Cash-flow

Why we always talk about cash-flow? Why flow? What would be the main criteria for the health specifically on our blood circulation system? How about our plumbing system? How to judge our plumbing system is good enough? How about the traffic? What is the main criteria to claim that our traffic is good? YES!!! The answer is very simple where the FLOW is the main criteria to gauge the healthiness of all the above mentioned. Hence, the main criteria to gauge our health level in our financial report is the cash-flow. Some would say that this cash-flow is only applicable to business and not for individual which salary based source of income. Great! Let us discuss further about the cash-flow that we can apply in our day-life.

I believe most of us have read my previous article on Saving - Part 1 and Saving - Part 2 which is the main criteria to start our investment portfolio. I also have published on our first investment would be our steady savings which can be read here. As highlighted earlier where people may claim that cash-flow is only applicable for business and not much related to person with salary based source of income. This scenario is not really a credible scenario because the first investment portfolio is via our saving, you may read Investment – Savings. Hence, cash-flow for an individual as a start will be the amount allocated for the savings every month. If you noticed that you can’t able to manage your cash-flow at least with certain amount to show the positive cash-flow then you have to develop attitude towards investment mindset, you may read here to have some idea.

When you have developed to have positive cash-flow from your monthly income which is your salary based income source then with some capital you have developed from your saving you may start our investment portfolio. Bear in mind that when we discussing about the investment portfolio, it is not necessarily to be portfolio creating millions of dollar in our cash-flow but at least something positive which could be just RM 1. As we discussed earlier, we’ll find that our portfolio slowly will give more and more cash-flow which ultimately will create our multi-million wealth portfolio. How to reach that? Be patient and passionate with our goal to achieve our financial freedom. Remember the double-P!

Consistency - Part 1

How consistency does important to us? How does it affect to our goal to achieve financial freedom? What it does? What are the benefits if we are consistent in doing something good for us?

You may have noticed that I’ve been telling the knowledge is very important to achieve our goal to be free financially. So, how can we get this knowledge CONSISTENTLY? We must align with latest information in investment world on banking products available, portfolio available, etc. And definitely all these are halal and legitimate! In order to equip with latest information or knowledge we have to ensure to read, share, and ask people CONSISTENTLY. When we read we know something new is available in the market or something we know is already obsolete in the market. When we know something new in the market we may want to share with our colleagues and later may ask them whether they are familiar or new to them. If they are familiar with our latest information, things get easier because we have someone can explain further on the information so that easier to digest. When we easily digest the information, then it is easier for us to take action which ultimately will give us the results.

When we develop our consistency in reading, sharing, and asking, we’ll benefit without noticing it. From this consistency we can develop discipline internally to keep on reading to gain more knowledge before take into action. Why is this so important before take action? Huh?! It’s simple because we can see the impacts based on lesson learnt people have shared from the readings. We may share our colleagues and they might have experienced it in reality and could be our benchmark prior to take action.

Since we go on with reading, sharing, and asking consistently we are indirectly gaining experience by reading to others experiences. Experiences are something very precious because they may save you from very big disasters. We must be very thankful if there are people to share their experiences even they are charging us with some amount. I would suggest to get this experience by reading so that we have ample time to digest and later we can ask somebody more familiar. This could be more efficient and economical!

While acquiring the knowledge and experiences by reading, sharing, and asking; you may indirectly have developed passionate and confidence in investment. This leads to develop interest in subject matter which is in this subject related personal finance and investment. It could be a bit difficult at beginning but believe me, you’ll feel the sweetness by doing it CONSISTENTLY!

Levels of Financial Freedom – Part 3

We have seen from level four (4) to level three (3) was like a magic where suddenly have some passive income but very minimal amount and cannot be used as our core income in our life due to insufficient amount. So, we can move ahead for higher level?

Again to achieve higher level is not something can be achieved overnight but will take some time and efforts to reach there. Now, to be in level two (2) where our passive income could cater our expenses or is higher than our expenses will be more challenging because we have trained ourselves to spend more than 50% of active income (very common scenario). Remember that our passive income still lower than our active income in this level two (2) but somehow able to cater our expenses. In this level, our passive income not possibly from dividends only but should be some other means like in property investment, businesses, etc. Bear in mind that all these must be halal and legitimate so that we are seen as the most handsome or beautiful person financially.

