A Guide Into FIRE: Financial Independence, Retire Early [TFC 93]
Many people want to live their lives with passion and FIRE…Financial Independence Retire Early, that is. FIRE is a wildly popular concept where one has sufficient income to pay for his expenses and with that, he is able to enjoy his life by pursuing his interests and goals without having to worry about money. Episode 93 of The Financial Coconut discusses some steps that you can take to achieve FIRE in your life.
Contrary to popular belief, you do not need to be extremely wealthy to reach FIRE. Reggie believes in that and he shares 3 steps to achieve FIRE: front loading (putting as much money as possible in the market and letting it compound), having a side hustle and building a broadly-diversified core portfolio with low cost fee funds.
From Episode 93, you will find out why front loading is better than putting a small sum of money every month and an unorthodox way to help you accumulate your capital. Having a side hustle can help increase your income, but it also brings about more benefits than you think. Lastly, while picking your own stocks and going to the exciting world of crypto seem like the way to invest and build your portfolio, Reggie cautions against this and he explains why a broadly-diversified core portfolio may work better for most of us.
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Reggie: Hey Coconut! So yes, I know many of you guys are looking to FIRE – Financial Independence Retire Early. I’m not always a proponent of it, I get the idea of people trying to get that choice. You may not actually retire at the end, but the idea is if you have all the financial capacity, you have this ability to then choose to decide that, “okay, I want to take a break. I’m going to retire now. I’m going to take some time off and see how things go.” This is an extremely attractive idea and I’m not always for it but since you want to know, I’m going to share with you some tips on how to do this in a more palatable manner. So welcome back!
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Good morning everyone. I welcome you to another day with The Financial Coconut. In our podcasts, we will be debunking financial myths, discovering best financial practices and discussing financial strategies that fit our unique life. You get it, ultimately empowering us to create a life we love while managing our finances well. So today we’re going to spend some time to talk about how to FIRE. Not like all crazy and shit, there are some ways to go about doing this and it’s not all painful.
It’s not all painful does not mean not painful. The base idea is you need to be able to make enough income to offset your expenses. The moment you can do that, then you have the financial capacity to decide whether you want to continue pursuing what you do, or you want to go into other things in life that you enjoy more, or you just want to take a break and not do much.
From someone that has actually been there done that, I would say that you don’t really need a lot to do that life. Maybe only a lot more if you’re going to do it here in Singapore. But honestly, if you’re going to retire, if you’re going to do a FIRE thing, highly unlikely you’ll want to do it here. Because if you are going to FIRE, essentially you want to take a break from this fast pace way of life. You don’t want to be consistently doing your corporate day in day out, you have enough of this very high stress environment that requires you to be extremely productive. Because from a company’s standpoint, I’m not going to pay you $5,000, $6,000 to be not as productive as someone that I paid $3,000 – $4,000.
So this is a balance sheet problem. We’ve talked about this very, very, very, very, very early in Episode Two. You can go and check out Episode Two. I talked about paychecks, essentially from a company standpoint, they will definitely milk Singaporeans because they are paying you high. If I am operating a company, international company, I will be hiring all over the world. If I hire all over the world and I pay you $5,000 a month, compared to if I pay a Malaysian SGD 2,000 a month, or if I pay a Filipino SGD 1,000 a month, I’m going to expect you to create value five times of them. In some ways or another, maybe because it will be a different process, it’s not apples to apples comparison. But I’m paying you $5,000, there’s a little bit of market forces here, but on my baseline I’m still expecting you to be performing certain level of tasks that my highest in other countries cannot do. Or let’s say I’m hiring you to do the same thing, I’m expecting you to have more output just because I’m paying you more. And that is the base case for capitalism.
There’s a reason why people who are shifting factories are out of certain areas and why all these US, UK companies they’re hiring in Singapore. You think they come here for fun? No, they come here so that they can capitalize on the regional economy, but at the same time hire you to provide the same quality work at a fraction of the cost, compared to them hiring in UK, compared to them hiring in the US and in the future compared to them hiring to China. So that is the reality. And because of Singapore’s economic model, which is extremely MNC (Multinational Corporation) heavy, whether or not they are in finance, whether they are in tech or are they in shipping, all these big multinational companies, they hire about 30 over percent of Singaporeans. A lot of people work for big MNCs.
