Experience My 4-Step FIRE Path As An Ordinary Salaried Person

Did you know that today’s work may not be as secure as it was for the previous generation? Did you know that a job might not serve you as you’d like when you move up your career ladder? Did you know that your health might not support you until you retire? But what if you had a backup plan? Wouldn’t that make you feel more secure? What if achieving financial independence is not just a dream but a real possibility for someone with a salaried job and no financial background? I’m excited to share my story and how I got ready for financial independence on a regular salary. It’s nothing special, but it’s realistic. I hope my journey can motivate and help you!

Expenses Tracking Preparing For Retirement Expenses Estimation

Tracking For Confidence Based On My Spending Habit

I want my retirement close to my desired lifestyle (please refer to spending control).

Usually, we can think of everyday expenses like food, transportation, insurance, and bills. However, I was worried about missing any significant unexpected expenditures. I need to track my expenses to have peace of mind about what expenses matter.

When I understand my spending, I can make more intelligent guesses about future costs. It also helps me figure out what I can live without and what matters to me. Not knowing these numbers is a massive gamble for my retirement. Fingers crossed, it all works out.

Can I Not Tracking? Or Tracking Less?

In most cases, you should be able to figure out your regular expenses, like food, transport, bills, and clothes. You don’t need to track these closely, but it’s essential to keep an eye on a few selective areas:

1. Unexpected or accidental expenses
2. Costs that go beyond what you usually plan for
3. Significant expenses may occur once in a few years
4. Try to limit lifestyle upgrades to around 5%
5. Set a budget and give it a trial run—adding a buffer can help reduce stress.

Potential Overlook Estimation, Especially If Tracking Period Is Not Long Enough

From my tracking:

• I often overlook the cost of digital app subscriptions and gadgets like smartwatches and laptops.
• There are also unexpected costs like getting sick, car repairs, or fixing things in the house.
• Nowadays, things we use at home don’t last as long, so we often have to replace them every few years.
• Some household maintenance expenses include cleaning, washing machines, air conditioning, and water filter maintenance.
• Now and then, I spend a lot on home items like a cleaning robot or a blender.
• There are gifts as well, e.,g. birthday gifts.
• I’ve noticed other non-frequent expenses, e.,g. car purchases every few years.
• Since I had yearly medical checkups, I included this in the budget (I didn’t include many supplements except selective, as I prefer natural food for health instead).

From my findings, tracking expenses for at least two years helped me catch those unexpected costs that seemed to pop up randomly.

Expenses Tracking Software That Helps Me On Tracking: HandWallet Expenses Manager

I’ve tried many apps to track my expenses, and finally, I’ve stuck to one that works for me: Hand Wallet Expenses Manager, which I’m still using.

There are three steps to record: It has a handy widget that lets me quickly jot down what I spend without going into details—just open, type in the amount, and close.

Its period filtering feature lets me understand my monthly and yearly spending patterns.

Spending Control To Find a Sustainable Lifestyle

Finding The Sweet Spot I Can Live With

I kept adjusting how I spent my money until I found the perfect balance. If spending more didn’t make me much happier, I decided it was just right. Figuring this out wasn’t easy—I had to think about how I use things and what matters to me.

Trial Run To Be Sure

I wondered if the money I planned to spend in retirement would be enough. So, I lived on that budget for a few years before retiring. It helped me figure out if I felt happy with that amount or if it felt too tight. I adjusted as needed to be comfortable when I finally retired.

Retirement Financial & Life Planning To Estimate Retirement Expenses 

Introduction of ‘Pocket Money’ As Buffer For Mistake

I’ve noticed from tracking my expenses that I occasionally splurge on things just because I want them.

I’ve learned that sticking to planned expenses can be challenging, so I’ve set aside some “pocket money” to use freely. This extra cash could also help cover any expenses I might have missed in my planned budget.

Plan For Retirement Activities To Ensure a Happy Life

Before retiring, I compiled a list of activities I wanted to enjoy during retirement, some of which incurred expenses. 

My mistake: I overlooked incorporating these activities into my life before retirement, even minimally, leading to underestimating their costs. One example is blogging, covered by ‘pocket money’ above.

Future Expenses Adjustment To Cater For Expenses In Different Life Stages

The budgeted amount is not ready for retirement expenses. I need to adjust as some expenses could differ from when I was working.

For example, I considered travel, hobbies, healthcare, learning (books and courses), and home renovations (since I’d spend more time at home). Some costs, like home renovations, were one-time expenses. Others, like travel and car-related costs, started high but decreased over time. On the other hand, I was cautious and responsible in considering that healthcare costs might increase. I also factored in potential specialist visits for my health condition, which is covered by my company’s insurance but won’t be after I retire.

You may visit Planning Retirement Money for A Fulfilling Life to get ideas for planning retirement expenses.

Calculate Own Effective Inflation Rate Based On Expenses Categories And Amount

For inflation, I don’t use the general inflation rate given by the government. Instead, I look at my spending areas and give them their inflation rate to find a more accurate overall rate.

