How to reach Financial Freedom, someone asked me...

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Dennis Ng
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How to reach Financial Freedom, someone asked me...

Post by Dennis Ng »

someone asked me a question at another discussion forum. I attach both his questions and my reply for everyone's easy reference below:

Cheers!

Dennis Ng, http://www.HousingLoanSG.com

Quote:
Originally posted by lilbrit

Dennis, would you attribute your future financial freedom to being self-employed? Or is a significant part of it due to investing?

My comments:
ANYONE can reach Financial Freedom, whether the person is Employed, Self-employed or a Business person.

There're ONLY 2 main ways money is made, I call them the MMMs:

1. Man Make Money (active income whether employed or self-employed).

I define "Active Income" as income we only earn BY being there and doing something ourselves.

Problem: it is limited by the number of hours we can work in a day.

One way to increase it is to set up a business and Leverage on Other People's Time (ie. by having employees so as to increase money made from Man Make Money).

Of course a "good boss" can make it Win/Win for him/her and his/her employees, by having in place system to ensure that as the business prospers, the employees also benefit from rising income.

I personally have moved from self-employed to Businessman looking from this perspective.


2. Money Make Money ("Passive Income" where you accumulate savings and put those savings to "work" through investing).

The advantage is: Money does NOT sleep and can "work" for you 24 hours a day. However, the problem is MOST people are NOT making their money work for them, their money is "sleeping" in a bank account. The miserable interest they earn does NOT beat inflation.

Thus, in the long run, they become POORER, not richer, since the "purchasing power" of their savings diminish over time.

"Money Makes Money" can be done whether you're an employee, self-employed or a business person.

Can any company which just break-even and makes NO profit ever grow financially? The answer is NO.

Similarly, most individuals make the mistake of only looking at their gross income (salary). As their income increase, typically their expenses also increase and some make the mistake of spending ALL that they earn.

This person is actually operating on a "break-even" level. Can this personal ever reach Financial Freedom? The answer is a DEFINITE No.

Most people as soon as their income increase, they would "reward" themselves by buying a bigger house and/or a bigger car, they would buy higher-priced clothes and other things....

Thus, even though their income increased, they are NOT getting richer, since they continue to have little or no savings.

Personally I'm still staying in the same 5-room HDB Resale Flat that I bought 11 years ago. My debt-servicing ratio has gone down from 35% to 10% due to the fact that my monthly debt commitment remains the same while I've increased my income over the years.

How can an individual ever reach Financial Freedom?

Simple. It's by spending less than you earn and investing those savings to make even more money for you.

Read my posting on the "7 Cures for a Lean Purse" which I wrote in simple English "translating" what was written in the book entitled:"The Richest Man in Babylon". This is a CLASSIC book on Personal Finance and the starting point for Financial Literacy.

I also realise that as I increas my own Financial Literacy level and investment knowledge, my wealth increases as well and I'm able to avoid MANY common Financial Mistakes made by people.

I learn from the Rich what they do and more IMPORTANTLY "Why" they do what they do. I realise most of them UNDERSTAND the concept of Leverage and APPLY the concept of Leverage. That's one COMMON reason why the Rich get richer.

I also realise that what I can do to contribute is to share what I learn, both from my own knowledge and experience, and from the knowledge and experience of other people whom I'm blessed to know and learn from.

Please feel free to email me questions as well at dennis@HousingLoanSG.com
Cheers!

Dennis Ng - When You Master Your Finances, You Master Your Destiny

Note: I'm just sharing my personal comments, not giving you investment advice nor stock investment tips.
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