Financial Independence Retire Early (FIRE): A Practical Guide For Malaysians

When I first started working at my first job, the only financial goal I had in mind was to be able to retire comfortably.

I figured that by earning, saving and investing as much as I could so, my cash would grow into a sizable nest egg that I could eventually live off without having to work.

So that’s exactly what I did, except that I had no clue how much I actually needed to retire with.

Fast forward almost 20 years (plus many mistakes, missteps and detours that likely set my nest egg growth back quite a bit) later, I stumbled on this growing movement called financial independence retire early, also known as FIRE.

Diving into FIRE and how people all over the world were doing it, I was hooked.

I was all in.

If you’re reading this, chances are you probably are too, or are about to be.

To help you along the way, here’s what you need to know about FIRE-ing in Malaysia.

What is FIRE?

‘Financial independence’ refers to having a big enough nest egg to be able to pay for all your living expenses without needing to work another day for the rest of your life, while ‘retire early’ is pretty much self-explanatory.

What sets the FIRE lifestyle apart from the traditional — and much longer — work-and-then-retire model is that it tends to be significantly more extreme in that it calls for saving and investing 50% or more of your income.

The pre-FIRE lifestyle can be summed up in one word: Frugal.

This gives the snowballing effect of compounding the opportunity to work its magic on your money, growing it to your ideal FI number while generating passive income for you to live on, allowing you to retire much earlier (typically in your 30s or 40s) instead of the standard retirement age of 55 years or older.

While the typical recommended accumulated net worth number to shoot for is 25-30 times your annual expenses, it really depends on the post-FI lifestyle you want to live and whether you actually choose to retire — something many FI practitioners see as optional.

Personally, I’m not planning to retire either since I see being FI as an opportunity to do work that I want to do, as opposed to working a 9-5 job because I have to.

Types of FIRE

There is no one-size-fits-all flavour of FIRE, but it’s currently split into these five popular categories:

Basic FIRE

The goal of basic or traditional FIRE is to accumulate enough income-generating assets that are enough to pay for your current living expenses.

Financial experts recommend saving up to 25-30 times your annual expenses and once you hit this number, you no longer have to rely on the salary from a full-time job to fund your everyday living costs like rent, transportation, food, utilities, clothing, insurance premiums and entertainment (if you current budget already covers this, and within your budget, of course) for as long as you live.

As far as living off your investments go, you’d typically follow the 4 Percent Rule, which early retirees use as a guideline to figure out how much they can withdraw from their nest egg to live on each year without running the risk of using up all their money for as long as they live.

However, bear in mind that the 4 Percent Rule is in no way a one-size-fits-all solution to making your money last, says the inventor of the rule, Bill Bengen, a financial advisor in southern California.

Other factors that you need to take into consideration are your post-FI lifestyle, asset allocation (which will determine your portfolio’s rate of return), inflation and of course, the domestic (Malaysian) economic environment where a significant portion of your cash is likely to be invested, since you don’t live in the US, where the data for this rule is based on.

TIP: f you’re serious about FIRE-ing, it’s probably best to sit down with a financial planner who can help you come up with a sound FIRE game plan.

Lean FIRE

Several steps down from Basic FIRE is Lean FIRE.

This is what I’d consider the most extreme form of FIRE because you’ll be living on a lot less than the average person to deliberately keep your living expenses very low for the rest of your life or at least for the foreseeable future.

Once you’ve got your FIRE cash stashed away, it’ll probably be generating just enough passive income to cover your most basic living expenses, nothing more.

If you’re someone who’s accustomed to a very simple, minimalist (read: inexpensive) lifestyle who just wants to FI but not RE because you don’t want to have to worry about living paycheck to paycheck, Lean FIRE will likely work for you.

Fat FIRE

On the other extreme end of the FIRE spectrum is Fat FIRE.

Think living large so you can enjoy the finer things in life.

As someone who’s Fat FIRE-d, you would typically have had a high income and savings rate throughout your career and will spend twice or more of that of the average person. Alternatively, you may have had an average income but exceptional investing habits or skills.

You are someone who wants to enjoy luxuries like eating out at restaurants and traveling regularly, indulging in your hobbies whenever you want, as well as gift friends, family and your community generously — all without having to worry about whether you’re going over-budget.

