Sunday, December 14, 2008

Investment, Speculation, Gambling

What are the differences between investments, speculations and gambling in the stock market?

In my opinion....

"I buy into that stock because I believe in its fundamentals. The price is also oversold."
"The technical indicators showed that the price has consolidated, and will be on a upward trend soon."
"I based my purchase on the price to earnings ratio and intrinsic value of the stock."

"I invest in that stock because I think the price will go up. It's intuition."
"Everyone tells me it will go up."
"I have a hunch I will be able to earn within a short time."

"I'm betting that it will go up."
"I don't understand why I'm buying, but I will sell it as soon as it goes up to make a profit."
"I watch the price everyday, hoping it will go up and let me make a quick profit."

An investor knows why he's buying, when he/she made a mistake in purchasing, and learned from the mistakes. Strategies are followed, and rules are set. There's no feelings or emotion for any stock. The company/stock does well, and the investor take it that his/her judgement is correct. But if the company/stock goes bad, the investor will learn from the bad decision, tweak his/her strategies for the better, and use the new strategies for the next investment. Investors thus improve over time.

A speculator or gambler knows little or nuts about what he/she is buying. When a mistake is made, he/she will think: "damn, should have bought at this price, and I would have earned." There are many what-ifs scenarios. The company/stock does well, and the speculator/gambler will give himself/herself a pat on the back and congratulates himself/herself for being "smart". But if the company/stock goes bad, the speculator/gambler will start blaming people he/she believes in, believe that it was just a stroke of bad luck, thinks that it will recover soon. He/she does not have any strategies to tweak, and would most likely not learn any lessons. The cycle usually continues on and on for them.

Friday, December 5, 2008

My thoughts on Passive Income

Why create passive income?
Creating a passive income source helps us leverage our earnings per unit time better. It also contributes an additional stream of income for us.

Passive income is generated when you are earning an income without having to do much work for it. There are a few types of passive income.

1) Private Business
If you own a business that you have setup to run completely on its own, or perhaps a piece of real estate that generates capital or rental returns, it is a good source of passive income.

2) Investments
Shares of companies that pay annual dividends (like Singapore Press Holdings), or shares of REITS, are sources of passive income.

Capital appreciation can also be considered a form of passive income, but until you sell the stocks and lock in your profits, the money is still not yours.

3) Fixed Deposits / Money Market Fund
Guaranteed zero risks low rates way to grow the numerical value of your money. You lose out to inflation.

4) Blogs
Placing advertisements or affliate marketing is a great way for blogs or websites to generate passive income. Wonderful examples include Yaro Starak and John Chow.

5) Intellectual Property
Write a book or an ebook. Everytime it is sold, you get paid. Great source of income that recurs even though you had only spent the time to write it just once.

For me, I have applied 2), 3), and 4) in my quest for financial freedom. An example would be my dividends coming from SPH (total of $760) this december, and looking at a possible 6~7% yearly dividend rate for my average purchase price in 2009.

I have quite an amount in Fixed Deposits and MMFs. Blogs wise, I have ExamWorld and WealthBuch, with ExamWorld earning a few bucks monthly at the moment.

I would love to have 5) in my portfolio as well, but what I would really really really want to have is number 1). Guess it's time to whip myself up further to generate some new ideas to startup for 1).

Monday, December 1, 2008

The diamond dust story

Got this story from here: http://www.sgforums.com/forums/2092/topics/338804
I find this story interesting, and hence share it here.

There was a story that happened back in the late 1990s, depicts of a young man who got hired as a maintenance worker (cleaner in short) in a diamond refinery factory in Japan. His daily job scope was to make sure, the factory was clean and free of dust before and after the factory closes.

Diamond refinery operations back in those days were still somewhat medieval; there were no machines, no proper cutting tools, everything from the unloading of raw diamond rocks to the crafting of diamonds where done by hand.

Because the factory was huge, everyday the young man would sweep for hours upon hours and carry tons of plastic black bags, filled with dirt and dust to throw into the nearby dumping container. But there was one evening he noticed that one of the bags he was about to throw into the container, had a small cut underneath and shinning dust was flowing out, in small gentle amounts on the ground.

