The Devs' Diaries

Your Money or Your Life

Invest, Money, Work

Why Save and Invest?

The covid19 pandemic has turned the economy on its head with a few sectors bearing the full brunt of its impact. The importance of saving for a rainy day has never been exemplified anymore clearer than this. For people who have been displaced from their jobs due to the pandemic, and who do not have a sizable saving stashed aside to tide them over this terrible time, life can be very, very hard.

This pandemic just overstresses the importance of saving money but nevertheless, you should save anyways, with or without an impending pandemic or disaster on the horizon.

Be in control of your own life

Even more so, you should invest. If you truly want to be in control of your life. No, I am not trying to be dramatic.

The (F)financial (I)Independence (R)retire (E)early movement seems to be catching on with young adults and you can easily find stories of couples and individuals who have saved enough to retire in their 20s to 40s. People seem to be very excited about the prospect and possibility of having an early retirement although I personally consider it to be secondary to financial independence. Because it is after achieving financial independence, that you unlock the option to have an early retirement if you so choose to.

I would, however, think that most people would not want to retire too early as people still wish to find a purpose or a goal in life to be preoccupied with. The point of FIRE is not to sip on exquisite drinks along the beaches of some exotic island all day, and every day for the rest of your life. It is about having the option to do that, or doing any other thing that you want for that matter.

Everyone is different but I am personally going to consider teaching, developing my own apps at my own pace, streaming games, etc.

If you nail the FI part of FIRE, then congratulations. You have unlocked ‘FU money’, and you never have to depend on another paycheque ever, period. You may choose to work, just because you are bored and feel like it. You may not even call it “work” at this point on, because what you choose to do with life as a replacement of work will really, only be things that truly spark joy in you. If you can monetize that, then all the more power to you but if not, your FU money has got your back.

How to go about doing it

Now that we have covered the WHY, which is pretty self-explanatory, let’s look at the HOW.

Learn from people who have succeeded in doing this. There are books written about wealth management and an abundance of videos on youtube that covers everything you need to know about managing your finances so you can pick the medium of learning that best suits you.

Here are my recommendations for books:

  1. Rich by Retirement by Joshua Giersch

A recommended read especially if you are a Singaporean. The book is beginner-friendly and talks about index fund investing in the context of Singapore. The author’s style of writing is colloquial and conversational which makes it easy to understand. The book is also relatively short and concise, which is easy to pick up and complete for people who do not usually have a habit of reading.

  1. Millionaire Teacher by Andrew Hallam

Millionaire Teacher is an example of how you can achieve financial independence even with a modest earned income of a teacher. Its context is set in the United States with an entire chapter dedicated to recommending ETFs that are the most ideal in the author’s opinion, for the average American investor. Regardless of your nationality, you should give this book a read as it gives a simple and clear explanation of financial concepts along with useful investment tips.

You will find that these two books put emphasis on a few important principles to long term successful investing. invest in low-cost ETFs that tracks indexes.

Let’s go through the general principles of how to attain financial independence and obviously, one of the most important factor is - income.

3 Types of Income

Not all sources of income are the same and they can be classified generally under 3 categories

Earned Income - This is the type of income that we want to ultimately be free from, and is arguably the worst. Why? Because it commands your full commitment in terms of time, in order to earn it. To most of us, this will be our monthly paycheque. However, it is also the easiest income stream to generate as working a job is intuitive and almost everyone knows how to do it (I hope?). Even though it is the worst type of income that we want to move away from eventually, it will probably be the most contributing factor that determines how soon we reach our goal, aside from expenses.

The more you earn, the more you can set aside for investments which will yield more investment income that you can reinvest for the compounding effect. This is why you should listen to your parents and study hard so that you can get a good job that pays well =). It certainly helps to make things easier if your paycheque is larger than average.

