Passive income is often considered a very important aspect of personal freedom and autonomy. An easy way to generate passive income is through dividend investing. However, while living off dividends is a great safety net to allow you to generate income without any work, there are two main problems, namely a lower capital gains and tax inefficiency.
An online ad has recently made me aware of BrickX, which offers Australians the opportunity to buy “bricks,” which represent fractional ownership of residential real estate.
In Australia, many people are convinced that property is a great investment, but I have always believed that shares are better. In the shares vs property argument, most people claim that property is safer than shares, but there is no proof for this. The safety of shares depends on the underlying business. Shares are nothing more than ownership of some business. For example, if you own Commonwealth Bank (CBA) shares you own a portion of the CBA business, which entitles you to a portion of its profits in the form of dividends. If you own enough CBA shares, you can wield enormous influence by e.g. voting in directors. The bottom line is that shares are only safe as the underlying business. Residential real estate is also a business, but that business is houses. If you created a company, use that company to buy a house, and then list that company on the stock exchange, the shares for that company should in theory be exactly the same as directly buying residential real estate taking into account any costs of listing the company or any economics of scale gained.
The launch of BrickX allows people to buy residential real estate in a similar manner to buying shares. The video below provides a perfect introduction to BrickX.
In my opinion, one of the main problems with residential real estate is that they provide very low yields, and a listing of the properties on BrickX clearly show this, with rental yields of around 1 to 3 percent.
Of course, someone could argue that even though rental yields are low, the historical growth of around 6 to 9 percent per year in capital gains is impressive. But it is not. For example, STW, an ASX200 ETF, has historically returned 9 percent per year over the last five years with dividend yield of 5 percent. Commonwealth Bank shares have returned 8 percent per year in capital gains with a whopping 7 percent dividend yield.
Not only are yield and capital gains better for shares, but there are huge tax advantages for shares versus property. The dividend yield of CBA and STW have franking credits baked in, allowing you to reduce taxes. Many people believe that property has an inherent advantage through negative gearing, but negative gearing is available via shares and ETFs as well. It is possible to negatively gear into the stock market. First-time buyers of property can get a first-home-owners grant, but property buyers must pay stamp duty. Those buying shares or ETFs do not pay any stamp duty. Furthermore, property buyers pay tens of thousands in real estate agent commissions as well as conveyancing. If you own an investment property you must pay land tax and capital gains tax. If you don’t own an investment property you don’t pay land tax or capital gains tax, but this doesn’t put you ahead because then your property becomes a PPR, which means you cannot rent it out, which is a loss. Not paying capital gains tax also doesn’t put you ahead compared to shares because shares can be sold in small amounts, which means that when you retire you can sell small amounts of shares so that any capital gains put you below the tax-free threshold, meaning you pay either nil or minimal CGT. Then there is the insurance costs, council rates, and general maintenance costs associated with property.
Bitcoin and cryptocurrency and blockchain in general present a once-in-a-lifetime opportunity to experience explosive wealth generation within an asset class that is set to not only disrupt the banking but also the legal sector.
Although investing in established asset classes are safer (e.g. stocks, bonds, and property) safer assets also have less potential for growth. It is unlikely you will make significant money in safe investments. Great wealth made quickly is normally achieved by ramping up risk significantly, e.g. through leverage or by shifting funds into risky areas, e.g. emerging and frontier countries as well as emerging and frontier technologies.
Blockchain is a frontier technology, a nascent market unburdened by excessive regulation or rent-seeking monopolistic entities. It will not be like this forever. We have already seen web, social media, and smartphone technologies becoming dominated by large companies that have laid in place the infrastructure upon which commerce in these areas operate, e.g. Google in web; Facebook in social media; and Google, Samsung, and Apple in smartphones. These three tech sectors of web, social media, and smartphones make up the bulk of the Nasdaq 100, an index that is now quite saturated.
One of the reasons why I don’t like being around people most of the time is because they tend to say things that trigger me. Maybe I am too sensitive. Most of the time people just say whatever is on their mind, and they quick jump from one superficial idea to another. Most of the time human interaction is just an attempt to say something for the sake of saying something, so perhaps I take things too seriously.
I live with my mother, and a few days ago, someone at work commented that I should not live with my mother because she will become a burden on me as she grows older. The reason why this comment triggered me is because there are many assumptions made, and it simply isn’t true. I didn’t get much of a chance to explain myself before the topic of conversation moved on, but days after this colleague made this trivial comment, I am still thinking about it, and my colleague may have forgotten all about it.
