#2 Protect What You Cannot Afford to Lose

This is the #2 posting of a 10 part series about the Road to Financial Freedom. In the last posting, we discussed that the greatest mistake in one's journey towards financial freedom is the lack of planning. In this post, we will see that protection or insurance also plays an important part in our road to financial freedom.

Why insurance? Because life can throw unexpected events at us that might cause a huge dent in our bank accounts. Imagine the medical cost of staying in the intesive care unit for 1 month. Or just imagine having to pay the costs for cancer treatment. As much as we will like to think that our bank accounts would have sufficient money to pay for these unexpected events, it is unlikely so as these bills can sometimes run up to 5 digits or 6 digits!

So the most important thing one can do is to set aside a small portion of their income (hopefully much less than 20%) to buy some insurance that will give protection for death, disability, critical illness, personal accident and hospitalisation bills. This will ensure that should anything unexpected occur in the future, the huge costs will not affect whatever good work you have done so far in your road to financial freedom. Essentially, we insure ourselves for risks or costs that we cannot afford to lose.

So yes, savings and investment are the "sexy" things that people like to talk about when it comes to financial planning and the road to financial independence or freedom. But before we start saving and invest, it might be worthwhile to relook at our protection portfolio and ensure that we are adequately covered before we make the next step to achieving our financial goals.

Moneytalk also has an article on why we should buy insurance. Click here to view it


The Road to Financial Freedom (Read the rest of the postings here)
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint

#1 The Greatest Mistake

Update Dec 2015: Just reposting some old blog posts that some might find useful

I have decided to write the next 10 postings about the Road to Financial Freedom.

Today's #1 posting is about THE GREATEST MISTAKE one can make in their journey towards financial freedom.

I believe that the greatest mistake on the road to financial freedom is the failure to plan. As the saying goes : " If you fail to plan, you plan to fail". Likewise in your journey to financial freedom, if you have no plan, you will most probably fail.

Too many people want to achieve financial freedom or just simply want to be rich or filthy rich. The problem is that they have no idea about what their financial goals are and whether they will ever reach it. As Stephen Covey will put it: Begin with the end in mind.

Before we begin our road to financial freedom, we need a goal to work towards. We basically need a financial plan that will show us :
(1) Where we want to be in the future financially (the end goal)
(2) Where we are currently (our current reality/situation)
(3) How are we going to get to our goal (the game plan)

The journey to financial freedom thus has to begin with a plan. And this financial freedom plan can only be crafted if you know where you want to be in the FUTURE, where you are NOW financially, and how you intend to work towards achieving your goals in the PRESENT moment.

For example:

I know that my financial freedom goal is to achieve a passive income of $2800 per month by the year 2022 (FUTURE). NOW, I am achieving slightly above $200 per month in passive income.
Since now is the year 2009, I have set the goal of achieving $400 per month in passive income by the end of this year. How I set out to achieve this goal is to reduce my expenditure and increase my sources of passive income. (This is what this Financial Freedom Blog is about afterall - to track my goal of attaining a passive income of $2800 per month)

Remember, a journey of a thousand miles begins with a single step....in the correct direction. Make sure you know what direction you want to head in first before saving and investing your money. Always have a plan in mind. This plan can change along the way but you must always stick to your plan and review it constantly.

Read the Entire Series:
1. The Greatest Mistake
2. Protect What You Cannot Afford to Lose
3. Spend Less Than You Earn
4. Spend Less Or Earn More
5. Buy Assets Not Liabilities
6. Read and Learn More
7. The Magic of Part Time
8. Health Equals Wealth
9. It's A Marathon, Not A Sprint
10. Congrats! You Have Achieved it.

Financial Freedom, Being Debt Free and Quitting My Job

Today, I asked myself 3 questions:

How long more do I need to achieve financial freedom?

When will I become debt free?

How long more must I work at my job?

After so many years of working, it seems that I am no where closer to my goal and dream of financial freedom (where my passive income will surpass my monthly expenditure).  I did a quick calculation and estimate my passive income to be slightly around $2800 per year.  That is much less than what I thought I would have achieved 3-4 years ago when I first started out on this journey.  It seems that I will still be taking a long time to reach my true goal of financial freedom. Over the years, my monthly expenditure has also crept up slightly.  This can only mean one thing:  I NEED TO WORK HARDER AT MY GOAL!