Sensing an opportunity, the young man took one of the bag of dirt, home and started sifting through the dirt , painstakingly separating dirt from diamond dust. Eventually after 68 days of doing so, he managed to come out with a bag of diamond dust, that was eventually sold to a underground dealer. This resulted in a huge inflow of cash for him that was enough to get him through his university education.

So, what can we learn from this story?
(1) Opportunities are always present. We need to open our eyes to see it and take it. Do not let opportunities slip away when they come to you.
(2) Even when opportunities are present, hard work and discipline are still required.

Tuesday, November 25, 2008

How to be fit, lose weight, and keep it off -- Part 2

This is the part 2 of a series of my thoughts and knowledge on fat loss.
[Part 1, Part 2]


Diet plays the main role in any fitness program. The main belief is:

"A calorie is a calorie"

Which means no matter what you take, be it fats, carbohydrates or proteins, they will eventually be the same.

Well, it is both right and wrong. A calorie, by its simplest definition, is a unit of energy and is equivalent to 4.184 absolute J.

Our body metabolise fats, carbohydrates and proteins differently. The energy yield from a gram of fatty acids is approximately 9 kcal (39 kJ), compared to 4 kcal/g (17 kJ/g) for proteins and carbohydrates.

The composition of meals we eat is important:

An example of French Fries
French Fries are considered "poison" because they consists of mainly carbs and fats. Let us not consider the unhealthy trans-fat in French Fries yet.

When the carbs enter your body, insulin is released. However, a major effect of insulin on fat is it prevents you from burning it. Imagine eating french fries: the carbs enter your body -> insulin levels rise -> fats from french fries is prevented from burning and stored. Essentially, this is going to add lots of energy into your body without you realising it!

Adding protein into meal
Amino acids are the building blocks of muscles in our body. Without it, we cannot function. There are a few advantages of ensuring there are some protein in your everyday meal.

1. It helps you to recover from workouts.
2. The body uses more energy to digest protein.
3. Protein supposedly helps to slow down the rate of digestion of carbs, lowering the insulin spike after meals.

However, it is important to note that too much protein is also harmful. Urea is produced when excess protein is broken down into usable energy, giving more stress to the liver and kidneys. How much protein to take will depend on how much you have exercise, the nature, and the intensity of it.

Effects of fibre in meal
Roughage helps you in the following way:

1. Easier bowel movement.
2. Makes you feel fuller during meals.
3. Actually slows down your digestion, ensuring a more even release of energy from food
4. I have heard that it helps to reduce the amount of fats being absorbed by the body... Not so sure about it though.

The easiest way to get fibre is from vegetables, fruits and wholemeal bread.

Glycemic index
Not all carbohydrate foods are created equal, in fact they behave quite differently in our bodies. The glycemic index or GI describes this difference by ranking carbohydrates according to their effect on our blood glucose levels. Choosing low GI carbs - the ones that produce only small fluctuations in our blood glucose and insulin levels - is the secret to long-term health reducing your risk of heart disease and diabetes and is the key to sustainable weight loss.

What are the benefits of a low GI diet?

1. Low GI diets help people lose and control weight
2. Low GI diets increase the body's sensitivity to insulin
3. Low GI carbs improve diabetes control
4. Low GI carbs reduce the risk of heart disease
5. Low GI carbs reduce blood cholesterol levels
6. Low GI carbs can help you manage the symptoms of PCOS
7. Low GI carbs reduce hunger and keep you fuller for longer
8. Low GI carbs prolong physical endurance

Eating too much high GI food helps can be detrimental to the body, and this is especially so for obese or sedentary people. However, it is still worth to note that high GI carbs help re-fuel carbohydrate stores after an intensive exercise.

As we know, there are four types of fat: saturated fat, monounsaturated fat, polyunsaturated fat and trans fat. It is however unnecessary to go too deep into details.

Do we need fats in our diet?

Yes! Fats have many important roles to play in the body:

1. Fat is the main energy store in the body.
2. Fat deposits act as a cushion for vital organs and help to insulate the body.
3. Fat is a carrier for the fat-soluble vitamins A, D, E and K, and helps in their absorption by the body.
4. Fat is a source of essential fatty acids, such as omega-3, which cannot be made in the body and must be obtained through food sources.