Needless to say, this is also the most difficult level of FIRE to achieve.

Barista FIRE

As its name suggests, this level of FIRE typically involves quitting your full-time (and typically corporate), high-pressure job for less-stressful, part-time gigs that let you earn enough to live on without having to dip into your retirement funds.

Some of these lower-stress job options include — you guessed it — working at a coffee shop, waitressing, dog-walking or freelancing. You might even want to combine a few of these if you like switching things up or want to get multiple streams of income going.

To pull this off, you’d need to save up just enough or have sufficient passive income to pay for the majority of your expenses, and make up for the shortfall with your part-time work income. If these gigs happen to offer benefits like allowances or medical and dental insurance, all the better.

This form of FIRE is a good fit for you if you plan to keep working indefinitely without having to deal with the stress that comes with traditional corporate jobs.

Coast FIRE

If you’re a numbers geek and are familiar with the ins and outs of the types of assets you’re invested in, Coast FIRE is for you.

The line between Barista FIRE and Coast FIRE is razor-thin as both assume that you have enough money stashed away and invested at an early enough age, but while saving and investing may still be part of your long-term Barista FIRE plan, Coast FIRE is about having established enough ‘seed money’ invested so that you’d never have to invest the money you earn from work, ever again.

You’re basically leaning on the assumption that this seed money will keep growing on its own into a big-enough retirement nest egg, thanks to the power of compounding.

The term Coast FIRE is somewhat misleading because it’s more about reaching FI and feeling secure in knowing that your retirement is taken care of than it is about RE. In fact, you’ll need to keep working since you won’t be able to touch your portfolio so it can grow.

To make Coast FIRE work, you’ll need to know intimately what your cash flow is like, how much you’ll need to have set aside to live on once you retire and the expected return of your investment portfolio until then.

The better you know your numbers, the better prepared you’ll be.

Why FIRE?

If you’re reading this, you’re probably planning to FIRE or just get to FI first and RE later.

But whatever your reason for wanting any of this is, it’s probably different from mine. It could be because you want to:

• free up more time for your hobbies, passion projects or to spend time with your family.
• stop living paycheck to paycheck and feel more secure about your financial future.
• free yourself from working a 9-5 job before the traditional retirement age so you can spend more of your life doing whatever you want.
• never feel like you have to depend on another person to live the life you want.
• be able to walk away from unhealthy situations without having to worry about the financial consequences.
• you’re a numbers geek and enjoy the process of earning, saving and investing money with a big goal in mind to reach for.

Some of us have FIRE on our brains for a combination of these reasons, and for others still, all of them.

Is FIRE Possible In Malaysia?

This is a tricky one, but here’s what I think: If reaching FIRE were simply a matter of learning how to invest and investing whatever you’re able to earn no matter how little, I’d say “yes” — in which case, every Malaysian would be able to FIRE.

But obviously, life is a lot more complicated than that, and its not always fair.

Not everyone is born into a loving, supportive family.

Not everyone gets to go to school.

Not everyone gets to grow up with opportunities that encourage them to grow personally and professionally.

Not everyone gets so much as a fighting chance to earn a decent living wage.

If you were lucky enough to be born into privilege that’s allowed you to skip these obstacles, the answer is likely to be a “yes”.

I say ‘likely’ because you could technically have all your ducks lined up in favour of a prosperous financial future and yet have terrible money habits that shoot them all down the gutter.

Otherwise, the answer, in my honest (and non-finance professional) opinion, is “no”. But of course, like everything in life, there are always exceptions.

The Biggest FIRE Obstacles in Malaysia

If it’s not already obvious, reaching FIRE in Malaysia, or in any other country, is no easy feat.

If you’re a Malaysian who lives in Malaysia and earning in ringgit, the climb to FIRE is a whole lot steeper because of the unique challenges that you (and I) face.

They include:

Low, stagnant salaries.

Most Malaysians don’t earn as much as they should to keep up with the rising cost of living. And if you’re a woman, you’re likely earning less than your male colleagues.

A weak currency.

The Malaysian ringgit has been weakening for well over a decade, which means that your hard-earned cash won’t take you as far as it used to if you invest, travel, consume and use services (or plan to) beyond Malaysia.

