Nice to meet you. I’m Pooh.
Thank you for accessing the “Pooh’s Blog.”
In this blog, I write about my actions, experiences, and thoughts as I strive to eliminate financial anxiety and pursue a life of freedom.
I’m Pooh, a person in my 30s and currently working as a company employee.
I have been moving from one company to another throughout my career.
I started my career in sales.
However, I couldn’t achieve any results, and it took a toll on my physical and mental health, leading me to resign.
I gained sales experience at my subsequent job, but the outcome was the same, and I eventually got fired.
Fortunately, I had the opportunity to work overseas and gained experience in call centers and administrative roles.
After returning to my home country, I have been working in an accounting position.
Due to my restless nature, I tend to get bored easily and if something unpleasant happens, I quickly move on to the next action. I consider myself a bit impatient, haha.
However, I quite like these changes, and I always try to think about what I should do next and take action accordingly.
I also share my daily activities on Twitter, so if you’d like, please follow me.
Realizing the need to learn about money
“I’m worried about money” or “I’m anxious about my retirement life.”
We often hear such voices around us, don’t we?
I was one of those people, and until a few years ago, I lived a life with zero savings.
As soon as I received my salary, I would spend it all without much concern for the future.
However, when I reached my 30s, I realized that my salary hadn’t increased since I joined the workforce as a new graduate.
Through repeated job changes, my salary had been reset over and over again.
What about married life? What if I have children? What about retirement?
Maybe things will be tough if I continue like this…
I felt a great sense of crisis regarding money.
So, I started questioning, “How can I save money?” and began studying about money again.
I read various books, articles online, watched explanatory videos on YouTube, and collected information from knowledgeable individuals on Twitter to deepen my understanding of money.
In the process, I came across the concept of “FIRE” (Financial Independence, Retire Early).
What is Financial Independence, Retire Early?
Are you familiar with the term “FIRE”?
FIRE stands for Financial Independence, Retire Early, and it refers to achieving financial independence and retiring early.
It has gained attention as the “FIRE movement” in the United States.
Recently, we can see many related books in Japan as well.
Regarding this FIRE concept, specifically, it refers to a situation where:
Investment Return > Living Expenses
It is a mindset where you cover your living expenses with the returns from your invested financial assets.
This is financial independence and the goal I am aiming for.
Once financial independence is achieved, it becomes possible to sustain your lifestyle without having to work.
You no longer need to be an employee, you can live in a place you love, and you have the freedom to use your time as you wish.
By achieving financial independence, you gain various choices in life.
Getting Started with Systematic Investment
When considering the achievement of financial freedom, the concept of “r > g” becomes crucial.
This inequality was proposed by the economist Thomas Piketty in his book “Capital in the Twenty-First Century.”
r: Average annual return on capital (rate of return obtained through passive income)
g: Economic growth rate (annual increase in income and output)
“r > g” implies that the average annual return on capital continues to surpass the economic growth rate. It means that the returns on financial assets such as stocks exceed the compensation earned through labor.
In other words, to strive for wealth, it is necessary to become an “investor” who possesses assets rather than relying solely on labor, as we, the salaried workers, have traditionally done. A shift in mindset is required. Instead of solely relying on our own labor to earn money, we need to adopt the mindset of earning money through investments and other financial assets.
As a practical approach, it is essential to diligently invest in low-risk financial assets that generate steady returns, accumulating as many assets as possible month by month.
Even though my take-home pay is low at the moment, can anyone start investing?
Until recently, investing in stocks typically required a minimum capital of several hundred thousand yen and involved visiting securities firms to make purchases. However, the environment has changed, and now we have online securities and smartphone apps that make it easy to engage in stock investing with amounts as low as 100 yen.
Moreover, with the ability to search the internet and utilize social media, accessing reliable information has become easier, enabling anyone to realistically incorporate low-risk and less likely-to-fail investments into their strategy.
Around three years ago, I opened an online securities account and started systematic investment with a monthly contribution of 5,000 yen.
If we aim for a life free from financial worries, I believe it is crucial for each of us to become part of the investor community, even if we can only invest small amounts.
Important Rules for Achieving Financial Freedom
To achieve financial freedom, it is crucial to adhere to and implement the following rules:
Rule 1: Assess the current situation
Rule 2: Control expenses
Rule 3: Increase income
Rule 4: Invest surplus money
Rule 1: Assess the current situation
To achieve financial freedom, it is essential to start by assessing the current situation. Many of us have experienced the recurring problem of running out of money. However, there are always reasons for this:
- Insufficient incoming money
These two factors are often the key contributors. Unfortunately, very few people have a clear understanding of their monthly income and expenses.
Without understanding income and expenditure, one’s financial habits and earning potential will remain unchanged. Consequently, the struggle to make ends meet continues indefinitely. Even individuals with high incomes cannot accumulate savings if their expenses exceed their earnings.
By tracking income and expenses, we can gain a clear picture of our financial issues. I recommend keeping a household budget, even if it’s a rough estimate, at least once a month.
I personally share my monthly budget on this blog.
Rule 2: Reduce Expenses
Once you understand your income and expenses, let’s focus on reducing your expenses.
It is often overlooked, but reducing expenses is extremely important!
Here are four benefits of cutting expenses:
- Creates mental peace
- Allows for surplus funds
- Lowers investment targets
- Easily achievable
Creates mental peace
As salaried individuals, we secure our livelihood from the monthly income we receive.
- If someone with a net income of 200,000 yen spends 190,000 yen on living expenses, they are left with 10,000 yen.
- If someone with a net income of 200,000 yen spends 100,000 yen on living expenses, they are left with 100,000 yen.
Having a significant amount of money left over each month brings about a sense of mental relief.
