The Side Hustle Series 3 - Use other people's Ringgit

As discussed in the previous posts, it does not take money to make money. What it actually means here is that you don't need to use your own Ringgit to make more Ringgit for yourself. Don't get me wrong here, I am not asking you to steal other people's Ringgit. It is another method of doing business.

For some business idea, it is possible to use someone else Ringgit to makes Ringgit for yourself. I don't mean it in any way that is deemed illegal, such as robbing the bank or cheat someone off their lifetime savings. I am not asking you to go and take a loan from the bank or loan sharks. Those are technically suicide for your side hustle and yourself. So, please don't... It is not worth it.

Rather, I am referring to get part of the Ringgit from your customers first. Let me share an example.

Makcik Kiah is starting a homemade nasi lemak business. It is a make upon order business to make sure that the nasi lemak will be freshly cooked. When an order of 100 packed of nasi lemak comes in, Makcik Kiah might not have the Ringgit to buy for the required ingredients. It is unwise to borrow from others. What do you think is the best option for Makcik Kiah?

The best thing that she can do is to take a deposit from the customer. Maybe around 50% upon confirmation. That way, Makcik Kiah will have enough Ringgit to pay for the ingredients.

Another advantage of this is actually to get the commitment from the customer. Imagine if Makcik Kiah pay for the ingredients and once the nasi lemak are made, the customer have a change of heart. He didn't honour his part of the deal. When this happened, Makcik Kiah will have 100 packs of nasi lemak that no one wants. She can still sell it somewhere but it needs to be cheap so that people will buy. The unsold nasi lemak will be considered a loss in the business.

With the advance payment, the chance of default by the customer will be much lower. Even when the customer defaulted, Makcik Kiah still has the advance payment to cover for the ingredients.

It is also very important for us to keep our end of the deal. Else, the customer may make a police report, and we will land into a bad situation.

If you have not read the rest of the Side Hustle Series, you can check out Part 1 here and Part 2 here.

The simple maths to achieve Financial Independence.

Financial independence is where your stash of Ringgit is able to provide you with enough Ringgit to pay for all your expenses without the need for you to work at all (unless you want to). The stash of Ringgit would usually be invested somewhere with a minimum return of at least 4%  (the higher, the better).

For you to be able to achieve financial independence, there is only 1 factor only. And the factor is (drum rolling), your savings rate, as in the percentage of your take-home pay.

WHAT? WHAT IS THAT?

To put it simply, it is how much of the pay that you are saving.

For example, if your salary is RM 36,000 per year and after all the expenses are being deducted, you still have RM 3,600, then your savings rate is 10%. If you still have RM 18,000 after all the expenses, then your savings rate is 50%.

To find out how long would it takes to achieve financial independence, we would have to make some assumptions to proceed.

• Assumption 1 - You can earn a 5% investment return after inflation during the savings years.
• Assumption 2 - You will live within the 4% safe withdrawal rate after retirement.
• Assumption 3 - You will want your stash of Ringgit to last forever.
• Assumption 4 - Your net worth is RM 0.

Below is how many years you would have to work until you achieve financial independence according to the different savings rates. 

As you can see, if you can increase your savings rate, you would be able to achieve financial independence faster. 

So, how do you increase your savings rate?

There are two factors:

1. Increase your income.
2. Reduce your expenses.

While both of the above are important, you can start working on increasing your savings rate by cutting down on your expenses. Tracking down all your monthly expenses would give an idea of how much is your expenses (and how much you are saving at the moment). Look into your expenses and think of how you can reduce it. The more common methods are changing mobile phone plan to a cheaper one, eat at home instead of eating out, cut subscriptions that you don't use often (gym, Astro, Netflix), and take public transport if possible. The reason is simple to start reducing your expenses because of its double effect:

1. Increase the amount of money you can save.
2. Reduce the amount that you need every month for the rest of your life.

With this, you would be able to achieve financial independence faster!