Who’s richer? Siapa lagi kaya? Part 2
Part 1 is located here.
Now, consider this:
You earn a salary of $10,000 per month and your expenses amount to $9,900 per month. You live an extravagant lifestyle, accompanying yourself with a the latest gadgets and machines, expensive cars, and etc.
Your friend earns a salary of $2,000 per month and his expenses amount to $1,500 per month. He lives a modest lifestyle.
Assume also that other things remain constant (ceteris paribus).
Now, the big question. Who’s better off?
Filed under Rationale of Investing | Comments (2)Who’s richer? Siapa lagi kaya? Part 1
Here’s something to think about.
Consider this:
You own a one-billion-dollar asset, fully financed by the bank. i.e. you took a loan of $1 billion, thus owing $1 billion.
The homeless person you usually see on the streets has no assets at all and has no debts.
Assume also that other things remain constant (ceteris paribus).
Now, the question is, who’s richer?
Filed under Rationale of Investing | Comments (14)What is more important to you? Money or Family & Friends?
One of the most common questions posed to mankind is this:
“What is more important to you? Money, family and friends, religion, or life principles?”
So, what’s your answer? How do you rank these things in your life?
I’m sure the choice of most would be “Of course family and friends Nadlique!”
I read an article in Australia’s Money Magazine February 2008 edition a few days ago that totally changed my perspective. If you ask me now, quoting from Roger Corbett (Woolworth’s former CEO and current director of Reserve Bank of Australia), I would say:
“I don’t think of ranking these things. They are all integral parts of what makes up life for you, and they are all important. They’re like legs to a table. You need all four.”
Filed under Rationale of Investing | Comments (4)Journey Towards Financial Freedom: Food for Thought
Think about this for a second.
Whenever we talk about investing our money, there’ll always be excuses. There’ll be talks about the need of being careful. There’ll also be talks about investing only the money you can afford to lose. In fact, there’s even this fellow blogger of mine who has a friend that when confronted with the idea of investing, the friend said “I’ll just wait when I’m rich“. Imagine that! Wait to invest only after we’re rich. The only way that’ll happen is perhaps through inheritance or maybe lottery? There goes the hope of wealth for the majority of the world’s population. Basically, there’ll 1001 excuses of not wanting to invest (or save money for that matter). The image we project is that, investment is a dangerous thing and a sure way to waste your money.
On the other hand, when it comes to other things in life, mainly luxuries and WANTS, it seems like, making those sort of decisions are much easier. Be it buying the biggest plasma screens, the latest mobile phones, the latest cars, the latest designer clothes, and etc. There are no talks that these sort of things being depreciable assets that give you no returns whatsoever.
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Passive Income Exceeding Expenses
In my previous post, I explained that to have financial freedom is to match your passive income with your expenses.
However, it’s important to remember that often, this is not sufficient.
Why?
Well, imagine if you have $10,000 per month of passive income and $10,000 per month of expenses. Yes, this is financial freedom. You are now able to retire comfortably, spending time with your family and doing the things you love most. You no longer have to work for money. You let money work for you.
However, having passive income level that EXCEEDS (not only match) your expenses do have its own merits.
Filed under Rationale of Investing | Comments (5)What is Financial Freedom
To break the confusion, I think I need to write a post about the concept of financial freedom. I’ll try to provide explanations based on my understanding and my definitions of financial freedom.
First of all, let’s define Wealth, Rich, and Financial Freedom:
Financial Freedom (My Definition)
Deriving income from your assets (investments or business or both) that exceed your total expenses. These income is called PASSIVE INCOME.
Rich (Dictionary.com)
…having wealth or great possessions; abundantly supplied with resources, means, or funds; wealthy: a rich man; a rich nation.
Wealth (Merriam-Webster.com)
…abundance of valuable material possessions or resources.
So, for now, fair to say, rich and wealth is the same thing? Ok, definitions out of the way.
Also, one important thing to note is that to me, the terms rich, wealth, and financial freedom are interchangeable. Continue reading on why this is so.
Filed under Rationale of Investing | Comments (6)Why Not Everyone Can be Wealthy
I hope most of you have read my article “Why everyone should be wealthy“. This particular post is pretty much related to that one.
Before I continue, let me say that a lot of the issues I was going to cover in this post has actually been covered in the COMMENTS section of “why everyone should be wealthy.” So, I’m going to touch just a little bit on this issue.