The remaining one third will work for the government and they have a very different pay scheme. But the rest which are working for SMEs (Small and Medium-sized Enterprise), actually these SMEs are really also working for the MNCs and of course the government. In essence, the government and MNCs are the big two hirers in Singapore. They make up most of the job market and while they’re operating whatever they are doing, there are certain parts of the business that they don’t want to do. Like they don’t want to do the accounting, they don’t want to do the simple processing, they don’t want to clean up their office, they want to outsource management of certain things. All the SMEs in Singapore, a lot of them are doing these things. So essentially if we think about it, our economy is not built on SMEs, not built on artisans, not built on crafts. Our economy is built on big MNCs hiring a lot of people. And then their small little processes being outsourced to SMEs, the SMEs will hire the rest. So the baseline is still MNCs.
In other words, we are still considered cheap labor. Of course we can go on and on discussing this thing, but this is one of the core ideas why a lot of people are very stressed up. Because MNCs will have to push you to make sure it’s value for them. So you have to do a lot more work, your work extends endlessly, very long hours. You got to keep doing, it’s very high stress environment and yeah, it’s capitalism. In Singapore, that pretty much sums up the overall system.
There’s two main ways to do very well in Singapore. Number one is to perform extremely well in the corporate space, meet the work culture there, be able to outperform and climb up into leadership and management. The other is to do extremely well in school, get a scholarship and move up the public sector. And that’s about it, these two paths. If you think about it, if you really love these two paths and you’re performing well, you won’t entertain this idea of FIRE or you will “oh, interesting” but you are not double down.
For many people that are very hardcore or trying very hard to FIRE, to learn to invest, to try to manage their finances, to optimize and capitalize so that they can faster leave this cycle, leave this race, they really don’t want to do either. If you don’t want to do either, not working for GLCs (Government-Linked Company), not working for MNCs, then why do you still want to stay here?
If you want to run away from this tool, then you probably should leave this place! Go and work somewhere else, explore life elsewhere. The rural life, the suburban life, the artisan craftsman life, the remote working life, the travel around life. There are many ways to live and all these different things that are just names, are just different ways that people are living.
You can test out different things and ultimately find the life you love! So if you decide to FIRE, then it is maybe not so expensive as what you think it is, because highly you don’t want to stay here. And if you want to deep dive with me on this whole idea of FIRE, then you can also check out Episode 51… so many episodes by now so check out Episode 51 – Healthy Early Retirement Tips. I think over there, I did talk a little bit more about these things.
But for today, assuming I’m assuming you’re going to embark on FIRE already, so you are dedicated to this idea… my very first tip to you, very first thing that you should do is to load up capital as fast as you can. So that’s what we call front loading. Why front load? By now you would probably have already heard things like “Time in the market is better than timing the market” or have heard this idea of compounding, which means it’s an exponential growth. Every year you compound, you keep multiplying multiply. It’s not a linear thing, right? It’s a multiplier.
The idea of front loading essentially is to have as much capital in the markets and let it compound for as long as possible. If you want to visualize it, let me give you an example. If let’s say you have $100,000 and you’re going to compound at 8% a year, and we’re going to do a 10 year compounding period. So $100,000, 8% a year for 10 years. At the end of this compounding period, you would get a total portfolio value… expected total portfolio value of about $216,000. You’re about one time in tenure, that’s pretty cool.
But if you were to do it the other way, which is how a lot of people will manage their finances… which is every month I will save a bit, every month I will save a bit, every month I will invest a bit. Then let’s say you start with $10,000 as your starting capital, every year you add $10,000, over a period of 10 years and this whole portfolio is subjected to 8% annual growth also. Which means your first $10,000 will compound for 10 years of 8%. Your second $10,000 only compounds for 9 years because it only came in in year 2. In this way of doing, your portfolio at the end will be $166,000. If you compare that with the person that front loader with a $100,000 from the very start of year 1, never added anymore, his net portfolio at the end was $216,000. So they made $50,000 more because their dollar was compounding longer in the market. But this is not really a big problem if you are trying to live your life the normal way. Essentially to get a job, set up a family, keep adding money and keep investing. And over time you keep accumulating capital, you’re taking it as it goes along. That’s what most people will do, it’s not a problem! At the end of 10 years, the Person A which front loaded $100,000 and you Person B…. every year you add $10,000. Both your capital injection is $100,000, nobody added more capital. But because they front loaded, they got more. And if you are trying to FIRE, you should front load because that is going to give you more and you’re going to be able to FIRE ASAP!
