Think Big Think Money

4. Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

5. How You Can Spend, Save, and Earn Half A Million Dollars

6. Your Money Will Work for You 24/7, If You Are Willing to Work FIRST

1. Personal Finance School: An Introduction to Effective Personal Finance

8. The Most Important Personal Finance Lesson of All…

Why Investing Deserves Another Round of Lesson

Ken Siew — Sat, 17 Apr 2010 15:01:43 +0000

It’s clear that investing is one of the most dreaded thing in personal finance. After all, your retirement nest egg could lose 30% value overnight, if you don’t know what you’re doing.
But, I’m sure many people still underestimate the power of investing early and regularly. So I’m going to show you some statistics and a couple of myth busters when it comes to money.

How to Become a Millionaire

One of the previous lessons in personal finance school is to be a millionaire. However, most people think they could only be one by winning the lottery. Here are some interesting statistics:

The odds of winning the Mega Millions is one in 176 million.

The odds of being struck by lightning twice is one in 9 million.

You have a MUCH higher chance of being struck by lightning twice (and hopefully survive), than winning the lottery.

Don’t you think it’s time to do some real work instead of dreaming about hitting the jackpot?

What’s the Average Return of the “Market”?

The market is the S&P 500 index. If you calculate the average annualized returns from Jan 1, 1871 to Dec 31, 2009, it’d come out to be about 8.9%. $1 invested back in 1871 would turn into $137,600 today! If you ask me, it’s definitely much better than the petty 1.1% I’m getting from my HSBC online savings accounts (except that I need to have money in the savings accounts for upcoming life events).

Myth Buster #1: Invest for Retirement!

Many people think that investing is for retirement. I agree partially. It’s critical to have retirement fund waiting for you at age 65, so you can rest assured that you won’t have to sleep on the street after you stop working.

But I have trouble with this mindset. It assumes that you won’t have enough income after age 65, and that’s why you have to rely on your retirement fund.

It can’t be more wrong than that.

If you’re in your 20s, you have at least 40 years to earn more money. Even if you spend one year learning each aspect of building a profitable business (e.g. marketing, accounting, legal, product, service, etc), you will still have many years left to put them together and create a stream of income that will continue after you reach 65.

So, what do I invest for? I invest for the peace of mind for me and my family. Bear in mind that I don’t have a wife or kids yet, but eventually I will. And when that happens, I want to be able to focus on doing what I love and knowing that I have some money saved up somewhere in case I screw up.

The wealthiest men always have some sort of protection for their wealth. They do that by buying insurance and similar financial products. They gotta have some sort of survival money, before they could go on and earn more with their extra money (or “play” money).

My summary: it’s critical to have retirement fund waiting for you, in case you don’t get rich.

Myth Buster #2: Live Below Your Means!

You always hear people saying, “Live below your means. Live below your means…”

Yeah right, and then when you retire, you really have to live WAY below your means.

BS. I say, you want to live beyond your means! Because that’s how you condition yourself to always figure out ways to earn more money. If your mindset is fixed, you will always live below your means.

I know what you’re thinking, “It’s impossible!”, right?

Unless you want to take out credit card debt (which will come back and haunt you later), how else would you be able to live beyond you means?

I have a solution for you:

Earn money on the side.

There are a gazillion ways to earn money on the side. You can do that through freelancing, selling digital products, blogging, writing music, tutoring, etc etc etc. In my free report, tactics no.4 to 7 are specifically dedicated for earning money on the side. You can download it here.

My summary: it’s important not to overspend, but always try to find a way so you can make more money and improve your lifestyle.

Do you have any myth busters or statistics you want to share? Leave them in the comments below!

The Personal Finance School Series:

4. Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

5. How You Can Spend, Save, and Earn Half A Million Dollars

6. Your Money Will Work for You 24/7, If You Are Willing to Work FIRST

7. Why Investing Deserves Another Round of Lesson

8. The Most Important Personal Finance Lesson of All…

Your Money Will Work for You 24/7, If You Are Willing to Work FIRST

Ken Siew — Fri, 02 Apr 2010 02:38:24 +0000

It’s crazy to imagine money working for you all the time. But all the financial experts have said it, make your money work for you. But is it really that easy to do? Maybe, maybe not. It depends on ONE factor: YOU.

