Journey Towards Financial Freedom: Milestones and Landmarks
Flickr image "Milestone" by A.M. Kuchling
As your travel along your journey towards financial freedom, have you stopped to take a look at some of the milestones and landmarks you’ve passed?
I was clearing one of my old personal finance files and noted my net worth statements back in 1999. Back then, my net worth was around $158,000 when I was 28 years old. This comprised savings, fixed deposits, some investments in unit trusts and Central Provident Fund (retirement account) monies that I had accumulated by then.
Since then, I’ve moved on to be own my home debt-free and am only servicing the remaining 8 months of my car loan which will be fully paid off by January 2010.
Planning for the future by learning from the past
As I browsed through old statements on fixed deposit balances, unit trusts etc, I realised that I can learn a few things from the past. I could get fixed deposits rates of 2%+ and even had HDB bonds paying as much as 4.25% interest. During times of low interest rates now (July 2009) where DBS and POSB is paying as low as 0.10% for your savings accounts, it’s really tough for the average saver whose investment universe consists mainly of savings deposits, fixed deposits and treasury bills.
Even for me, as some investments in my stock portfolio are suffering paper losses, their interest yield on dividend is at least 2% for most and as high as 8%+ for others. Thus, I’d rather keep my money in the stock market in blue chips because inflation at 6 to 7% per annum absolutely kills the returns of 0.10% on savings.
As I have some degree of holding power, I can keep about 70% of my investible savings in equities (stocks and shares) to at least earn a better interest on my savings. There is of course risk in that another stock market crash would make it tough to liquidate my equity portfolio but having lived through the 1997 and 2008 crashes, I’m in a better position to know how much liquidity I need for day-to-day expenses.
Growing net-worth
Because I have tracked my net worth in the past, I know for sure that my net worth has grown significantly over the years. While there’s still plenty of room to grow to my target of having sufficient investible savings to generate passive income to cover my living expenses, at least I know the growth is possible and I’m at the stage of life of exploring even more possibilities for financial freedom.
I am grateful for my family, health and career and do not take these for granted. Now I try to be reading a book to help improve myself in all aspects of life be it public speaking, personal finance or building creative thinking skills.
In the realm of health, I need to invest more time to exercise and also to balance relationships in the family as I pursue financial freedom. It’s important to chart out the milestones and landmarks that we want to reach in all aspects of our quest towards financial freedom.
Setting your own milestones and landmarks
Looking back, the reason why I achieved some of my goals such as paying off my home way before I hit 40 years was a deep burning desire to do so. I created my own milestone that paying off my home was a priority. This gave me more satisfaction than being able to own my own car within the first 13 years of my working life.
Other landmarks including planning for my targetted investible net worth to be financially free. I believe I can live on about $50,000 a year passive income. Thus, that drives me to seek out various alternate income sources other than my career to try to achieve this. I’ve given myself a target to do this by age 45. I may succeed or I may fail. What’s more important is that I put up that landmark that I want to get to and as long as it motivates me to do the things that I’m doing to move forward, it is a step in the right direction for me.
What are some of your own landmarks and milestones that you aspire to toward financial freedom?
Share with Panzer.
Be well and prosper.
Hi Panzer,
I must say it’s impressive that you’ve managed to build up your wealth to this extent, and to have a fully paid-up house and an almost fully-paid up car loan is also very impressive by today’s standards; where I see young couples borrowing heavily to fund the purchase of their “dream condo” and more and more youths in their 20’s buying continental cars like VW and Peugeot. With your slow and steady determination and discipline, it’s admirable that you’ve built up a nest egg which can only grow larger with time.
For myself, my milestone is to have total assets worth S$500,000 by 2012, which is a very lofty target. Currently, in 2009, my total assets only stand at roughly S$160,000 (plus or minus $10,000 as the stock market moves up and down). I am using total assets and not net worth as I still have a 7-year housing loan remaining which will be paid off over time. I am also a little curious that you included CPF balances into your net worth, as I do not consider them in as they are not “ready cash” and can only be withdrawn (albeit partially) when one turns 55.
Thus, my total assets comprise cash, FD (I do not have any), equity investments (my whole portfolio) as well as insurance policies.
The reason I picked a lofty target is so that I will work hard to ahieve it. If I set a goal of S$250,000 by 2012, it may be a little too easy and may not make me strive hard. By setting a target which is achievable yet difficult, it would make me work harder. Of course, I will only use my CPF (not cash) to pay down more of my HDB loan if I get the chance to. Currently, the amount of assets I have already exceeds my HDB loan, but I choose to slowly pay it down using CPF OA and instead to invest the cash I have to get returns higher than 2.6% (HDB concessionary rate).
Regards,
Musicwhiz
Just curious how do you calculate your net worth ? Does it include yr house, yr car besides cash,CPF, stocks that you mentioned ?
Dear TS Ho
My net worth is computed 2 ways:
Liquid Net worth = sum of cash, fixed deposits, stocks and shares listed on SGX minus car loan and housing loan (if any)
Total net worth = sum of liquid net worth + CPF (ordinary, medisave, special) accounts + cash portion of insurance policies minus car loan and housing loan (if any)
You can compute by listing your assets less liabilities.
Be well and prosper.
Hi Panzer,
Thanks for sharing.
From your total net worth formula, you do not consider the present value of your house/car as assets. Why ? It seems to me that you only consider something liquid as assets. To me, it is not the total net worth from financial accounting point of view. Do you purposely leave those assets out to be conservative ? Please share your reason with me.
Thank you,
Dear TS Ho
Yes, I deliberately excluded my home and car from computation of net assets. The reason is that I need to stay somewhere, so I excluded the value of my home in my net-worth computation to be very conservative. Same for my car which is a mode of transport. I don’t see it as something I will sell to get cash.
The paradox of including your home as an asset is you can’t sell it for cash unless you’re prepared to squeeze with parents. It is possible for singles but those of us with families will find it tough to stay back with parents.
I also do have a figure in my own worksheet to show my total assets and liabilities (including my home at valuation) but it is just for info because only my liquid assets are investible to generate passive income for me. My home can be rented out only if I downgrade and stay in a small rental apartment to earn the difference between rental income and rental expenses.
But that would be too troublesome.
Be well and prosper.
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Hi Musicwhiz
It’s commendable to set challenging goals. Some people believe in “baby steps” type of goals, whiles others go for the BHAG (big hairy audacious goals). So long as you are motivated to pursue them and keep a balanced life, it’s all good.
I know of a cousin and spouse who bought Citylights HDB DBSS at $670k. Thought it was a bit over-priced given that it is HDB and doesn’t come with facilities. They are in their early 30s and would really be a challenge to pay if off over 30 years IMHO. But then, they have friends who bought into the project so it’s not just a dollars and sense decision but also based on relationships etc.
There is merit in burning up cash and living life up if their lives and short but exciting. But if some of the younger people outlive their savings, life insurance and CPF, then the folly of their youths would catch up with them. Sometimes I realise that one needs to balance between today’s wants and tomorrow needs. But if there is no tomorrow, then party like it’s 1999!
Dear Panzer,
Thank you for sharing with me, and I really enjoy reading your blog.
BTW, do you include your wife/child’s net worth or just yr personal net worth in the computation. I mean financial planning is for the whole family and so all should contribute to it, shouldn’t it ?
I wish you all the best in achieving your goal.
Thank you,
Hi TS Ho
I don’t include their networth. My daughter is 16 mths old, so her net-worth financially is small but her worth to me is infinite
I also exclude my wife’s own personal net worth.
It’s due to personal choice.
Thanks for reading my blog, appreciate your visits!
Be well and prosper.