Saturday, November 27, 2010

Net Worth Calculation

Net worth is a measurement of how much you exactly have currently. You can use it to determine how rich or how poor a person at any point of time. To calculate your net worth, you just need to follow three simple steps.

Step 1: Total up everything that you owned including your savings in your bank.
For example:
• Your house (currently valued at $300,000)
• Your car (currently valued at $40,000)
• Your stocks (currently valued at $50,000)
• Your saving (currently at $20,000)
Total: $410,000

Step 2: Total up everything that you owed including all your loans.
For example:
• Your housing loan (currently at $200,000)
• Your car loan (currently at $30,000)
• Your credit card bill (currently at $10,000)
Total: $240,000

Step 3: To calculate your net worth, just use the total for step 1 and minus away the total for step 2.
Using the example for step 1 and 2:
Net worth = $410,000 - $240,000 = $170,000

Please note that the net worth calculation does not involve:
• Passive incomes that you will be getting from your assets
• Future interests that you will be paying for all your loans.

Saturday, November 20, 2010

Update on My Monthly Expenses

My Monthly Expenses:

I have done an update on my monthly expenses today. It has gone up by $200, but not to my surprise. The increase is due to my utility bills which go up by $50, and I have catered $150 monthly for my toddler enrichment classes. I am expecting my expenses to go higher in the next few years as my toddler grows up.

Due to the increase in my monthly expenses, I have to generate a passive income of $3200 instead of $3000 in order to achieve my financial freedom. Even though the journey to my target has become further, but I will be still trying to achieve it.

Saturday, November 13, 2010

Don't Take Anything For Granted

I got the inspiration to write this post in the incident where my toddler refused to finish her food. I told her that she is very fortunate to have enough food to fill her stomach. I continued to let her know that many children in third world countries are suffering from hunger and lack of shelter. To prove my statement, I showed her some videos (from youtube.com) on children in third world countries. After that I asked her whether she want to go over to these third world countries since she refused to finish her food. She looked a bit scare as she was about to cry. She replied me with a no, and continued eating her food.

In life, we should not take anything granted especially our basic needs. In my opinion, one should feel blessed with hygienic food, clean water and air, a proper shelter, a job that provides you with enough income, and someone who loves you. One should not complain of not having other material needs like high tech gadgets, branded clothes or going for an expensive tour. I have come across some teenagers blaming their parents for not providing enough for their material needs. This make me feel very sad as these teenagers do not know what are their basic needs and the hard work their parents are putting to earn the money.

In my opinion, proper mindset must be instilled to one mind since young as it will hard to change when one has grown up. So I have begun to teach my toddler not to take thing for granted so that she can appreciate her current life more and will not compare herself with other for material needs.

Saturday, November 6, 2010

Different Levels of Personal Finance

I have come out with a simple diagram to illustrate different levels of personal finance.


Financial Status:
I am using the concept of hot air balloon as an analogy for personal financial status. The hot air (Active income and passive Incomes) is used to keep the balloon afloat, whereas the load (Expenses) is pulling down the balloon. As long as you have enough hot air in your balloons to carry your load, you will be at the independence level.

Internal Safely Net:
This safely net is built normally by yourself to cushion the effect of the fall when you do not have enough hot air to support your load. The fall may be caused by losing your full time job or you are not unable to work due to health problem. At this internal dependence level, you will need to depend on your insurances and savings to survive.

External Safely Net:
You will need to depend on the external safely net when your internal safely net is broken. At this external dependence level, you have no choice but to depend on other to survive.

Have you started your journey towards financial freedom?

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