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30 October 2020
One of the secrets to attaining financial independence is that it doesn't usually "just happen". It requires hard work and proper planning. This article showcases how Dividend Magic advances from one stage to another.
The Financial Independence and Retire Early or FI/RE movement has gained traction in recent years among the finance and investment communities.
This article will focus on my current FI/RE journey. I identify strongly with the Financial Independence (F.I.) part of FI/RE and have no definite plans to retire even after achieving F.I.
Financial independence, in my opinion, is achieved in stages, even after you’ve retired, you must continue to work at it to keep your money flowing in. It’s a lifelong process. You can find the various stages of F.I. and their respective definitions in AIA’s previous article.
Where I'm at
As of 2020, I am proud to say that I’ve reached Stage 4 – Financial Security where my income from investments can sufficiently cover my basic expenses. My basic needs and your basic needs would be the same: Food, Shelter and Clothes.
My expenses relating to my monthly basic needs are as follows
I’m lucky enough to still be able to live with my parents. I do however own two investment properties which I rent out for extra income. Staying with my family, I provide them with a monthly stipend of RM500 as a token of appreciation.
Food has and always will be a big deal for me, and I’ve gradually increased my spending here as my wealth increased. I used to be able to live off RM10 meals a day back when I first started working. My meals would largely consist of economy rice and Chinese tea.
As for my attire, I shop for new clothes only when necessary. That is why, I make sure to purchase quality ones, setting my budget for RM600 a year.
For my medical needs, I pay about RM100 per month for medical insurance. As it is a term insurance and not an investment linked one, I foresee this going up as I get older. Insurance would be a whole other topic to be discussed but it is my personal opinion that medical insurance should be factored into your monthly expenses.
In total, my monthly basic expenses come up to about RM1,650 per month. Like me, you’ll probably spend a huge portion of your monthly income on rent / mortgage and food. Controlling these two will add up to huge savings in the long run.
As for your clothes, make sure you understand the difference between your needs and your wants ie. Branded clothing.
My total passive income per month is as follows:
My investment income generated from dividends amounted to a total of RM16,300 p.a. last year. I get close to RM300 in excess income from rentals every month.
In total, I get close to RM1,660 per month in passive income, which just about covers my RM1,650 monthly expenses.
How I Got Here?
Getting to where I am took about 8 years. I started out as a salaryman earning RM2800 per month. I was the most frugal then, with my income mostly spent on food and petrol.
A typical day for me would be to have breakfast at home, reach work at 8am. Lunch was a 10-min walk to a cheap place that sells economy rice. I kept my meals below RM10 each time. One portion of protein, one vegetable and lots of rice. Back to work after that and then straight back home for dinner after work. I rarely attended after hour get-togethers with my colleagues unless it was a birthday or a promotion celebration. I lived like that for a few years until my investment portfolio reached RM100K
I was lucky to start off without debt. Basically, starting at Stage 3 – Debt Freedom. I am forever grateful to my parents for providing me with a debt free education. I wasn’t a spoiled teenager even with my education paid for, I worked part-time during the summer breaks at a local Apple Reseller.
I saved more than 50% of my take home salary when I started my first job and within a few months I basically reached my first RM10K. The first RM100K was the hardest for me, but after that, it just snowballed, and I was at RM500K within a few years.
So, do not be discouraged if you’re starting from nothing or even with debt. Set your goals and work towards them. Hit the milestones. First, you should aim to be debt free, then work on your emergency fund and then start investing. Your first RM10K in income generating assets will be extremely gratifying, trust me.
Reaching RM1 million would be my next goal. By then, my dividends should be able to cover all my expenses including my wants allowing me to reach stage 5 – Financial Independence.
I aim to achieve Financial Independence through my investment portfolio which mainly consists of stocks. For everyone else out there, make sure you focus on investing in assets you’re comfortable with. It may be investing in property; it may even be just investing in bonds if you’re not comfortable with risks. If you’re looking and waiting for the best time to start investing, I always go by the saying: ‘’the best time to plant a tree was 20 years ago, the second best time is now’’.
After reaching financial independence, I’ll be aiming to grow my portfolio at a slower, less risky pace. And as I gain more wealth, I’ll be looking into philanthropy.
Leigh is an investment and personal finance author at https://dividendmagic.com.my/
He is a Certified Financial Planner and a value investor with a portfolio mainly consisting of stocks.