Question:
“Financial independence sounds like a distant dream for those earning less than the average (around $2,000 per month). For someone with no aptitude or ability to pick stocks, indexing seems like an impossible task to achieve financial freedom. What are your thoughts on this?”
Answer from our CEO, Christopher Tan:
Please don’t be discouraged. I believe that financial independence is possible for everyone as long as we manage our expectations, have a plan, and execute it in a disciplined manner. If I reduce the concept of financial independence to its irreducible minimum, it would involve:
- Having a fully paid house,
- A suitable hospital insurance plan, and
- A reliable stream of income.
So, let’s say realistically, for you to achieve financial independence, the age would be 65.
By then, I am pretty sure that your house will be fully paid off and do ensure you purchase a suitable integrated shield plan today. A reasonable plan would allow you to stay in a government hospital ward B1, with premiums payable via Medisave.
How Can You Build Your Income Stream?
- Start with CPF: If possible, try to top up your CPF-SA up to the Full Retirement Sum. You can do this using your CPF-OA monies. Please don’t exhaust everything; maintain a buffer to cover mortgage payments in case you lose your income. If you are married, do the same for your spouse.
- Your children: If you are married and have children, please do not tell them that they do not need to support your retirement. Many parents do this out of love for their children, but in my opinion, it does not help them. As Asians, filial piety is significant to us; we care for our parents and should teach our children to be filial to us. Providing a monthly allowance is the most tangible way to instil this value. If we teach them this value from a young age, they will likely do so when they grow up. This can become our second source of retirement income. With income from CPF LIFE starting at age 65 and some allowances from your children, the amount should be sufficient.
- Rental: When you retire, if there is an empty room in your home, consider renting it out for additional income. This is something to consider if you do not mind living with a stranger.
- Enhanced Lease Buyback Scheme: Another consideration is to consider the enhanced lease buyback scheme. This could provide you with additional income. More information on the enhanced lease buyback scheme can be found here.
- Investments: After completing steps 1 and 2, if you still have surplus funds, you can consider investing. It is still possible to invest in index-based ETFs or low-cost index funds. You can learn more from robo-advisors. Invest in small amounts every month or every other month.
As I shared above, don’t be discouraged.
I am confident that if you can execute these steps, you will be able to achieve financial independence one day.
I hope the above is helpful!
Our CEO and Founder, Chris, noticed interest and questions on the SingaporeFI subreddit for some time and had the opportunity to conduct an “Ask Me Anything” (AMA) session in October 2023. The above question was selected from the list of many questions that were asked.
If you are interested in viewing the full Reddit list of questions, you can visit this link.
Christopher Tan, is Chief Executive Officer of Providend Ltd, Southeast Asia’s first fee-only comprehensive wealth advisory firm and author of the book “Money Wisdom: Simple Truths for Financial Wellness“. He is also a Certified Ikigai Tribe Coach.
For more related resources, check out:
1. Providend’s Money Wisdom Podcast Season 3
2. The Providend Conversation: Living the Good Life Video Series
3. How to Make Life Decisions
Through deep conversations with our advisers, you will gain clarity on what matters most in life and what needs to be done to live a good life, both financially and non-financially. Learn more about our investment philosophy here.
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