If I moved out from my mother’s house, she could still be a burden on me because technology connects us all, so even if I lived far away from my mother, she can still call or message me if she wants something from me.
However, suppose my mother and I lived in different cities. It would be more difficult for me to get to her, so she won’t be as much of a burden on me. Regardless, currently I don’t consider myself to be too close to my mother even though I live with her. I work quite often, and she also works as well, so we often do not see each other. My mother and father divorced a few years ago, so my mother learned from experience how important it is to be independent and to never trust or be dependent on anyone. Even on weekends I may be out somewhere, and she would be as well, so we rarely see each other. The only time we regularly see each other is at night when I get home from work and she cooks me dinner, and this is a tradition that seems to just happen all the time. She has always cooked dinner for me, and I never objected to it, so it keeps happening. In fact, my mother cooked dinner from my whole family, but over time everyone moved out. After the divorce, my father moved out, then my brothers moved out, and now she only cooks for me.
Even though my mother is in the habit of cooking dinner for me, this doesn’t happen all the time. For example, last night I had dinner with a colleague at work, so I came back at around nine at night, had a shower, and went to bed. This tradition of my mother cooking dinner for me seems to be the only habit that keeps us together. My grandmother on my father’s side used to wake up early and cook breakfast for me. I didn’t like it because there were days when I wanted to go to work earlier, so I just wanted to make my own breakfast or skip breakfast and just drink coffee, but my grandmother wanted to make breakfast for me. After the divorce that ripped through the family, my grandmother left the house to live with my father, and now I rarely see her. Most relationships are based on dependence and habit. When you are a child and you’re dependent on your parents, you are forced to interact with them, and they become familiar to you, so you bond to them. The same applies with work. You provide skills to your employers, and employers give you a salary, so you are mutually dependent, and over time there are colleagues at work you see all the time, and familiarity breeds trust and bonding. But as people become more independent, that dependency goes away, and as a result, bonds break.
Going back to the topic of my mother and her habit of cooking dinner for me, there are many in my family who jokingly talk about how I need my mother to cook for me (or I need a woman to cook for me), but I think many people say this because many people are traditional, and they believe in the traditional family. They want to believe that the woman’s role is to cook. This includes many traditional women. However, in my opinion, modern technology has made cooking irrelevant. You can easily eat out at restaurants, but even if you consider that to be expensive, it is not difficult to cook simple meals for yourself using e.g. a blender or microwave. For example, it is not hard to microwave or boil beans or to throw fruits and greens into a blender. To clean up, there is the dishwasher. There are many traditionalists out there (mostly women, based on my observation) who want to go back to the days of old when they stayed at home and engaged in low-skilled cooking and cleaning duties, and I think the allure of this is that woman don’t need to go out into the workplace to make money, and this is what drives anti-feminism among women. These women are simply selfish. I would consider myself to be a feminist man, and I encourage all women to get out into the world, work, invest, and become financially independent. They should resist the temptation to glamorize slavery.
My mother does not always cook dinner for me. There are times when I eat out, e.g. when I had a girlfriend a few years ago I spent a lot of time having dinner with her. If I wanted a cheap dinner, rather than eating out, I can bring meal replacement powders (e.g. Aussielent, Soylent, Huel, or Joylent) to work, and after work I can simply mix the powder with water and drink it as dinner. For added nutrition, I can come home and prepare a green smoothie using the blender. Because these foods are simple to make, I am not dependent on my mother for anything.
In the future, I intend to rent a one-bedroom apartment in or near the city because I am quite tired of commuting to and from work. I love to just be able to walk to work. Once I grow my dividends, my dividend income should cover the cost of renting an apartment in the city. As my dividends grow even more, I may be able to work part-time and use the spare time to work in a coworking space doing projects that I enjoy. With the proliferation of cryptocurrencies and blockchain technology, I suspect that a lot of business in the future will be done online and on the blockchain. It is a new frontier. Basically my plan is to transition gradually from living in the suburbs with my mother to living in the city and being self-reliant. I will also transition away from the traditional 9 to 5 job into more flexible work that gives me more control over what I do and with whom I work, and all this will be funded by dividend income. I recently performed a quick back-of-the-envelope calculation and found that I am investing about $70,000 per year, which is a lot. A considerable amount of this (about one-third of it) is going into my superannuation fund, which means I will not have access to it until I am very old) but about two-thirds of it is going into dividend-paying stocks or ETFs, so I expect my dividend income to gradually increase, which will improve my standard of living. I want to use my dividends to fund a more autonomous life with more freedom. I want to be free from my family and from my employer.