Essential Fatty Acids
Essential fatty acids, or EFAs, are fatty acids that cannot be constructed within an organism from other components (generally all references are to humans) by any known chemical pathways; and therefore must be obtained from the diet. EFAs play a part in many metabolic processes, and there are evidences to suggest that low levels of essential fatty acids, or the wrong balance of types among the essential fatty acids, may be a factor in a number of illnesses.

They are classified into omega-3 (ω-3) and omega-6 (ω-6). Some of the food sources of ω-3 and ω-6 fatty acids are fish and shellfish, flaxseed (linseed), hemp oil, soya oil, canola (rapeseed) oil, chia seeds, pumpkin seeds, sunflower seeds, leafy vegetables, and walnuts.

Trans Fats
Trans fat raises LDL-cholesterol ("bad" cholesterol) and reduces HDL-cholesterol ("good" cholesterol) in the body. As a result, trans fat increases the risk of developing heart disease.

Our body does not require trans fat, so we should try to keep trans fat intake to a minimum.

The main sources of trans fat in our diet are pastries, cakes, cookies, biscuits, commercially deep-fried foods as well as products containing vegetable shortening and hydrogenated or partially hydrogenated oils. Do take note to consume less when indulging.

Saturday, November 22, 2008

How to be fit, lose weight, and keep it off -- Part 1

This is the part 1 of a series of my thoughts and knowledge on fat loss.
[Part 1, Part 2]

How to be fit, lose weight, and keep it off

The easiest way to lose the extra weight is.....
to Chop off a limb

okok just joking... Being fit, losing weight, and keeping the extra weight off requires a change of lifestyle. It is not achievable by short term slimming programs, slimming pills, or even short term dieting. To me, losing fats (not lean mass or muscle) is important in our quest for fitness and health.

One should not focus purely on losing weight. The simple reason is because weight loss can be both healthy and unhealthy. The way that you want to lose weight plays an important role in how long you can keep that extra flab off.

In this topic, I will attempt to write what I know and what I have gathered about being a healthier and fitter person. The following topics will be covered:

1. Diet
2. Exercise
3. Weight Loss Centres

These two areas to be focussed are common sense to everyone out there who aims to lose their flab. I would like to point out these two areas because there are a number of misconceptions about them. I wouldn't say I'm good in these areas, but I have read widely about them, and I would like to share my knowledge here. Please help point out any errors that I may have made... Thanks.

Thursday, November 13, 2008

How much should one invest?

Many newbie investors (including me at first) think that they should invest all of their savings (or almost all in my case). This is a mistake; it is not necessary true. To determine how much money you should invest, you must first determine how much you actually can afford to invest, and what your financial goals are.

In a previous post, I mentioned that one should invest with money one do not need in the near future. Take a look at how much money you can currently afford to invest. Make sure you don't cut yourself short when you lock your money into investments. It is important to have a few months worth of savings left to survive for a few months (in case you lose your job, or etc). This amount varies depending on your age. Of course, the younger you are, the smaller this amount.

Begin by planning your own finance. How much should remain as liquid as possible? How much can be used for long-term investments? How much of your income are you going to spend/save/invest every month? Every little things count. Investment portfolios are built over time, not overnight.

With a financial planner, you could/might plan your finances better. But, in my opinion, I would rather learn to be the financial planner of my own finances. Learning, to me, is additive. It's hard to find a financial planner who bothers more about your financial health than the commissions he/she will be getting. Just see the recent Lehmanns' Minibond saga.

In my case, I'm 25 years old. Putting aside $100 for transport a month, $600 for food, and probably $300 for misc stuff like hp bills, etc (I'm the type that has very little craving for anything hip or in fashion anyway), that's about $1000 a month. I stay with my parents, so no housing loan to settle. No car since I stay very near my workplace. So, together with $500 household contribution, my monthly expenses totaled up to around $1500. Let's be more generous with myself and round it up to $2000 a month. That would be $12k I need to have liquid or in fixed deposit, which can be easily withdrawn. Since I have more than that amount (accumulated from army and tuition assignments) in fixed deposits and money market funds, I have little worries investing the rest of my income.