Low financial literacy.

We’re not teaching our kids about money — specifically how to make, manage, spend and grow it, and it shows. This lack of financial education and awareness, coupled with businesses aggressively encouraging Malaysians to prioritize spending over saving aren’t helping to improve their financial health.

FIRE Strategies

The strategies that will help get you to FIRE are pretty universal, no matter where you live.

Here’s what most FIRE proponents (including myself) have been doing:

Save as much as you can.

Most folks gunning for FIRE typically save 50% or more of their income, with some saving as much as 70-80%, taking frugal living to the extreme.

Instead of looking at your savings rate from purely a numbers point of view, try considering its potential to change your life in the long-term: A month’s worth of living expenses saved will let you ‘buy back’ your freedom for four weeks.

Multiply this number by 12 and you’ll be able to buy back an entire year’s worth of freedom.

The more you save, the more quickly you’ll be able to earn your freedom from a life of rise-and-grind on someone else’s terms.

Personally, I find this more motivating than just hitting those monthly savings rate targets, although I have to admit that gamifying my progress can be fun.

Grow your income.

A high savings rate is great, but there’s only so much you can save until you start becoming — there’s no delicate way to put this — a cheapskate.

The more you save, the less you spend, and you don’t want to be the person who expects their friends to pick up the tab for them every time they go out. Plus, you’ll probably stop hearing from these friends pretty quickly.

The only way to keep increasing your savings rate without having to live on rice, beans and other people’s charity is to grow your income, be it at the job you’re at, taking on freelance work, or building new streams of income online.

Income growth tip: If you can earn an income online in much stronger currencies like the US dollar, euro or even Singapore dollars, do it! This step alone will grow your earning potential by many times over.

Invest aggressively.

Seeing your cash pile grow in a savings account feels good, but it’ll do you more harm than good once you zoom out to 10 years and beyond.

With the way our present bank deposit interest rates are going (1-5-1.7% p.a), you’ll be allowing your cash to be eaten away by the invisible tax that all of us are paying: Inflation.

So if you’re wondering why the Milo ais that you paid RM1.80 for in 2015 is now RM2.50, the answer is inflation.

The bottom line is this: You’ll need to invest your money in assets that will outgrow the pace of inflation if you plan to maintain or upgrade your lifestyle in the future.

But beyond keeping up with inflation, investing equals growing the money you’ve already spilled blood, sweat and tears for, into a future source of passive income that’ll pay you in spades without you having to spend another minute working for it — now this is what I call retiring in comfort.

Start investing early, consistently.

The saying goes that growing your wealth isn’t about timing the market; it’s about time in the market.

Start investing as early in life as you can and you’ll be giving your money a longer runway to grow, compound and grow some more.

FIRE Tools For Malaysians

When I first started investing, I had two options: Stocks and unit trusts, so these are what I went with.

It’s not a stretch to say that we’ve come a long way in terms of investment options since then. And with just about everything you need to know about the pros and cons of each available online, it’s never been easier for Malaysians to start investing.

The most common (and most accessible) investment options that will work for most investors like you and I are:

Individual stocks

Think of buying a stock as investing into a publicly-traded company and being rewarded with capital growth and potentially, dividends (hello, passive income!).

Thinking of going down this route? Be prepared to do a fair bit of fundamental research into the companies you’re planning to invest in before hitting the ‘buy’ button.

How I’m doing it: Dividend stocks are an important part of my FIRE plan, since they pay me a constant stream of passive income on most months. However, it’s not an entirely hands-off approach because the stocks need constant monitoring, and learning about fundamental stock research is an ongoing journey for me. Growth stocks (new, smaller startups with unpredictable cash flow but lots of growth potential) are something I plan to explore at some point. The stock trading platform I’m using the most at the moment is Rakuten Trade.

Exchange-traded funds (ETFs)

These are typically baskets of securities (a fancy pants way of saying ‘financial tool or instrument’) that trade on an exchange like Bursa Malaysia, the New York Stock Exchange (NYSE) or Singapore Exchange (SGX), where you typically buy stocks.

Each ETF basket can be made up of different types of investments such as stocks, bonds or commodities (like gold, silver or oil). Some ETFs are country-specific while others are international.

