Friday, November 28, 2008

Consolidating My Thought on Financial Freedom

It has been a few months since I started this blog to write on my journey to financial freedom.
Since then, things have changed quite a bit.

Firstly, the global financial crisis has hit, shaking my confidence in the Singapore stock market. Shares that I am holding have dropped to record low prices. While I am investing mainly for passive income, looking at the prices of REITs and hearing all the news about the credit crisis really makes me worried whether my passive income strategy is the correct method to financial freedom.

Secondly, books that I have been reading lately have altered my belief in a stable and predictable business cycle of ups and downs. What we don't know and don't plan for can destroy our journey to financial freedom. Some of the worst case scenarios I can think of are:

a. The Greatest Depression in Human History.
b. Hyperinflation
c. Severe Oil Crisis that disrupts everything
d. War
e. Death

All these have changed my perception about investment and financial freedom. I remember reading the book about the Richest Man in Babylon. In it, we are advised to use 10% of our money to work hard for us. The richest man in Babylon saves up 1 gold coin out of 10 gold coins he gets and uses that 1 gold coin to work hard for him.

The problem with this simple rule of investing is that it does not take into account the unpredictable events that I mentioned above. So what if I invest in the Singapore Stock Market and have a $1 million stock portfolio only for severe hyperinflation to hit reducing my portfolio to peanuts?

What I hope to achieve is financial freedom. The ability to choose whether I want to work or not, and not working because I need the money to support my family.

A quick analysis of my current financial situation:

1. Housing Mortgage ($253,000)
2. Car loan (estimate $30,000)

That is a lot of debt! If I do not spend a single cent, it would take me a good 5 or 6 years of my current annual income to totally pay off this debt. How did I ever get into this situation? 10 years back, I had $0 dollars in debt. After starting a family, I have a 6 figure debt in just a blink of an eye.

4 years back, I could choose whether I want to work or just rot at home. Now, I simply have to work because not working is NOT an option. I would simply not be able to finance my debts..

So here I am, stuck in a pile of debt. With a 5k per month salary but only managing to save an approximate $1k a month.

My Financial Freedom Journey seems fraught with difficulties, uncertainties, psychological barrier and the like. It seems that I am all alone in this journey...

My passive income stands at $3000 a year. That simply won't do. I need to find ways to increase my passive income..


  1. Hi Financial Freedom,

    Don't worry you are not alone. I am in the same situation as you (married, with housing loan too). The global financial crisis has also brought shock and horror but in the last 2 months, I have adjusted to the new realities and am now more ready and prepared to take on new challenges. I have "buffered" my portfolio for the long-haul to prepare for the eventual recovery (yes, the world will recover but the question is how long it takes !). I have done this through purchase of shares in strong companies at low valuations (close to 2-3x), and also invest more in companies which pay dividends through out the bear market and recession. In this way, I can keep cash flowing in throughout the year and increase my realized gains, while looking for opportunities to average down on my shareholdings.

    Currently, my passive income is close to S$6,000 per annum, on a base investment cost of about S$125,000 (this is reflected in my blog). So this boils down to S$500 per month, which I feel is decent for my wife and myself. Of course, efforts are being made to increase this amount gradually.

    As for finances, my housing loan is about S$140K and I do not have a car loan. My remaining HDB loan is about 9 years more and I hope to accelerate the payoff so as to clear the loan within 5 years. My income is lower than yours but I save more (as a % I save more), probably due to the absence of a car. In my opinion, the housing loan should be an OK debt to service as long as you are gainfully employed and know how to invest your money. Of course, if you have the ability, use your bonuses (through CPF) to pay down the principal sum so as to partially redeem the loan (and get some interest rebates too !). Year-end is coming so I guess bonus should be coming up for you too.

    Hope I was able to share my finances well enough for you to feel less lonely. Don't worry, here is another person struggling towards financial freedom and being debt free too !


  2. Thanks a lot MusicWhiz!

    It is good to know that one is not alone in his/her struggles. I am really encouraged by your comments and I must say that I am also a follower of your blog and comments in Wallstraits Forum (though i don't post there often)

    Hope to learn more from you in the future and do continue sharing what you have learnt in your journey. I am sure others will benefit from it just as I have.

    My housing loan is still much higher than yours and my passive income is also lower than yours. I will be striving to lower my debts and increasing my passive income in the coming years.

    I guess the journey to financial freedom is a long long process as tracking it monthly, it seems like very little is so called "moving" or improving. But I guess over the long term (perhaps 5 years down the road), I will be able to look back and see the vast difference all these small little decisions here and there add up to. Hopefully by then, I will be able to bring down my hdb loan level to yours and also increase my passive income.

    In the meantime, I will wait for my year end bonus and perhaps save the majority while investing the remaining in those companies with low valuations. Perhaps buy a few gifts for loved ones too during the Christmas period...We must save for the future but I guess we must also spend some money now as it is not wise to delay ALL our gratifications and deprive loved ones of gifts/meals that they deserve =)

    Thanks for the advice and dropping by my blog! It has really brightened up my day =)


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