If you are willing to work FIRST, then your money will work for you when you sleep, when you’re awake, and when you eat. There’s no free lunch in this world, seriously.

So, you might be wondering, what exactly do you have to do right now to make money work for you?

I can think of one: Invest in the stock market.

Why?

In my previous lesson on saving, I talked about putting money into the stock market to earn more than half a million dollars, just by putting $150/month in the Roth IRA for 40 years. It’s the power of compounding returns.

To illustrate, let’s double the amount per month to $300. Invest for the same 40 years, with average annual returns of 8% based on historical data, you will end up with about one million dollars in your account! Here are the results based on this investing calculator I used:

And because you’re young and ambitious, you know it’s going to pay off in the long haul. You just don’t know how to get started or if you’re doing it right.

This is where you’ll make serious money! It may sound scammy but it’s true. If you’re interested to be a millionaire when you retire, here are the steps on how to get started investing in the stock market:

1) Set up an investing account

You need an investment account. I use Vanguard because it has the lowest expense ratio. The catch is that the minimum contribution for every fund is $3,000. If you don’t have that much money, either save up three grand or go for T. Rowe Price or Charles Schwab, where the minimum is $1,000 for both.

I’d go for Roth IRA if you do not already have 401k account with your current employer. If you do, you would usually need to stick to whatever investment firm your employer decided to go with. The good thing is it doesn’t have a minimum contribution upfront. (My company went with Fidelity.)

2) Choose a fund(s) to invest in

Long story short, I went for Target 2050 Retirement Fund. It’s an index fund that invests in the S&P 500, with the expectation that you will retire in year 2050. And when people talk about “the market”, that’s S&P 500. Historically, it’s averaged about 8% return every year. Unless you believe someone’s going to kill the capitalism in this country, it’s pretty safe to say the trend will continue.

Here’s the asset allocation of the Target 2050 Retirement Fund I invested in:

If you don’t believe in index fund, then you might want to pick a stock. In fact, I talked about stock picking before, and it has its own merits. Find out what you’re willing to spend time on, and do it. The only equal opportunity we have against the big guys is time. Everybody has 24 hours a day. You, me, Bill Gates, Warren Buffett, Barack Obama. But what you do with your time is what separates one from another. If you go the Warren Buffett’s fundamental investing style, you might be able to beat the 8% returns year to year. Again, you need to do a lot of homework before you can beat the market consistently like him, so be mentally prepared.

3) Decide on the amount you will contribute every month

Always pay yourself first. Pay at least 10% of your income to yourself every month.

This also forces yourself to not overspend the money you should have put away to invest in.

You can repeat the same process for your 401k account, although you will probably have to use a specific investing firm to do it. If you’re getting your company’s match, then go for it. It’s like someone giving you extra 50 bucks to save 100 bucks, just take it!

4) Automate your investment process

Set up the automatic investment schedule so you don’t have to think about it every month. You can do this easily in Vanguard. Just click on “View/maintain automatic investments” and set it up with your checking accounts and you’re good to go!

But remember we talked about reautomating for maximum returns? So, remember to do it every 6 – 12 months. Your financial situation changes all the time, so you might want to invest more or less based on that. But the minimum should still be 10%.

I don’t really pay attention to the stock market even though I have a good amount of my money in it. It’s essentially pointless to look at the short-term changes because you’re focusing on the long-term end goal. In fact, if you don’t want to get heart attack and see your investment tanks in the next stock market crash, you’d better off ignoring the returns for a while. The stock market will crash again, and it will go back up again. And when the next one hits, I’ll buy even more shares when it’s on the cheap!

Pay Yourself by Investing

Nothing ever happens when you’re sitting in front of your computer and reading a blog post. Things happen when you start doing the right thing, right now.

Bottom line: Start paying yourself today if you want to be a fulfill your dream of being a millionaire, and be rich and happy.

The Personal Finance School Series:

1. Personal Finance School: An Introduction to Effective Personal Finance

4. Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

5. How You Can Spend, Save, and Earn Half A Million Dollars

6. Your Money Will Work for You 24/7, If You Are Willing to Work FIRST

8. The Most Important Personal Finance Lesson of All…

How You Can Spend, Save, and Earn Half A Million Dollars

Ken Siew — Wed, 24 Mar 2010 00:25:31 +0000

Don’t you wish that you would have more money so that you can spend all you want? I definitely do. But it’s not always the case. Sometimes I get a windfall through sheer luck, sometimes I get a dent in the pocket because of emergency or stupid mistakes (like forgetting my Metronorth pass, which cost me 13 bucks per trip!).