Similar to level three (3), we could reduce first our expenses so that we can develop our confident level to go ahead for sourcing some means of passive income. There so many means where we can get passive income but ensure we are well equipped with knowledge so that risk and loss can be minimized. Don’t simply attempt without knowledge, and the worst part is don’t simply acquire knowledge without taking any action (I hope you can get my point). Once you’re taking action, then experience will follow and you’ll find your skills much better than the beginning of your involvement.

Great! Now we have reached level two (2) and eager to go for level one (1) where anyone in this earth are looking to be in this level. What is the main difference? Obviously, passive income more dominant than active income and it could be passive income is much higher than total of active income and expenses. How it could happen? This is something like from level four (4) to level three (3) where the skills play a role to acquire more means of passive income; you’ll experience once you have reached level two (2). Many more to come on this passive income in future articles. So, stay tune with me!

The key element to be financially free here is that we must be very passionate and patient in achieving our target because there will be so many challenges along the way. Always remember “where is will, there are multi-ways”.

Levels of Financial Freedom – Part 1

How can we gauge our financial freedom level in life? Are we healthy enough financially? How to optimize it? What are the supplements can be taken to improve our healthiness? All these are important because we can only improve if we are able to detect our own loopholes. It’s not sufficient only by knowing the loopholes but must know how to rectify it so that our goal for financial freedom can materialized as we planned.

I personally segregate level of financial freedom into six (6) different levels by referring to our active income, passive income, expenses, and savings. How all these four (4) items are very important? These are the tools can gauge our attitude and reflect it into our financially healthiness which can be rectified if we have certain “diseases” which may be harming our goal to achieve our financial freedom.

The worst level ever in financial freedom is where our expenses is more than our active income. What? Where is our passive income? My friend, if there deficit in our balance sheet, it shows that there is no other income except our active income. In this situation, the most probable causes are due to bad debts and money spent to unnecessary items, i.e. updating gadgets based on latest available models which ultimately reflect our bad habit in finance subject matter. So, how to rectify it to be at the best level or at least one level higher than this worst level? You may go on How To Start Saving - Part 1 and How To Start Saving - Part 2 as a starter to rectify your "illness" and comment if have some specific area to be discussed.

We will discuss more on the remaining five (5) levels in the next coming article Levels of Financial Freedom – Part 2. List down all our passive income, active income, and expenses so that we can gauge our level if we are lucky enough not to be in this level. Again! Remember that money could be the Cash King but knowledge is the QUEEN to manage our wealth wisely.

Simulation

Why do we need simulation tools or software in our life? There are both steady state and dynamic state simulation tools. Steady state is something which all the scenario are considered as ideal case whereby dynamic state is with some circumstances are introduced into it to see the impact to the results. So, how this simulation approach can be applied in this financial matter or our "Humble Financial Planning"?

We need to this simulation basically to develop some planning to be implemented into our real life for saving, investment, etc. This is something like to allocate certain amount for expenses, savings, and investment. We may come out with some plans where from the salary we're getting each month will be optimized in order to achieve our financial freedom. From this plan, we may able to accumulate at least RM 36,000 at the end of the year by saving RM 3,000 each month consistently. However, it may not be the real case where there are no savings some of the months; this may due to some emergencies, disciplines, attitudes, etc. We may end up with only 70%, 60%, 50%, 40%, or 30% of planned savings due to those circumstances. Hence, sometime steady state simulation may not be the real case but at least will give us some confident level to start saving, investing, and learning something related financial freedom. This simulation could be our own planning or with some attractive fun game which is via Monopoly, Saidina, Cashflow 101, etc. Those days these games seem like just for fun but actually can sharpen our intellectual in financial education.

Dynamic simulation mainly we introduce some disturbance similar to real situation and experiencing whatever possible consequences. Hence, by having dynamic simulation scenario will guide us closer to the real scenario.

Now, how to get the disturbances, scenarios, or circumstances when implementing our plan or in other words when start running the dynamic simulation? We must have certain level of financial education so that can apply whatever possible scenario; which this financial education has to be developed by reading, attending talks, listening to audio or video about finance subject matters. Always remember very popular proverb, "Failed to Plan is Planned to Fail".