And I think that’s the idea of FIRE, try to do ASAP right? You get the idea? If you front load $100,000 and then you continue to add $10,000 every year… in 10 years’ time assuming 8% compounding, you get about $360,000 at the end of 10 years. Assuming 8% compounding, assuming market no funny thing happens. So that is the plan. What happens, that is another thing. But assuming that’s the plan $360,000 in cash, you can do a lot of things! You can buy a small little house in the suburb in Thailand, in Malaysia, in Vietnam. You can live in a lot of places, right? You sure you want to live in New York, you want to live in California, you want to live in London? I don’t think so! You want to leave Singapore, you want to shift to another big city? You may want to live in the UK, but you can live in somewhere in a smaller town like Leicester or Cardiff or something, or you can live in Nebraska in the US. There are many other places you can live around the world. Chances are you don’t want to live in a big city. You don’t want to take on the MNC, GLC way of life. You want to explore other ways of life. $360,000 is a miracle, you can do a lot of things!
And then you will tell me like, “Hey Reggie, but I don’t have $100,000 to start with.” So that’s the idea. If you don’t have $100,000, what is the fastest way to gather that $100,000. Don’t plan like the normal people… every year $10,000, $10,000, $10,000. Can you do $30,000, $30,000, $30,000? If you can, then essentially in 3 years you will have that $100,000. And this is where all the cost cutting hacks, budgeting measures, they all come in here.
If you are new, you just got a job, you’re just out in the labor market… Hey, if you think about it, can you live like a uni student for another 5 years? If you can live like a uni student for another 5 years, because you were a uni student just last year before you got a job this year, if it can continue to live their life for 5 years… with the 泡泡茶 (Chinese “Bubble tea”) with your friends in the open area, hang out doing nothing, don’t need to go to the bar, and do the same thing that you were doing in the uni. In 5 years, you’re going to be rich. You’re going to have the $100,000, $150,000. You may even have the $200,000 if you can squeeze a decent job. Hey, you front loaded yourself essentially in 5 years. By 30 you will be very fine.
If you’re no longer a uni student and all… I know a lot of millennials are not young anymore, our average age is 28. If we are no longer uni kids, we are already in our career for a while, then of course go through your budget, go through your expenses, to try to see what works for you. And we’ve talked about this extensively. I know a lot of other blogs will teach you how to hack and all those kinds of stuff, I will not repeat them here.
But there’s one thing that I want to point out in the local context, in the Asian context, extremely common…. and that is family contribution. And I think I should let you Coconuts know that I do not contribute to family expenses. And that’s probably one of the reason why I have managed to front load my capital in such a short period of time. Because if you think about it, I know it’s going to be morally a bit challenging, a bit hard, but hey guys… let’s just be honest. $300, $300, 2 parents, add together let’s say $500 for contribution or $300 for contribution. In a year, that is like 3, 4, 5, $6,000. You can easily collate capital.
And my base case, I’m going to give you a base case. You don’t need to copy me, but I just want to put it out there. My base case is you’ve graduated, you’re in your early days, you’re finding a job and you’re doing whatever you can. So you are building yourself up and yes, Confucianism, blah, blah, blah…. your family brought you up, all those kinds of stuff. But at this moment in time, actually their finances are at their lightest because they no longer need to feed you. They longer need to pay, you can support yourself!
What is going to happen when you contribute to family? One thing is they are going to be spending that money. They are not going to be thinking long-term. I have not seen a lot of parents say that, “oh my kid give me contribution. I’m going to invest this money.” No! Back to the same idea of front loading, the earlier you get capital, the longer you stay invested, the more powerful is your capital going to be. If you’re going to keep giving them money so that they can spend and spend and feel shiok (Singapore English “very enjoyable or pleasing”), at the end you are going to be the one in pain. And if you’re going to be in pain and it’s going to end up in a sandwich generation situation, everybody is going to be in pain.
So what I’m saying here is not to say “oh, I’m never going to contribute. I’m not filial, blah, blah, blah, whatever.” But I’m going to handle myself first. I’m going to load on my capital, I’m going to get myself into a very healthy financial situation first, then I can contribute freely. At that point in time I don’t need to care anymore. I can just keep giving you, it’s fine. You want to take, take, take, take, take! Because I have already sorted myself out. What I recommend for a lot of people… in this situation, you have your career, you’re in the wild, in the space and you’ve been contributing to the family. If you really want to FIRE, I think one thing you really need to sit down with your parents to talk to them or your family and talk to them and say, “Hey. Can we arrange a 5 year pause for family contribution?” It can be first year deduct 30%, next year deduct 60%. Then after that, by the third year we stopped contributing for 5 years, something like that. Okay, gradual. So let everybody have some time to acclimatize. But if you can pause family monthly contribution, hey, it’s going to give you that advantage to load up capital in the front and you can compound. So that’s going to get you through a FIRE. It’s amazing. Yes, think about it. You don’t exactly have to do the family contribution thing, but the idea is to load up capital in the front.
