I foresee this question coming our way a lot as we start sharing our travel plans with our friends and folks around us, not many people in the Asian context plan to take extended holidays and that too with kids in tow. We have thought about this quite a bit as well in terms of the narrative we tell others on how we are managing this. We have received different reactions from the ‘test group’ we have shared the plans with, the test group being our closest friends, which gives us different flavours of how this conversation could go.
The “Are you guys loaded?” question typically leaves us in Struggle Town.
Almost everyone in the FI community knows that it’s not a question of sitting on a pot of gold right this instant that enables one to pull the plug on compulsory work. FI requires dedicated savings, being deliberate about how you choose to live, determining how much or how little you would need to live year on year and letting compounding and investing work their magic in a tidy little maths equation. Like a chef, once you have determined all the ingredients you need for this recipe of a lifetime, you do your measurements and combine it together. Patience is key, skipping steps or attempting short-cuts can be costly. The outcome, on the other hand, can be very well worth the wait.
“Oh so you guys are planning to travel for 6 months and even quit if needed? Whoa, you guys must be loaded”
Perhaps it is said in jest, but it still makes me uncomfortable. We try to make sense of it, hoping to inspire others. When we even get into the premise of FI and how we are managing this, most folks develop a glazed over look or they get impatient. They don’t want to listen to the theory behind it, they just want hard numbers as targets. Once again, the FI community knows that the mindset of FI is as important as the numbers, if not slightly more important which I went into in a lot of detail here and here.
Answer: Well, not really. We have focused savings and an investment plan that hinges on generating sufficient income for our desired quality of life. Say if you determined that $2,000 a month makes you happy, then you would need $600,000 in investments that are working for you. That way, you can safely withdraw $2,000 a month. If it was $4,000 a month then you would need upwards of $1m. This is based on a study called the Trinity Study. Of course, it would be better if you can build in buffers in your portfolio or learn to be happy living on less.
“Wah, more than $1m! You guys are loaded!”
Answer: It was just an example!! You can build this however you want. Besides it doesn’t mean one gets to enjoy spending $1m on whatever they want, it needs to be invested to enjoy the annual withdrawal of 4%, i.e. $40,000 per annum or $3,333 a month.
Person we are speaking to has already lost interest, the $1m was too high an entry barrier. When they have lost interest, it is hard to get into the journey towards FI.
I tried asking a person how much they would need, in case the monthly number I gave an example with did not resonate. The higher they came up with, the higher the barrier of entry was and the quicker it was that I lost them as it was deemed un-achievable. Here is where the right mindset would have quickly overcome the perceived barrier.
Let’s have some fun with what I typically hear back as an answer as to how much would a person need a month to live a comfortable and happy life – S$10,000. The simple math means an investment nest of $3m (Annualize the number x 25). If this seems too crazy an amount then I would ask for the person to humour me and:
- Examine and re-examine if $10,000 a month is going to be absolutely necessary?
- What are the core expenses and what are non-core expenses that you could be more flexible with with the goal of not having compulsory work again as the carrot at the end of the stick?
- What are you willing to do to reach this goal?
- Why do you want FI even to begin with, to have some safety income coming in without lifting a finger in the event you are out of employment or to opt out of compulsory work altogether? Perhaps is it your fun money? Motive is important and how attached you are to that motive will go a long way in guiding you right through the accumulation years.
- Do the math. Always do the math. Work backwards from how much you need and how that translates into what you need to put aside right now. Make sure you account for compounding and reinvested dividends.
Back to our sharing with some friends, one of the funniest responses we had was a friend who then asked “What are you guys selling?”, thinking we are selling some MLM scheme because it does sound ‘too good to be true’. Nothing, we’re selling nothing!
Makes me wonder, why are conversations around money so hard to have? We want to be transparent and inspire others to have a little something on the side by sharpening their personal finance skills however it’s a conversation that often puts us in an uncomfortable position. However it feels selfish to keep such a structured way of thinking towards financial independence to ourselves! Being branded as ‘loaded’ does not resonate with our core feelings or beliefs because the investment nest is not ours to touch at this point, it’s out there working it’s cute lil tush for us. We feel everyone can benefit from having a lil retirement fund in their back pockets. Ever wondered How Much Money Do You Need to Do the Scrooge McDuck Money Swim?
This was somewhat timely as the folks over at GoCurryCracker shared a post on what they have found to be the best answer in sharing with folks how is it that they are managing to be around their child without having to work everyday. I do think that we needn’t reinvent the wheel here, that is probably the best approach when it comes to strangers. To friends, we still believe in being earnest. Or perhaps the trick is to not divulge so much in our eagerness to hope they too start on their journey to FI. Perhaps a little crafty bait and wait will work better. It they bite and are genuinely curious, then we’re going to have interesting conversations! If they don’t bite then there’s no love lost. We’ll maybe just say we saved enough to travel and be vague about what we do? The jury is out on this, it will have to be a case by case basis.
What are your thoughts?
Author: Ms.K
Ms.K is everything that Mr.C is, without the natural interest in investing and company financials! The activity planner for the family, the driver of random ideas and soon to be ‘retiring’ in to full time motherhood – Ms.K has no idea what she’s in for but remains super excited!
Not everyone needs to be convinced.
To each his/her own.
I’ve become accustomed to that.
But when a friend genuinely wants to discuss FI, I’m more than happy to engage.
I am one of them who wants FI at age 50, I wish I can’t achieve early, however, the number is too large for me to achieve.
Mind to share more how much your desire amount for FI? I have read from Mr C portfolio is mostly in Etfs with expect return of about 5% – 8%.
I have reading most of your blogs and have a doubt. When Ms C retired at 32 and look after 2 kids, is it means only Mr C alone working till age 60? If not, how both of you manage to have such big savings amount and put into the investments since 5 years ago? (sorry if I am too direct or offended if any). I wish I could learn from you guys to achieve early FI.
Hello KK, thanks for reading and commenting on our blog. It’s very heartening to see that you now have intentions to pursue FI. There’s no need to fret on your target retirement age as we all have different starting points. What’s more important is that you start the journey.
We choose not to share our FI magic number. This is because of privacy reasons, and the fact that our FI number or another blogger’s shouldn’t matter to any reader because “personal finance” is personal, and your FI number depends on your financial commitments.
You can just use the simple rule of thumb of 25x your required annual expenses. That’s a rough guide.
On the question of Ms.K, yes she’s quit her job to care for our kids full time. And I don’t intend to work till 60!! I plan to quit my current role in the next 8 months to travel, either that or negotiate some flexi work arrangement.
Our FIRE portfolio will consist mainly of ETFs however currently I do allocate a significant share to my discretionary/stock-picking portfolio for faster growth.
On how we seem to have so much progress since 2015, it’s a combination of:
– before we even embarked on FIRE, we’ve already been savers;
– major cost cutting to increase our savings rate after we discovered FIRE;
– profits from Ms.K’s real estate investment in Malaysia; and
– we’ve been fortunate to get large returns from Mr.C’s stock picking. I guess this deserves a post of it’s own one day.
You can ignore the last two because that’s just a bonus and the first two will surely and steadily lead to FIRE.