7 Steps to Financial Freedom

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7 Steps to Financial Freedom

Postby Dennis Ng » Sun Apr 29, 2007 10:25 am

7 steps to Financial Freedom” is written by me in Simple English adapting the principles in “7 Cures for a Lean Purse” from the book entitled “The Richest Man in Babylon”. For the last 9 years I have been “applying” these 7 principles and see myself progressing financially every year from applying these 7 principles. In this issue, we share with you the First 4 Cures, followed by the remaining 3 cures next week. Hope you will enjoy and benefit from it as I did.

Cheers!

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

7 Steps to Financial Freedom

If you want to improve your finances, "The Seven Cures For A Lean Purse" may interest you. It's from the Book entitled "The richest man in Babylon". "The Seven Cures for A Lean Purse" are actually ways whereby we can manage our money better and accumulate wealth and NOT 7 ways to get rich quick. I find it quite interesting, though the underlying principles are actually very SIMPLE.

1st cure:

"For every 10 coins you place within your purse (you earn), take out for use only 9. Your purse will start to fatten at once and its increasing weight will feel good in your hand and bring satisfaction to you."

The 1st cure is actually quite simple, it actually means that for every dollar we earn, we should spend (maximum) of 90%, and keep (save) the 10%. For those who are already doing that or saving even more, then you are actually practising the 1st cure. Congratulations! Keep it up! Try saving 20% or even more!

2nd Cure:

"Budget your expenses so that you may have money to pay for your necessities, to pay for your enjoyments and to gratify your worthwhile desires without spending more than nine-tenths of your earnings."

The logic is: since your current earnings is fixed (to a certain extent), the only way to ensure you can practise the 1st cure (ie. save 10% of your earnings) is by budgeting your expenses to make sure you do not spend more than 90% of your earnings! It's as simple as that, but to do it on a long-term basis requires discipline.

Budget, not again, you may protest. I want to live a life whereby I can spend freely without worrying. But think deeper, actually no one can afford to do that! Because human beings’ desires are unlimited, but our means ($$$) is limited - even if you have S$1 bn, you can still have desires or things you want that can exceed that price tag!

Well, think about it, who will determine what constitutes necessities, enjoyment, luxury items in your budget, it's you! So, you still have all the freedom to choose, right?

The 1st 2 cures basically tells us how we can save from our current income and accumulate "CAPITAL". However, money in a purse EARNS NO RETURNS. Hence, the 3rd Cure is:

3rd Cure:

"To put each coin to work so that it may reproduce its kind and help bring to you income, a stream of wealth that shall flow constantly into your purse."

ie. Make your money work for you!

If you think about it, if you are not born in a rich family or married/marrying into a rich family, the only way you can accumulate wealth is through your own means. There are only 2 ways to make money:

1. Men at work

2. Money at work.

Each of us has only 24 hours a day, there is a limit as to how much work we can do if we deduct time for sleep and for other activities, including spending time with our families/ourselves. So, the 3rd cure tells us that we should put our money to work, so that our CAPITAL can GROW.

4th Cure

The 3rd cure basically tells us that "we should make our money works for us, and not just sit in our purse earning nothing." However, sometimes in a haste to make our money work, people are tempted by "GET RICH QUICK" scams or invest without understanding the RISK(S) involved and consequently suffered a LOSS. That is why the 4th Cure says::

"Guard your treasure from loss by investing only where your principal is safe, where it may be reclaimed if desirable, and where you will not fail to collect a fair rental."

The 4th cure highlights to us that there is a RISK that all our savings may be gone if we INVEST without AWARENESS of the RISK(s) of our investment(s), Eg. foreign exchange risk (if invest in foreign currency), liquidity risk, interest rate risk, solvency risk etc. It tells us that the 1st sound principle of investment is security for your principal, ie. we should guard our principal from loss. However, we should also try to achieve a "fair return." - balance risk against returns.
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.
Dennis Ng
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Posts: 9781
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Part 2 of 7 Steps to Financial Freedom

Postby Dennis Ng » Thu May 03, 2007 2:19 pm

as promised, I'm sharing Part 2 of 7 Steps to Financial Freedom below.

