Building Passive Incomes for financial freedom

 

Actually, I didn’t really think about making money during my years of employment. I just give whatever spare money I have to those in need – Charitable organizations (NKF; Salvation Army; St. Luke’s Hospital) and Christian Ministries (GMB, Gospel Mission to the Blind; Singapore Bible College; ODB and churches).

Now that I have stopped working, I realize … (and a bit late)

Nothing is free in this world. To live in this world, we need money. Although money will never drop from the sky, ideally we can still receive money by doing nothing after the initial work or effort. It is like planting a fruit tree. After the initial work of planting and nurturing, when the tree matures, it will bear fruits in its season – some yearly, some regularly depending of the type of fruit trees you plant.

Passive income is like planting “money-trees”. Once the money-trees mature, they start giving you money seasonally – yearly, semi-annually, or even quarterly depending on the type of money-trees you plant.

Passive income, which is opposite of active income, is money generated without you doing anything ACTIVELY.  [Active income is your employment. You are paid for your time, energy and skill by your employer]. Just like planting a fruit tree, which requires seeds, soil and nutrient, passive income or planting money-trees need seed-money; time and planning. And so, let me share some of my Passive Incomes:

 

Type of Passive Incomes

1        CPF Interest (Central Providence Fund)

CPF is only applicable to Singapore Citizens / PR.  For those who are 55 years old and above, after setting aside the amount for Full Retirement Account, the amount of money in the Ordinary Account (giving an interest of 2.5% p.a.) and Special Account (giving an interest of 4% p.a.) can be withdrawn. So, if I have $1million in the OA + SA, I will have at least $25,000 of yearly interest! This interest can be withdrawn if needed and become my passive income. We can also do a top-up to our CPF account up to $37,740 per year. With compounding interest at work, the money can grow faster.

 

If you are a young working adult, planning to buy a house, you will likely use your CPF OA to fund your housing loan. I have also used my CPF OA to buy a HDB flat and use it for 15 years. It is best to avoid buying private property as the first house if we do not have the means and use up all the CPF money, leaving nothing for retirement. By keeping the HDB flat loan from CPF to 15 years (which ended in 2007) and not longer, I have now more than $1million in the CPF OA + SA even without voluntary top-up. My plan is to grow this CPF OA +SA to $1.5 million, so I started doing yearly CPF top-up in 2020. (Should have started earlier if I have known about this). As I am no longer in employment, where will I have the money to do voluntary top-up to my CPF?

 

If you want to achieve $1million by age 55 years old, you can also transfer your CPF OA to CPF SA to earn higher interest and also do voluntary yearly top-up. You need to do your own calculation. Once you achieve this, you will have a money-tree or passive income of $2k per month. If you start earlier, you will reach it earlier.

 

2. Insurance Policies

When I first started work, I bought a lot of Insurance Policies because my brother and sister-in-law are insurance agents and they approached me. I actually bought these policies out of obligations. So now, after more than 20 years, these insurance policies are maturing and I can cash them out. I am now using these cash to top up my CPF account and also for my expenses! As the years go by, I will continue to redeem these policies. As a young working adult, buying insurance is a long term saving. It becomes your passive income only after >20 years. But, you do not need to over commit and buy too many insurance policies, unlike me.

 

Or you can buy an Endowment Policy with a fix number of years (3, 5 or 10 years). Once the policy mature, you will get a monthly payout. I have also one such policy that will mature in 2 years’ time.

 

3. Singapore Saving Bond

SSB is another passive income that I invested in 2020. With $30,000 and giving about 1.5% p.a., I received about $250 semi-annually. The interest changed yearly and now has decreased drastically. This is a risk free investment and will last for 10 years.

 

4. Corporate Bond

In March 2021, I manage to purchase ASTREA VI bond for $15,000 for 3% dividend semi-annually. It was over-subscribed and I was offered only 15,000 instead of my subscription of 30,000. I received the coupon of $226.85 in 20 September and will be also in March. This Bond will last for 10 years.

 

5. Fixed Deposit

Bank Fixed Deposit is another passive income but give very low interest. I do have some Fixed Deposit but was lazy to terminate it. I will do so early next year when it mature. Initially, when I started this FD, the interest was 1.5% p.a. for 9 months, then the interest dwindled to peanut and I forgot about this FD.

 

6. DBS Multiplier Account

This Multiplier Account give you higher interest if you are a working adult and credit your monthly salary in DBS account. The higher your salary, the higher the interest. Also, with more transactions done monthly like DBS credit card, Paylah transaction, DBS housing loan and DBS Vickers Security stocks dividend, you can get higher interest. For me, when I was working, I would get about $150 of interest per month. Now, I can only get about $99 per month as I don’t have any salary credit into my DBS saving account.

 

Semi-Passive Income

Semi-passive income has higher risk, but give higher interest or money to you. You also have to do some monitoring of the progress to make sure that the risk does not kick in and eat up your investment. So I will classify them as Semi-passive because of some monitoring needed.

 

1.      Stocks Dividend

Your need to have some stock investment knowledge and skill before you start. I started to do some stock investment in 2015 after reading a book by Adam Khoo – Winning the Game of stocks.

 

There are 3 type of stocks that I invested:

·         Equities - Stocks of individual companies.

·         Exchanged Traded Fund (ETF) – this is an index fund that makes up of a group of stocks of companies

·         Real Estate Investment Trust (REIT) – These are properties that collect rental and dividend to investors who buy their shares. There are various types of REITs – healthcare; logistic; industrial; commercial; hospitality; and others.

 

To reduce risk and get higher dividend, invest only the best companies that keep making more and more profits and so give increasing dividends. Also, by investing in ETF, any companies that does not perform well will be removed from the ETF and replace with another better performing companies. This will mitigate any risk but the yield is usually low (3 to 4%). REITs usually can give >4 % and only invest in the best REITs.

 

If you are new, start with:

è REIT ETF like NikkoAm-straits Asia Ex-Japan REIT ETF. The REIT ETF give >4% and pay quarterly dividend, It holds a basket of REIT all over Asia.

è Equities – DBS (Development Bank of Singapore), this is the number one company in Singapore and the must have stock. It pays >4% dividend and pay 4 times a year.

è ETF – either Straits Times Index ETF or Nikko AM Singapore STI ETF. These stocks give 3 to 4% dividend semi-annually.

These are very low risk stocks and yet giving very good interest you can imagine them as fixed deposit. However, I consider them as semi-passive income because it will better to do regular monitoring of the stock prices so as to buy them at the lowest possible prices to increase the dividend yield.

 

Other semi-passive income which I do not engage in are:

-          Room rental

-          Limited partnership in a business

-          Write blog, book, songs to earn royalty

-          Write articles for magazines like Reader Digest, Kris (SIA) magazine.

 

And so, start by saving up a regular portion of your salary and use them to diversify your investment. Start planting your money trees and let time mature them. You can starting learning all about passive income or stock investment before you start.

 

Blessings

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Disclaimer:

The information provided is for educational and general information purposes only and is not intended to be personalized investment or financial advice. I make no promises as to the accuracy or usefulness of the information present.