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Wednesday, December 6, 2017

The Rule of 25

Anyone who is remotely interested in FIRE would have come across this so-called Rule of 25.

In short, it is alleged that, in order to retire comfortably, one will need a nest egg amounting to 25 times annual liabilities.

E.g., if you require $4k a month to meet all your liabilities including mortgage, parent maintenance, health insurance, bills, transport and personal spend; for you to even contemplate hanging up your gloves, you will require a nest-egg of:

$4k x 12 x 25 = 1.2 million bucks.

But because I am Asian and Asians scoff at being average, we should raise our monthly liabilities by 50%.  Basically, if you want to retire comfortably, you will require

6k x 12 months x Rule of 25 =  1.8 million.

1.8  million? meh

Is 1.8 million a pipe dream? Probably yes for the vast majority of Singaporeans. The median income in Singapore is roughly 4k. Assuming one is able to save 50% of that (which is a massive assumption), the annual savings would be around $24k.

If you are an amazing investor capable of returning 8% on your invested capital annually, it would only take you a mere 26 years to hit 1.8 million and reach FIRE.

So fret not. If you are an average income earner, you would only need to spend 30 years of your life slaving away so that you can, well, stop working.

If it sounds bleak, it is because it is.  For anyone looking to retire by 40, a high income is unfortunately essential. Either that, or you strike TOTO. 

Friday, December 1, 2017

The necessity of work

Let's be clear. Work is not virtuous. That is a damned lie perpetrated for hundreds of years by the aristocrats, the ruling class and of course, the capitalist.

I hate the aphorism, find a job you love and you never have to work for a day in your life. That is complete and utter bull shit. One, there are those who have no particular passion for anything (me included). Two, not all hobbies are capable of paying bills.  It would be rather challenging to get a mortgage loan approved if you answered "professional Sudoku player" as your profession in the application form. Three, no matter how much you love doing a thing, when it is mandatory to do it everyday, 5 days a week, it gets old very quickly.

There is one way to get out of it. And that is the purpose of this blog. As elucidated by forebears far more eloquent than myself, 
"Those who understand dividends are more likely to earn it; those who don't are more likely to pay it."