No matter what, remember: Never ever borrow money to invest, and never ever use money that you have not set aside for investing. It is a deadly sin, a sin that could bankrupt you.

Monday, November 10, 2008

Why you should invest

Investing for retirement gets more and more important as time goes by. Yes, in Singapore, there's a safeguard against old age by the government named CPF. However, it is only sufficient for the bare essentials and should only be relied on as a last resort.

When is the best time to start investing for retirement? I would say, right now! The earlier you start, the better. Yes, I'm already thinking and planning for retirement at the present age of 25. That's because I don't want to wake up one day and discover that I have little cash/assets, and yet no longer have the ability the earn a steady income to support myself.

About a year ago, I was still putting money in fixed deposits at a rate of around 2% p.a. Happily, I thought my money was growing. How wrong I was! Inflation was at around 3%, and so I was losing money at a rate of around 1% p.a. to inflation! If I spend the money, I would have little left; yet if I save and put it into fixed deposits, I would still lose it to inflation.

This is where investing comes in. We invest for higher returns. Invest to match or beat the inflation rate. Invest for a comfortable retirement nest egg. Investing is a way of attaining the things that you want, such as a new home, a college education for your children, or expensive ‘toys.’

Of course, your financial goals will determine what type of investing you do. The final destination when we embark on investing is to create wealth and security. It is of utmost importance to remember that you will not always be able to earn an income; you will want to retire eventually.

An investment is a plan, a plan for the future, a plan for retirement, a plan to enjoy life and live it to the fullest. My plans and strategies have been discussed earlier; I invest in blue chips, and I invest my time in creating websites (virtual assets). It is a plan/strategy that should be refined, tweaked, and optimised as we go along.

Saturday, November 8, 2008

Multiple Streams of Income

We are living in a world where it is tough to get wealthy without having more than 1 stream of income. Most people thinks that it is least risky to get a full-time job, and slog for your company till you retire. But in fact, that is an extremely risky move! The current recession shows it: retrenchments are everywhere. There's no guarantees that you will be able to work till you retire at your current company.

Let me tell you a short story of my friend. He was working in Company A. Recently, he switched job (perhaps it seems like it has better prospects) and started working in Company B. One month after he started work (which is about 2 days ago), he received a letter of termination. He got retrenched due to company downsizing. Right now, he's busy sending out resumes and hoping someone will employ him, although not much hope is harboured given the current economic situation.

As conventional wisdom, risks can be spread out and reduced with diversification. Why not apply that same wisdom to our income streams as well?

For me, someone who was only 'enlightened' a few months back, this is my strategy:
  1. Full-time job
  2. Part-time tuition going to move to 'full-time' group tuition in the near future
  3. Dividend stocks like SPH and SingPost
  4. Blogs with adsense, in which I have now 2 blogs (including this)
  5. Fixed Deposits & Money Market Funds
  6. Just started with EmailCashPro as well
  7. On plans: Guide books to complement my tuition
(1), (2), (3), (4) and (5) are being done already.
(6) was just started 2 days ago.
(7) popped out as an idea during tuition, when students ask many questions in which I can explain and answer in ways different from those found in textbooks.

As life moves on, I try to think if I can come out with any other income sources in which me as a fresh grad (graduated June 08) can embark upon. Do you as well?

Friday, November 7, 2008

Simple and Brainless way of Investing

The current financial crisis has brought many economies down, along with their indexes. Dow Jones, S&P500, Nasdaq, Straits Times Index, Nikkei, Shanghai Composite Index, Bombay Sensex, Hang Seng Index, etc, you name it.

In particular, Straits Times Index (STI) has fallen from its high of 3900 to a current ~1800 situation, with expectations of 1500, 1200, or perhaps even lower. Many stocks are at a very low and attractive price. To invest and benefit from this recession, we should have a strategy.

As a newbie in the world of investing, and someone who has just graduated and started work just months ago, I wouldn't have much cash to invest in. My current strategy is thus a very conservative one.

My simple and brainless strategies:
  1. Buy and hold blue chip reasonably high-dividend stocks like SPH and SingPost.
  2. Buy STI ETF (Straits Times Index Exchange Traded Fund) when STI reaches 1200 and hold till STI reaches 3600.

