Saturday, 20 August 2016

What is Our Millennial Way?

As I have mentioned a few times on my blog, I'm an avid reader of international personal finance blogs and websites. They offer unique perspectives on how to get out of debt, reduce expenses, earn more money, invest and achieve financial independence in different parts of the world.

Their experiences and writing styles are amazing and I constantly learn from what they have to offer. Once in a while, I find a blogger who I really connect with after reading their posts and I try to write about these inspirations of mine.

This 30-something couple's story of reaching financial independence in Canada on CBC caught my eye one day as I was browsing international news. I was pleased to find out they are personal finance bloggers and explored their website in detail: Millennial Revolution

I binged read all their posts once I started reading because there was so much I could identify with as my wife and I are only a few years younger and we are trying to achieve the same thing! It could be the way they write as FIRECracker and Wanderer but I find myself agreeing with many of the things they are saying.

Even though their story of achieving financial freedom as Millennials is in Canada, there is much we can learn from as Millennials here in Singapore. How applicable are their life lessons to us and what is Our Millennial Way?

1. The Boomers screwed over the Millennials

One of the main points that came up was how the Boomers' advice of getting a stable job, buying a house, be a loyal employee and retire with a pension do not work for Millennials. I don't think the Boomers screwed us over as Millennials here in Singapore. However, I must admit that the same advice has been provided by our parents and we are starting to realise it's no longer relevant in our generation.

More volatile economic cycles, outsourcing, increased competition, disruptive innovations and robotic technologies will lead to ever shortening job lifecycles in Singapore. I would say no industry is safe from an overhaul with the way things are going, which means jobs will never be stable and safe for our generation.  Depending only on a job for income and retirement will not work for us.

Home-ownership is high in Singapore and the property market has been sky-rocketing in recent years. However, well-built & decent subsidised public housing continues to be available to Millennials and is a good way to avoid getting burnt in the property market. It still does not change the fact that Boomers will probably profit the most from rising housing prices as they downsize while Millennials upsize.

This point about being a loyal employee struck a chord with me. It's been my father's advice to me consistently since I started work in 2010 despite his experience of getting retrenched multiple times in his career as a general manager of various manufacturing plants while working in China.

Every time my father gets hired to fix the major problems in the factories, he gets fired by senior management once they are running smoothly. That's his reward for being loyal, hardworking, value-adding, not corrupt and treating the workers well.

Yet he tells me to use the same approach even now!? I respect my father highly for his work ethic but I reckon even great employees now are increasingly being treated like crap. Reason is simple - companies will always care more about profits than people.

You can feel the anger and distrust with CPF on the ground. It could be the high mandatory contributions, the way they keep pushing back the age you can access your money for retirement, or forcing you to receive a monthly sum like an annuity instead of allow you to withdraw the entire amount upon retirement. Even if we find ways to utilise CPF well, it sometimes feels like you might never get to use some of your money in it even after retiring.

2. Significance of high salary incomes

Something else that stood out was the fact that the couple had a high combined income and put in effort to lower expenses to increase their savings rate. Coupled with investment growth, they built a seven figure portfolio and retired in less than 10 years.

This goes to show how effective it can be for a salaried employee to achieve financial independence by focusing on increasing income and reducing expenses. I suspect this works even better in Singapore where personal taxes are low and dividend & interest income are generally not taxable.

Although we have achieved an above average salary income and a small investment income, the main problem is with finding ways to lower expenses and this continues to be a challenge for us. The good thing is that our work hours are decent, which leaves us with sufficient time and energy to focus on this aspect.

What's also becoming evident is the need to have different sources of income. A high salary income can evaporate quickly nowadays when it's so easy to lose your job. However, it takes a lot of time and effort to develop side hustles that can become your full-time jobs. Although the income is more sustainable in the long run, it's usually lower for a long time as well. Either your partner has a high salary income to cover for you or both of you are in for a rough time.

3. Do not buy an expensive property

Sigh. This one hurts because I just wrote about buying an expensive private condo being a bad financial decision. I totally agree with the points raised about not buying overpriced property and how renting can work out better financially.

What makes this worse is that the public housing in Singapore is fantastic and subsidised. Which means we actually have viable alternatives to renting a private property especially for a young couple.

Oh well. That's what making mistakes are for. I reckon it will set us back by a number of years but we can still recover from it. It sucks thinking about the time that will get lost but there's no point wallowing in self pity. Just got to keep moving forward.

4. Index investing on a Dollar-Cost Averaging (DCA) approach and don't forget to rebalance

Although we have a dividend share portfolio, we only allocate a small amount of our investment cash to it for averaging down on our current holdings. Most of it now goes to investing in our ETF portfolio although it's been slow lately due to the run up in the equity markets.

We try to purchase both stock and bond index ETFs regularly on a DCA approach but must admit that we do market time by purchasing much more during bear markets and much less during bull markets.  Hence, the amounts invested are not as consistent as in a traditional DCA approach.

We have an asset allocation strategy for our cash, investment and retirement portfolios. However, we don't favour rebalancing by selling the outperforming asset and buying the underperforming asset. We prefer to keep a larger cash portfolio and rebalance by buying the underperforming asset without selling the outperforming asset.

This does drag the returns on our portfolios downwards since we might have too much investment cash and end up not utilising it well. However, peace of mind and being able to sleep at night are important to us and we accept lower returns as a consequence.

5. Have a dream and work towards it

To be honest, I don't have anything grand as a dream for now. I just want to be able to work a 3 day work week with minimal responsibilities and spend the rest of my time travelling & having fun with my wife, family, friends and possibly kids (in the future).

I also want to improve my personal finance writing skills and develop this blog. I don't have any ambition of being a published author but would like to educate people on financial matters. This is how I see myself giving back to society. Maybe I will do more eventually but I have no idea what it would be until I actually have more time on my hands.

6. Believe in yourself

This was inherent in all of the messages the couple were sending and the lessons they were teaching in their blog posts. You must have a strong belief in yourself to achieve your goals. People might doubt & question your every move and you might make mistakes every step of the way. But the will to succeed and the not giving up matter more than anything else. We have already been shown The Millennial Way and we are going to get there with ours. 

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