What I Learnt From "The Psychology Of Money" In My Journey Towards Barista FIRE

Recently, I have just completed reading Morgan Housel's "The Psychology of Money", and finally digested some of the contents within the book, which are valuable lessons that can further help me improve in my journey towards achieving Barista FIRE (Financial Independence, Retire Early).  For those unfamiliar, Barista FIRE is about having enough passive income to cover your basic needs, while working part-time to maintain a balanced, fulfilling lifestyle.  It is about finding financial freedom without retiring completely.  

Living in Singapore currently, with its increasing cost of living, this goal can feel challenging (that is why returning back to Malaysia for retirement is always in my mind, and I am definitely working towards that too).  Thankfully, some of the lessons from this book have molded my approach towards dealing with money more conscientiously and live life fully within my means.  Below are some of the key things I learnt and how they have guided me on my journey towards Barista FIRE.

1)     Money Is A Tool, Not The Goal

One of the first lessons I picked up from the book, is that the value of money lies in what it allows you to do, not in what it can buy.  In my journey towards Barista FIRE, I have come to see money as a tool for freedom and flexibility and not as something to hoard or spend carelessly.  This realization helped me shift my mindset.  

Instead of envying all the "influencers" on social media who constantly post their flashy possessions or latest luxurious vacations, I started asking myself how can I use money to create the life I want?  For me personally, that life includes more time for family, hobbies, and simple but meaningful vacations, all which creates priceless memories for me.

2)     Living Below Your Means Is Key

Singapore is a great place to live, in terms of safety, security, cleanliness and accessibility, but it is also one of the most expensive cities in the South East Asia, if not the world.  The pressure to keep up with others, especially in the aspect of housing/rent can lead to overspending.  However, as Housel reminds us, true wealth is not about what you spend, instead, it is about what you save and invest.  

In order to achieve Barista FIRE, I have embraced a modest lifestyle.  This means skipping unnecessary upgrades (in fact, I did not spend any money in renovating my resale unit, I just gave it a new coat of paint and moved in straight away, but that is because it is a my bachelor pad and has no partner's opinion to worry about) and minimizing lifestyle inflation (2024 was inflationary for myself because of the mega trips I brought my mum to).  I keep my daily expenses for meals to below SGD 30 (not a low amount, but it's a comfortable and sustainable amount for myself in the long term).  By living below my means, I have managed to save and invest consistently, building a portfolio that brings peace of mind in the form of dividends.

3)     The Power Of Patience And Compounding

Compounding is one of the most powerful tools in personal finance, and as Einstein puts it, compound interest is the eighth wonder of the world.  However, compounding is a process that  requires patience and discipline.  Housel’s stories show how small, consistent actions can lead to big outcomes over time.  For me, this meant squirreling monies into "almost risk-free" instrument like the Central Provident Fund (CPF), accumulating and growing my investment portfolio consisting of REITs, dividend stocks and index funds.  

Even for a low-income earner like myself, dollar-cost averaging with smaller amounts can also grow significantly over time thanks to the magic of compounding.  The key is to start early and stay the course, even when the results are not immediately visible.  For instance, in the first year when I started accumulating shares for dividends in 2018, my annual dividend was only SGD 2.7K.  Fast-forward to 2024, my annual dividend has grown by 10 times to SGD 28.3K.  

4)     Avoid The Comparison Trap

In Singapore, it is easy to compare yourself to others, whether it is someone’s new car, condo, or luxury holiday.  However, Housel’s book taught me that envy is the enemy of contentment.  When working towards Barista FIRE, it is essential to focus on my own journey, just as I have shared in an earlier post.  It is important to constantly remind ourselves that everyone’s financial situation and goals are different. 

Instead of comparing myself to others, I have learnt to focus on what truly matters to me and remain focused on what I need and what I can achieve based on my personal circumstances.  This shift has made my journey more enjoyable and less stressful.

5)     Redefining Wealth

True wealth is not about expensive or luxurious things.  It is about having control over your time and choices.  This lesson resonated deeply with me.  Barista FIRE is not about being rich, it is about being free.  

To me, this means creating a financial base that allows me to work part-time, pursue meaningful activities, and enjoy life without having to worry about money.  It is a simple but powerful mindset shift that has helped me to focus on what is truly important to me.

6)     Plan For Uncertainty

Housel’s book emphasizes the importance of managing risk and being prepared for surprises.  Life is unpredictable, and financial plans should account for that, especially in  the medical aspect.  For my journey towards Barista FIRE, this meant building a solid financial safety net using the CPF (with Basic Healthcare Sum maxed out), an adequate emergency fund that can meet unexpected short term needs, and diversifying my income sources via active income and passive income.  

Whether it is dividends, rental income, or part-time work income, having multiple streams of income provides stability.  Planning for uncertainty has given me confidence to pursue this lifestyle without constant worry for money.

7)     Knowing When You Have Enough

To me, probably the most valuable lesson from the book is understanding what “enough” looks like.  Barista FIRE is all about finding that balance.  It is not about striving for endless wealth but about reaching a point where your financial needs are met, and you can focus on living a fulfilling life and create priceless experiences and memories.  

For me, defining “enough” has been liberating.  It has helped me to stop chasing unnecessary goals and leaving the rat race and focus on what really matters, including but not limited to, spending time with loved ones, pursuing passions and hobbies, and enjoying the present.

Barista FIRE, to me, is more than a financial goal.  It is also a way of life.  It is about designing a lifestyle that is simple, meaningful, and aligned with my values.  "The Psychology of Money" has been a guiding light in my journey, helping me build the right mindset and strategies to achieve this balance.  Living in Singapore, where societal expectations and costs are high, these lessons have been especially impactful.  They have reminded me that financial independence is not about how much money I have, but how well I use it to live the life I want.  Barista FIRE, here I come...!