Protect your health and have adequate insurance coverage

Make sure you protect your health and have enough insurance coverage before thinking of achieving financial freedom.

There is a saying, "If you have $1,000,000, your health is represented as the first digit '1'. So without the health, you are left with 6 zeros or simply nothing at all."

Health is the most important asset in your life. Without health, even you have all the money in the world, it will mean nothing. However I have seen people putting their work as their top priority. They normally work very late, have irregular meal hours and eat unhealthily. In my opinion, they are risking their health, and if happen that their health is gone, they are going to suffer for the rest of their lives.

Other than protecting your health, you must also buy adequate insurance for yourself and for your family. In life, we will not know what mishap may happen to us. Buying insurance is one way to protect you and your family financially in case something bad happen.

As for me, I am spending about S$5000 on insurance annually. Below is the list of Insurance Coverage for me and my family:
1) Loss of Life
2) Total & Perm Disability
3) Critical Illness
4) Hospital Reimbursement
5) Hospital Income per Day
6) Partial Disability
7) Medical Reimbursement
8) Weekly Indemnity

What is Rat Race?

Have you ever see a rat running in a wheel? No matter how fast the rat is running, it will still be at the same place. Rat race is a term used for an endless, self-defeating or pointless pursuit.

In financial, rat race is a term used to describe people who work endlessly with little reward or purpose. If you are working at least 8 hours per day in the company just to get a salary to pay your bill, you are more likely caught in the rat race.

Many people believe working for long hours and taking more stressful tasks will greatly increase their worth and their salary in their company. Many people will also do all sorts of thing politically in order to climb the corporate ladder. However many people always forget that they are still trading their time and health for money. Once their time or health is gone, do you think the company will still keep them? In the company point of view, do you think it is better to employ young, energetic staff with new ideas at a lower cost, or to keep old, unenergetic staff with old ideas at a higher cost?

In my opinion, it is important to get out of this rat race as soon as possible. It is because once you reach a certain age, it will be very hard to do that. In order to get out of this rat race, we must start focusing on how to make money work for us. We must learn how to do financial planning and start to save in order to accumulate capital. We must also learn how to invest in assets like properties and shares, generate passive income and create our own businesses. You may want to read other articles on this blog or my other blogs to learn more.

Keep learning and Increasing your Financial Knowledge

Do you wonder why people get wealthier and you are getting poorer. If you think it is luck, then you are prepared to be poor forever. However if you spend some time and find out how they get rich, you will know that it is more than pure luck.

Keep learning and expanding your financial knowledge is an important part in achieving financial freedom. It will help you in finding new ideas to build other sources of passive incomes.

For example in the past, I have completely zero knowledge of investing. But after two years of self studying and experimenting different tactics, I have created my own winning strategies and rules of investing. I have also learn to control my emotion better when my stock price goes up or goes down. Click the link here for my investment blog if you are interested in investing.

I have also studied many other things which allow me to create other streams of passive incomes. Currently I am studying how to setup online site for the purpose of selling things or providing services. I will be spending some time each day for me to read up and to build up this business. I believe it will take me at least 2 to 3 years to see any results. Whether it is successful or not is another thing, but at least I would not regret by not doing it.

Answers to Financial Questions

To simply answer the two questions, you can use a cash flow diagram to help you.

Question 1:

The question:
$920(in debt) + $40(you have left) = $960.
So where is the missing $40?
The answer:
In fact the question is using the wrong formula. You cannot add your total debt to cash flow. Debt is what you own people, and cash flow is what you have currently. To make thing clearer, let's say you use your remaining cash flow money of $40 to pay off part of the debt, the formula will be:
Total debt left = $920 - $40 = $880 which is equals to your expenses. This formula uses minus instead of plus.

Question 2:

The question:
$960(in debt) + $60(you have left) = $1020
Where does the extra $20 come from?

The answer:
Same as the previous question, wrong formula is used. You cannot add your total debt to cash flow. Debt is what you own people, and cash flow is what you have currently. To make thing clearer, let's say you use your remaining cash flow money of $60 to pay off part of the debt, the formula will be:
Total debt left = $960 - $60 = $900 which is equals to your expenses. This formula uses minus instead of plus.