Allows for surplus funds
Investment capital refers to the surplus funds generated from income minus expenses.
No one borrows money to invest.
By reducing living expenses, surplus funds are generated, which can be used for investment.
Even if someone has a high income, excessive expenses prevent them from starting investments indefinitely.
Lowers investment targets
Achieving financial freedom means having investment returns greater than living expenses.
In other words, if you can reduce living expenses, the hurdle for achieving financial freedom significantly decreases.
By the way, the commonly accepted principle for achieving financial freedom is to have “25 times your annual living expenses” as the initial investment amount.
For example, if your annual living expenses amount to 2.4 million yen, you would need an investment capital of 60 million yen (2.4 million yen × 25).
If you manage to invest 60 million yen at a 4% annual return, the investment yield would be 2.4 million yen per year.
This 4% figure is based on a study called the Trinity Study.
By creating a portfolio with 50% stocks and 50% bonds and gradually withdrawing 4% each year, the assets would still remain after 30 years.
Using this investment yield (2.4 million yen), you can cover your annual living expenses solely from investment returns.
Lowering living expenses also significantly decreases the target investment amount, making the achievement of financial freedom more realistic.
The biggest advantage of reducing expenses is that anyone can do it easily.
While achieving a 10% investment yield may be challenging, reducing expenses by 10% is relatively easy, wouldn’t you agree?
Increasing your salary requires time and substantial achievements at work.
However, saving 10,000 yen through cost-cutting measures can be easily accomplished by reviewing the following:
- Reassessing and canceling excessive insurance policies
- Switching to a more affordable mobile phone plan
- Moving to a smaller apartment to reduce rent
- Reviewing your electricity provider
- Avoiding eating out
- Avoiding convenience stores, and so on
Saving money through cost-cutting measures is highly achievable.
Rule 3: Increase Income
Next, let’s consider increasing your income.
The more initial investment capital you have, the more money you can expect to earn from returns.
If you invest in a product with a 5% annual return, the impact on your earnings can be significant:
- Investing 100,000 yen: Earnings of 5,000 yen
- Investing 1,000,000 yen: Earnings of 50,000 yen
How to increase income as a salaried individual
In the case of salarymen, it is necessary to achieve results in their work.
It is important to note that salary increases through promotions are generally low and require a considerable amount of time.
Furthermore, it is said that the salary of company employees is determined more by the industry and scale of the company they belong to than by their skills and experience.
In industries with low profit margins, both the company’s profits and employees’ salaries tend to be low.
If someone’s salary is lower compared to others in the same age group, occupation, and skill level, I believe it may be necessary to consider a career change to an industry or company with higher salaries.
Generating income through side jobs
Although side jobs are still prohibited in many places, I believe that the income obtained from side jobs will become increasingly important in the future.
With the recent spread of the coronavirus, relying solely on a salary as a source of income poses significant risks.
No matter how talented a person is, they never know when they might face layoffs or have their bonuses reduced.
By having a small side job, one can diversify their sources of income and be better prepared for whatever may happen.
If the side job grows significantly, one can even turn it into their main occupation, and above all, I think it’s extremely enjoyable to make a living doing something you love.
Personally, the COVID-19 situation prompted me to start this blog in April 2019.
Increasing income through the blog not only allows me to secure investment capital but also enables diversification of income sources and the ability to cope with any situation.
It is crucial to acquire the ability to earn money on your own in order to achieve financial freedom.
Rule 4: Invest with surplus money
Once you have secured the initial capital, let’s put it into investments.
There are so many investment products, and it’s difficult to know which ones to invest in…
It’s recommended to choose investments that have low risks and offer steady returns of around 3% to 5%.
Investing in products that have low holding costs and allow for steady accumulation would be ideal.
Among them, I believe investing in diversified investment trusts is a good choice.
By selecting low-cost index-type products, you can expect a steady return of around 3% to 5%, and they are suitable for long-term investments.
There are investment trusts called active funds, which offer high returns but also come with high risks.
Many active funds also have high holding costs.
Many products recommended by banks and securities companies tend to have high fees.
I suggest opening an account with an online securities company and choosing products on your own.
For those who are starting to invest, I recommend utilizing a system called “Tsumitate NISA” (a tax-advantaged individual savings account).
It narrows down suitable products for you and provides significant tax benefits.
What I want to convey with this blog
Money is incredibly important in life.
It influences our occupation, place of residence, lifestyle, and life plans.
On the other hand, it is a fact that many people lack knowledge about money.
Because of this lack of knowledge, people constantly experience financial anxiety.
However, when you start learning about money, you begin to understand many things, and your behavior gradually changes.
Even when my take-home salary was only 200,000 yen for several years, I was able to steadily build my assets.
I believe that by learning about money and resolving financial anxieties, we can achieve a free life.
I am still on the journey myself, but I want to convey through this blog that anyone can achieve a free life.
I also share my daily activities on Twitter, so I would be happy if you could follow me.
I hope to be of help to those who, like me, are striving for financial freedom.
“Pooh’s Blog” follows the author’s quest for financial freedom and shares insights on personal finance.
Pooh recounts their initial struggles with money and the realization that learning about finances is essential.
They introduce the concept of FIRE (Financial Independence, Retire Early) and emphasize systematic investment and the “r > g” principle. Pooh provides important rules for achieving financial freedom, including assessing one’s financial situation, controlling expenses, increasing income, and investing surplus money.
The blog encourages reducing expenses, diversifying income sources, and investing in low-risk assets.
Overall, the blog aims to help readers eliminate financial anxiety and pursue a life of freedom through informed money management.
“Eliminating financial anxiety and striving for a free life”
There is no instant way to become rich, but there are always things we can do now.
Let’s work together to achieve a free life.