5 Simple Steps To True Financial Freedom
Financial freedom refers to being able to live the life you want to without being in debt. To achieve that, most people would have to work hard for it. Those who are born rich will already have financial freedom when they are born, so for most of us who aren't, how can you get your own financial bliss?
Step One- Start Right Now. A lot of people put off financial planning for their retirement and think that they will plan for it when it comes nearer and live for the moment and live it up. A person who invests at age 25 when he or she just starts to work by investing the first 1000 and $500 every month consistently for 35 years will accumlate around $2.29 million after inflation of about 2.5%! A person who puts it off to age 30 will get just $1.89 million EVEN if the latecomer puts in a higher initial sum of $31,000 which is 31 times the early investor. This shows very clearly that a person who invests early retires more comfortably. The second investor puts in the same total amount the first has invested 5 years later but gets 400,000 LESS. Work it out using this handy online financial calculator.
Step Two- Diversify your investment. Nothing is so dangerous as putting all your eggs in one basket. There are people who got burnt big time by investing in just one investment tool like real estate (Singapore from 1999 to 2006), one stock, one company (remember Enron?), one country (Japan during the 1990s) etc etc would have seen their hope of early retirement go up in smoke. So remember to spread out your risks and invest into different financial instruments.
Step Three- Term Insurance and Medical Insurance. There is a saying in Singapore that you can die, but you cannot afford to fall sick. So remember to go and visit your friendly neighbourhood insurance agent and get yourself covered with the relatively cheap term insurance which covers your life and at the same time get a rider on medical insurance so that you are covered if you should be hospitalised- touch wood.
Step Four- Manage your debt. There is good and bad debt that I had touched on in previous articles. So paying off all the bad types of debt like credit card debt early and make sure that your good debts monthly payment(which contribute towards your net asset worth) do not exceed your monthly income.
Step Five- Change you investment portfolio when your needs change. When you are young, you can afford to invest in risky products because you want to earn high returns, but if you are in your late 40s, would you want to invest in technology stocks as many people in this age group did in the technology bubble run up? So when you have family, your needs change, you may need an investment where you don't have to monitor it closely. Then when you are near retirement, you need to invests in safe and relatively risk free investments such as government bonds and tripe A rated corporate bonds of big MNCs.
The most important is to keep educating yourself in the most important lesson of life- How to provide for your own retirement.
Step One- Start Right Now. A lot of people put off financial planning for their retirement and think that they will plan for it when it comes nearer and live for the moment and live it up. A person who invests at age 25 when he or she just starts to work by investing the first 1000 and $500 every month consistently for 35 years will accumlate around $2.29 million after inflation of about 2.5%! A person who puts it off to age 30 will get just $1.89 million EVEN if the latecomer puts in a higher initial sum of $31,000 which is 31 times the early investor. This shows very clearly that a person who invests early retires more comfortably. The second investor puts in the same total amount the first has invested 5 years later but gets 400,000 LESS. Work it out using this handy online financial calculator.
Step Two- Diversify your investment. Nothing is so dangerous as putting all your eggs in one basket. There are people who got burnt big time by investing in just one investment tool like real estate (Singapore from 1999 to 2006), one stock, one company (remember Enron?), one country (Japan during the 1990s) etc etc would have seen their hope of early retirement go up in smoke. So remember to spread out your risks and invest into different financial instruments.
Step Three- Term Insurance and Medical Insurance. There is a saying in Singapore that you can die, but you cannot afford to fall sick. So remember to go and visit your friendly neighbourhood insurance agent and get yourself covered with the relatively cheap term insurance which covers your life and at the same time get a rider on medical insurance so that you are covered if you should be hospitalised- touch wood.
Step Four- Manage your debt. There is good and bad debt that I had touched on in previous articles. So paying off all the bad types of debt like credit card debt early and make sure that your good debts monthly payment(which contribute towards your net asset worth) do not exceed your monthly income.
Step Five- Change you investment portfolio when your needs change. When you are young, you can afford to invest in risky products because you want to earn high returns, but if you are in your late 40s, would you want to invest in technology stocks as many people in this age group did in the technology bubble run up? So when you have family, your needs change, you may need an investment where you don't have to monitor it closely. Then when you are near retirement, you need to invests in safe and relatively risk free investments such as government bonds and tripe A rated corporate bonds of big MNCs.
The most important is to keep educating yourself in the most important lesson of life- How to provide for your own retirement.
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