Being debt free of course is one of the things that I look forward to.  It simply means having more disposable income to play around with.  Of course, if you manage to borrow cheaply, it does not make sense to pay back the loans if you can get a higher rate of return compared to the interest you are paying on your debts.  However, I don't know...perhaps it is just psychological.  But being debt free is something that I hope to achieve.  Well, at least I mean clearing my bad debts (e.g. car loan).  Good debt is still welcomed.

Well, the last question that I asked myself is really related to the first 2 questions.  When I can quit my job is probably the day I am certain that I have attained financial freedom.  It is not that I hate my work or anything.  It is just that I feel I can be doing so much more with my life and time then having only remnants of my time to give to my family and friends.  

 I want to work for the rest of my life.  But I don't want to have to work for a living (a.k.a having a job). 

Time to get down to business.  

#10 - Congrats! You have Achieved it.

This is the #10 posting to the Road to Financial Freedom, a simple 10 step mini-series to get one started on the road to financial freedom.

This posting is actually the final posting on this topic.

Congrats! You have achieved it!

I know you have most probably heard it before but what begins in the mind most likely results into something that you see later on in your life.

I am not trying to be a motivational speaker or writer but I really see the point where they say that if you have a self defeating way of thinking, you most probably will not be able to accomplish anything great in life. Likewise, to achieve financial freedom, one needs to start on the correct footing and this correct footing begins with one's MIND.

As the common saying goes:

Your thoughts determine your actions.

Your actions determines your habits.

Your habits determines your character.

Your character determines your DESTINY.

To achieve financial freedom, one needs to have the correct mindset. You need to believe that your goal is achievable before you can achieve it.

Usain Bolt believes that he can run faster and that is why he is breaking world records. Likewise, you need to believe that you can achieve financial freedom when you are searching for it. As simple as that. Just do it. Nothing is impossible!

This brings an end to a simple 10 part mini series on what I think are the essential points to get you started on your own journey out of slavery from your job and money. I hoped that you have learnt something useful is this 10 part mini series.

To see all the postings, please see the links below:

The Road to Financial Freedom

#1 - The Greatest Mistake

#2 - Protect What You Cannot Afford to Lose

#3 - Spend Less Than You Earn

#4 - Spend Less Or Earn More

#5 - Buy Assets Not Liabilities

#6 - Read and Learn More

#7 - The Magic of Part Time

#8 - Health Equals Wealth

#9 - It's a Marathon, Not a Sprint

#10 - Congrats! You have Achieved it!

#9 - It's a Marathon Not A Sprint

This is the #9 posting to the Road to Financial Freedom, a simple 10 step mini-series to get one started on the road to financial freedom.

In the journey to financial freedom, one must realise that one is working basically towards a lifelong goal. This is not an instant rags to riches formula. Rather, it is a very slow marathon that one takes for his entire life. Just as we train for a marathon, we should make sure that in our own financial journey, we run the race like running that of a marathon instead of a 100m sprint.

Have the End Goal in Mind.

Just like running a marathon, you ought to have an end goal in mind. Do you aim to complete your race in 3 hrs , 4 hrs or 5 hrs? The time frame that you have set for yourself is important as it will determine how you subsequently pursue your goal. A person who aims to achieve financial freedom by age 30 will work very differently and use very different methods compared to one who only hopes to attain financial freedom by age 60.

Pace Yourself - Keep Track of Your Progress

Just like running a marathon, it does not really matter how fast you completed the first few kilometers. Most importantly is that you pace yourself such that you are running at a speed that will help you finish the race in your desired timing. Each turn of the route, you should know whether you are behind time or ahead of time; whether you can afford to speed up or slow down. Always pace yourself. It is okay to run a little slower if you know that you can make up for lost time later down the road.

Stop for the Water Points

You won't forget to hydrate yourself when it comes to running a race. Likewise in the journey to financial freedom, remember to reward yourself with treats and stuff. If you do not stop to enjoy and replenish yourself, you might find that you will have no more energy left for the rest of the race.

Lastly...

ENJOY THE RACE.
ENJOY THE VIEW.
IT IS THE PROCESS THAT COUNTS!


The Road to Financial Freedom (See The Other Postings Here)
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint

#8 - Health Equals Wealth

This is the #8 posting to the Road to Financial Freedom, a simple 10 step mini-series to get one started on the road to financial freedom.

Today's title should say it all: " Health = Wealth". Well, almost literally I would say based on experience.

A healthy person is more likely to be wealthy. Yes, I know that this can be too sweeping a statement. But it does not take one too long to figure out the benefits of health and how it can impact all aspects of your daily life like your work, finances, family time, etc.