Business Income - This is the type of income where you do not have to be actively engaged to earn. Once you get it up and running, it generates income for you on the side and you only have to ever manage once in a while. It doesn’t count If it is something that you have to actively manage, for example, you open a chicken rice stall as a business owner but you have to tend to the stall and put in the hours every day. If that is the case, then it is very much considered an earned income.

Business income is a source of a passive income stream that generates revenue on the side once you set it up and running. For example, selling courses online, earning ad revenue daily through the content you put on youtube or from your site. In my case, I make a little bit from ad revenues that I get from mobile apps that I put on Google Play. You spend a one-time effort to produce something and thereafter, it generates income for you on the side without requiring much attention from you. This is better than earned income as it barely takes up much of your time, however, making it is much less straightforward, unlike an earned income.

Investment Income - This is the type of income that we aim to live off from and it is the absolute best kind of income as it requires no work on your part at all. Your money works for you even in your sleep. However, it is really hard to have a sizable investment income flow without first having a huge amount of money invested. Much patience should be exercised in this and your should never jump into speculating stocks if you are a long term investor.

Manage your Expenses

Income - Expenses = Money you can set aside to invest or save

It is really simple to understand but extremely difficult in its application. Keep your income high and your expenses low

Most people experience lifestyle inflation through their working years and their expenses tend to increase alongside their income. This is a result of Parkinson’s Law and you would do well to understand this phenomenon and keep it in check, else, no matter how much your income increases, you’d always be left with not much more money left to invest.

Parkinson’s Second law - Expenditures or “money paid” out rises to meet income.

Be also wary of taking up ill-advised consumer debts, for example, overspending and missing payments on your credit cards, or taking up an unnecessarily high loan to fund a car. An asset loan for a house is perfectly fine but do not be mistaken that your car is an asset in the same way that your house will be. The car is a depreciating asset that is guaranteed to lose its value over time so I’d advise against taking on a huge loan for it unless you absolutely cannot do without the convenience of personal transport.

Be mindful that there is always a hidden cost in expenses. Above the amount that you pay out in the expense itself, you are also giving up on the potential investment returns that the amount could generate and that is an opportunity cost that people tend to overlook and underestimate.

Delaying Gratification

I think this is the single most important factor that determines how successful your FIRE journey will be. If we think about it, the FIRE movement is actually about putting the mindset of delaying gratification in practice. With delayed gratification and FIRE, both require that you make sacrifices in the now in order to get better returns in the future. Just understanding this principle is never enough though, because it has to be engrained in your mindset and become a part of how you approach life. It is consistent practice of delaying gratification over a significant period of time (10 years and more) that will allow you to reap the fruits of your labour at the end.

I am sure that some people will find this to be second nature while others struggle really hard to maintain discipline. We are living in an era of convenience culture where we get to outsource nearly everything with money. Instead of preparing your own meals or going out to buy them yourself, you could call for food delivery services and pay a premium for the convenience. Instead of taking public transport, you could call for a grab car or taxi to pick you up wherever you want. If you find yourself always paying for convenience services too often, I would urge you to consider cutting back on these. The extra money that you pay may not seem like much but if you cultivate a habit out of this, you are training your mind to give in to the allure of instant gratification. This is disastrous and totally works against you and your objective of achieving financial independence.

Lastly, care not too much about how others live their lives and what they think about how you live yours. Social media and influencer culture will make you believe that you need things that you really do not. Learn to be comfortable with yourself and always be mindful of how looking at others on social media makes you feel. Calibrate your mind and try to be at peace with yourself.

Fire in Moderation

Keep the FIRE going warm but do not go overboard with it lest you get burnt. I personally do not agree with some extreme practitioners of FIRE where they go to great lengths to scrimp and save. Please go for holidays and please do not hesitate to reward yourself by paying more for things that are worth investing in. Take me for example, I believe in paying more for my bed and chair as these are things that are meant to last and affect your personal health much more than you would like to believe. Identify what truly matters to you and keep the moderate FIRE burning.

Good luck and I will see you in retirement soon XD.

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