How to achieve financial independence in Singapore? (Part 1: Attain Higher Savings)

What is Financial Independence? Being financially independent is a goal many Singaporeans aspire to achieve. Generally, being financially independent is defined as having sufficient passive income to cover your living expenses till your death. Really what that means is that you are no longer dependent on your job or employer to support your lifestyle. This can be very empowering, as you no longer have to constantly prove your value at work, and you have the option of doing something you truly enjoy and are passionate about, even if it does not pay well. In other words, you are breaking free from the shackles of the rat race society in which we all live in.

SO HOW DO I BECOME FINANCIALLY INDEPENDENT?

At a very basic level, to achieve financial independence, you will need Higher Savings, and Passive Income. In this post, i'll elaborate more on the former.

Attain Higher Savings

I cannot emphasise how important savings is to achieving your goal of financial independence. The amount of savings you have every year represents the amount of excess funds you have to pump back into your money machine. The more savings you have, the faster you can grow your money machine. The goal of the game is to get your money working as hard as they can for you, as early in life as possible. Think about it as every single dollar that you have being a worker that you hire. Each time you put your money to work (investing), it generates more workers for you (passive income). As you keep re-deploying these workers (re-investing), they in turn produce even more workers. Over time, this process repeats itself and you get a company of workers slogging to give you passive income. 

Increase Your Income

To get out of the rat race, you first have to join the rat race, unless you are born rich. Focus on improving your worth to other people, and constantly strive to excel in everything you do. That means to constantly upgrade yourself so that you have value to people. When you are of value, people will naturally demand for you, and you can demand for a higher compensation. The more income you have, the more you are able to save, and the faster your path to financial freedom. Of course, as much as possible, try to find a job that you have passion and interest for, so that working does not feel like a chore. 

Reduce Your Expenditure

Savings are basically a function of your expenditure. The higher your expenditure, the lower your savings. So, if you spend $100,000 on that brand new car of yours, that is $100,000 less that you save, $100,000 less for you to invest to generate more income. To put things into perspective, at a 6% rate of return, the value of $100,000 at the end of 10 years, had you invest it, would be $179,085. On the other hand, what is your car worth to you at the end of 10 years? The scrap car refund that you get at the end of your COE. Don't forget the additional costs of owning a car like petrol, maintenance and parking. Obviously, owning a car in Singapore is a very bad idea, especially with the absurd prices that we are willing to pay to own a car. 

So, if there is no valid reason to justify yourself owning a car in Singapore, don't buy one. Especially so when our public transportation infrastructure is actually very robust, despite what many people feel over the MRT breakdowns. 

When I mentioned joining the rat race, I want to remind all of you not to lose yourself in the process. Money can change people, and the more money that you get, you inevitably want more. It is never enough. Often times, people change their lifestyle as their income increases. People start to dine at luxury restaurants, fly to exotic locations, or buy a sports car. Before you make any financial decision, you always need to ask yourself, is it a need, or is it a want? At the end of the day, the net worth of a person earning $50,000 a month and spending $45,000 a month, is the same as someone earning $10,000 a month and spending $5000 a month. If they would both to lose their job, they have the same amount of savings.

Especially in Singapore, many people judge other people by what they have. For example, you look at a 30 year old guy wearing an expensive suit with a new condo and a new BMW, and you think, "Wow, this guy is successful". What you don't see is his $3000 a month mortgage on his condo, his $200,000 car loan to purchase his car, and his credit card debts. People often say, be true to yourself. If you are not rich, don't act like you are rich. 

See Part 2: Passive Income