Questions to test your financial IQ

Question 1:
You take a loan of $500 from friend A.
You take a loan of $500 from friend B.
You use the $1000 to buy a watch which cost $880.
You are left with $120.

You return $40 to friend A
You return $40 to friend B
You are left with $40

Your debt for friend A is $460
Your debt for friend B is $460.
Your total debt is $920.
$920(in debt) + $40(you have left) = $960
Where is the missing $40?

Question 2:
You take a loan of $500 from friend A.
You take a loan of $500 from friend B.
You use the $1000 to buy a watch which cost $900.
You are left with $100.

You return $20 to friend A
You return $20 to friend B
You are left with $60

Your debt for friend A is $480
Your debt for friend B is $480
Your total debt is $960

$960(in debt) + $60(you have left) = $1020
Where does the extra $20 come from?

Click here for answers.

Stop saying you are poor if you want to achieve financial freedom.

In the past I always using "poor sentences" such as:
1)I have no money.
2)I don’t think I have the money for it.
3)It is impossible for me to achieve it.
4)It never works on me.
5)People are just lucky to be rich.

One day, my wife was very angry and scolded me because I always say I have no money. She commented that I have been saving a lot more as compared to my other peers, so there is no reason why I have no money. After her scolding, I realised that I have a poor people mentality which will not make me wealthy. These "poor sentences" are commonly used by many poor or middle class people too. That is why many of these people including myself are not getting wealthier. Saying "poor words" too often will just stop one from thinking further on how to improve his or her financial status.

Ever since that day, I have stopped using these “poor sentences”. Instead I will say "rich sentences" like:
1)I am getting wealthier every day.
2)I am able to afford it.
3)I will find out how to achieve it.
4)It can work on other; it can also work on me.
5)People plan and build their wealth.

When I started to use “rich sentences”, my mind is opened up with new opportunities which enable me to build up my passive incomes slowly. Things that are impossible for me in the past are now mostly achievable. Hence I finally believe that having a rich mentality will definitely help to make one wealthier.

How much will you need to retire?

I have made a simple calculation on how much one will need to retire. I have made a few assumptions:
1) The inflation rate is fixed at 5%
2) The expenses are fixed and are adjusted based on the inflation rate.
3) Totally not working and no investment of any form.

The first column of the table shows the life span left in years. The second column starts with a expense of $2000 per month, third column starts at $3000 per month, fourth column start at $4000 per month and fifth column starts $5000 per month.

Based on the table,
If one has a life span of 10 years left and he spends about $2000 per month currently, he will need about $300k for retirement.

If one has a life span of 20 years left and he spends about $3000 per month currently, he will need about $1.2 million for retirement.

If one has a life span of 30 years left and he spends about $5000 per month currently, he will need about $4 million for retirement.

So do you think you have accumulated enough money for your retirement? If you have not started to spend for your retirement, my advice is to do it as soon as possible.

Why I wanted to achieve Financial Freedom?

I believe people have different reasons why they wanted to achieve financial freedom. I will state my three main reasons in this post so as to motivate myself to work harder towards it.

Reason 1: Tired of letting people to control my financial status.
I believe most of us are working full time. Your financial status is normally link to your pay. The increment of your pay is always not decided by you, but from someone above you. You may be very unsatisfied with the pay raise each year, but to survive you still have to continue working. Worst of all, you may be ask to leave once the company does not need you anymore. I want be financially free so that I can get out of the "Rat Race".

Reason 2: Tired of being look as an average people.
From school to working life, people always look at me as an average people. Even I have put in a lot of effort, people will just tell me that what I have done is just average. I believe in 80-20 rule, as I am someone who put in 80% of the effort to get only 20% of the reward. I want to be financially free so as no one can leverage on me for their gain.

Reason 3: I want to do more in my life besides just working for the sake of paying for my expenses.
To do that I have to be financially free, so that I can retire early to have more time to do something I like with my family.

Don't quit your full time job just to start your own business

In my opinion, quitting your full time job to start your own business is not a good idea. Starting a business is never easy and takes time to setup. In the start there will sure be a period of time that there is zero or little earning from your business.