We talked about unautomating your expenses last week. But what about the spending that’s not automated? Things like eating out, shopping, and the likes. You can adjust how much you spend on these expenses because they don’t run automatically every month.

So that’s what we’ll attack this time!

Notice how your friends complain they can’t save on anything, because money saved on clothes will often become money spent on eating out, and money saved from car will often become money splurged on happy hour. Well, I’ve done it myself, have you?

It most likely didn’t work for you. And frankly it didn’t work for me either.

Trying to save on everything is like trying to do ten things at once, you will most likely fail at all ten.

A better way to do it is to use what I call the “Laser Focused Savings Technique“.

How to Use Laser Focused Savings Technique

You will ONLY, and ONLY save on ONE thing every month.

Yeah, and nothing else.

How do you pick the one thing to save on? Let me explain how you can use this method to really save money:

1) Pick the expenses that you know you’re overspending on, and be honest with yourself on this! You don’t need to know how much you spend on them just yet, but you should know you want to spend less. For me, it’s eating out (because I love food), books, and personal development courses (marketing, entrepreneurship, personal finance).

[As a side note: I don't shop for clothes very often, although I spend quite a bit when I do. I'm putting them into my monthly worry-free spending.]

2) Find out how much you spend on each of them. How do you do that? Check your credit card and checking account statements. That’s the traditional way. I use Mint to track all my transactions. It’s a super safe online personal finance software. Plus, I have like 18 accounts so I NEED to use Mint.

If you don’t have an account there yet, just create one at their website and start importing your account transactions. It takes less than 5 minutes to update all your accounts.

3) Pick the one with the highest spending. If you’re overspending on $1 snacks, you won’t be much better off to save $10 a month. I picked eating out, because as much as I love food, I love books more because they give me the knowledge I want now.

4) Decide on how much you want to save per month. Maybe you want to save up $1,500 a year to invest for the future. So, you need to save $125 per month to reach that goal, or $31.25 per week (I just need to skip eating out once a week to get there). Remember, this is the most important step: you can’t reach a target you do not have.

5) Keep track of your expenses using a budgeting software. Mint can do it very well. Here’s how you can set up your own budget:

Click on “Planning” tab
Click on “Create a Budget”

Choose the category of item you want to save on
Enter the target spending amount per month

My Own Results

To show you that you can do it too, here are the results I got from implementing the Laser Focused Savings Technique on eating out:

I started from spending about $500 on eating out in November of 2009 (it’s expensive here in NYC), and my goal is to cut it down to $350 per month because I knew I was totally overspending.

Nov 09 – $500

Dec 09 – $420

Jan 10 – $470

Feb 10 – $430

Mar 10 – $390 (estimate)

I decided to put the extra money into my Roth IRA since I’m not maximizing the contribution yet. Looking at how I’m doing, I should be able to reach my target in 3 to 6 months. And based on my calculation, by putting extra $150/month into my target 2050 retirement fund for 40 years, I’d get about $527,000 if I cash out 40 years later. That’s more than half a million dollars!

You can also run your own number using this tool. I will touch on the detailed investing concepts and tools in the next lesson.

Some things to keep in mind when you use the Laser Focused Savings Technique:

1) Some may ask you to focus on 2, or 3 expenses at the same time. But I’d try to do one thing really well, instead of trying to save on eating out and books and courses. When you start to overwhelm yourself with so many things, you’d lose your focus and give up entirely.

2) Be prepared for unexpected expenses like birthday presents for your friends, I have a $50 budget for things like that every month and I roll over the budget from month to month (you can do that in Mint). You will get a sense of how much you need to set aside for stuffs like these after doing it for 3-6 months.

3) I recently began to feel a little guilty about the $1 I pay for my afternoon snacks at the vending machine. I found out that I could buy them for $79 at the cafe. But am I really saving money? Maybe not. I’d probably get like 2 of them every day if it’s that cheap.

But the real question is, does it matter? I could save maybe like 10 bucks every month, or if I push really hard, $12.50!