This is really common sense actually but lots of people neglect their health once they start working. An unhealthy person basically is not able to work as well and as focused as a healthy person. Imagine having to go to work with a headache. Will you be able to work well? No!

Apart from this, a person who is unhealthy will more likely choke up more hospital bills in the future which will thus erode his wealth. Not to mention the amount of loss income and stuff. He or she will also not be able to enjoy life to its fullest.

The problem is that we take our health for granted. We only wait for symptoms to show up before we start taking action. Very often, our body already gives us warning signs that our health is deteriorating. Feeling tired all the time...getting sick more often....visiting the doctor more often...

I fell sick recently and this thought came to my mind. If there were 2 options laid in front of me: To be healthy and poor OR to be wealthy and sick, which would I choose?

I decided that health is perhaps more important than wealth. A rich man cannot buy back his ailing health with all the money he has. But a healthy man can still have a fighting chance to become wealthy. As they say: "He who has health has hope. And he who has hope has everything"

Health equals Wealth. Take care of your body and your body will in turn take care of you. In the road to financial freedom, make sure that you remain healthy so that you are able to enjoy the fruits of your labor. Visit the Health Promotion Board's website here and start living healthy today!

The Road to Financial Freedom
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint

#6 Read and Learn More

This is the #6 posting to the Road to Financial Freedom, a simple 10 step mini-series to get one started on the road to financial freedom. This posting stresses the importance of reading and learning more to improve one's financial knowledge.

READING AND LEARNING MORE

It is my personal belief that the road to financial freedom is also a journey of learning. One basically needs to improve his financial literacy or financial IQ as they put it. You need to read a lot and learn from others to be more financially saavy.

Some of these books might just be motivational, others might be practical in nature but I believe that each book that you read or each blog that you visit has some important lesson that could be useful to you in your road to financial freedom.

They don't necessarily expouse the same theories. Some of them actually conflict each other in terms of content but I guess it is always good to read from all sources and distill the essence of each book so that one becomes wiser.

Below are a list of books that I have found helpful in increasing my financial IQ.

1. Rich Dad, Poor Dad
2. The Richest Man in Babylon
3. Random Walk Down Wall Street
4. The Millionaire Next Door
5. Smart Financial Planning for Your Retirement
6. Common Stocks, Uncommon Profit
7. The Black Swan
8. The Four Pillars of Investing

So happy googling and reading. Keep up the thirst to improve your financial knowledge and try to sift out the good books from the bad books. But as an overall guide, just keep an open mind when it comes to something like financial planning/investment as even the experts usually do not agree with one another totally.

The Road to Financial Freedom
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint

#7 The Magic of Part Time

This is the #7 posting to the Road to Financial Freedom, a simple 10 step mini-series to get one started on the road to financial freedom. In this posting, we will discover what Jim Rohn would call " The Magic of Part Time".

Imagine this: Earning $1000 in extra income by doing some part time work. That could potentially change your life as well as your family's lifestyle. This is the magic of part time.

Working part time be it in investing your own money, giving tuition, coaching, or just writing a book has its benefits. It gives you extra income (an additional source of income) to grow your wealth. While others are banking on 1 source of income. You have effectively created 2 streams of income. One from a full time job, the other from a part time job.

Over time, it might even be possible that you will see the income from your part time job surpassing that of your full time job. Then the decision will come to whether you should just focus on your part time job and quit your full time job!

Some part time jobs that you could do are as follows:

1. Give Tuition
2. Baby Sit
3. Photography services
4. Blogging
5. Investing
6. Being a coach/personal trainer

Those listed above are just some examples. I am certain that you will most probably know whats the best job that will fit into your schedule on a part time basis. This is part of the road to financial freedom. Discovering the magic of part time. Many rich people did not focus on just their full time jobs. They branched out into "part time" jobs like writing books, selling motivational tapes, giving talks, building websites, etc.

Discover the magic of working part time now!

The Road to Financial Freedom
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint

#5 Buy Assets Not Liabilities

This is the #5 posting to the Road to Financial Freedom, a simple 10 step mini-series to get one started on the road to financial freedom.

This is a lesson that I learnt from the Rich Dad Poor Dad series which has helped changed the way I "spend" my money. The lesson is simply this. Buy assets not liabiliities.

To understand this, you first need to understand what is an Asset and what is a Liability as Robert Kiyosaki puts it.

An asset is simply something that puts money into your pocket and a liability is something that takes money out of your pocket.

