Sunday, October 31, 2010

Financial Freedom - Our Goal

When I was invited to join the Rotary Club here in our area, little did I know that I will meet a person who I consider to be my mentor in life. I have been working since my college years, have ventured into small businesses over the years but I have yet to see my niche in life which will help me or guide me to my goal which is to be financially free by the time I retire. I read a few books which made me understand that I will never reach my goal as long as I am employed and thanks to Robert Kiyosaki's book of Rich Dad, Poor Dad, I think I have an idea how to reach my goals. The big problem is, how will I start or what will I do next?

According to Kiyosaki, people are grouped in 4 classes. Employed, self-employed, businessman/woman and investor. Majority of our population is unemployed (which was not included in this group) a big portion is employed, some are self-employed and business owners but only a few are investors. Judging by the groups, you can immediately see that financial free people belong to the business owners and investors. Why? Simply because they do not work for money but let their money work for them. How is this so? Unlike me, I earn when I work, which is my active income, these people earn through their passive income. Their money multiply by themselves and they live only by the interests of their investments, which are their passive income. It is no secret, the rich gets richer and the poor becomes poorer.

People do not get rich by how much they earn. They get rich by how much they save. No matter how much you earn, if your expenses are as much as your revenue or maybe higher that how much you make in a month, chances are, you will be broke in a month or two if you lose your job or your business. Saving takes so much discipline that only a few realizes its advantages. Regular people get their savings after their expenses which sometimes get zero amount because expenses are so high nowadays. My mentor told me that in order to have savings, here is the formula. Income - savings = expenses. One must get a fixed amount of savings in a month and the money left is for expenses. What if the money left is not enough for expenses? You should make ways to increase your income and not get anything from your savings. Once you discipline yourself to increase your savings and channel it to other ways to grow and multiply, then there you are, you are on your first step to reaching your goals.

Once you accumulate savings will they automatically make you rich? If you have a million in time deposit, will that make you rich? Another no. Time deposit usually gives you 2.5-4% annual interest, so your 1 million will earn 40,000 in a year, break it into 12 months and you get only 3333 in a month. That hardly supports a family of 3 or 4. How about 2 million in time deposit? 80,000 a year, 6,000 a month, still not enough. Probably 10 million in time deposit. Truth is, time deposit is just one tool, and there are a lot of tools out there which are better than time deposit. Some give you 5% annual, some 10% others even 40-50%. But, the higher the rewards, the more risk you are exposed to. How will you be able to handle these risks to gain more? Education. You need to study all these tools to maximize your income potential. Some say people get rich in stocks but a lot of them also loose big. It is really a risk, so if you just join the bandwagon of buying stocks just like everybody else, you will end up just like everybody else.

My mentor told me that in order to get rich, you must be involved in three aspects. Business, real estate and stocks. All of these require money, and not just little but big money. Unfortunately I only tried one aspect-business, and was not successful. But, I am not giving up. I have much to learn and have much to gain. In order to gain wealth, a person should have 2 things, discipline and time. During my youth I have lots of time but no discipline. As I grow older, I have discipline but only little time. But it is not too late. I have 5 years to reach 40 and 15 years to reach 50. If everything goes well, my target is to retire by the age of 55 to enjoy everything that I have worked for. So, that's it, my goal is to be financially free by the age of 55 and the more money I have, the more I can share and give to others and the more quality I can spend to my wife and children.

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