Wednesday, September 10, 2014

How to spend on an overseas holiday but still have money?

In the current society we live in, everything requires money. Or maybe we should say almost everything requires money. Besides our daily necessities, as humans, we also desire to spend on luxuries such as an overseas holiday, eating out at restaurants, buying a car etc. We have heard of the need to save and save. But the truth is, we still need to spend and we want to spend on some enjoyments. Now, how do we spend on enjoyments but still have money after the indulgences?

An overseas holiday

An overseas holiday is what most of us will go for if we want some enjoyment. A holiday to Europe probably will cost you a few thousand dollars. Most of us will try to save up for a few months before going for an holiday. After spending that few thousand dollars on that holiday, we're back to square one. Our bank accounts are empty again.

Now, hear the good news. There's another way where we can spend on that holiday but our bank accounts will never be empty. This is probably what rich people practice which enable them to stay rich. The rich get richer and the poor get poorer.

I first read and heard of this method from Robert Kiyosaki's various book including his best selling book Rich Dad Poor Dad. It is a book which changed my mindset on money completely.

The 2 different approaches to spending for an overseas holiday

Savings for a holiday

Before going into the methodology that the rich practice, let's look at what most poor or middle class people do:

As we can see above, most will have a salary from their job and they will save and spend certain amounts. After they have saved enough, they will indulge in some enjoyments such as an overseas holiday. It will be hard for this person's savings to grow as after they spend on that holiday, their savings account is empty again.

Passive income for a holiday

The next person also has a salary and also saves and spend a certain amount. The difference now is this person uses his or her savings buy assets that generate income. This extra income generated from the assets bought can be used to supplement the indulgence on an enjoyment. In this case, we use the example of an overseas holiday again.  

The above person continues to use his savings to buy assets that generate income. If he does not use all of the extra income on the holiday, the extra income goes back to his savings and it continues to grow. With the extra savings, this person can buy even more assets which generate more income. The extra income which is generate can grow exponentially and this person may have free money for indulgence for the rest of his life. 

How to create passive income?

Passive income is a powerful concept. However, it is not taught to us in schools or in the corporate world. Most of us will only know we need to work hard, save money, spend below our means etc. But, somehow we do not like the idea of saving money just for the sake or saving money. There needs to be a purpose to saving money.

With the concept of passive income, saving money has a purpose. That purpose is to buy assets that generates income. When I want to go on an overseas holiday, I will seek to create passive income for that holiday. After enjoying the holiday, my savings is left untouched and the assets I bought continues to generate more income even after I went on that holiday. 

The assets that generate income can be from stocks, properties, business, intellectual property such as books or websites etc. Let's take the example of stocks. If you use $50,000 of your savings to buy good stocks which gives an estimate of 6-7% dividends on average, you'll get an extra $3000-$3500 a year in passive income. This amount should be sufficient for you to travel to some countries. The more money you have, the more passive income you can generate from stocks. 

There will be people who invest in properties and rent it out. They receive rental income which is also a form of passive income. Then there are also people who start their own business, create products, write books, start a website etc. All these will provide extra income for you. The key is to know where to focus on and find out the ways to do it. If you can do all, that will be even better as passive income will come from all different places. This is called multiple streams of income.  

The magic of passive income

Passive income is different from the active income we get from our salary. It simply means that even if we lose our jobs now, our passive income still remains while our active income stops. If we build it correctly, passive income can grow larger and larger until it replaces our active income. It takes awhile to build but it will be worth it.

The next time you think of having a holiday, think about how to create passive income for that trip. This is the first step to many great things ahead. You will be able to experience another realm of spending which is different from the traditional way of spending.

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Related Posts:
1. Income and expenditure update for the past one year plus
2. Being rich the easier way
3. How the rich manage their money that the poor and middle class do not - Part 1


  1. To take this a step further. Usually the 2 main expenditures of a holiday are: Accommodation and Flight.

    1. Try to know more friends overseas. I have been saving alot of money just by staying at my friend's home for my travels in the past 3 years :)

    2. Earn miles by signing up for free membership, and then once you accumulate enough go claim your free flight :)

    1. Hi aceirus,

      You good! I have to learn from you. haha.

      For me, i buy plane tickets only when there's a discount and for accommodation, there are online sites which allows us to compare and contrast for the best quality but cheapest stay. Too bad i don't have that many overseas friends.

  2. For my donations funding starting from 2015 l have just started a permanent stocks holdings. By doing so, it put my mind at ease should l lose my active income job one day but my donation activity continues.

    Your write up is a wonderful tips for those fearing of having not enough money to pursue their dream of yearly holidaying, buying a newly launch smartphone every year, etc etc

    1. Hi MH,

      Good job on your donations! Its very nice of you to prioritise donating money even if you lose your active income.

      I hope that through this article, people will be able to look at spending from a different angle. The good thing about this is passive income continues to flow in the next year even if we do not spend on it. And even if we spend again, our savings is still there and savings from our active income will continue to grow.

  3. Good summary. Yes passive income. Go for multiple streams and beware of the risks and rewards. First try the corporate ladder. If can climb, climb as high as you can. Second consider starting a business but high risk for high gains. Next, invest but need to ride the wave and catch the right part of the cycle. Be it stocks or properties, ride the wave and multiply your passive incomes. All the time, check your all round defence eg insurance, expenditure, good wife LOL, no vices, etc....and you will gain financial freedom and independence faster than others.

    1. Hi,

      Wah, good wife can check? Haha

      Most of us start by working for somebody else. Those who discover how to achieve financial freedom along the way will have a better head start. Discovering early is advantageous too.

  4. The best assets in our lives are our knowledge, health and mind.
    I always believe in investing in ourselves.

    SG Wealth Builder

    1. Hi Gerald,

      Yes investing in ourselves is the best investment we can make. It is for life!

  5. Hi SGYI!

    Great explanation on passive income! I have just finished reading that book and saw your post here :D

    However in my opinion, one should always reinvest their passive income back into their investment for further growth and avoid the mentality of using up these streams of extra income, especially if he is still young.
    Albert Einstein — 'Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.'

    Not saying that one should not spend it totally nor not go for any holidays, I believe the best way to leverage your spendings on overseas holidays are still to find good deals (such as recent Scoot's $0 tickets, current TigerAir $0.10 birthday sale tickets, etc.)!
    It's like a market of its own. There are seasons of the year when the flights to specific countries are the most affordable, and times when they are priced too unreasonably just because of surge of demand.
    Thus finding the best deals/packages/mileage promotions, would definitely be the better option compared to using passive income regardless! :)

    On top of that, going overseas in less peak periods will yield a much better experience most of the time (less stress from overcrowding, lesser queues everywhere, cheaper ticket/entrance fees)

    The problem is that this will never work for people with a extremely busy job that prevents them from taking vacation leaves anytime of the year.. But fair enough for most others I guess.

    The Independent Abecedarian

    1. Hi TIA,

      Hope you enjoyed the book rich dad poor dad. Yes we should reinvest the income if possible as it would grow our money even faster. But as you said, we can't totally not spend too.

      I believe in getting the best deals for travelling too. I went to Taiwan before on a $200 2 way air ticket. I've not seen this price since then.