I expect freedom to come gradually. Most people have a date when they simply retire. There is a clear date, a line in time when they are no longer slaves but are free. I will have no such date. I believe that slavery is a continuum. On one end you have total freedom, i.e. no debt, good health, and living off enormous amounts of passive income. Then on the other end you have total slavery, e.g. shackled and in prison. Then there are degrees of slavery, and most people have quite a considerable degree of slavery imposed on them by their jobs, their family, their children, their mortgage and car loans, etc. For me, there is no retirement, just a gradual move from slavery to freedom.
As my dividend income increases, I will eat out more for dinner (or drink Aussielent) rather than go home and get my mother to cook. As my dividend income grows even more, I will sleep at home less. Rather than commute back home, I may hire places to sleep at night using Airbnb or I will rent apartments in the city for longer periods of time. The same applies for work. My intention is to reduce my hours so that I work part-time, or I may be more flexible, e.g. I may work at coworking spaces or at cafes. I may even ask my manager if I can work at overseas coworking spaces. This is good for me because I get away from the office, but it is also good for my employer because my desk is not being used, so there are cost savings. If technology is good enough, working remoting should not make me any less productive. This will be my main digital nomad plan, which is to do what I currently do at work but to gradually do it remotely as my dividend income and skills increase. As dividend income and skills increase, I have more bargaining power, and technology will improve over time, which should make remote work be easier. There is also a broader push by feminists for more flexible working arrangement because women want to spend more time looking after their family, so this could possibly benefit me.
Basically with higher dividends, I have more power so that I can shape my life the way I want my life to be. This has been the intention since the beginning. Living off dividends is my guiding philosophy in life because it gives me the freedom and power to do what I want. The basic idea is that you increase dividend income so that you get paid without needing to work, and at the same time you reduce all obligations, e.g. debt, marriage, and children. You minimize responsibility, obligation, and duty. By not putting any future obligation on yourself, you are free to do what you want. You are free to experiment with what makes you happy, and dividend income will allow you to experiment.
At the end of the day, my belief is that freedom depends on the direction of flow of obligation. When you hold stocks, ETFs, government bonds, etc, then there is an obligation for others to pay you money. There is a legal obligation for companies to pay you dividends. There is a legal obligation for the government to pay you interest because you are a bondholder. The flow of obligation is from others towards you. However, if you have debt, then the flow of obligation is reversed. For example, if you have credit card debt or a mortgage, you owe money to the bank. If you have obligations to family, friends, spouse, or children, that also imposes either a legal or social obligation from you to others.
The flow of obligation from you to others makes you a slave. The flow of obligation from others to you makes others your slave and increases your freedom. Freedom or autonomy is dependent on the flow of obligation. Manage the flow of obligation and you manage your freedom, and freedom is happiness.
My life is getting simpler, in my opinion. I don’t spend too much time socializing. I don’t spend too much time with friends or family, and I’m proud of that. When people asked me what I’d be doing over the weekend, I told them I would just be catching up on the reality TV show Australian Survivor. I love watching Survivor. I’ve watched every single US Survivor season, and now I’m watching the Australian ones as well.
There was a time as early as a few years ago when I felt like I needed to socialize, that I couldn’t stay home and watch Netflix. I had to be out with friends or get a girlfriend. Now I look down upon such behavior as superficial and wasteful. The problem wasn’t just that these activities are expensive. I would happily pay. The main problem is that people are either extremely boring or extremely vulgar. Humans are a despicable species. In my opinion, humans are unparalleled in their cruelty and evil. If I could flick a switch and destroy humanity, I would, but I would spare the non-human animals.
Among any group of people there is snobbery, greed, pettiness, and backstabbing. Anyone who is absent of these features is thoroughly boring, which leads me to believe that humans are inherently evil, and when they suppress their evil, they suppress their humanity, which ironically makes them as unappealing as they were when they didn’t suppress their evil.
The answer then is to just forget about people. I mostly just keep to myself now. Of course I go to work and cooperate with people, and I am a polite man, but I keep it to minimum. I won’t outright be rude to a coworker, but I’m not going to put any effort into relationships.
