Financial Stability to Financial Abundance- Perspectives From A Dividend Investor

In June, an article in The Straits Times shook the finance blogger/ YouTuber sphere.  In the article titled "Moving from financial stability to financial abundance takes Singaporeans 32.3 years: Study", it shares the report done by wealth manager St James's Place who did a study on 1,000 affluent Singaporeans aged between 24 to 64 with minimum annual household income from SGD 70K to above SGD 250K.  In the report they concluded that it will take about 32.3 years for Singaporeans to progress from financial stability, financial security, financial flexibility, financial freedom and finally, financial abundance.  After the release of this article, many financial bloggers and YouTubers like Kelvin Learns Investing and Josh Tan- TheAstuteParent posted their perspectives on this matter. 

With respect to the study, I would like to highlight that the study is skewed to only include affluent Singaporeans and those with annual household income below SGD 70K are not included.  Hence this may not really apply to the average (definitely not for me as my household income is less than SGD 70K), and from a biased standpoint, it takes 32.3 years probably because very few, or none of the sample size surveyed practiced Lean FIRE.  Nonetheless, I believe how applicable the numbers are, depends very much on the individual.  If one's expenses are low, then it definitely requires less than 32.3 years for personal financial abundance to be reached.

Before I begin, I would like to credit this post to financial YouTuber GenExDividendInvestor, who inspired me to write this post with one of his recent video on "7 Milestones In A Dividend Investor's Life".

As a dividend investor myself (hopefully I am one on the right track), my goal will be to build a portfolio that is able to generate annual dividends as passive income that is eventually able to cover my annual expenses.  As such, instead of following the definitions of the 5 stages stated in The Straits Times, I will amend the definitions of the 5 stages to fit the context of a dividend investor.

Financial Stability: The stage where an individual has sufficient monthly income to cover all expenses, with 3 months of expenses saved up as emergency funds.  

In this stage, individuals will have a basic, stable, healthy finances as the basic needs are met.  Their monthly income can cover their expenses, with some excess that can be used to start building their dividend portfolio.  Emergency funds are also well prepared to meet any sudden financial obligations/ shocks along the way.  This marks the beginning of a budding dividend investor.

Financial Security: The stage where an individual has attained financial stability, and has build up a dividend portfolio that has a value of 5 times of annual expenses (based on a 5% dividend yield, the dividends can cover 25% of monthly expenses).

Using an individual who has a monthly expenses of SGD 2.9K (based on an individual like me aspiring to achieve Barista FIRE with the expenses stated in this earlier post) as an illustration, this meant having a dividend portfolio with a value of SGD 174K that generates an annual dividends of SGD 8.7K, or average monthly dividend of SGD 725.  This sum, although not high, is able to cover basic needs like utilities, transport and part of food and groceries.  If individual remains gainfully employed with a regular income, this dividend can be reinvested to compound and speed up the growth of the portfolio.  This amount of dividend, coupled with the emergency fund, definitely makes an individual feel more financially secure.

Financial Flexibility: The stage where an individual has attained financial stability, and has build up a dividend portfolio that has a value of 12 times of annual expenses (based on a 5% dividend yield, the dividends can cover 60% of monthly expenses).

Using an individual who has a monthly expenses of SGD 2.9K as an illustration, this meant having a dividend portfolio with a value of about SGD 418K that generates an annual dividends of SGD 20.9K, or average monthly dividend of SGD 1.75K.  This sum is able to cover most needs like utilities, transport, food and groceries, insurance and even taxes.  Similarly, if individual remains gainfully employed with a regular income, this dividend can be reinvested to compound and propel the growth of the portfolio.  This amount of dividend, coupled with the emergency fund, definitely makes an individual feel financially secure, with more flexibility in life for occasional indulgences, travel and even a possible impulsive career switch.

Financial Freedom: The stage where an individual has attained financial stability, and has build up a dividend portfolio that has a value of 20 times of annual expenses (based on a 5% dividend yield, the dividends can cover 100% of monthly expenses).

Using an individual who has a monthly expenses of SGD 2.9K as an illustration, this meant having a dividend portfolio with a value of SGD 696K that generates an annual dividends of SGD 34.8K, or average monthly dividend of SGD 2.9K.  This sum is able to cover the entire monthly expenses.  At this stage of financial freedom, this amount of dividend, coupled with the emergency fund, definitely makes the individual experience the massive options he or she has never really been granted before.  The individual is now blessed with choices.  The choice to remain employed/ working to stay active, or the choice to quit the rat race to enjoy the physical and mental relaxation, or the choice of hybrid arrangement to work part time with a lot more personal time for family and self.  If ever the individual decides to continue working and decides to reinvest part or the entire sum of dividends, then the individual can propel towards the last stage of financial abundance.

Financial Abundance: The stage where an individual has attained financial stability, and has build up a dividend portfolio that has a value of 25 times of annual expenses (based on a 5% dividend yield, the dividends can cover 125% of monthly expenses).

Using an individual who has a monthly expenses of SGD 2.9K as an illustration, this meant having a dividend portfolio with a value of SGD 870K that generates an annual dividends of SGD 43.5K, or average monthly dividend of SGD 3.6K.  This sum is more than sufficient to cover the entire monthly expenses, with excess that can be reinvested to safer instruments like long term bonds/ Singapore Savings Bonds (SSB) for further stability.  At this stage of financial abundance, this amount of dividend, coupled with the emergency fund, will allow the individual to experience more options, be it for work or entertainment.  The powerful part of financial abundance is that the principle amount (portfolio size) will never deplete as only the dividends are used.  This enables the entire portfolio to be passed down as a form of legacy to future generations, securing your child's financial future as well.  This stage is entirely optional, and largely depends on the individual.

It is imperative to note that the above illustration depends on individuals and the numbers fluctuates based on individual circumstances.  More importantly, the above numbers only work if the individual does not succumb to lifestyle inflation when their earnings increases.  I have to admit that the above is just an overly simplified illustration, and the numbers will vary when individual circumstances change at different stages of life, but it is nonetheless a good gauge to follow if a dividend investor aspires to achieve financial independence with their dividend portfolio.  Do note that one should not be too fixated on the timeline to achieve these stages as well as individuals' needs and aspirations differ.  You own your own timeline, you call the shots.  The time is in your hands.

Personally as one who strives towards Barista FIRE, I think I am currently at the stage of financial flexibility.  Definitely still some years away from financial freedom.  Hopefully to reach there in 6 years or less.  Barista FIRE, here I come...!