This serves as a general framework on how we approach our personal finances these days.
And I thought it would be interesting to pen these thoughts down and share them.
Income
Target: $100,000/year
- Pegged to Median Household Income in Singapore. A peg means the target should increase over the years. This will provide some form of motivation and competition to not slack off completely or too early in our lives. And of course, keep up with society and also provide more consumption options.
- Since our portfolio is not exactly positioned heavily towards dividends, passive income (dividends, coupons and interest) is a modest $15,000/year currently. This also means that we need to earn at least $85,000 from our work.
- Income seems to be more of a taboo number as compared to investments. My observation is that even financial bloggers are more forthcoming with their portfolio numbers as compared to income, myself included.
- More importantly, this target allows us to have a better idea of “enough”. Since we are self-employed, we have a lot of control over the hours we work. If the income target is achieved easily, it gives us the license to allocate more leisure time.
- It will seem a bit of an overkill if we manage to achieve the income target solely through passive income. However, I have noticed that for those that who have successfully retired early in Singapore, they tend to have at least $100k of passive income, if not more. Moral of the story? MM (more money) is better than NEM (not enough money)
Expenses
Target: $50,000/year
- Pegged to 30th Percentile of Households in Singapore. This is my smart guess, and I don’t think I am far off. The last available relevant statistic from the household expenditure survey is from 2013 (about $42k), which is likely to be very outdated.
- A peg means the target should increase over the years. This will enable us to keep up with inflation and hopefully also enjoy some new innovations that increase our quality of life. This target is reasonable as we are likely to spend <$45k in 2018.
- We are approaching the end of our early thirties so it’s very likely our household will either comprise of two or three people, which is considered a small household. Therefore, it’s inevitably easier to keep expenses lower as compared to a much bigger household.
- A lower expenses budget might not really over-compromise on the standard of living, even in expensive Singapore. Obviously, smart trade-offs have to be made. Like not upgrading to a condominium (except to lock in capital gains) and going car-free for most of the decades of our life. Basically, being more selective with typical Veblen goods.
Quality Of Life
Target: 80th Percentile
- This is completely arbitrary, but not exactly baseless. This is also the most important metric of all, and everybody should be optimising this metric based on their own unique preferences and utility function.
- And obviously, from our perspective, the decisions we have made in the past few years have elevated our Quality Of LIfe (QOL). Obviously, there is some trade-off/downside, in the form of worrying more about $$$. If we had stayed on in our corporate career, we should easily be rolling in $150k to $180k of combined annual income right now.
- But the main positive trade-offs? More control over our work hours, no emails/boss stress, fewer hours spent at work, free time during off-peak hours and more rewarding work. These are the key reasons why I believe our QOL is in the top 20 percentile among peers in a similar age group.
- Although we are earning much less than our corporate potential, the expense/income ratio is still a healthy 50%. This sizable buffer means it’s likely we feel less money stress as compared to a couple bringing home $200k a year but only saving 10% of that.
- Knowledge and skill means we can spend less yet attain the same material standard of living as others. With more time on our hands, we can cook most of our meals if we choose to. Currently, we rarely eat at food courts as we can cook tastier meals than most average vendors. Eating healthier is also a big factor in our elevated QOL.
- Not to mention that many goods are becoming more and more giffen-like, cheaper or even free. Books, electronic devices, travelling within South-East Asia and media entertainment are examples which come to mind. It’s increasingly easier to fulfil the basic needs in life and the non-tangibles like stress and leisure time are bigger factors that determines the QOL of a person.
How about you? Are you pleased with your current quality of life? Perhaps it’s time to do a review to see if you are heading in the right direction.
Thanks for reading.
Hi 15HWW,
Fully agree with the quality of life metric since I am also self employed now. Actually you can say that we earn higher dollars per working hour so that’s great! No more wayang, act hardworking hours liao. π
Anyway thanks for educating me on veblen and giffen good, learnt new terms today π
Hi Jes,
Less hours working, more hours spent on snacking your satay cashews!
Hi 15HWW,
On your last point in ‘Income’, I think there might be survivorship bias. Those that do not have that amount of passive income (>100k/yr) could be less likely to talk about it. However I do agree with your point. There’s a reason why those with >100k passive income talk about it π
Also agree with QoL as the most important metric. After all, income is for expenses, expenses is for QoL. Although sometimes people might think that income is the most important metric. I’ve heard of fresh grad friends earning 100k/yr but work 100 hours a week. Maybe be a happy monk instead and be in the top 1% QoL? LOL
WGM
Hi WGM,
You are right about the survivorship bias! I guess I am personally also uncomfortable with FIRE without passive income somewhere near the $100k mark.
Hey! Just a quick note to say I still read most, if not all, your posts and still enjoying ’em. I particularly like personal sharing such as this~ Blog on!
Hi happiebb,
Wow, I am flattered. Sometimes, I am indeed surprised that it’s been 5 years and I am still going on quite strong on this blog. Thanks for the support and we will catch up over lunch soon!
Really nice article π
I also want to retire as early as you and Mrs 15 WW and become self -employed
Will you consider writing an article on how much capital/passive income is needed to choose the self-employed path?
I am now employed full time and want to open my own business but not sure how much I need to save in order to quit. Would appreciate your advice.
Thank you!
Hi Nicola,
Thanks for your kind comments and suggesting a potential article for me to think through!
But let me try to provide a short and quick answer here first. The best way to start your own business is always to work on it as a side hustle. Once things pick up (revenue/orders etc), you can then start thinking about whether you should do it full-time and quit your job.
In this age of Internet, if huge capital is needed to start the business, the odds are high that you are doing it wrongly. It’s better to invest more time rather than capital into a side hustle to see if it’s viable in the long run.
I happened to chance upon your blog last week and I’ve completely read “all the posts” and I must say, I admire your goals and what you and Mrs 15 HWW have accomplished thus far.
I would like to thank you for enriching me with financial literacy and sharing your journey. I find your blogs particularly relatable to the Singaporean context which makes it extremely useful and insightful.
I’m glad you continued your blogging journey after those 5 years and I’m thankful for it as I benefited loads from your words.
As an aspiring young 19 year-old investor, I was able to relate and put myself in your shoes when I was reading your earlier blog posts. The fact that I am “financially aware” of my future earlier like you did when you were 24 does give me an advantage.
I just have one question, my analysis tells me that we are nearing a recessionary phase as evident from the decreasing rate increase of Singapore’s GDP. And also, the increase on GST to decrease our purchasing power. If this materializes, it would be a good time to go short. But the major downside is that in a short position, there’s unlimited losses as compared to a long position.
I feel that it’s not prudent to be buying and entering the stock market now if it’s ” at the peak ” as it would mean I’m buying high and I’m afraid the depreciation in portfolio value would negate any dividend income. Please advice.
Thanks!
Hi Ed,
Thanks for your kind words.
As for your analysis, I have to admit I harbour similar concerns as you. However, there’s also the other side of me that knows that it’s hard or close to impossible to predict a huge crash. You can take a look at these two posts that make a similar point.
https://awealthofcommonsense.com/2018/09/what-if-stocks-dont-crash/
https://www.fourpillarfreedom.com/should-you-invest-when-the-stock-market-is-at-an-all-time-high/
Hope they help!