6 Fundamental Steps I Follow That Helped Me Gain Financial Independence
By Robin Wong
1. Lose this common misconception about financial independence
It is widely assumed that a person needs to be a financial expert or command a high salary in order to achieve financial independence, but that’s not necessarily true. Case in point: The story of my own domestic helper, who has been working for my family for 15 years and will be retiring soon.
When asked about her future outlook, she was very positive, as she has since become financially independent. All these years, she has been saving up her monthly salary to buy small plots of farmland in her homeland, and renting them out for others to plant vegetables. This has become a source of passive income for her to have a comfortable retirement.
The ideal outcome for financial independence is to create a stream of passive income that is larger than your expenses. If your investments are based purely on capital appreciation, the level of risk can be higher whenever there is a major correction - or worse, a market crash.
2. Study “Rich Dad, Poor Dad” - the book that changed my life
It all started over 15 years ago when I picked up “Rich Dad, Poor Dad” by Robert Kiyosaki, while on a plane ride after a highly frustrating weekend full of rushed work flights and meetings.
The essence of the book is that one must find ways to plan their future, become financially independent, and not be a slave to the corporate world. Reading it while feeling stressed about my current routine back then, the book struck a major chord such that I immediately made the decision to become financially independent as soon as possible.
I understood that my situation couldn’t be changed overnight, so I took things one step at a time, became more prudent in spending, and invested on a regular basis. After a decade, I finally achieved financial independence. Though I continued working as an employee, I now had the level of self-reliance and financial freedom that allowed me to quit any time I wanted.
Many others have also read the book, but those who actually commit to implementing a concrete plan are few and far between. This all boils down to a lack of a strong desire to change one’s life. Having knowledge is one thing, understanding is another, but acting on it is a whole new ball game.
3. Start planning as early as possible before you get “too busy”
Being in a senior position as a corporate executive in the past meant that I often did not have much time to look after my personal financial matters, and in hindsight, I could have progressed a lot better in that aspect of my life had I started saving and investing at a younger age.
Such is the case for many others in the corporate sector. Throughout the years during my coaching sessions, I have come across many executives in their late forties who had been affected by corporate restructuring. Many were concerned about their finances, lamenting that their savings would last them only 6 to 9 months if they couldn’t find a new job soon. This was troubling, as many of them had families to look after.
I often asked why they did not allocate more time on personal finances, and the answer was always “too busy” - a neverending trap.
4. Don’t invest what is left after spending; Spend what is left after investing
This simple rule is something I’ve learnt from many industry gurus like Warren Buffet.
As a starting point, allocate 10% to 15% of your income every month for investing. Don’t underestimate the power of compounding, for a low percentage of interest can have a huge effect when compounded over a long period of time.
As you generate more income, you can increase the percentage allocation to a level you are comfortable with. By transferring low interest products to higher interest products, I was able to improve my cash flow in a relatively short time.
5. Never dismiss something just because it is unfamiliar to you
I must confess: I first attended an introductory talk on crypto about four years ago, and found it difficult to grasp the concept of blockchain in general. So, when my daughter bought bitcoin and asked me whether she should put in more money in, I told her no, as I found it to be too speculative.
Turns out I was wrong, and she could have made a lot of money if she hadn’t listened to me.
Fast forward to 2 years ago when I started to pay more attention to crypto technology from an investment perspective. Despite the volatility, I saw a tremendous upside potential, and applied a cost averaging technique to invest in it. I was lucky, and the investment went up by a lot. At a certain point I started to offload some of my profit to reduce my risk level.
Although there came an unpleasant crash, I was not unduly concerned as most of my remaining assets were profit. A few months ago, I started accumulating crypto once more, and it is now on an uptrend again. No one could have predicted the future, but not taking the risk in crypto would have limited my portfolio and knowledge.
Remember how the invention of the internet was once dismissed? Now, it is something we cannot live without, with technological giants like Facebook, Amazon, Netflix and Google at the forefront. The same might also happen with crypto technology. Never brush off something just because you cannot fully understand it. Keep an open mind and be a keen learner, for the opportunities that unfold can be limitless.
6. Push yourself out of your comfort zone to take that first step
Failure to act is our biggest obstacle - the road to success starts with the first step. However, as humans, we like staying within our comfort zones, and there’s always this inner voice telling you that it’s “too difficult” or that the risk is “not worthwhile”. Even when it comes to going for a run or hike in the morning, I always have an inner demon telling me that the weather isn’t good, I didn’t have a good enough sleep, or that I can always do it tomorrow. At the end of the day, these are all convenient excuses.
Did you know that most of us tap into only 40% of our full capabilities? This is something shared in “Can’t Hurt Me” by David Goggins, an inspiring book that serves as motivation each time I feel like giving in to my weaker voice. David was depressed and overweight, but grew up to become a U.S. Armed Forces icon and one of the world’s top endurance athletes - proving that someone with a humble upbringing can achieve extraordinary success if they work hard enough.
As a first step to planning your financial independence, ask yourself the following questions:
- How much passive income will I need before I can become financially independent?
- What are the unnecessary expenses I can reduce and put it in my investment fund?
- What proportion of my salary do I need to allocate for my investment fund?
- What should be the asset allocation on different investment categories?
- What are the skill gaps I need to fill before I can start this journey?
Ready to kickstart your journey towards financial freedom but need some guidance? Get in touch and I’ll be happy to help.
Disclaimer: Do note that I am not a financial advisor and these advice are just from my learnings and sharing for like-minded individuals who may be interested to learn more about investments.