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A wise article - it's true we do not need to be "rich" in the conventional sense of the word. We do need good relationships, companionship and a purpose in life. For those who live simply (I like to count myself as one of them), it will not take a lot of money to make you satisfied and happy. As Me & My Money section has shown today, one can live on very little and be contented by helping others and doing charity work! Smile

The Straits Times
www.straitstimes.com
Published on Feb 24, 2013
No need to be rich to be financially independent

But you do have to be debt-free and have an investment portfolio that gives you a steady income

By Goh Eng Yeow Senior Correspondent

Just what does it take to have financial independence?

After writing for years on investments, I found myself confronting this age-old question as I made my usual rounds of reunion with friends and relatives during the recent Chinese New Year holidays and heard how their lives are panning out.

A number of my friends stopped working in their late 40s and early 50s, and chose instead to live on their savings and investments.

One has become a full-time investor, using the knowledge he gained from years of reading balance sheets to grill the boards at companies' annual general meetings. Another has turned to religion, spending much of her time studying Buddhist scriptures when she is not overseas visiting holy sites.

Among them, none is rich by any stretch of the imagination. Some live in private condominiums and others in Housing Board flats. Their incomes - from having worked in banks and multinational corporations - are probably far less than what others of their age are earning, yet they get along in life just fine.

Going by their examples, achieving financial independence is not the same as getting rich.

I know many wealthy people who worry about money all the time. They want to make more money but they are fearful, at the same time, that they may lose all of it and become paupers.

Then there are friends who are high fliers in investment banks and international law firms, and should be the envy of us all. But some of them seem troubled by the sky-high mortgages and car loans they have taken to finance lavish lifestyles, and they have to constantly rely on the next pay cheque to keep themselves financially afloat.

Hence, financial independence is not about achieving a certain level of wealth. Rather, it should be measured in terms of obtaining freedom from financial worries, and freedom to make lifestyle choices.

One other trait stands out: the ability to give back.

For those of my friends who now have time on their hands, nothing gives them more happiness than doing charitable work - tending to the elderly and less fortunate. Some even do it full-time.

So what are the keys to achieving financial independence?

Being debt-free is important. There is no way to be financially independent if you have to worry about the next mortgage or car loan payment.

You also have to ask yourself how much income you need in order to be free to choose between working and not working.

Then there is the question of how to build an investment portfolio which gives you a worry-free and steady stream of that income you need.

Now, that last item is one I have touched on regularly over the years as I discussed various investment strategies, such as buying low-beta and sin stocks, and watching where smart investors are placing their bets.

But I find that the best approach, by far, is to start saving when you are young, and invest wisely while you have youth on your side; in fact as soon as you start working.

One way to inculcate a regular saving habit is to open a Supplementary Retirement Scheme (SRS) account with one of the three local banks and make a contribution to it every year.

This is a voluntary savings programme launched by the Government over a decade ago which complements the Central Provident Fund by offering tax breaks as an incentive to save - and one which more savers are taking advantage of.

The impact of compounding returns in the SRS account over the years can be immense, if the SRS monies are used to buy stocks such as OCBC Bank's and United Overseas Bank's scrip dividend as an alternative to cash dividend, or a low-cost fund such as the Straits Times Index exchange-traded fund.

It was one of the ways I succeeded in doubling the money I have put into my SRS account over the past 11 years.

And it is never too late to start saving, although the sum put aside will have to be far bigger.

There is another observation worth highlighting: Despite achieving financial independence, many of my friends chose to stay gainfully employed.

A few actually quit their jobs, only to find themselves so bored that they went back to work. It was, after all, impossible to spend all their time every day trying to rejig their investment portfolios.

