Making Money is Addictive
Felix Dennis, one of Britainâ€™s wealthiest self-made multi-millionaires said in his book How To Get Rich (thanks to Exabytes, giving me this book wonderful book) , â€œIf I had my time again, knowing what I know today, I would dedicate myself to making just enough to live comfortably, as quickly as I could â€“ hopefully by the time I was thirty-five years old. I would then cash out immediately and retire to write poetry and plant trees.â€
This British magazine publisher and philanthropist has an estimated net worth of over US$400 million. All the money he needs to retire comfortably is only 10% of that big sum. He frankly admitted that he retired too late. Writing poetry and gardening are his hobbies that he hardly find time to pursue, until later years when he finally gave up his work by delegating them.
Making money is addictive. We all have strong reasons to make money. Most people find it a heavy responsibility to provide enough for family daily living expenses. Some people work hard for money in order to have a better lifestyle and material luxury. Ultimately, there is a magic figure we all chase, which is the lump sum of money that can support the rest of our life.
Retirement is the point where a person stops employment completely. In financial planning, retirement means one has earned enough to support the rest of his/her life, without the need to actively involve in money-making activities.
Someone once said, “Retirement is when you have too much time to do nothing.”
I would say that retirement is when you have a lot of time to do what you love, and you can afford to do it without monetary reward. Or simply, enjoy your life without any financial worry.
Letâ€™s put these all into figures. Say a person needs RM5000 per month to sustain his current lifestyle. Assuming the rate of return is 8% per annum, while inflation rate is 4% per annum, taking into account the effect of inflation, the inflation-adjusted return is 3.85%. Using the capital preservation method, the retirement fund needed is about RM1.558 million if the person is going to retire now. In other words, one would need to accumulate a big sum of retirement fund in order to support the monthly cash outflow thereafter.
Technically, before a person reaches the retirement state, he would have to work hard, save hard, spend less, invest wisely, accumulate assets, delay gratification, when finally he accumulate enough (the retirement capital), he can officially retire then. I would call this the deferred retirement plan.
Please note that in some countries, deferred retirement means retirement taken after the normal retirement age. But here, it simply means you have to wait a long time, normally 20-30 years of active engagement in money-making activities, before retirement starts.
Deferred Retirement versus Mini-Retirement
Usually, most people have to go through this deferred retirement, if you plan â€“ work hard for 20-30 years, save enough, and retire for another 20-30 years. Some extraordinary entrepreneurs are able to shorten the first phase – the accumulation phase â€“ to a shorter period of time, say 5-10 years. This happens a lot in the Silicon Valley, where young energetic entrepreneur starts with a wild idea. He then materializes his idea, gets millions of funding from venture capitalists, then lists his company for public offering, and finally cash out for early retirement.
In recent years, there is a new trend of lifestyle design. People are getting retired much earlier, and more often then before. It is a whole new set of rules and perception.
Instead of planning your â€œbigâ€ retirement, this new breed of people is having regular retirement. They chop the time frame, making each phase a lot shorter. Instead of going through 20-30 years of accumulation phase, they cut it shorter to becoming 2-3 years, 2-3 months, or even 2-3 days. They may work for two days, and â€œretireâ€ five days in a week. They may work eight months, and travel for fun for the remaining months of a year. This is known as mini-retirement.
The mini-retirement concept is first popularized by the best-selling author of The Four-Hour-Workweek, Timothy Ferriss. As indicated in his book title, Timothy works only four hours in a week. He can work from anywhere on earth as long as there is an internet connection. What does he do in those four hours time weekly? In that short period of time, the job-related works he performs are checking pre-filtered emails, making sure that his business revenue is paid correctly into his bank accounts, and making some decisions that are not authorized to be made by his virtual assistant.
People often view retirement as the end-all, be-all objective, where you redeem all the things you’ve postponed for 40 or 50 years. But the new rich view retirement as a necessity that should be enjoyed at present, not postponed until the future. What are the new rich? According to Timothy Ferriss, it is living and working free of the restrictions of time and location, creating a lifestyle where you can pretty much live anywhere, work when it fits your schedule and still make a living. The new rich are those who abandon the deferred-life plan and create luxury lifestyles in the present using the currency of the new rich: time and mobility.
For the new rich, money is related to these two terms: time and mobility. Thus, relative income is the key to this new lifestyle design.
For example, Mr.A works 50 hours a week with a monthly salary of RM5000. Meanwhile, Mr. N works 10 hours a week but he only paid RM2000 a month. Who is making more money? If you compare only the absolute figure, Mr. A is making more money. In terms of relative income, we would need to calculate the hourly income â€“ Mr. A is making RM25/hour, while Mr. N is RM50/hour. Apparently, Mr. N is making more money.
Letâ€™s look at another example. Both Mr.N and Mr. R are paid RM2000/month for 10-hour-workweek. Mr. N is required to work in the office, while Mr. R can work at home, or anywhere at his own comfort. In terms of mobility, apparently Mr. R is â€œricherâ€ than Mr. N.
Use the shortest time to earn the income you need
Iâ€™ve once met a couple here in Penang. They bought a sailing boat and travel around the world starting from their origin country, Britain. The wife gave birth to two cute boys in Malaysia. Out of curiosity, I asked them how they sustain their daily living expenses. They have a house back in their country that they rent out for regular rental income. The husband does some day trading via the Internet. They all live for several years on the sailing boat. I would say that they are technically retired. They might have a very small home (the sailboat), but a very large swimming pool (the sea).
Of course, it is easier said than done. We are used to the old way of postponing retirement until later years. Financial freedom seems to be a dream that is so hard to achieve. But in the 21st century, the world is flattened. Outsourcing is a common norm. People are getting richer earlier than their ancestors used to be. By working hard and working smart, you may soon be able to use the shortest time to earn the income you need, and join the new rich!