Strategy 1
To me, SPH and SingPost are considered very 'safe' play. Reason?

SPH is the monopoly for local newspapers. It's also one of the main propaganda tools of the incumbent ruling party. It's long term trading price is around $4.40, and it is current trading at around $3.40. My average price is $3.905 at the moment, 4 lots.

SingPost is also the monopoly for local postage. Companies still have to send out financial reports by post (I just receive mine from SPH), we are still posting letters here and there. In any case, we still need to use SingPost's service. It's long term price is around $1+, and is currently trading at 78 cents.

These are two companies whose dividends are acceptably high (at least higher than fixed Ds), will likely still be around in the next 20 to 30 years, and are trading way below their long-term average price. The risks are near to zero in my opinion for these. My strategy would be to accumulate on these two as I earn more from my full-time job and part-time tuition.

Strategy 2
Economy goes in cycles, although on a long-term upward trend. It sort of follows a x sin x curve. At the moment, it is near the bottom of the curve, i.e. at a recession.

Previously, empirical statistics show that one cycle (between a boom to the next boom) lasts around 10 years. Recently, however, it seems like the cycle has shortened to around 5 years, perhaps due to the fact that we are living in the Information Age where news travel around the world in a matter of seconds. We can thus expect STI to crawl back to the 3000 level within a few years, before encountering the next recession.

With the above knowledge, it seems almost brainless that if we start to invest in STI ETF from 1200 and below, we will highly likely achieve a capital appreciation of at least 150% to 200% when STI reaches between 3000 to 3600. Suppose it takes 5 years (might be less) to reach that amount, we would have averaged off nearly 30~40% a year! This excludes the ~3% dividends we get from investing in this ETF.

What are the possible risks?
  1. If Singapore economy fails to recover, which would probably happen if the govt run out of funds to help steer it up, and in which case, fixed Ds cannot be 100% guaranteed anymore.
  2. If the issuer of the fund, StreetTracks, collapse, which to me is of extreme low probability.

It's time to be excited about making your dollars work for you, with minimal effort :D

Wednesday, November 5, 2008

Invest with money you can afford to lose... Really?

Sometimes I just wonder... Why do people keep saying invest with money you can afford to lose?

To me, I would see it as: invest with money you do not need in the near term (~5 years).

You see, when we approach with the mindset that we are investing with money we can afford to lose, we are already preparing ourselves to lose the money. Think about it... Is that really investing? Let us look at Warren Buffet's rules.

Rules of Warren Buffet
Rule Number 1: Do not lose money
Rule Number 2: Do not forget rule number 1

I would suggest that we approach monetary investments, not with the idea that this is money we can afford to lose, but rather, money that we can afford not to use in the near future. The thinking, the mindset, is different between these two. To me, there's no money I can afford to lose in the stock market; there's only money I do not need to use in the near future. But of course, this doesn't mean you will not lose money in the stock market.

Afterall, small-timers like me dabble in monetary investments to make money, not lose money.

Friday, October 24, 2008

What is investment?

According to Wikipedia, investment is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. Wiki went on to say that investment is the choice by the individual to risk his savings with the hope of gain.

According to dictionary.com, investment is

1. the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.
2. a particular instance or mode of investing.
3. a thing invested in, as a business, a quantity of shares of stock, etc.
4. something that is invested; sum invested.
5. the act or fact of investing or state of being invested, as with a garment.
6. a devoting, using, or giving of time, talent, emotional energy, etc., as for a purpose or to achieve something: His investment in the project included more time than he cared to remember.
7. Biology. any covering, coating, outer layer, or integument, as of an animal or vegetable.
8. the act of investing with a quality, attribute, etc.
9. investiture with an office, dignity, or right.
10. a siege or blockade; the surrounding of a place with military forces or works, as in besieging.
11. Also called investment compound. Metallurgy. a refractory material applied in a plastic state to a pattern to make a mold.
12. Archaic. a garment or vestment.

Clearly, there are many definitions of investment. So what exactly is investment. To some people, investments might be putting money into the stock market. To some others, the unit trusts, bonds, etc. To another person, an education is also an investment. Raising a kid might be an investment to some as well.

