Wednesday, March 30, 2016

6 Key Goals to Achieve Financial Freedom by Shane See


Copy to reshare & for own reference. It's a good write up by Shane See and then shared by ck5354 where i stumbled upon it.
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Content highlights (estimated reading time ~15 min)


Key Goal 1 : Eliminating Bad Debts

Key Goal 1 : Eliminating Bad Debts
Key Goal 2 : Sufficient Insurance Coverage
Key Goal 3 : Child Education
Key Goal 4 : Sufficient Income for Living Expenses and Paying Off Good Debts
Key Goal 5 : Availability of Liquid Cash
Key Goal 6 : Additional Expenses (Vacations and Enjoying Life)

ready? start

6 Key Goals to Achieve Financial Freedom by Shane See

Definition of Financial Freedom:
If you look up on the internet, you'll find various definitions on Financial Freedom. Some define Financial Freedom as being debt free and some see Financial Freedom as being able to spend lesser then what they earn. The Wikipedia defines Financial Freedom as the state of having sufficient personal wealth to live indefinitely without having to work actively for basic necessities. I too have my own definition for Financial Freedom which revolves around achieving a X key goals before being able  to declare myself financially free. 

Minimizing Car Loan Debts
These are debts that bring no value to your personal wealth or net worth. The most common bad debt everyone would face? Your car loan of course! 

While your car value depreciates over the loan period, you're still required to service your loan with the same amount monthly. What's worst is that by the time you finish paying off that 9 year loan, you will still be forking out that same amount (or more) for repairing a 9 year old car that's consistently giving  you problems. The solution? Get a new car and repeat the entire cycle all over again. 

Knowing how "comfortable" and "timely" our public transport can be, driving a car has somehow become a necessity for Malaysians. While you might not be able to eliminate this bad debt, you can always minimize it by buying a car that's within your means and taking a shorter loan period to reduce the interest paid to bank.. 

Zero Installment Debts
This ranges from installments for a new phone, a new laptop, furniture, electrical goods, etc. However you want to look at it, I strongly feel that if you can't afford that item, then don't have it yet. Notice that I highlighted the word yet? That goes to say that if I really want that item, I will eventually own it but only when I have the means to pay everything with cash. 

Secondly, most of these items tend to be impulse buys in which we will be still paying the installment long after we lost interest of it. I know I have experienced that before, have you?

Zero Credit Debts
This ranges from accumulating credit card debts to borrowing money from the "Ah Loongs". These are debts that charges sky high interest if you default or late in paying the installment. 

Key Goal 2 : Sufficient Insurance Coverage 
The biggest problem you will face when you get older is health problems. With the current lifestyle (drinking, smoking) and food intake (laksa, nasi lemak, roti canai, etc) among us Malaysians, the most important goal to achieve is to ensure we have sufficient insurance coverage. When I talk about insurance, I'm looking to ensure that I have sufficient coverage for two types of insurance
1. General Health Insurance + Medical Card
2. Life Insurance

*for ladies, you will have to include additional insurance coverage for diseases affecting woman only

General Health Insurance + Medical Card
Being Financial Free means that you are basically not tied down working for a company. That also means that you will not enjoy the medical benefits and coverage offered by the company. Therefore, ensuring that Item 1 is avaialble is a must for yourself, your wife and your kids too.

Life Insurance
This insurance covers both death and permanent disability. Having a life insurance eases the burden on your family if your life expectancy turns out to be shorter then the average lifespan. It's not an interesting point to write about but we can never rule out the possibility of that happening to you. Having a life insurance will could really turn out to be a blessing in disguise especially once the grieving period is over. Think about it.

Key Goal 3 : Child Education 
If you have kids, then the biggest monetary obstacle for any family is education. Once again, we are looking at a worst case scenario where the parents might need to fork out money to pay for their child/ children education. If you're blessed with a brilliant child that could get a scholarship for his or her own education, I am happy for you. However not every kid is blessed with that kind of privilege. As a parent, you should always be prepared to fund your child's education all the way to a degree at least. Therefore key goal 3 highlights the need to establish your child's education fund as early as possible to cater to that monetary obstacle.

Key Goal 4 : Sufficient Income for Living Expenses and Paying Off Good Debts 
Living Expenses
Being financially free requires you to have sufficient and consistent passive income to cover your day to day living expenses. Expenses such as food, utility bills, clothing, petrol, etc should be taken into account when planning for your financial freedom. If you're looking at financial freedom in 10 years, then inflation for 10 years must be factored into the equation as well.

Paying Off Good Debts
The most common good debt is a housing loan debt. For me, I consider myself to be financially free even if I am still servicing my housing loan due to the nature of value appreciation for property. As long as my passive income is able to cover the monthly installment, I need not worry much about it.


Key Goal 5 : Availability of Liquid Cash 
There's an old Malay "peribahasa" that goes like this; "Sediakan Payung Sebelum Hujan". When the "peribahasa" was taught in school, it really did not mean much to me since there were no worries about money and commitment. As we grow older, it became clear that this phrase was meant to teach us to be prepared for all possibilities in life.

From the aspect of Financial Freedom, this phrase advises us to be prepared with readily available cash in the event of an emergency. The target for Key Goal 5 is to build up a savings equivalent to 6 months worth of your current salary. This cash saving can then be used for unforeseen events such as getting retrenched (losing your job), significant medical expenses, major home or car repairs, etc.


Key Goal 6 : Additional Expenses (Vacations and Enjoying Life) Cash 
Being Financially Free is not about having passive income just to live life one day at a time. Being Financially Free is all about having enough money to fulfill Key Goal 4 and having the extra to indulge on things you are passionate about. You might be passionate about travelling, wanting to see the different cultures and sample the different kinds of food all around the world. Well all this can be done once you're financially free with zero worries about being tied down to a job.

Summary:

The 6 Key Goals I mentioned above are the pillars of Financial Freedom. Each pillar must be fundamentally sound in order to enjoy a financially free life. If you're dead serious about wanting to break free from the norms of society, then it's high time you start planning and executing all 6 of the key goals! 




Some notes & comments from me
a) where to get passive income? stock investment, rental yield, side biz??

b) how to calculate inflation for next 15 years ? To find out more.

c) child education - if fund by PaMa some people do house loan refinance - get 100k mortgage cash out. Keep some SSPN while still have tax exemption, bank savings? Have other options?  

d) Have any retiree got their investment payback? Whats the value vs forecast by insurance?? Gimme a holler ya

e) insurance/health - add: routine workout/jog/running target 3 days a week, join running community/club, eat more balanced food, exercise is part of the formula in my opinion.

f) Liquid cash - if have home loan, do capital repayment. Can withdraw at a fee during emergency and also reduce loan interest. If we serve a 30year home loan with its minimum monthly payment only, we end up paying ~double of the loan amount!

Little advertising to credit Shane See , owner of this article (except my notes la)

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