As I continue on my quest to be financial independent and improving my money management knowledge, I came across the F.I.R.E movement(Financial Independence, Retire Early) that is popularised in the United States. After some digging, it seems that this sort of lifestyle may not be suited for everyone as it involves living frugally and eventually achieving financial freedom to quit your job and retiring early.
Forget about Budgeting. David touches on small simpleyet effective actions to make your savings automatic because he knows that most of us do not have the discipline to invest and save up regularly. By automatizing such actions, he is able to give insights to readers on how over time, such small savings and actions can add up. Hence, amassing sufficient money to retire and not living from pay check to paycheck. This book is recommended for all of us who feels that their bank account is not growing as much as they want to be. Do share your thoughts in the comments section below and I would love to hear from you.
By not spending our earnings on useless, insignificant items such as our morning coffee (which this term is derived from), the savings that come from not purchasing these items do add up to a significant amount
Learn to instil discipline and ask yourself if you really need to purchase this item/ snack
For example, my sinful habit is to online shop when I am bored. To overcome the habit of spending on unnecessary items, I will place items in the cart and leave it instead of purchasing them. By practising delayed gratification, I was able to not spend my hard earned salary on items which I do not need.
Another example on my calculating my Latte Factor will be my habit of purchasing a cup of Boba Tea (bubble tea) to drink after lunch. The solution for this is to remind myself that the drink is high in calories and sugar and the cost to health and my pockets does not add up. In order to reduce my Latte Factor, I have reduced the frequency of purchasing Boba Tea and have resorted to making myself a cuppa tea from the office pantry.
2. Learn to Pay Yourself First
Whenever you earn $1, Learn to Pay Yourself First instead of letting the government take it away i.e taxation
For the citizens of United States, you have the option of putting aside a portion of your earnings into a Pretax Retirement account i.e your 401K plans.
For the citizens of Singapore, we have our retirement account in the form of CPF. There are strong pro and opponents of this savings scheme. I am against depositing any more of the minimum required amount into my CPF due to the fact that it does not offer as much flexibility and autonomy as I would like to have over my earnings.
For those like minded individuals, the solution is to open a Brokerage account and invest regularly. Alternatively, open a Regular Savings Plan with your local bank or sign up for Annuity Plans with your Insurer.
The key is to make the deductions for these investment payments automatic.
Automate a portion of your earnings to the plan. Recommended is 10% of your gross income. Of course, the higher the percentage of your income squirrelled away, the better. Think of the amount of compounding interest over time!
We all know how many hours we put in at work… but How many hours have you worked for YOURSELF i.e. How much of the savings have you actually invested in your future?
3. Now Make it Automatic
Start from savings a small percentage of your gross income and then gradually increase the savings percentage
Tell yourself no matter what, you will pay yourself first
Understand that when the stock market is goes down, it allows you to buy stocks at bargain prices… and that is a good thing
Choose Balanced Fund and Target Allocation Funds because they offer the right mix of cash, bonds and stocks in one fund. The work is done for you.
Now you only have to automate the transfer of payment from your checking account every month
4. Automate for a Rainy Day
Build an emergency basket of cash
Put this amount in the right place i.e Money Market Funds where the interest rate is higher and liquid