So by quitting your full time job, you will not be able to have a stable income to sustain your living expenses. Once your saving is used up, you will be facing a difficult situation whereby you might be forced to stop your business halfway and start to look for job again.

The only reasons why you should quit your job to start your own business are:
1) You have obtained financial freedom by setting up stable passive incomes which are able to cover your living expenses.

2) You have inherited a huge sum of money which is able to support the whole of your life.

3) You already setup your own business and have a earning to support your living expenses.

So what to do if you have a great business idea and have a full time job?
My advice is:

1) Create a time table and put in some time each week to setup your business while keeping your full time job.

2) Setup other source of passive incomes to cover your living expenses

3) Find a few friends to join venture with you if you don’t have enough time to setup your business.

Journey towards Financial Freedom should be enjoyable

Journey towards financial freedom should be as enjoyable as possible. It is definitely not about saving every cents of money that you have or not spending any money for your enjoyment. It is also not about sacrificing your sleeping time or family life. If you feel stress up during the journey, I believe very soon you will be wear out and give up eventually.

Proper time management is very important especially when you have your own family and kids. It is important to communicate with your spouse about your plan. If your spouse is agreeable, he or she will definitely give you some time every week to execute your plan. And also do not focus too much on building your passive incomes during your office hour. It is because by doing so will definitely affect your job. In my post "80-20 Rule for allocating time in building up passive incomes", I have come out with my own time table to help me to manage time effectively.

You must also like your ways of building up your passive incomes. As it is going to be a routine or part of your life, doing something that you like will give you the motivation and energy to keep going. In this way, you can enjoy and be stress free on the journey towards financial freedom.

Singapore Dollar Fixed Deposit Comparison between Major Banks

I am comparing the fixed deposit interest rate for the three major banks in Singapore. Let's assume that I want to deposit $50000 for three years.

For DBS, the interest is 0.7% per year (need to put in at least 2 years instead of 3 years)
For UOB, the interest is 0.7% per year (need to put in at least 2 years instead of 3 years)
For OCBC, the interest is 0.8% per year (need to put in at least 3 years)

In this case, OCBC offers the highest rate as compared to DBS and UOB.

Let's say you have $50000 in the fixed deposit which offers 0.8% per year, in the end of 20 year, you will get $58638.20. So are you okay with the gain? Can the money grows faster when you invest the $50000? These are the questions that you should ask yourself before deciding to put your money into the fixed deposit.

Making your investment into a passive income

In the past, I don’t like the idea of investment. Maybe I watch too many dramas that show how investment can make people bankrupt. My first investment is in unit trust whereby my insurance agent has spent a lot of time changing my mindset that proper investment will not make people bankrupt. Since then, I started to learn more about investment by myself.

Many investment instruments are targeting for capital gains only. Capital Gains basically mean the profit that you earn when the price of your investment instruments increase. This type of investment can never be a source of passive income. It is because if the price never goes up, you are not gaining any money.

There are other investment instruments that give out dividends which I am more interested in. Dividends are part of company profits which are paid out to its share holders. For good companies, dividends are paid out consistently every year. The dividends can be as high as 10% depending on your purchase price. Of course there will be risk in losing money when the investment instrument price drops. I like this type of investment instrument as it can be a source of passive income.

I have another blog call "My Investment Portfolio in Singapore" which shows all my investment strategies including how I choose my shares, thing to avoid in the stock market and when I decide to buy or sell shares. If you are interested, feel free to visit it.

Plan for your retirement as early as possible.

In my last post “Why people don’t plan for their retirement”, I mentioned that there are people who either “Work and pay” or “Work and play” in Singapore. That is a vicious cycle in my opinion. The earlier you get out of this vicious cycle, the earlier you can plan for your retirement. So why should we plan for our retirement as early as possible?

I have drawn a simple table as shown above. I have put in three starting age to plan for retirement as 30, 40 and 50. I assume that there is a saving of S$12000 for every year, and all the saving will be used for investment with 5% return annually. I also assume 60 as the retirement age.

If you start at age 30, you will have about S$800k with about S$40k from the return of investment annually when you are age 60.