Let me say that my definition of being wealty, rich, is actually achieving financial freedom. To me, financial freedom, wealth, rich, is interchangeable. Also, do understand that the meaning of financial freedom is rather subjective. It is up to the individual to interpret the meaning. One can claim to be financially free by having a passive income of $1000 per month while another can’t regard himself as being financially free even though he gets $100,000 of passive income per month. Also, having 50 billion dollars passive income per month but spending 100 billion dollars per month does not constitute as financially free to me.
Whatever it is, it is great to have “everybody” working towards a common goal of financial freedom. However, realistically this is not achievable. In fact, it should not be achieved in full scale. Here’s why:
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Lessons from Cashflow 101 Game
Have you ever heard of a game called Cashflow 101? If no, it’s a board game invented by Robert Kiyosaki. If you have heard of it, have you played the game before?
Basically, the game has two stages. The first stage is the “rat race” and the second stage is the “fast track.” In the rat race, you’re supposed to accummulate assets/investments and gain a total passive income to match you expenses. Once you have achieved this, you’re out of the rat rate and move on to the fast track. You either win the game by purchasing your dream or by further accummulating assets/investments in the fast track so that your passive income reached a certain target.
What do I think about this game? I think it’s fabulous. It is inaccurate in terms of reflecting what actually happens in real life but the basic principles of the game are pretty accurate. I learnt a lot from this game.
Filed under Rationale of Investing | Comments (14)Why Everyone Should be Wealthy
A good friend of mine posted this up on her blog and I thought, I should comment a bit on this. Not as a disagreement to her ideas but rather, to express my point of view. By the way, if she reads this blog, don’t get angry yah? Just want to promote a healthy debate. Here’s the excerpt from her blog:
“…..We saw a table of rich peeps having their meal. There was a bodyguard, sitting a few tables away (near the entrance) and he was wearing this black uniform. Another bodyguard stood outside the cafe. Man! They were a pair of fierce looking duo. Scary looking Malay men! Then #### and I were both wondering, why make life like this? Why make life so difficult? Well, it might seem to be very high class to have bodyguards tagging along behind ya but hey! That simply means that you’re rich and that you’re afraid that people might rob you anytime. A worried and stressful lifestyle. For what huh? I don’t know. You can have all the money in the world but yet, you’re worried. You might think that I have a simple mind but yeah! I prefer a simple lifestyle with a just-enough-to-spend financial status. Just my opinion. Something to ponder about. What is your choice? Or do you really have a choice? Some people are born to be rich while some are born to be average. Unless you earn it by yourself. Climb up that ladder and earn yourself a status. People said that if you want something, you have to sacrifice some other things. My opinion? Family has always been on top of my priority list and it will always be. Spending quality time with family is good enough for me. I’m simple. And that makes me me. FYI, I’m a very family-oriented person. *winks*”
Referring to above, yes it is cool having a couple of Men-in-Blacks following you around. With the sunglasses, earpiece and a stonecold face. Hehe. Nah, just kidding :)
Alright, let’s get serious.
A lot of people have chosen to better themselves and work on becoming wealthy not for the purpose of achieving the high-class status per se. Yes, they want to better their lifestyle, enjoying what the world has got to offer but I dare say that this is not their main objective. Look at Warren Buffett for example. For those who does not know who he is, well, he is arguably the most famous value investors of all time. Warren Buffett, being the second richest man on earth, is still living in a house he bought in 1958 for $31,500. He doesn’t own many luxury cars at all. He also does his own taxes. You see, it doesn’t mean that you can’t live a simple life when you’re rich. Being rich just gives you more options.
Filed under Rationale of Investing | Comments (9)Do you think you’re lucky?
Luck. We come across that particular word pretty much on a daily basis. You missed the bus today. Bad luck. You found a $100 note this morning. Good luck. You stepped on dog poo today. Bad luck. The girl you liked for so long finally starts to notice you. Woohoo! Very good luck indeed.
So, is there a correlation between luck and your wealth-creating efforts? If you ask me, I’d say nope. You could be the luckiest person in the world and you would suck at investing. You could be the UNLUCKIEST person in the world but with proper planning, you can do pretty darn well at investing. There, I said it. I believe that when it comes to investing, luck doesn’t really have a say in it. It all comes down to how well you plan for it.