To me, investing is the act of sacrificing something in order to gain something else more worthwhile. It does not necessarily need to include money. Example: spending time to read self-improvement books for free from the library is a form of investment; I gain in getting more insights. Spending the effort to build such a blog/website is also investing; I gain in being able to gather, clarify and put together my thoughts.

Indeed, investment is important. To me, the bulk of investments should be on oneself; the returns are far greater than investing in any stocks, bonds, etc. Education, reading, learning on the job, etc, build upon life skills that may likely be used again and again in the future. This is sort of like a form of compounding; the database in you may grow in a constant rate, but if each piece of data gives you some form of returns at a constant rate as well, the total returns increases in an exponential rate. This is because the data that you possess continue to give you some sort of returns as you build up your personal database. Every piece of new data starts to give you rewards the moment you put it in, together with previous data that continue to provide the rewards.

Not sure if I explained the idea properly, but in short, invest in yourself, invest in building up a personal database. This will be on top of investing time on trading on the stock market (stock market plays are not called investing, but trading).

Tuesday, October 14, 2008

Random thoughts about wealth and money

Is this a world where money is scarce?
or is this a world where money is abundant?

Many people live in a world where they see money as a scarce resource, a precious material. But is money really scarce?

Looking at the ease how the recent financial meltdown wipes away trillions of USD, and yet there's still billions and billions of funds pouring in to bailout doomed institutions, we can easily conclude that, there's still an abundance of money in this world.

Yet, why do people still adopt the mindset that money is indeed hard to come about when so much is being thrown around here and there? I have no idea why. But living in a world of money scarcity, one will tend to adopt habits of living and managing money for a money-scarce world. The probability that this becomes a self-fulfilling prophecy thus becomes higher. A tiny mistake, a tiny setback, will then further reinforce the mindset that money indeed scarce. And with the self-justification, one will ....... be forever entrapped in this never-ending cycle.

Thus, I believe, to be wealthy, one have to adopt the mindset that there's an abundance of money around. And with that mindset, one's personal goals to achieve wealth will seem much more meaningful, much simpler, and more straightforward to achieve.

Of course, it doesn't mean it is sufficient to stop at having a personal goal to achieve wealth; hard work, much planning and great effort are still required. Merely having a goal without working towards it is like having a dream; nothing will result from it in the end.

Tuesday, October 7, 2008

What is wealth?

Adapted from Adam Khoo's email newsletter, with some of my own additional views and points.

Is a person's wealth is defined by how much he earns, by the clothes he wears, by the car he drives, by the amount he spends, by the house he lives in and by the way he lives? Obviously not!

Wealth is determined by a few factors.
1) Monthly expenditure
2) Monthly income
3) Liquid assets

Number 1 is pretty standard; it is how much you spend each month.

Number 3 is also pretty standard. Liquid assets is the amount of cash or cash equivalents you have. This can include stocks, bonds, money market fund & fixed deposits.

Number 2 is a bit larger. To me, monthly income consists of 2 portions
(a) Active income
(b) Passive income

(a) Active income is how much you earn by putting your effort into it. This includes your full-time job.

(b) Passive income is the income that you will continue to receive even after you stop working. This could include any advertising revenue from websites, interest, dividends, royalties and profits from a business.

So after all these definitions, what is wealth?

A person's wealth is actually defined by how long a period of time he/she can sustain their lifestyle if they stop working. The longer you can go on living your life without working another day, the wealthier you actually are.

An example. George holds a big post in a multi-national company and earns a $30,000 monthly salary. He lives a lavish
lifestyle that results in personal and household expenses a month of $27,000.

He hasn't really saved much over the years as he has spent any surplus on house improvements and other liabilities. Besides his full time job, he has no other sources of income. His liquid assets are just under $27,000.

On the other hand, Lily, another employee in the same multi-national company, earns a monthly salary of $5,000 a month. For 20 years, Lily saved 20% of her income and invested it in the right stocks and mutual funds that have given her average returns of 15% per year. Her liquid assets slowly build up to $1.3 million as time goes by. In addition, she spent her free time building up a home-based business that sells collectible items over the Internet, earning about $800 a month. She does not drive a fancy car nor spend lots on home improvements.

