Wednesday, February 21, 2018

Budget 2018 discussions mirrors our journey towards Financial Independence

On the whole, we've had a fantastic 2017, which was why Budget 2018 was not a punitive one even though it was a mid-term budget.

The aftermath of the Budget is interesting because discussions about NIR returns mirror the internal discussions we have on our journey to financial independence.

Ray Dalio in his book Principles has a very elegant way of describing what happens when someone becomes financially independent.

There are two approaches to living life post financial independence :

a) A certain portion of FI folks would want to Savor Life.
b) And yet a substantial number of financially independent folks want to make a Bigger Impact in this World. 

Personally, I started out really wanting to savor life after my failed stint in the public sector, but after tasting Law School and seeing how a little bit of knowledge can have such a profound impact in the world, I am beginning to see the wisdom of trying for a bigger impact on this world.

Because there are two ways of seeing the ultimate outcome of one's financial independence, it is not surprising to see Singaporeans divided on the issue of the 50% cap to the NIR.

One school of thought represented by academics like Donald Low is that if we can increase the cap to 60%, we would never need for a 2% GST increase in 2021. This is definitely an attractive option for many citizens. Why not spend more for ourselves and retain less for future generations ? I am confident that Donald Low's numbers are well-researched. There's no reason to doubt him here.

But my school of thought is the direct opposite of Donald Low. Why not lower the cap to 40% and raise the GST to 10% immediately? I always felt that I would like my children to have a more comfortable life although I would like them to choose to make a bigger impact on the world than merely savoring it more. My proposal will allow the government bigger surpluses in the future so that compound interest would allow us to do much more in the future. This change may even mean more assistance programmes for the disadvantaged.

So 50% is an arbitrary number chosen by the government with the support of the electorate.

Both me and Donald Low would have to accept that there are going to be different kinds of Singaporeans. Some believe that they deserve instant gratification and demand to use up more of the reserves immediately. Others like myself think that some struggle is necessary for the nation make an impact to the world at large and would always try to emulate our ancestors by taking less than future generations.

I try to justify myself by saying that my personal life is congruent with my political inclinations and views on taxation. I started saving 50% of my earned income rather early in life and spent close to a decade saving 100% of my take home pay living a simple life on my dividends. My first act upon retiring was to go back to retrain myself.

( There are certainly financially independent folks who have inherited money and put 100% into savoring life. That, to me, is the reason why we no longer have the Roman Empire. )

Of course, if you agree with me, you would also have to be aware that there are consequences to adopting our set of conservative beliefs.

One consequence is that I am willing to accept more inequality in society than Donald Low.


  1. Is there any way I can contact you? Can't seem to find your email address.