If you decide to invest in something, plan, plan, plan. Make plans on how you’d enter the investment and how you’d exit. Make contingency plans for those “rainy days” as well. Make sure that you have reasons for your decision to invest in something. Don’t just pick something out of the haystack and hope for the best. It just doesn’t work that way. It might work for some, but I doubt it works for the majority of us.
If at the end of the day, you still rely on LUCK in your wealth-creating efforts, then I’m afraid you’re nothing more than a gambler.
(Photo courtesy of Wikipedia.com)
Filed under Rationale of Investing | Comment (0)When can I consider myself financially free? Part 1
Everybody knows that it’s great when comes the time when we don’t have to worry about money anymore. Everybody agrees that being financially free is awesome. One key question though. When can you consider yourself financially free? The answer to this question depends on the individual.
For some, 4,000 dollars per month is sufficient. Some would need 100,000 dollars every month. It really is up to the person.
To start your journey towards financial freedom, I believe that the fundamental question you need to answer first is “how much is enough?”
How do you solve this question? Firstly, project yourself to the future. In what sort of life do you see yourself in? Then work out a rough budget. Some questions to answer:
1.Think about where do you want to live. Will you be renting or buying.
2.How many children do you want. What is your plan for your children’s education.
3.How many times per year would you like to go for your holidays. 4.How often are you going to replace your car.
5.Think about other expenses as well: Food, Bills, Insurances, and etc.
6.Allowances for you and your family to just go out and splurge.
Inflation? What Inflation?
Investing your money is a rational thing to do. I’m sure most people will only look into how much returns can that investment vehicle provide them. One reality that people often overlooked is the effect of inflation.
What is inflation? Inflation is the increase of money supply in the economy without the increase of supply in goods and services which generally results into the increase of general price level. In other words, at what rate will the price increase annually. Take Malaysia for example. Right now, the inflation rate is around 2% if I’m not mistaken. What that means is that if a price of a good is RM100 this year, then next year it’ll increase to RM102.
As I have said before, when it comes to making investment decisions, inflation must be taken into account. The purchasing power of RM100 today is not the same as next year’s.
Generally, when you subtract inflation from the expected return of investments, you will get the real return.
Filed under Rationale of Investing | Comment (1)People’s Perception
I’ve noticed some pretty interesting things around me. Around me as in, the people around me.
Personally, I love the notion of being financially free, and sometimes, I do like to talk about investments, business, and the likes, publicly. Well, when I do talk about these things to people, their reactions astound me.
First of all, let me explain this. ‘Money matters’ is one of the most fundamental things in life, believe it or not. Since the day you were conceived till the day you die, money plays a big part in your life. Thus, ‘Money Matters’ should be categorised under life skills rather than a career choice.
Anyway, back to our topic, when I talk about these things, the reactions that I get from some people, well, actually most of them, would sound like, “of course you know this stuff, you’re doing a business degree”. It annoys me that these people don’t realise the importance of knowing how to manage money. You see, as I’ve mentioned, money management is a life skill, not a career choice. Hell, believe it or not, whatever that I learned from the lectures and tutorials in uni plays a really small part in my day to day investment and business decisions.
The Importance of Investments and Why You Should Start Early
Not many people realised the importance of investing. Not many people understand why they should do it, and how to go about doing it. I believe that investing is one of the most important thing in life a person should do. So, this post will discuss about why investing is important and why you should begin early.
In life, there are so much more important things than money. Point taken. However, you need to remember that money plays a big part in nearly every aspect of our life. The computer you are using right now, well, that requires money. The clothes that you’re wearing right now, requires money. Your tertiary education, also requires money. That’s why it is so important to understand about money itself and how to go about managing it.
“Succeed conquering money and you shall live a gratified life”
The main idea of this post is to project the importance of beginning early. A lot of people that I met or knew, don’t even bother about investments. People of my age or people older than me, a lot of them are the similar when it comes to investments. They have the mindset that, oh well, I still have a lot of time to deal with this matter. Now, I’m not generalising or anything. Plus I’m not saying everybody is like this. I’m just saying that a big proportion of people in our society has this mindset. I would like to, however, focus on people around my age. The youths.. They have so much time in their hands that if they use it properly, my God,