A house which you stay in is thus a liability as it takes out money from your pocket whereas a house that you are renting out for a profit is an asset as it puts money into your pocket. Simple isn't it?

So the guide here is to always buy assets instead of liabilities.

Thinking of buying that car? Think again unless you are going to use that car to do goods transportation or something to earn a living.

The Road to Financial Freedom
#1 - The Greatest Mistake
#2 - Protect What You Cannot Afford to Lose
#3 - Spend Less Than You Earn
#4 - Spend Less Or Earn More
#5 - Buy Assets Not Liabilities
#6 - Read and Learn More
#7 - The Magic of Part Time
#8 - Health Equals Wealth
#9 - It's a Marathon, Not a Sprint

#4 Spend Less Or Earn More

This is posting #4 on my very own mini 10 part series about the Road to Financial Freedom.

You can read the previous postings here:

#1 - The Greatest Mistake

#2 - Protect what You Cannot Afford to Lose

#3 - Spend Less Than You Earn

This posting is actually a continuation to the previous posting on spending less than you earn.

Okay, so you have made it through thus far...you have created a financial plan, you have insured yourself against the various risks (death, disability, critical illness, hospitalisation bills, personal accident). Now is the time to figure out how you can actually spend less or earn more so that you will be able to set aside a reasonable amount of money each month for savings or investments.

What is a reasonable amount to be saving or investing each month? The answer is actually simple: It Depends.

Yes, it depends on when you plan to retire, what you intend to purchase in the future, etc.

But for an average person who hopes to retire by 60, I would like to think that saving 20% to 30% a month should hopefully suffice. I understand that many people would advocate saving just 10% but I think it might be stretching it a little to assume that by saving just 10% of your monthly income, you would have enough for your retirement years. Unless you put that 10% of savings into something which gives you consistent high returns over a long period of time, I think it is unlikely that 10% of savings while spending our remaining 90% of income will be sufficient.

Think of it this way, a average person works for an average of 40 years and expects to be in retirement for an average of 20 years. So you are working for 40 years to essentially fund your expenses for a total of 60 years.

What one must do then is to learn how to spend less of his income or earn more such that the percentage that he is spending is much smaller than the percentage he is saving.

SPEND LESS

A person can spend less by eating out less, watching less movies, shopping less, etc. There are so many ways to survive and actually enjoy life on a budget. Borrow a book instead of buying one. Rent a dvd instead of catching it in the cinemas. It is possible to be much happier when one spends less and saves more. The converse cannot said to be true. I am sure many people/bloggers have many other innovative ideas to share on how to save money or live on a budget so I will not dwell deep into the topic.

Another way that one can approach this issue of spending less is to list out all your monthly expenditures and see which you can reduce and which you cannot. Identify the necessities and your wants (luxury). Do you really need that high end internet speed? Do you really need the extra sports channel on your television? Do you really need to eat at a restaurant every weekend?

Earn More

Spending less is of course only one side of the equation. As one progresses through the various life stages, it is common for one's expenditure to increase in terms of absolute dollars. Likewise, we should look to increase the amount we earn. This could be attained through either active or passive income.

Active income involves income that you earn through your work or part time work. You should aim to increase your active income either by giving your best at work to get a better promtion opportunity.

Passive income involves income that comes to you without you doing anything actively. This could be through stock dividends, online affiliate programs, book royalty, etc.

CONCLUSION

To spend less or earn more, one will slowly be on the road to financial freedom. If one can spend less AND earn more at the same time, financial freedom should be within grasp.

#3 Spend Less Than You Earn

This is post #3 on the topic of the Road to Financial Freedom. It deals with spending less than you earn.

If you have missed out on the earlier postings you can view them here:

#1 The Greatest Mistake - If we fail to plan, we plan to fail. Always begin with the end in mind

#2 Protect What You Cannot Afford to lose - The importance of insurance

SPENDING LESS THAN YOU EARN

This is basically a common sense approach to financial freedom but to many people out there, it just seems that this concept is too basic. Huh? You mean that is it...spend less than I earn...bleah..give me something harder or more sophisticated.

Yet the truth lies that many people are actually spending way above what they earn. Some people are simply spending ALL the money they earn! The problem with spending too much money or all that you earn is this: You will have no money left for savings.

Yes, it is as simple as that. Before swiping your credit card again, think whether you can truly afford it if you were just paying for the item using cash alone.

Another principle that I like to use is to pay yourself first. Always set aside the money that you will like to save first before spending the rest. Never ever spend your money and save the rest!