Let us now compare between Lily and George. Who is wealthier?

For George, if he stops working today, his liquid assets of $27000 can only pay for his current lifestyle for only a month. His wealth is thus one month.

For Lily, if she stops working today, with her $1.3 million in savings, and a monthly expenditure of $4k (80% of $5k), she would be able to survive 325 months (or 27 years)! This excludes her monthly passive income of $800.

Let's say, Lily puts her money into a fixed deposit of a pathetic 1.2% (given a bad recession), along with her monthly passive income of $800, she would be receving an average of $2100 a month. If the economy is good and fixed deposits give an interest of 4%, she would have about $5133 a month! So you can see, Lily can go on living quite comfortably for a very long time without working much again in her lifetime.

Can you see that wealth is not determined by how much you earn, but by how much you saved, how wisely you invested, and how much you spend? It is a factor of time, and not a factor of the absolute amount in dollars and cents.

Conclusion: Even with a middle class income, one can still be a millionaire if one has sufficient financial intelligence, discipline and patience to achieve it.

Four Levels of Wealth

This is an article I received from Adam Khoo which I think it is very informative.

There are basically four levels of wealth you must aim to attain.

Level 1: Financial Stability

The first level of wealth is known as financial stability. This is the most basic level of wealth that you must first attain.

You have achieved Financial Stability when:

1. You have accumulated enough liquid assets to cover your current expenses for a minimum of six months.

2. In addition, you have life and hospitalization insurance to protect you and/or your family's lifestyle should you be permanently disabled, unable to work or if you pass away suddenly.

When you have attained this first level, you will have the peace of mind that should any unexpected challenges befall you (like retrenchment, business failure, pay cut, death or disability), you and your family's lifestyle will not be compromised. Or worse, you
or your family will not slide into debt.

Once you have achieved this, you must then aim to achieve...

Level 2: Financial Security

You have achieved Financial Security when you have through the investment of time, money and ideas, accumulated a critical amount of Positive Cash Flow Assets that generate enough passive income to cover your MOST BASIC expenses.

In other words, when you reach this level, you can stop working and maintain a very basic lifestyle. It also means that if you continue working, all your active income can be channelled towards your investments and this will further compound your assets and increase your in-come streams.

Of course, we shouldn't be satisfied at being at this level. Once accomplished, you must then aim to go for...

Level 3: Financial Freedom

Many of us have heard of the dream of achieving financial freedom but what does it really mean?

Well, Financial Freedom is when you have through the investment of time, money and ideas, accumulated a critical amount of Positive Cash Flow Assets that generate enough passive income to sustain your CURRENT LIFESTYLE.

When you reach this level of Financial Freedom, you can choose to stop working and still maintain your current standard of living... indefinitely!

In reality, most people who achieve financial freedom love their work so much that they continue working not because they have to, but because they choose to.

Obviously, the more expenses you have now, the more luxurious and indulgent your standard of living, the longer it will take for you to achieve financial freedom.

So besides increasing your passive in-come, reducing your unnecessary/frivolous expenses will accelerate your way towards this fourth level. Finally, you must aim to achieve...

Level 4: Financial Abundance

So what is the ultimate level of wealth you can achieve? Financial Abundance is when you have through the investment of time, money and ideas, accumulated a critical amount of Positive Cash Flow Assets that generate enough passive income to sustain your DESIRED LIFESTYLE.

Your desired lifestyle is the amount of monthly expenses it will take for you to live the life of your dreams. This is totally subjective depending on the lifestyle that you desire.

If your desired lifestyle is to live in a 20,000 square-feet bungalow with a swimming pool, send your kids to the best schools and drive a Mercedes Benz S-Class, then you could be looking at a monthly lifestyle that'll cost a cool $50,000.

Of course the more luxurious your desired lifestyle, the longer it will take for you to achieve financial abundance.

The moment you reach the level of Financial Abundance, you will be able to choose to stop working and live your dream lifestyle indefinitely.

Again, most people who do reach this level usually love what they do so much that they keep on working for fun, channeling 100% of their active income towards charitable causes and further compounding their wealth.

With the right strategies and plans in place, you too will be able to achieve this ultimate level of wealth.

Wednesday, February 27, 2008

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