Note: ”7 steps to Financial Freedom” is written by me in Simple English adapting the principles in “7 Cures for a Lean Purse” from the book entitled “The Richest Man in Babylon”.

For the last 9 years I have been “applying” these 7 principles and see myself progressing financially every year from applying these 7 principles.

Cheers!

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

5th Cure

The 5th Cure for a lean purse is actually something which Singapore government has been promoting since Singapore's Independence. Can you guess what it is?

"Own your own home and make of your home a profitable investment."

Why is owning our house a good way of managing our money? Well, if you think about it, all of us need a shelter and we can either buy or rent our home. Rentals only serve to fatten the purse of the landlord and is an expenditure which we can't get back any RETURNS. So, it makes sense to own our home. Besides, having a place to call our own will put confidence in our heart and motivates us to put in greater effort in all our endeavours.

Of course, it should be noted that buying a property is actually a very RISKY decision. Why? Because if you bought at a high price, when prices subsequently drop below your purchase price, you would have negative networth - ie. your asset is less than what you paid for. In some cases, people end up in bankruptcy because of failure to keep up their housing loan repayments.

But owning your house can also be a very profitable investment if you buy at the RIGHT price. If you buy eg. a 5-room flat/condo/landed property when you are young, when you grow old, you can actually get money to supplement your retirement income by selling your house and downgrading to a smaller flat/house.

6th Cure:

"Provide in advance for the needs of your growing age and the protection of your family."

The 6th cure simply tells us that: "When we are able and bringing in income, we should provide for a suitable income should one day we retire or be called prematurely to the world beyond."

S'pore government had realised the importance to make sure that everyone has some "retirement savings" - the CPF. That is why every month when we receive our salary, 20% is deducted from our Gross salary, which goes straight to our CPF account.

Have you wondered why your own savings account seem to "stagnate or yo-yo" while your CPF account seems to miraculously increase all the time? Well, the reason is that for most people, our savings is the residual amount after our spending, while we compulsorily contribute to our CPF account first and only then the remaining 80% is given to us to spend/save.

So, if you think about it, we can also grow our savings if we have create another "CPF account" (another long term savings account), an account whereby we contribute a fixed sum every month before we spend. It's that simple, but it works!

7th Cure:

The 7th and the final cure for a lean purse is:

"Increase your ability to earn: by cultivating your own powers, to study and become wiser, to become more skillful, to so act as to bring yourself respect."

It simply means: we should first find out what our "POWERS" are ie. strengths/aptitude/skills. Thereafter, we should further cultivate our powers: to upgrade our skills and knowledge, in order to increase our earning ability. Furthermore, it also mention that we should do this in a "respectable" manner, not through unscrupulous means, so that we will earn respect for ourselves.

Think about it, we are the golden goose that will lay the golden eggs ($$$). In order to have more golden eggs, we need to improve ourselves, so that we can lay more golden eggs!

Note: All the 7th cures should be practised in order to reap the greatest benefits. So, even after you have increased your earning power, you should still continue to set aside at least 10% of your income for savings (1st cure) and so on.......

It is also important to know that what REALLY matters is not how much we earn, but how much we put aside to accumulate wealth for us. I'm sure you've read about movie stars and people who used to earn millions but had to lead a miserable life in their old age because they never save much when they are earning big bucks.

Please note that the 7 cures are sound principles of financial management and not "7 Ways to Get Rich Quick". The only place where "Success" comes before "Work" is in the dictionary.

It's been great sharing with you what I read. I find that by putting my understanding of what I read in writing, it helps me to improve my understanding and also motivates me to put these 7 cures into practice. I hope that you will likewise benefit in one way or another from the 7 cures.
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.
Dennis Ng
Site Admin
 
Posts: 9781
Joined: Tue Nov 29, 2005 7:16 am
Location: Singapore


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