This is a good step for financial freedom, I also have a similar goal but not sure if I can attain the amount you listed since I will be paying for all the bills and food hahaha.
But still a good plan! Cheers!
Hi JYKL,
As long as you’re going in the right direction, it’s not a matter of if. Just a matter of when!
Thanks for your kind comments and keep it up!
Hi 15HWW,
How are you along in this book? I’m curious how you would read the assets allocation part. How would you apply his All Weather Portfolio assets allocation to our Singapore market? Would you use the same percentage?
Thanks! I like your posts, very relevant and applicable.
Hi Linditt,
I have actually finished and returned the book.
The All Weather Portfolio is a little hard to replicate in Singapore. The Singapore Permanent Portfolio (25% allocation to Stocks, Bonds, Gold and Cash) is a similar concept and should yield similar returns.
For your info, I will be starting my own version of a Permanent Portfolio at the beginning of 2017. Stay tuned. =p
And thanks for your encouragement. I am glad my ramblings have been of some use to you!