Originally published on June 15, 2016 at Manila Times
A few years back when I heard the word retirement, a picture of a silver-haired guy spending time with his grandchildren during weekends came to mind—pension and income from investments made years ago delivered enough to fully support his living allowance so he had time to meet with his old friends and play golf.
This notion changed when I started working for a company founded by a dynamic duo—Vince Rapisura and Edwin Salonga—who managed to get themselves financially ready to retire at 30 years old. Now both 36, they never have to work even for a single day for the rest of their lives as their expenses are fully covered by the income generated by their investments.
They started off with a P40,000 capital to establish Social Enterprise Development Partnerships, Inc. (SEDPI), a consulting company catering to microfinance institutions (MFIs) and social enterprises. The income they regularly receive has always been plowed back into the organization. Even now, they do not declare dividends for themselves.
Their reputation for turning around declining MFIs has spread, boosting demand for their services. Moreover, OFW participants to their Financial Literacy trainings abroad trusted Vince and Edwin enough to invest their money in SEDPI. By that time, the duo had set up a development financing company that now continues to lend money to the financial institutions that come to them for their consultancy services.
Their strategy allowed them to borrow funds from commercial banks. In a span of 12 years, they were able to transform their P40,000 capital to close to a third of a billion-peso organization. They continue with their consulting, training and financing services, but they also added real estate leasing, enterprise incubation and publication of books to the things they do.
Inspired by their success and their independence from a monthly salary, I drew up a strategy on how to speed up my journey to financial freedom. “[Retirement] is not about age; it’s about how much passive income you have in order to support your expenses or lifestyle,” as Vince Rapisura wrote in his book, LEarning Wealth. MoneyMax.ph also shared retirement fund alternatives such as real estate property, paper assets, and savings accounts. We cannot rely solely on the government for our future, but on ourselves.
Our usual sources of income—salary, professional fees or income from business—are considered active income. The key is to replace your active income with passive income as the main source of revenue. Examples of passive income are dividends, interest income from savings, rental income and royalties. These are the kinds of income that provide a steady of revenue even for someone who goes backpacking around Europe for six months.
At 26, I have a full-time job as senior finance officer at SEDPI. I have also established seven online school clothing brands, apart from an online magazine that features the daring young, whose chismis (stories) inspire.
If we’re going to break down my sources of income, 70 percent is active (salary from SEDPI), while 30 percent is from the online clothing brands and interest from other investments. I consider the income from my clothing brands as semi-passive since I only design a set of shirts and jackets for three hours every month, and that design gets sold up to a thousand times over a year. Our supplier, Shirtly, is in charge of the online store, production, payments and delivery to anywhere in the Philippines, so all I have to do are design and market through social media.
The goal of having multiple streams of income is so that in 10 years, I will have enough capital (30 percent to 50 percent of the cost) to build an eight-door apartment, while the rest will be financed externally. If all goes well, that eight-door apartment will eventually be able to cover 100 percent of my expenses.
It may be challenging to see and act beyond the usual work paradigm: we do our best at school to get impressive grades so that we can work in a big company that gives us enough income to cover our expenses. We are then able to invest in mutual funds and the stock market as our salary increases. We work until 60 years old then live off from our retirement package, income from investments and social security. I believe life can be grander than this.
I want to travel to remote places around the world without worrying how many vacation leave days I have left. I want to immerse myself in diverse cultures and try out new hobbies without thinking of how I’ll pay my bills next month. Retirement is being financially free so that you have all the time in the world to pursue the things that excite you. And isn’t it more exciting to be doing these things when you’re still young?