If life has taught me anything, it is that relationships are the worst part of life. I’ve been through so much that has opened my eyes to how bad people are. Being in a relationship and then going through a breakup is quite bad. Then I witnessed my parents divorce, and then I felt as if my father took advantage of me financially. I look around at people at work and I see only snobbery and greed. My mother just wants to use me so that someone can look after her in her old age. She doesn’t care about me at all. She just wants to use me like my father used me.
I dream of nothing more than to silently save a million dollars and then before I am forty, I will simply disappear. Where I will go is a mystery to me. Maybe I’ll go to another country. Maybe not. I’ve given up getting approval from others. I’ve spoken about my grand plans in the past and people made fun of me. They claim that it’s impossible to save up that much money. They shame me for not marrying, having children, and having a family. They make fun of me for living with my mother.
I’ve given up rationalizing or justifying myself to others. Why do I need the approval of others? I will keep everything to myself now. I save up silently. I even deny that I am doing anything. I purposely don’t know what my net worth is. When I am forty, when I should have well over $1 million in net worth, I will simply disappear. I will just do it. I need no approval from anyone. I will simply drop out of society and disappear, and I will live off dividends, as I always do. I will be completely alone, which means I will be completely free.
We live in a society that glorifies commitment. The label “commitment phobe” is a put-down. However, what is a commitment? Based on a nearby dictionary, it is “an engagement or obligation that restricts freedom of action.”
An engagement that restricts freedom of action? How is this a good thing? It is my belief then that commitment-phobia is not something we should be ashamed of. Rather, I am a commitment phobe by choice.
Happiness is an elusive goal for many, but many studies show that an important component of happiness is freedom or autonomy. This is why I believe that the formula for freedom is based on commitment or obligation. If you have less obligation, you have more freedom, and more freedom means more happiness.
However, as many people point out, you cannot be completely free of all commitment or obligation. For example, there are necessities like food, water, clothing and shelter. However, necessities are no longer an obligation if it is someone else’s obligation to provide these to you.
This is where passive income comes in. If you hold shares, bonds, etc. then it is the obligation of borrowers or corporations to pay you.
Hence freedom depends on how much obligation others have to you versus how much obligation you have to others. You want to increase the obligations others have to you and reduce the obligations you have to others.
Commitmentphilia permeates society
About a week ago, during a Saturday, I commuted into the city to have dinner with a work colleague named Paul. We went to an Indian restaurant where I ate yellow lentil dahl with roti and basmati rice. I mostly eat a vegan diet, but when going to Indian restaurants I give myself the freedom to eat some dairy because there supposedly a considerably amount of dairy products such as ghee in Indian food. Paul, on the other hand, kept telling me he was on a low-carb diet, so he ate lamb. It was strange because Paul is quite an obese man, yet he was lecturing me on how carbohydrates make people fat, and I am a fairly slim man. Anyway, I didn’t want to come across as a crazy animal rights activist, so I didn’t talk much about his diet. The topic of conversation quickly moved to how I live with my mother.
Paul lives in the city. He rents an apartment for himself and pays about A$2000 (US$1600) per month for it. Meanwhile, I live out in the suburbs in my mother’s house (my parents are divorced). I pay about half the bills, and I commute to the city for work.
Many people try to shame me for living with my parents, and Paul was no exception. His first argument against me living with my mother is that it would be hard to date women, and I quickly agreed with him on this. My previous dates did not go well, and I am sure that living with my mother did not help. However, I am well aware of this, I accept that women don’t like men who live with their parents, so the solution is to simply not date. I haven’t been on a date in about three years.
My friend then asked me if I would ever date ever or whether I was going to go MGTOW. I simply told him that I do not commit to anything. I am actually open to dating, but I’m not going to make it a priority in life because, based on experience, I find dating to be quite a hassle. I will not commit myself to dating. I also won’t commit myself to not dating.
Paul was perplexed. He expected me to commit to something. He expected me to have my future planned out. He expected me to be clear about whether I was going to date in the future or not, but my position is that if some perfect girl drops into my lap while I’m going about my life, that’s great, but otherwise I am happy being single.
Paul then asked me if I planned to live with my mother forever or if I planned to move out, and yet again I have to repeat to him the fact that I have not committed to anything. I live with my mother now simply because I don’t want to pay for accommodation. I don’t want to rent nor do I want to buy a house because I do not want to be a slave to the banks. It is a purely economic decision based on an assessment of costs and benefits. I have taken into consideration the shame and stigma of living with parents as well as the inconvenience of living with others, and I have weighed this against the money I’ll save by not renting or buying.