If you start at age 40, you will have about S$400k with about S$20k from the return of investment annually when you are age 60.

If you start at age 50, you will have about S$150k with about S$7.5k from the return of investment annually when you are age 60.

You can see clearly that the earlier you start to save and plan for your retirement, the better for you when you reach your retirement age. Best of all it only take S$1k per month to do it. So do you want to plan now if you haven’t started planning for your retirement?

Rent out your spare room to create your passive income

If you have any spare room in your house, why not consider renting it out so as to create yourself a passive income? In Singapore, one room can be rented out from $400 to $800 depending on the location and what are provided by the landlord.

Imagine that you are able to rent out your spare room for $550. Minus away the addition cost on utility bill due to additional tenant in your house, you should get around $500 per month or $6000 per year. This money can be saved up, invest in stocks, or even help you in term of monthly family expenses. If you are able to invest $6000 per year on quality stocks with high dividend, you should be able to get better return than just pure saving.

So why waste your spare room where you can create wealth from it? Of course, some of you might feel lack of privacy after renting out your room. So if that is a concern to you or your family, then don’t rent out any room of your house. In my opinion, that shouldn’t be not a concern to me. If there is any private thing that need to be done in the house, just lock up the room will do.

If you decide to rent out a room, make sure you do it legally. You always engage a housing agent to look for your legal tenant. If your location is good, the room will be occupied within a few days. That is from my own personal experience.

Lastly, the faster you rent out your spare room, the faster you create your passive income! So what you are waiting for?

A Zen Story for those who want to achieve financial freedom

Recently, I have shared my plan of achieving financial freedom with some people around me. However most of them don't seem to be very interested. I believe that most of the people are "too educated". They can do certain task very well for other but are not willing to try out new things to improve their own financial status. Perhaps, this story will explain why many people are not able to achieve financial freedom.

Once upon a time, there was a wise Zen master. Many people would come and ask him for enlightenment in the ways of Zen. One day, a general came to visit this Zen master. He said arrogantly and proudly to the master, “After fighting so many battles successfully, I really tired of it. So how can you enlighten my mind?” He began to laugh loudly while waiting for the master to reply.

The master slowly raised the teapot and began pouring tea into a cup. It was slowly filled up and the tea started to overflow onto the table. The general stopped his laugher as the tea began to drip onto his clothing. The general shouted, “Stop that, can’t you see it is full?”

The master stopped the pouring and smiled at the general, “You are like this cup of tea. It is full and cannot be filled up anymore. Come back to me when it is empty.”

The morale of this story is one must clear his or her opinions before learning new thing.

For those who want to achieve financial freedom, please remember to keep your mind open for any opportunities. Search for opportunities rather than waiting for the opportunities to come to you. And one more thing, "Less educated" sometime can be a good thing too.

Forget about achieving Financial Freedom if you do not have perseverance or refuse to learn

Perseverance means commitment, hard work, patience and endurance. That is the most important ingredient that you need in order to achieve financial freedom or in fact any thing in life. Those who give up easily can never have any achievement in their life.
Do you still remember how you learn to ride a bicycle? You will definitely get a fall in the first try. How about second and third try? You are most likely to fall again. Even if you try 10 to 20 times, you might just fall. But after each fall, you learn something important, and that is balancing. The most tries you make, the more you understand how to balance a bicycle. And suddenly at one moment you manage to ride the bicycle for a few seconds but still fall in the end. That is the moment that you feel some success. With more practice, very soon, you will be able to ride a bicycle for one, five and even ten minutes without falling. That is the point that you are feeling more confident. And eventually, you have learn how to ride a bicycle.

I can say that a lot of people simply refuse to learn something that is "uncommon" to them even thought these skills can help them greatly in their lives. Most people like to stick to the common thinking of the majority. They have all forgotten how to learn and be successful in their learning. Most of them may just give up after one or two tries, even though there is a chance to get some success in the third try. If you are those people who give up easily, you can stop visiting my blog as you can never achieve financial freedom.

Currently I am building up my passive income 4, and I will be giving myself one to two years to set up it. I have the perseverance in doing it and now I am able to "balance the bicycle for a few second" already. It is just a matter of time to achieve full success in it.

