Why you should think about Financial Independence

FIRE is a term that has been thrown around very frequently. FIRE stands for financially independent, retire early which seems like the ultimate dream/goal for many. Yes, I think everyone should know about this concept and think about reaching FI (being financially free). We all live with lots of worries everyday, money definitely weighs heavily on most people.

Being financially independent can open up doors for us providing us with many options and we can do things that we want without thinking about our next meal or whether can we afford the lifestyle we are currently having. For now, I work because I need the job that I currently have to pay the bills, daily necessities and to provide for my family as well. What if I can work with no more worries for those? I think I would be less stress if I knew that I didn't need the job to cover my daily necessities. I want to be financially free to do the things I like and spend time with people I love. But I might not retire early because I find work rather fulfilling, having colleagues and also feeling of accomplishment when you complete your daily tasks. But being financially independent is a goal that I am aiming for.

I watched this TedTalk by Lacey Filipich where she described how she was time-poor when she started work, thinking that things will not go on in her work if she ever took a day off and so she didn't ever took a day off. The turning point came for her when she became really ill and was bedridden for 5 weeks. It made her realised that her career was nothing much and it was the one causing her health to deteriorate. She took a break and got back to work falling into her old routine, then her sister commited suicide and made her start thinking again.

So most people work hard for 40 years then reach retirement where they move from being time-poor to time-rich but by then they would have become too old to enjoy the experiences that they might have wanted when they were younger due to concerns of health or energy. So instead, we could take mini-retirements throughout our lifetime and to do this, we can have a small business on the side which can fund it while we take these min-retirements.

Definitely, in a Singapore context, it is not easy because for most of us, our main job is really our main source of income and with mortgages and other bills, we might not be able to afford to take so many mini-retirements.

Taken from Why you should think about financial independence and mini-retirements | Lacey Filipich | TEDxUWA

So to be able to afford these mini-retirements, start investing and saving. So you can move from being time-poor to time-rich. InvestmentMoats is a great personal finance and investing website where I read him articles for information, he has an article which writes about the 11 stages of financial independence. He mentioned that the higher you go into the stages, the more useful wealth is for you.

I wouldn't go into the details as I believe that you can go over to his website where he has a very extensive explanation on it all. Link is below. Definitely, not everyone will reach level 10 and everyone will progress differently. This serves as a guide to see where you are at and which stage are you aiming for.

The 11 Stages of Wealth: Which Stage of Wealth are You at? | Investment Moats

What is really important is the mindset that you have, knowing that you have a goal for the money that you are saving and investing for will make you treasure them and not waste them away on unnecessary expenses. With 2020 being a crazy year filled with retrenchments and uncertainty, many have now realised the importance of saving for a rainy day, besides that, 2020 has made me realise how fragile life can be and I really want to enjoy my time without working till old age.

Having this mindset keeps me aware of my expenses and how much I am keeping aside, this provides me with a overall view of how long more I need to be financially free. For example, your hourly rate is $20/hour and this means a meal on a Sunday with your family amounts to 5 hours of your working hours, this does make your heart kinda ache as 5 hours of your hard work is gone in one meal. To be able to know of the FIRE concept and be able to pursue it means that you are privileged and I believe once you are aware that you are exchanging your time for money, you will want to move from being time-poor to time-rich.

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How much money you should have by age

I saw quite a few videos talking about how much money you should have saved by age 20,30 and 40. It is interesting as it is what the society thinks you should have by a certain age considering that you have worked for a number of years.

In Singapore, Seedly released an article as well to show how much you should have saved by what age. Definitely, you have to understand that it is a gauge and it doesn’t matter if you have not achieved that amount because life is not all about money and not a linear growth.

In the Seedly article, this was a guide released by them but they definitely highlighted that it is not a competition but good to have goals set.

Here's How Much You Need to Save According to Your Age

Life is about ups and downs and so you never know how much you will really have at a certain age. But as a guide, I think it serves as a good rough basis.

Definitely, online there are lots of other videos on how much you should have saved by age. The first video I saw on this topic was from Andrei Jikh and the second I saw was from Graham Stephan, both of whom are huge YouTubers.

How Much Money You Should Save (Amount by Age)

How Much Money You Need To Save By EVERY AGE

Graham video is good because it shows how much of your income you should have saved for example by age 40, you should have 3X of your salary saved, how much to have invested and also should be looking into getting a house.

It is good to have clear and specific goals along the way, but dont be too hard on yourself because there really isn't a hard and fuss rule.

I like Graham's version of it because it covers a little more areas and also actions on what you should be doing.

         TWENTIES

• Based on research, net worth of -$27,000

• What you should start doing:

• Get a credit card

• Open a retirement account, in Singapore start contributing to your CPF

• Have 1 to 2 months of savings

• START INVESTING!

  THIRTIES
  

• Have a good credit score

• No "bad debts" - like no credit card debts

• Saved 1X annual income (depends)

• Be able to save 20% of your income

  FORTIES

• 3X your annual salary saved/invested

• Buy a house (depends)

• Know your yearly spending and aim for 5 to 7 times of that amount invested

   FIFTIES

• 7x your annual salary saved/invested

• Paying off your house

• Understand your spending to estimate amount needed for retirement

   SIXTIES

• 10 to 12x annual salary saved

• Paid off house

• Last lap of saving as much from your income

• Slowly withdraw from retirement accounts if needed

With more money and a plan ahead, retirement will seem more relaxed and to be honest, many retire without a set amount in their bank accounts. For my mum, she is lucky to have some money in her CPF and also a little cash savings saved up. She will be relying a lot on CPF for her retirement but she has paid off the housing debt and currently have just the utilities, phone and insurance bills to pay.

She wasn't expecting herself to retire so early but in a way, she didnt wait till she had a million dollars so just make sure you are living life to the fullest!

As a guide, I feel that you just need to know that you are in control of your finances at the different stages of your life and know that there will be times when you need to save up more and times when you can spend more. Money is really something that can be earned and so we should not place our happiness all on money alone. Spend time with your family and friends as well.