In my below post, I have talked about how much money is needed to achieve “Financial Freedom”.
How much money do you “Really” need to be completely “Financially Free”?
That was targeting “Luxury”. If we hit that mark, we are for sure “Financially Free”.
In other words, we were kind of talking about the upper limit of the requirement for “Financial Freedom”. After we have achieved that mark, there is no reason for us not to declare “Financial Freedom”.
Today, I would like to talk more about the lower limit, exceeding which we can call ourselves “Financially Free”.
To be free, we need to have the resources to lift the constraints of life.
So what are the constraints of life?
To quote a Chinese saying, Birth, Aging, Health, Death, Clothing, Food, Accommodation, Travelling (including commuting, vocation etc) [生老病死，衣食住行]
I am going to split them into 4 categories:
- Birth, Death
- Clothing, Food, Travelling
- Accommodation, Health
- Aging
1.Birth, Death
These are hard constraints under the current circumstances.
We cannot choose our parents. We cannot prevent death.
So just accept it.
In other words, there is no so called “Freedom” regarding Birth and Death.
The only way possible is spiritual, to be “Free” of the worrying and the thoughts of pursuing “Freedom”.
2.Clothing, Food, Travelling
This is the pre-requisite for us to be “Financially Free”. Good news is that the “Freedom” here is relatively easy to achieve.
This depends a lot on individual requirements and perception.
For some people, when they have a Toyota, they would want a BMW; and when they have the BMW, they would want a Lamborghini. For them, “Freedom” is a myth.
For me, the bar should be when we feel comfortable and relaxed about what we have.
We will not need to struggle when we or people we care really want some slightly expensive items occasionally. We have enough resources to buy them.
3.Accommodation, Health
This is the hard part.
Accommodation represents the single most expensive item for most people.
Health could be a bigger problem.
In China, there has been a statement: The health costs for the last 10 days of people’s lives outweigh that for the rest of the lives.
Battling with death is expensive, but it is so hard to let go.
Therefore, in order to have a good retirement, we need to look at the sources of income in retirement.
a) Pension (aka CPF)
b) Rental income. One real estate property may not even be enough.
c) Ownership of good business. For most of us, we do it through stocks. Take STI for example, ~3% dividend will give us 100K SGD each year for an investment of 3–4Million SGD. That should be enough for a decent life.
d) IP. For most of us, this is not applicable.
4.Aging
Aging adds a whole new dimension to the equation and a whole new level of complexity to the problem!
- Time-span for our planning: We cannot just plan for now. We need to plan for the days to come. Do bear in mind that the life expectancy has been rising.
- The contribution to and from our parents: How much we need to help them and how much they can help us.
- The contribution to and from our kids: How much we need to help them and how much they can help us.
But it is not all bad.
Time-span gives us the time to grow our investment and wealth.
Our parents can help us in our initial phase of the journey.
Our kids can help us in our retirement.
For the latter two, the emotional value is irreplaceable.
All in all, “Financial Freedom” does not come easy.
But it is achievable, even for us common folks. Just plan properly, work hard and stick to the plan!
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