This is because different spending can have different inflation rates, and how much we spend on each also matters. For example, medical costs increase quickly and consume more of our budget as we age. Many people don’t think about this until it’s too late. Figuring out inflation rates for each expense can help me plan better and avoid big mistakes.

Other Consideration: Should I Stop Donation?

I’ve considered discontinuing my donations, but I’ve chosen to continue giving as long as I’m financially secure.

Investment Learning and Discipline

Learning and Control Financially Personally

As a salaried individual, I knew I had to depend on investments to retire early. I dedicated myself to learning about investments to gain solid knowledge.

I began with unit trusts, purchasing them independently instead of through an agent because I prefer taking personal control of my finances—after all, no one else will care for your money as much as you do. You can’t rely on an agent to monitor your money closely.

Later, I ventured into index funds and stocks. I cannot start after retirement. Making mistakes in investing after I retire could have significant consequences once I retire with a more extensive portfolio.

Consistent Invest Regardless Of Market Doing

I allocated part of my salary for expenses and invested the remainder. I maintained an emergency fund and divided my investment into two portions: directly invested and reserved for buying when the market dipped. This strategy provided peace of mind during market downturns and allowed opportunistic purchases.

My Investment Approach Before Retirement:

1. I selected around five funds, including REITs and regions like Asia, Malaysia, and China. (Note: This is a risky approach. Please refer to “My ‘Luck’ and ‘Mistake’)
2. I focused on the riskiest funds because I had a 10 to 20-year investment horizon. Since I don’t sell along the way, I’m not too concerned about short-term volatility; long-term growth is my priority.
3. Each month, I invest in the fund with relatively lower returns among the five funds.
4. I allocated about 80% of my money to these funds while keeping 20% in a money market fund, waiting for a market dip to take advantage of.

My ‘Luck’ and ‘Mistake’:

I did not include enough U.S. investments in my portfolio—they should have been a significant part. While I did well before retirement, things changed after I retired. The China market crashed just months into retirement, and I had too much money allocated to Asia. Upon retirement, I allocated only a small amount to the U.S. market and kept five years’ worth of expenses in a money market fund to buffer against crashes.

My more significant allocation to Asia dropped by 35%, bringing my overall returns to zero after four years. During that time, I relied on the money market fund for living expenses, as the U.S. market also dipped but recovered strongly after two years.

I was overconfident when I retired because of my past success in Asia, which had led to my financial freedom. This was a harsh lesson, and I’ve adjusted my portfolio, with the majority in the US market. My retirement plan is still solid because I prepared for market crashes with simulations to estimate the capital I’d need.

Adjusted Expected Return because of Lower Risk Appetite Upon Retirement:

Upon retirement. I didn’t project my return based on my pre-retirement investment return (which is high-risk). Instead, I projected returns using a balanced mix of risky and safer funds, critical to successful retirement planning.

For the riskier portion, I used the S&P 500 index fund as a benchmark but subtracted 3% from its return rate to be conservative. The S&P 500’s long history of performance, which I used as a basis for this strategy, gives me the confidence to support it.

Adjusted For Earlier Retirement Situation because of Age Restriction On Withdrawal Of Pension Fund

Early retirement forced me to delve into the withdrawal criteria, a crucial aspect due to age restrictions on my EPF (pension fund). This understanding was pivotal in adjusting the average expected return from retirement age until eligibility.

Managing my risky (non-pension fund) required setting aside a portion as a cash reserve for several years’ expenses. This practical step was crucial in cushioning against the unpredictability of market crashes, even if it meant a lower average return rate during this period.

Ran Simulations To Know If I Am Ready

I ran simulations to see how my finances would hold up during market crashes.

If a crash happens, I’ll switch to minimum spending based on expense categories and the basic needs for each. Some expenses, like bills, insurance, and housing loans, are fixed and can’t be reduced.

I used these simulations to determine whether my money would last, especially if the market did poorly in my early retirement years. If everything went well, my finances could support me beyond 100. But if a crash similar to the one in 2000 occurred, my funds would last until age 80. I considered this to be an acceptable risk. And if things got even worse, I could take on paid work as a backup plan.

The image below is a sample of my retirement plan. I hide all the numbers because of privacy concerns.

Tool To Use For Simulation Various What If

I relied on Excel because I couldn’t find other tools that met my requirements. Every year, I simulated various financial scenarios, considering expenses, inflation, and changes in investment performance. Although the formulas could become complex, especially when dealing with ‘what if’ situations, I was able to handle them by making manual adjustments.

That’s why I created a free app, DynaRetire, for people with similar needs. It provides a closer estimation than simplified planning models.

Conclusion:

Retirement planning isn’t about luck; it results from dedication and careful planning. I’ve been keeping track of my spending, being mindful of money, learning about investments, and thinking about life after retirement. This way, I’m building a future that I feel comfortable with the design. I hope that by sharing my approach, I can offer some helpful ideas to others, starting on your retirement path.