I haven’t committed to living with my mother. Currently it is an arrangement that I like. My mother does not micromanage me that much. There are some moments when she treats me like a child, but she has a job and she is out of the house quite often, so I do have autonomy, and I do have my own car, so I often drive off elsewhere, e.g. work, the library, shopping, etc. There are many moments when my mother has annoyed me so much that I simply drove off.
Currently I accept the arrangement, but that doesn’t mean that I plan to live with my mother forever, nor do I plan to move out. I simply have not committed to anything. There is no benefit in commitment. It is better to simply see how things go and adjust if the cost-benefit analysis tells you that you should. For example, if my mother were really annoying me, so much so that I could not avoid it, then I will just move out, and I can easily rent a cheap one-bedroom apartment somewhere for about A$1000 (US$800) per month. Not only that but if I needed accommodation suddenly, there is always Airbnb, and I have performed numerous searches, and there is plenty of A$30 (US$25) per night accommodation out there. There is simply no need to commit yourself to anything when you live off dividends and rent everything you need as and if you need it.
Paul and I then spoke about something else, but then the topic of conversation veered into financial independence. Paul knew that I wanted to save money by living with my mother, but he asked me why in the world I was saving up so much money. He accepted that saving up allows you to retire early, but according to him, he loves his job, and if he didn’t have anything to do then he would be bored, so he would rather work.
Once again, Paul was showing me how brainwashed he was into the cult of commitment. He has committed himself to working in the future, and this was something he was telling himself so that he can rationalize not saving up for the future. Just because you save up money so that you are financially independent and are capable of retiring early, it doesn’t mean you will. You may be a millionaire but you may decide to work anyway. Nevertheless, being a millionaire who decides to work even though he doesn’t need to is better than a broke man who decided to work because he must (and has an incentive, for the sake of his own self-esteem, to convince himself that he loves his job).
Suppose you are broke and you are convinced that you love your work, so you don’t bother to save. You live paycheck-to-paycheck. You may love your work, but in ten or twenty years, will you still love it? Will the passion stay? What if the organization restructures and you lose your job? What if you get a new manager or new coworkers whom you do not like? Just because you feel one way one day, it doesn’t mean you will feel the same way the next day. However, if you are financially independent but choose to work, you have the option to quit. You can quit to try another job, you can retire, or you can simply not work hard. This is my plan. As I save up more and more, I will not work as hard. I may work part-time. I may even ask my manager if I can work remotely. Otherwise, I may quit and simply do freelance work from coworking spaces around the world such as Hubud, Beachub, or Angkor Hub. In fact, my ultimate dream is to travel the world and work in coworking spaces. Saving up is a necessary part of this dream because I will need to convince my employer if I can work remotely from a foreign country, and if I have saved up enough money to retire, I will not be concerned about whether my employer accepts or rejects my offer.
After my dinner with Paul, when I was on the train back home, I realized just how ingrained commitment is in people’s minds. A man is expected to completely commit his future so that everything is set in stone. There is a standard template for how you should live life, and you’re expected to plan everything out and know exactly if you’re going to move out, who you’ll marry, etc.
But I argue that it is simply better to commit to not committing. You do not know what will befall you in the future. Everything changes, and it is better to give yourself the freedom and choice to adjust yourself as things change.
In the podcast Don’t Brag About Money, I speak about why it’s not a good idea to talk to others about how much money you have or make. The main reason is because it is dangerous. If someone knows you have considerable wealth, you have a target on your back. You will be under the microscope, and any mistake can lead to a frivolous lawsuit. In this podcast, I recommended that you be ignorant of your wealth. Choose an investment whose risk level you are comfortable with and simply stick to it. Focus on your savings rate, e.g. save up 80% of your salary, and then don’t think about it. This strategic ignorance means that others cannot figure out how much you have simply because you don’t know yourself.
The market is not something you can control. You cannot control the global economy. However, you can control how much you save, so focus on that, and let the global economy be.
Another reason why I think it is important to not think about your wealth or earnings from investments is because it can be stressful. Reading finance news all the time, talking about money, etc can fill you with anxiety and stress. Talking about money with friends and family is also stressful and can lead to envy and probing and unwanted questions.
If anyone talks to you about money, my opinion is to simply shrug and say you don’t know. You don’t keep track of anything. Your accountant handles everything.