Let us start the book with
important formulas for Personal Finance. I have thought about it and so far I
can only think of three clusters that are important.
Assets - Liabilities = Net Worth
Assets - Liabilites > 0 = Technically Rich
Assets - Liabilities < 0 = Technically Bankrupt
Income - Expenses > 0 = Surplus Cash
Income - Expenses = 0 = You Are In Trouble
Income - Expenses < 0 = You Are In Double Trouble
Passive Income - Expenses > 0 = Financial Freedom
Passive Income - Expenses < 0 = You Will Need To Work Till You Die
Assets - Liabilities < 0 = Technically Bankrupt
Income - Expenses > 0 = Surplus Cash
Income - Expenses = 0 = You Are In Trouble
Income - Expenses < 0 = You Are In Double Trouble
Passive Income - Expenses > 0 = Financial Freedom
Passive Income - Expenses < 0 = You Will Need To Work Till You Die
"Graduating" from
this book will not make you an accountant. It will just help make you be more
financial savvy in areas that matter to ordinary people.
Before I start explaining the formula above I want to introduce what I call the underlying success factors. If we are making a pizza, those will be the bread.
First is the concept of "karma" also known as "what goes around comes around". If you wish to attain Financial Freedom, you must pay your debts on time. Not earlier and definitely not late or never!
This is extremely important. If you cannot commit to that, nobody can help you because the universe will conspire against you. Why do I say that?
Before I start explaining the formula above I want to introduce what I call the underlying success factors. If we are making a pizza, those will be the bread.
First is the concept of "karma" also known as "what goes around comes around". If you wish to attain Financial Freedom, you must pay your debts on time. Not earlier and definitely not late or never!
This is extremely important. If you cannot commit to that, nobody can help you because the universe will conspire against you. Why do I say that?
Imagine you don't pay your
debts to your relative or friend. They will definitely talk bad about you.
Maybe not to your face but you will forever be branded as
"incapable/incompetent" at best or "not trustworthy/liar"
at worst. Let's say your relative or friend has good business or job
opportunities. Would they think of you? Do they even dare to recommend you?
If you don't pay your debts to your landlord you will be kicked out of the house and cursed for the next ten years or more depending on the memory of the landlord.
If you don't pay your debts to your landlord you will be kicked out of the house and cursed for the next ten years or more depending on the memory of the landlord.
If you don't pay the banks
they will make you a bankrupt or blacklist you.
If you don't pay your tax
and you happen to be lucky, Inland Revenue will just fine you. If not, off you
go to jail.
Whichever way you look at
it, you will lose. So please make sure you pay your debts on time even at the
expense of you not eating three times a day. It is that important.
Second and equally important is never waste food unnecessarily. You may think that this is a petty issue but if you do not have lackadaisical attitude towards food then chances are you will not waste electricity, water, fuel and other “small” things unnecessarily either.
Second and equally important is never waste food unnecessarily. You may think that this is a petty issue but if you do not have lackadaisical attitude towards food then chances are you will not waste electricity, water, fuel and other “small” things unnecessarily either.
In your quest to achieve
Financial Freedom, all these small things will amount to something over the
years. Furthermore all those resources are finite. So let us do our part to
preserve our blue planet.
“Good habits are as addictive as bad habits, and a lot more rewarding.” - Harvey MacKay
Third, nobody should live like a miser but not everybody are born with a silver spoon in one's mouth or a huge trust fund like Gossip Girls' characters. For real ordinary people, resource is limited.
“Good habits are as addictive as bad habits, and a lot more rewarding.” - Harvey MacKay
Third, nobody should live like a miser but not everybody are born with a silver spoon in one's mouth or a huge trust fund like Gossip Girls' characters. For real ordinary people, resource is limited.
In a real life whether you
like it or not, you will have to make continuous financial choices. So decide
early in life what stuffs are truly important to you. While doing that always
keep in mind the “wants versus needs versus affordability” criteria.
Fourth, never be scared or lazy to do financial planning. Start with something simple like Monthly Expenditure Plan and build slowly from there. It is your plan. You don't have to share it with other people if you don't want to.
Fourth, never be scared or lazy to do financial planning. Start with something simple like Monthly Expenditure Plan and build slowly from there. It is your plan. You don't have to share it with other people if you don't want to.
There is no right or wrong
answers. Just consequences so do it wisely. Your plan should be flexible enough
to adapt to your changing life circumstances.
Remember: “If you fail to plan, then you plan to fail.” - Harvey MacKay
Fifth, simplification. Remove clutter from your life. There is no point to have five bank accounts when the total values of your savings are meagre.
Remember: “If you fail to plan, then you plan to fail.” - Harvey MacKay
Fifth, simplification. Remove clutter from your life. There is no point to have five bank accounts when the total values of your savings are meagre.
No point to have five credit
cards when you cannot even afford to pay one. Remember that the more stuff you
have the more time and money you need to invest on it.
Finally, learn to use Microsoft Excel. It is the single most important software for Personal Finance. It is easy to use, time tested and totally reliable. You will need it to track and record your financial health and performance.
Finally, learn to use Microsoft Excel. It is the single most important software for Personal Finance. It is easy to use, time tested and totally reliable. You will need it to track and record your financial health and performance.