There are two new articles by Christopher Ng (here) and Kyith (here) which explains the key reasons why we are pursuing financial independence. Christopher explains the following problems which financial independence is trying to solve.
1. Emergence of gig economy
2. Retrenchments are affecting younger workers
Let me explain from my perspective on why we are pursuing financial independence.
1- Emergence of gig economy
With new technology, there are new gigs such as Grab, Uber, Grabfood, Foodpanda, Ninajavan, Fiverr etc. The young generation in this era has a wider choice than my generation in terms of gig. There is a range of physical and low skill work to high skill gigs which involves creating a product and requires technical skills. The key is move out from low skill and laborious work to higher skill work. There is a limit to the number of food delivery trips you can perform with your electric scooters during dinner time but you can make more by driving Grab car. I have an ex-colleague who has being driving Grab car and with the right strategy, he used to take home around S$10k per month. I am not sure whether he is affected by the reduction of incentives by Grab.
If you build your own software, you own the rights to sell it to many customers (this is known as scaling up your services and serving more customers’ needs). With subscription services, it will become a lifetime of income. There are friends who are teaching tuition via online platform which saves on commuting. There are friends who specialized in translation and copyrighting. This is an era of gig economy.
Even if you have a stable job now, you should have a side gig. This creates another option. It serves to provide additional income and increase your skill set. Start to learn something which interest you and use it to solve others’ needs.
In 2018, I was retrenched twice and I worked only 7 months out of a year. It was one of my worst years. During retrenchment when you don’t see money being dished to you at the end of the month, it can be a scary thing. When you are in fear, you don’t make sane decision. I made a lot of bad investment decisions in 2018.
I saw a lot of younger Singaporeans facing unemployment issues on this website. There are a group of young graduates who find it hard to gain meaningful employment after graduation. The employers are requesting someone with relevant experiences. However, it is always a chicken and egg issue, if you don’t employ them, how do they gain experience? I will urge these young graduates to be a bit more aggressive and offer internship at companies they want to join. “Hire me for peanuts for 6 months and if you think I am good, give me a permanent role.” Be prepared that some employers will exploit this but there will always be good ones out there.
There will be the next group – the early Thirties (aka 30 – 35 years old). I remember from my personal experience, this will be the age where income level is increasing but for there will be more expenditure on partying, dating, holidays, wedding, family and buying a house. This will be the age group when suddenly you are forced to grow up and take on a lot more financial commitments. Do not overstretch one’s financials for wedding and buying the first house as they can make or break the financial goal.
After the first 12 – 15 years of working, some of us may be hit by industry downturn, downsizing and lastly it may lead to deterioration. For example, my present industry which is related to offshore supply vessel is quoted by OCBC CEO Samuel Tsien as difficult to recover. Most of the bigger companies have shifted to Kuala Lumpur and left the smaller handful survivors. This is consolidation which eliminates a lot of jobs and drives down the demand. With lesser demand, the price (aka salary) drops.
Some industry friends have known me as a “grasshopper”, changing my job every 2-3 years. Please allow me to explain my rationale, when I first graduate, my initial target was to save S$100k and start my own business. Back then the offshore marine industry was piping hot and companies are making crazy sum of money. If my records did not show wrongly, I was able to save that sum ($100k) by third year (during my 2nd job) but my salary was only about $4.5k then. I was single, staying with parents and teaching tuition after work (remember about the gig economy we mentioned earlier). I met a very good boss who offered me a role for S$7.5k/month and with offshore allowance of AUD 1.5k/month (at that time 1 AUD = 1.2-3 SGD) to work in Perth and I have a saving rate of about 80-90%. How did I do that? We pool the allowance with 2-3 other colleagues to buy in bulk from a 24 hours mega mart. We only take lunch and dinner at home where I would cook for everyone and lunch would be on board a vessel (FOC). The first 5 years I was working in offshore support vessel industry then I felt that it was too commoditized and there are too many supply of vessels without much differentiation. Hence, I moved into Subsea industry, starting with S$8.3k/month and the subsequent jump was to a cushy 5 digit salary in my early 30. This is my industry “Go-Go” years before the crash.
What I am suggesting is maybe it is not a bad idea to jump to another job with substantial increment, provided you are always stretching yourself and learning more things. At the same time, you are adding more value to your employer. I believe in making the maximum sum of money during your prime years before the “upward trend” is broken. Industry will shrink and jobs will be eliminated. With new technology, there will be more structural unemployment which means that the skill sets of employees are made redundant and they need to reskill to stay relevant. This cycle is getting shorter. In the past, employers think that when you are above 40 years old, you are considered mature workers. Now, employers are classifying those above 36 years as mature workers. Most employers will have a mindset of “If I pay this guy S$20k/month, he must make 5-10x return for me in terms of money or value and if I can get 5 younger workers for S$4k/month each and their effort can deliver similar end result, I will replace this S$20k/month guy”.
This is the key reason why Christopher and Kyith’s articles are out there to educate people not to over leveraged in terms of mortgage loan and over spend on luxurious goods/holidays. I used to think I will always make 5 digits per month before reality sets in. I used to think highly of myself that I can loan up to 2 million of mortgage loan from the bank and thank God I did not do anything foolish to over leverage myself. Life is a cycle of ups and downs, do not assume you will always remain at the peak.
I will be 37 soon. There are a lot of humbling lessons God has thrown my way and I know that he will provide. As a family, we are making a lot of effort to keep our expenses low, save a healthy emergency fund of 6 months of expenses and continue to invest during turbulent times. We saw how vulnerable our jobs are and we are trying to pivot to stay relevant, working towards our financial freedom.