Going from a full-time job to no job may seem like an idyllic goal to achieve with financial freedom. But it is also important to plan what you want to do and how you will make use of the hours of the day meaningfully.

engyeow@sph.com.sg
(24-02-2013, 10:19 AM)Musicwhiz Wrote: [ -> ]A wise article - it's true we do not need to be "rich" in the conventional sense of the word. We do need good relationships, companionship and a purpose in life. For those who live simply (I like to count myself as one of them), it will not take a lot of money to make you satisfied and happy. As Me & My Money section has shown today, one can live on very little and be contented by helping others and doing charity work! Smile

It seems that they are more full-time investors than we thought Tongue
(24-02-2013, 11:42 AM)CityFarmer Wrote: [ -> ]
(24-02-2013, 10:19 AM)Musicwhiz Wrote: [ -> ]A wise article - it's true we do not need to be "rich" in the conventional sense of the word. We do need good relationships, companionship and a purpose in life. For those who live simply (I like to count myself as one of them), it will not take a lot of money to make you satisfied and happy. As Me & My Money section has shown today, one can live on very little and be contented by helping others and doing charity work! Smile

It seems that they are more full-time investors than we thought Tongue

Despite all the figures that have been thrown up by advisers, bankers, agents, financial articles, blogs etc, most families can survive with $2000 if they own the house and no car.
There are uncertainties(disability, cancer, heart attack, accidents) along the way but the probability of occurrence is not very high.

Even a rich man also has a probability of going bankrupt.
(24-02-2013, 11:42 AM)CityFarmer Wrote: [ -> ]
(24-02-2013, 10:19 AM)Musicwhiz Wrote: [ -> ]A wise article - it's true we do not need to be "rich" in the conventional sense of the word. We do need good relationships, companionship and a purpose in life. For those who live simply (I like to count myself as one of them), it will not take a lot of money to make you satisfied and happy. As Me & My Money section has shown today, one can live on very little and be contented by helping others and doing charity work! Smile

It seems that they are more full-time investors than we thought Tongue

The numbers increases with age from my observations during my annual CNY gathering with my ex-classmates over the years.... Although there may be spikes during bull markets and the reverse during bear markets, the sustainable numbers (those who stays "retired" from the rat race) conforms to my observations based on this tiny sample, which is not statistical representative as it's too small a sample size...Big Grin

Quote:A number of my friends stopped working in their late 40s and early 50s, and chose instead to live on their savings and investments.

PS. I believe there's a much more statistically meaningful sample size in this forum for anyone who wants to do a study...Cool
he said about low beta and sin stocks. what is a 'sin' stock?
(24-02-2013, 12:56 PM)pianist Wrote: [ -> ]he said about low beta and sin stocks. what is a 'sin' stock?

That would be stocks like tobacco companies, casinos(genting), liquor companies etc. If you want to stretch it you could include banks with the kind of toxic stuff(minibonds etc) that they are pushing to investors.
2kpm can survive for most families. but only survive n not thrive. means little or no tuitions or extra lessons eg piano, language lessons for children. little or no monthly allowances for parents. everything just got to be bare minimum.
even with fully paid house n no car, with children, 2kpm can be a nightmare in todays day n age.
(24-02-2013, 01:21 PM)paullow Wrote: [ -> ]2kpm can survive for most families. but only survive n not thrive. means little or no tuitions or extra lessons eg piano, language lessons for children. little or no monthly allowances for parents. everything just got to be bare minimum.
even with fully paid house n no car, with children, 2kpm can be a nightmare in todays day n age.

2kpm for couple without children should be sufficient for simple life style, but probably not so for couple with children IMO
can we use expenses as the minimum debt?

so if i am single and don't have intention to marry..family..etc.
my expenses are just;

1) Insurances - health
2) Food & water - health

Just beat the expenses and i am finanically independent!!
(24-02-2013, 03:03 PM)brattzz Wrote: [ -> ]can we use expenses as the minimum debt?

so if i am single and don't have intention to marry..family..etc.
my expenses are just;

1) Insurances - health
2) Food & water - health

Just beat the expenses and i am finanically independent!!

Financial independence is when income exceeds expenses. The level of expenses you deem necessary will determine the level of income necessary. So it's obvious, either reduce expenses or increase income, or do both.

To quote Charles Dickens:

"Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
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