Like stocks, these come with the risk of investing in equities, but the risk you’d take on is more spread out than if you were to own the individual stocks themselves, and with lower risk comes lower rewards.

How I’m doing it: I’m dollar-cost averaging into ETFs that track the S&P 500, Nasdaq, plus a handful of MSCI indexes (U.S. and global) via Tradestation Global Interactive Brokers and FSMOne Malaysia every quarter to diversify out of Malaysia.

Roboadvisors

As its name suggests, a roboadvisor is a digital platform that uses algorithms to automate the investment or financial planning process so that it requires little to no human supervision.

This effectively takes human emotion out of the decision-making process (read: good for eliminating impulsiveness, greed and fear from the equation) — a simple, hassle-free option for noob investors or those who want a hands-off approach to growing their money.

And because they’re not managed by humans, their fees tend to be much lower than say, unit trusts.

How I’m doing it: I’ve been dollar-cost averaging into StashAway since November 2018, and given the very promising results (you can read my 3-year review of StashAway Malaysia here), this is something I plan to keep doing for the foreseeable future. I’ve also started investing in their freshly-rolled out thematic portfolios.

Property

Ask anyone’s parents or their grandparents what their biggest and best investment was and chances are they’ll say “property”.

Traditionally considered to be a safer investment option compared to stocks, which are more volatile, it’s always been a popular choice for Malaysians who want to grow their wealth.

But despite its attractiveness and high profitability in the past, property investing is fast becoming increasingly out of reach for the average salaried Malaysian.

For those who aren’t keen on buying physical property, there’s always reit estate investment trusts (REITs), which give you the opportunity to buy slices of commercial properties like Mid Valley Megamall (IGB REIT), KLCC (KLCC REIT) and Pavilion KL (Pavilion REIT), and can easily be traded on an exchange the way stocks are.

Unlike physical property, investing in REITs requires significantly less capital (you can literally start with several hundred ringgit), doesn’t need you to pay for maintenance of the properties (professional property managers take care of that), and your holdings can be sold at any time.

And as a REIT investor, you’re paid dividends quarterly or biannually, making it a passive income-worthy option to consider.

How I’m doing it: I haven’t pulled the trigger in terms of investing in physical property just yet, so I’m investing in Malaysian REITs that are paying me dividends in the meantime. I buy them via Rakuten Trade. I plan to diversify into Singapore REITs via Tradestation Global Interactive Brokers in the near future.

Unit trusts

These have been around since 1959, when the first unit trust was set up by a company called Malayan Unit Trust Ltd.

These are essentially pools of funds collected from investors, and are largely similar to mutual funds in the U.S., with the exception of some key differences. These funds are then invested in securities such as stocks, bonds, fixed income and increasingly commonly, themed assets such as healthcare, technology and sustainability.

Despite being somewhat beginner-friendly in comparison to say, stocks, there are literally thousands of unit trust funds available in Malaysia, making the task of investing in the right funds for your goals a tricky affair.

And because unit trust funds tend to be actively managed by humans, they come with a much higher cost in the form of sales charges and annual management fees, which can go up to 5.5% and 1.9% respectively.

How I’m doing it: I’ve been investing in unit trusts for well over two decades and these are another source of passive income (in the form of annual and monthly distributions) for me. The majority of my investments here are a mix of equity, bond and money market funds in the domestic, ASEAN and global markets. Because of their much higher fees, I plan to leave my current investments in place but won’t be injecting significant amounts of fresh funds into them.

Employees Provident Fund (EPF)

You’ll recognise this one from the mandatory EPF deductions and employer contributions (free money, yay!) you see on your monthly salary slips.

Once deducted, your money’s managed by EPF — a government agency under the Ministry of Finance.

EPF, which guarantees your capital and a minimum return of 2.5% annually, has been declaring dividends of between 4% and 8% over the past 60 years, making it literally the perfect set-and-forget investment vehicle that you won’t have to lose any sleep over.

How I’m doing it: I just don’t touch my EPF funds, ever, and I don’t plan to until I reach 55. Even then, I might just leave my funds there for as long as I can for the sweet, sweet dividends (provided they stay above the 4% per annum mark) since EPF allows to its members to stay invested until the age of 100.

