The three most harmful addictions are heroin, carbohydrates and a monthly salary.~Nassim nicholas taleb
Despite my best efforts to prepare for this year (aka the year I quit my job), I have to admit, it’s been a challenge to adapt to not having a monthly salary.
Irrational? Probably, given how I’ve spent years building up my income-generating Freedom Portfolio and sabbatical ‘cushion’.
Surprising? Hardly, seeing that I’ve spent the last two decades or so relying on a regular paycheck to live my life.
The bottom line is this: I’m a creature of habit. And, I have no doubt whatsoever that having a monthly salary is something I got very used (if not addicted) to.
But now that I’m a good 9 months into status ‘funemployed’, I’m realizing that I’m someone who continues to need plenty of structure when it comes to my finances (and my days in general), and so setting up a well-oiled money machine tailored to help me go about my life with peace of mind is exactly what I’ve been doing lately.
Here’s how I’m doing it.
My every day expenses are currently taken care of with my 3-year cash-cushion (total annual expenses x3), which I keep in a fixed deposit ladder of one to three months, since this is cash I’ll need in the short-term.
As far as actual transactions go, most are done with my Maybank 2 Gold Cards (5% cashback on weekends plus x5 Treats Points on week days with Amex, x1 Treats Points with Mastercard), and the rest with cash and occasionally, a digital wallet like GrabPay or some kind of digital payment processor like Paypal.
The digital payment routes make tracking my expenses easier and since they’re hands-off, also much safer (with COVID-19 and all) anyway.
At the start of every month, I’ll transfer a fixed ‘allowance’ from my cash cushion to pay off any outstanding bills I have from the previous month, in full (I never pay just the bare minimum or in installments — if I can’t afford to pay for something in full, I don’t buy it at all).
The absurd interest rates (which as far as I know, range between 15% and 18% per annum) that come with breaking up the payments aren’t worth the convenience.
A significant benefit of having this multi-year cash cushion system in place is that it keeps me from having to sell off my investments when the markets are down should I need the money — that’s the last thing I’ll ever want to do since I’ll have to turn paper losses into real ones.
One-off annual spending
One-off or infrequent expenses are accounted for either in my annual budget (ie. insurance, annual subscriptions etc) or taken out of specific sinking funds.
I’ve set up sinking funds for the areas that I typically spend most frequently on (or plan to): Travel (post-COVID, of course), wellness (because I like going for massages now and then, preferably guilt-free) and gifts.
As for unexpected expenses like car repairs or a visit to the clinic, these are taken care of with my emergency fund (I’m looking at having at least 6 months worth of expenses stashed here at all times) since that’s what it’s for.
I used to journal my expenses (yes, with a pen, on paper) back in the day, but as I got busier, the more of a drag it became, so I eventually stopped doing it — in hindsight, not the best move because I’ve since realized that I tend to spend more money and more frequently when I don’t track my expenses.
Now you’re probably wondering: “Do you log your expenses as soon as they’re made?”. The answer is sometimes. But mostly, I’ll just spend a minute or two logging them at the end of the day so it doesn’t feel like a chore.
Yes, it IS one more thing to do, but it doesn’t take long and for the most part, I’ve just gotten used to it. To me, it’s not any different from taking a shower or brushing my teeth.
Since I’m living off my cash cushion, any and all investment income that’s not re-invested and active income (I take on freelance projects from time to time) gets channeled into an investment holding fund — typically a money market fund that I can access any time without incurring withdrawal fees or penalties.
This cash stays there until I’m ready to deploy it into investments or the following year’s cash cushion.
Occasionally, I’ll use the cash from here to cover additional expenses if I’ve overspent outside of my budget for the month (sadly, I’m not immune to occasional splurges or 10.10 sales).
Having invested mostly in unit trust funds and in Malaysia for well over a decade, I’m now in the midst of switching to predominantly global exchange-traded funds (ETFs), robo-advisors like StashAway (read my review here) and Singapore REITs for more growth upside, better cost-efficiency and to diversify out of the country.
I’ve already got portfolios going on StashAway (use this referral link to save 50% on your management fees when you invest up to RM100,000 during your first 6 months) and TradeStation Global-Interactive Brokers, so the plan is to keep dollar-cost averaging monthly (or quarterly to make the most of trading fees in the case of ETFs and S-REITs) for the foreseeable future.
Filling in the gaps
So it seems like I had everything sorted out….except that I didn’t.
There were still one massive gap with the potential to derail my sabbatical plans that needed filling, ASAP: Medical (specifically hospitalization) insurance.
I’ve always had workplace insurance to fall back on….until I didn’t.
Wary from dealing with insurance agents whom I’ve always found to be way more interested in making the sale than prescribing what I actually needed, I decided to enlist the help of a financial planner instead.
Prior to this, I’d bought a term medical insurance policy with an annual hospitalization limit of RM100,000, but soon learned that this was nowhere near sufficient in terms of coverage, thanks largely in part to medical inflation.
A ton of research and several discussions with my planner later, I finally picked an investment-linked policy with a hospitalization rider tacked on that will hopefully keep the cost of my annual premium more or less stable as I get older.
The coverage specs I went for: RM1.5mil annual limit with no lifetime limit.
The Big Financial Picture
I think I’m doing pretty OK, but I still have a big chunk of my financial picture puzzle to put together.
A significant number of the puzzle pieces are mindset-related — specifically, mental obstacles that I’ll need to navigate, and this in itself will be a major challenge.
And the rest? Making a whole new set of purpose-driven work and their related financial goals I have in mind, a reality.
Recommended Tools & Resources
*Note: These suggestions contain affiliate links, which means that I’ll earn a small fee if you decide to use them. Using these links won’t cost you anything extra, but it’ll allow this blog to earn some money. If you use them, thank you 🙂
StashAway puts my cash to work by diversifying it into baskets of global exchange-traded funds (ETFs) safely and easily according to my risk appetite minus the freakishly high sales and management fees that come with unit trust funds. Sign up here to save 50% on management fees when you invest up to RM100,000 for your first 6 months.
THE MILLIONAIRE NEXT DOOR by Thomas J. Stanley and William D. Danko
This is the very first book I ever read about money, and one that opened my eyes to what it really means to be wealthy and how the true rich (ie people who have a lot of money and are smart with it) make, manage and use the green stuff.
YOUR MONEY OR YOUR LIFE by Vicki Robin
I consider this mandatory reading for everyone, no matter where you are on your financial journey. If you’ve got questions about how to develop good habits around tricky subjects like debt, earning, spending and your relationship with money, this book’s got the answers.
THE 4-HOUR WORK WEEK by Timothy Ferriss
This isn’t a personal finance book per se, but it is about making money in ways that have nothing to do with working a 9-5 job and introduced me to the idea of mini retirements. If lifesyle design is your thing, this is a must read.
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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 or legal professional for advice on your own situation.