Which brings me to point number two and that is… you must have a side hustle and I will tell you why after a word from our sponsor.
For a lot of people, side hustle can be a fun thing to do or potentially I get some extra income and all those kinds of stuff. And why am I so insistent that you must have a side hustle if you’re trying to FIRE? I’ve talked about this in Episode 51 – Healthy, Early Retirement Tips. If you want to FIRE, you better FIRE into something. Which means you want to see retirement as a transition, right? You want to retire into something that you enjoy, something that you love. Maybe pays less is fine, but you want to do that. That is the line that you are pursuing for. That’s the beauty of FIRE, not like retire and not do anything. In that sense, if you can pick up a side hustle now, and you can pick up multiple side hustles over the years to try different, different things, then you can figure out what is the life you want. So that is extremely powerful. What is the best way to do it? Just do it on the side. So pick up side hustles. It can be financial, it can be volunteer, it can be some craftsman, it can be doing remote work, all those kinds of stuff. There are all sorts of ways and all sorts of interesting side things that you can do. It can be a hobby, what have you? But the idea is to make sure you do extra things that are not part of your OG life and trying to discover that new line that you can FIRE into.
And this also helps you to expand your network, so that you have a community to FIRE into. I think this is extremely important because if you work a traditional job, let’s say you’re in finance, you’re a banker, very typical… Singapore a lot of bankers. Let’s say you’re a banker, you work in finance. Other than your school friends, most of your friends will be in finance. Let’s say you’re an artist, most of her friends will be artists because that is the community that you hang out most often. Whether is it for work, whether is it for life, you tend to be in that community. But if you’re trying to FIRE, essentially you’re trying to grow a different way of life. You’re trying to switch your life to go into something else. By doing side hustles along the way while you are doing this whole FIRE thing, then hey, you can have an extra community. You can maybe find a bunch of people that you can do this together or pivot into that way of life and that is a great way to go about prepping for FIRE.
Some people will focus on the whole like, “oh, if you can do side hustles, you can make extra money and you can faster accumulate capital and blah, blah, blah.” Those are true and those are real. But for me, I think if you can do that, great! But for me, why you should have a side hustle is because you want to explore, you want to try, so that you can transit to the life you want. Not so much about making a lot of money on the side.
Of course if you can transit into something that makes a lot of money and you like it more than your current life, then you can FIRE into that life. And I think that’s beautiful and perfectly amazing. But my base idea is… hey, we want to find a life that we want so that we can go into it and not like stress to try to make more money and hustle our way out of this life. It’s not about leaving this life or this current way of life, but really finding this other way of life that we can live and go into.
So do a side hustle with that idea in mind, so that you can FIRE into that life and not so much about making a lot of money so that you can leave this life. Does that make sense? If it does not make sense to you yet… hey, you can DM me on Telegram, we can chat and we can talk about it. I will develop this idea further. But essentially, find a life you can love and transit into it. FIRE into that life.
Which brings me to point number three and that is extremely cheesy… but… build a core portfolio with low cost fee funds and broadly diversify. Hey yes, I know… you’ve probably heard this again and again and again and I don’t want to go into “why broadly diversify, why low cost fees”. None of those things, everybody is telling you to do that.
My base case… why I think you should do that. I agree with a lot of what they’re saying, what their assumptions are and all those kinds of stuff. I’m going to share with you why I think you should adopt this strategy, rather than the whole pick your own stocks or go into crypto, try to find the most yield kind of thing.
Just do this. And this is because for most people it is probably going to be very hard to pick your own stocks, decide on your own ETFs (Exchange-Traded Funds), which index fund, which bonds to buy, buy crypto, all those kinds of stuff. It’s going to be relatively hard work. It’s going to be pretty difficult for a lot of people to do it.
I’m not saying you shouldn’t, if you are very interested and you want to give it a shot and you think you have the capacity to do it. Okay why not? Cool. Join the community, join the members’ backend, pick up investing knowledge, good stuff! But assuming that it’s not your thing, you just want to FIRE. You don’t want to take on more work, you just want to live a different life. Then the data backed, most tested system, easiest lowest risk is this! So far it is this broadly diversified portfolio over different asset class with low cost index funds. Yes, 就是这样 (Chinese “it’s like that”). It is like that! Don’t think so much. So far, this is the most developed idea.