Commodities

The most common examples of commodities are gold, silver, oil and natural gas, but it’s the precious metals (gold in particular) that most retail investors like you and I would buy.

Gold and silver bugs have one thing in common: They view their investments as hedges against inflation and stores of value for when times (ie economies) are bad, and consider investing in these metals as a part of their diversified, long-term investment portfolio.

You can literally buy bars of gold, although this isn’t a very practical option since storing them somewhere ultra-safe (like say, a bank vault) will cost you money rather than make you money, and hiding them in a Milo tin in your pantry is NOT recommended.

However, there are easier (and cheaper) ways to own the shiny stuff: Through gold ETFs and buying stocks of gold mining companies as well as other companies associated with them.

Another option to consider is a gold investment account, which banks like Maybank, Public Bank, CIMB and UOB offer. These typically don’t charge any storage costs and allow you to ‘buy’ as little as 1 gram of gold at a time.

Other gold-buying platforms to consider are HelloGold and Public Gold.

But as expected from a gold investment, there is no dividend or interest to be earned, no matter how much you buy. The same goes for silver.

How I’m doing it: I don’t invest in commodities simply because they’re not income generating assets, which are my priority at the moment. However I do have 4.44% and 12.91% weightage in the SDPR Gold Trust ETF via my 22% and 36% risk index portfolios respectively, in StashAway.

Alternatives

Newer, non-traditional investment tools fall under this category: Cryptocurrencies, peer-to-peer lending, equity crowdfunding, collectibles (Hermes bags, anyone?) or even private equity in a startup (if you happen to be an ultra-high net worth individual).

How I’m doing it: I’m a little late to the crypto game, but I finally started buying bitcoin and ethereum during their recent dips. I’m still undecided about their place in my FIRE portfolio, but I’m leaning towards looking at these as potential future stores of value that aren’t correlated or directly linked to traditional assets like stocks, bonds, property and fiat currency in general. The cryptocurrency exchange platform I’m finding the easiest to use is Luno (use the code 2UU5FN to get RM25 worth of bitcoin for free when you buy RM250 or more).

Fixed deposits

I saved this for last simply because it’s the easiest to get into and where your cash is the safest to park while earning some interest — what you put in is what you’ll get out of it plus a little extra once your fixed deposit matures.

It’s zero-risk unless your bank goes belly up, in which case up to RM250,000 of your money is protected by Perbadanan Insurans Deposit Malaysia (PIDM), a government agency that was set up in 2005 to protect bank depositors, takaful certificates and insurance policies against what it calls ‘member institution failure’.

How I’m doing it: Fixed deposits are where I park cash that I’ll need within the next 1-3 years since (ie my emergency, cash cushion and various sinking funds) I don’t want to risk losing any of it. The closest low-risk alternative that I’ll use for this same purpose are money market funds.

What Happens After You FIRE?

The best time to decide what you’re going to do after you reach FI or RE is before you reach either milestone or make a major life change, like quitting your job.

Here are some things to think about:

• What are your top 3-5 reasons for wanting to FIRE?
• Do you plan to keep working?
• If you don’t want to keep working, why not?
• What do you plan to do with the time that you’d otherwise spend working?
• If you do plan to keep working outside of the regular 9-5 job model, what kind of work will you do? Why?
• Do you plan to tell the people in your life that you’ve FIRE-d? Why?
• Will you have people in your life who will understand your situation and why you’re FIRE-ing?
• Have you taken a series of mini retirements or sabbaticals to take your ideal FIRE life for a test run?
• How will you manage your money during a mini retirement or after you FIRE?
• Have you checked in with a licensed financial planner to get a fresh set of eyes on your cash flow, insurance coverage, asset allocation, final FIRE number, estate plan and post-FIRE withdrawal strategy?

As you can see, reaching financial independence retire early status isn’t as simple as saving 25-30 times your expenses and calling it a day — there are plenty of other factors that you’ll need to consider along the way and after you achieve this life-changing milestone.

But as with most things in life, the more you know, the better prepared you’ll be for it and the bigger the rewards you’ll reap.

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Disclaimer: Everything on this blog is published for informational, personal point of view and entertainment purposes only and is not a substitute for professional financial advice. Please consult a certified financial planner for advice on your own situation.