You may want to read the Jack and Jill story, to understand my point.

80-20 Rule for allocating time in building up passive incomes

I have set up my life time table as shown above. My total work time for my main job is 50 hours, and the time for building my passive income is 13 hours. Based on the total of 63 working hours per week, 80% will be used for my main job, and 20% will be used for building up my passive income. Somehow it matches nicely to the Pareto's Principle - The 80-20 Rule. The 80-20 Rule means that in 20% of anything is vital and 80 percent of anything is trivial. It is true that the time used for building up my passive income is more important than the time used for my main job.

The main purpose of setting my life time table is split my working time and family time so that I can take care of both my work and my family. The passive income time is currently used to slowly build up my passive income 4 and to find out what is my passive income 5. My passive income 4 is only 10% done up so I will be spending 10 hours per week in it. Recently I have some rough idea for my passive income 5, so I will be spending 3 hours per week to do some research on it. I wouldn’t feel tired by spending time for my passive income as I have 8 hours of sleep per day.

You can read my post on how much passive income I have achieved @ I have achieved one-half of my targeted passive income!!!

Never put all your time in one income stream

The phrase “Don't put all your eggs in one basket.” should be familiar to you. For financial planning, I would say “Never put all your time in one income stream”. It is because spending time only in one income stream will actually put you in a lot of financial risk. Let’s assume that your only income stream is from working as a full time employee in a company. If one day you are not able to work in the company due to some reasons, you are not going to get paid next month.

A lot of people is putting a lot of time in their main job or core business, but have neglected many other things that they can do to earn or make extra money. As the result when their one and only “basket” dropped on the floor, they are not able to know what to do next. Stress will start to surface as they have no other income source to depend on. Very often people are probably lack of ideas or lazy to find out what are other things that they can do to create another income stream for themselves.

My advice is never put all your time in one and only income streams. Try to understand yourself what you can do to create another income streams for yourself. For myself, I already have four income streams and trying to learn to create more.

Why people don't plan for retirement?

I have seen that many people around me do not have a retirement plan yet. They are simply too busy in doing their own thing and don't bother to think about it.

These people can be classified into two basic types:

1) Work and Pay
This type of people normally works very hard for their careers and they have a lot of financial commitment, like paying huge monthly installment for owning car and expensive property. It is very hard for them to save up money. And even there is any savings, they will just spend it on travel or other thing. Their common reason of not planning for retirement is they simply have no money or time to do so.

2) Work and Play
This type of people normally will spend a lot of time on playing games, watching TV or other entertainment after their work. They will not care too much what will happen next in their life. Their common reason of not planning for retirement is they thought that their savings and CPF are enough for their retirement in the future. I am guilty to be one of these people in the past. I used to play online games like MapleSea and DOTA for at least 20 hours a week.

It is only when my child is born three years ago then I realised that I have to be financially more responsible. Since then I have quitted my gaming habit and have started to have my own financial/retire planning. I am a super saver, so it is not difficult for me to start one.

So are you belong to any of the above two types? And have you started planning for retirement yet?

Everything in life is gambling!!!

Basically everything you do is a form of gambling whether you are young or old.

Studying:
You are gambling with your money and time by choosing the correct field to study that will guarantee you a job in the future. Wrong choice means losing your money and time.

Working:
You are gambling with your time and effort by betting that your company will appreciate your work, so that you will be rewarded fairly. Please note that your company will have 101 reasons to retrench you even though you have put in a lot of hard work for many years. If you are retrenched, it means you will lose your time, your pay and your effort. Sometimes it is very hard to find a similar job without a huge pay cut.

Doing business:
If you are doing business, you are gambling with your time and money. If your business failed, you will lose your money and time. If you will wasting more time thinking what to do next.

So is investment a form of gambling?
Yes of course, you are basically gambling with your time and money by betting on the right stocks. Wrong choice of stocks will just make you lose your money and time.

However, in my opinion, investment risk is not more than that of studying, working and doing business. If your stock happen to plunge, all you need to do is to hold your position. But studying in an obsolete field, being retrenched after working for many years, and failure in business will not allow you to hold in your current position.