If the markets change, things start to look different, don’t worry man! In an era where content is so prevalent, it will change. Sentiments will change, you will start to hear new things and things will be different and by then you can always adjust your portfolio.
The idea here is not that this is the best strategy. The idea here is that this is the best strategy as of now. Which means what you need to do when you look at your investments, you look at your own portfolio, is not to outsize profit and make a lot of money and try to beat the market and all those kind of stuff. You can be perfectly happy making a line with the market. You can make profits with the same with the market can already! You don’t need to make more than the markets. So 8%, 10%, amazing good year on year. You just need to focus on finding the life, continue to compound, gather your capital and reduce your expenses, and discover the other life that you want and that’s about it!
If you think about it, FIRE in itself is not about being very, very, very wealthy so that you can leave the system and never ever come back. But it’s really about finding out the other life that you can live, that is relatively more affordable compared to where you are at and how do you move towards that life.
Because if you are already very wealthy, you will not look at it as FIRE. You will just look at it as “oh okay, I want to change my life.” If you’re looking at it from a FIRE angle, means you’re uncomfortable with the current way of life and you want to go into something else. So these are your major pointers that can help you towards to go to something else, that would very likely cost a lot less, less stress, a different pace of life and it can be beautiful and amazing.
I’m going to sum up today with these 3 pointers. Number one is to load up capital ASAP because the faster you have capital, the more you can compound, the more you can grow. This is already very basic, but… hey, instead of following the other people $10,000, $10,000, $10,000 every year, you want to try very hard to get $100,000 right from the start. So you load up ASAP. After that you want to continue to add capital… okay, great. If you don’t want, you have a load. It’s going to be much easier for you to FIRE.
Number two is you must take on a side hustle because when in this process of taking side hustles, you learn different things, you try different things and you will find that life, or there’s a higher likely chance of you finding that life that you can FIRE into. The whole idea of FIRE is to go into something else and not not do anything. So pick up a side hustle as an extension of your network, as an extension of trying different life and maybe you will find a life you love.
Number three is build a core portfolio with low cost index funds broadly diversified. Very boring, yes I know. I hope you learnt something useful today, see ya!
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I hope you learnt something cool today. The idea is I’m not a big proponent of trying to push everybody to FIRE, FIRE, FIRE, FIRE, FIRE, FIRE! What the hell… because the idea is you want to FIRE into a life that you love and if you don’t know what you want yet, then you don’t really need to FIRE into that life. Or you don’t need to be committed to very structured products. And I’ve talked about it in the whole financial planning episode, which was only a few weeks back. So check that out also. The base idea is your goals: what do you want, and what do you want is not a simple answer. Things are ever changing, you’re always experiencing new things. So take your time to experience it. Be cognizant about it, know that you don’t know what you want. It is perfectly beautiful if you know that you don’t know what you want because you can be on that search.
FIRE is not something that I am very big on, but if you know what you’re trying to go for, then FIRE in itself is a pretty good strategy. Today we’ve talked about some very good points that can be part of your FIRE playbook and I hope it works for you. I hope you can find that life that you love and FIRE! And that’s why you listen till here!
For next week, we’re going to talk a little bit about how to eliminate impulse spending. I think impulse spending is something that is pretty common. Especially these days a lot of people at home and your digital advertisers are crazy, they are trying to get you at every corner. So I’m going to try to give you some framework to eliminate impulse spending or eliminate is a very big word… but I’m going to share with you how you can potentially do it. It is a very psychologically trained episode and we will talk about this next week.
Later this week, we’re going to continue with our Providend Chills with TFC series and we’re gonna have a chat with Eleanor and Mei Kuen and they’re one of the early early people at Providend. We’re going to talk about estate planning which is a little bit heavy but I thought it was very insightful. I had a good chat with them but estate planning is something that is a lot more than just a will. I think I’ve learned that so far. But a lot of young people will think it is not important, we don’t need to estate plan, we’re still young, live our lives, why care? So I think it’s something that you should listen to no matter what’s your age. So they get a decent idea about what’s going on. And that will also sum up our series with Providend. Let us know, let me know if you enjoyed the series with Providend. I definitely had fun working with them and digging their brains. I Buay Paiseh (Hokkien “not embarrassed”) by now you should know. I hope you had fun, I hope you learn some good stuff. Let us know if you like these kind of series, we can always pitch to other people to sponsor these series and continue to create great content for you. Take care, see you guys.
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