I’d rather focus on the big thing. There’s a fine line between being insane and being smart.

4) I still sway a little sometimes, especially when I find out about a great restaurant in town. But overall, I manage to keep my expenses at the desired level, without depriving myself.

5) If you manage to save like $50/month or more, great. But don’t make the mistake of spending it elsewhere, unless it’s for investing in yourself or the stock market. If not, put it towards your next savings goal. [We talked about how to set up multiple savings accounts for your goals in the last lesson.]

Once you manage to reach your monthly savings target consistently (6 months would be good number), repeat the same process for the next spending item. Remember, start small and think big.

Here are my questions for you: What’s the next spending you will save on? And with more cash flow coming in every month, what are you going to do with the money?

Feel free to share your answers in the comment section below!

The Personal Finance School Series:

1. Personal Finance School: An Introduction to Effective Personal Finance

4. Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

5. How You Can Spend, Save, and Earn Half A Million Dollars

6. Your Money Will Work for You 24/7, If You Are Willing to Work FIRST

8. The Most Important Personal Finance Lesson of All…

Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

Ken Siew — Fri, 19 Mar 2010 02:27:59 +0000

This is a secret formula to get more money and time: Automate + Unautomate + Reautomate. What do I mean by that?

Automate the good stuffs so they keep going, unautomate the bad stuffs so they don’t keep coming, reautomate so you know you’re on a good track.

Your financial situation changes, your business might take off in a new direction and suddenly your income doubles. Or if you’re unlucky, you might get laid off (full movie here) and your income just drops to zero.

As much as I want to think that I’m different, I know I’m not. You should think the same way too. Don’t make assumptions about the future because no one knows what happens. The economists who claim that they do are idealists, and totally impractical for the philosophy we hold in this blog.

Ask your parents if they wished they had known something 10 years earlier. I’m pretty sure the answer is yes.

Automate Your Savings and Investing

Why should you automate? Because we’re all lazy, especially when it comes to personal finance.

You work really hard at your job, often staying late to finish up the work. So, who STILL wants to spend time working on the savings and investing?

Nobody.

Yes, nobody wants to work on these. That’s why you should automate the process, so you can have more time to do what you love to do and not worry about it after it’s set up.

Set up Multiple Savings Account: HSBC Advance vs ING Direct

I now use HSBC Advance (formerly known as HSBC Direct) to automate my savings every month, and Chase Checking for my automatic investing. You probably know about ING Direct through my free report already.

The reason I used ING Direct in the past was because it earned me some good referral bonuses (hey every bit helps when you’re a poor college student!). And I switched to HSBC Advance because historically it’s given out a higher interest rate compared to ING. [But they both stand at 1.10% APY now.]

ING Direct actually has a better user interface compared to HSBC Advance, but I won’t complain too much.

Here’s how you can set up your automatic savings account for HSBC Advance:

1) Go to the HSBC Online Savings application page and click on “Sign Me Up”

2) Review the terms and disclosures and click on “Apply Now”

3) Enter your personal info and bam! You’re done.

4) Repeat the same process if you want to add more accounts (tedious yeah, but you only need to do it once). Here’s mine:

Once you do that, stop! Don’t stress yourself for now. We will review the detailed process of setting up automatic savings and investing in the next few lessons. The important thing is to get started and do something, not overwhelm yourself with a bazillion things to do. I will explain more on the investing aspect in future lessons, and that’s where you’ll make tens of thousands of dollars.

Why not only have ONE savings account?

Some people like to simplify matter and have only ONE savings account, after all the total of the money you have is the same right? I don’t quite buy that for a few reasons:

1) You need to keep track of what percentage of the money goes to what savings (wedding, house, etc), which requires a spreadsheet or some sort. It’s too manual and requires discipline, which we don’t always have.

2) Keep it simple stupid.

3) Don’t make me think.

Unautomate Your Expenses

Do you use Netflix? I used to.

How many times you ordered DVD from Netflix each month? Maybe three? One? Or Zero? If everyone ordered and watched movie every day using the popular $8.99/month plan, Netflix would most likely go bankrupt.

If you fall into the category of people not watching any movie and you’re paying about 9 bucks every month, it’s time to cancel the subscription.

9 dollars might not seem a lot at first, but if you do the math, it’s $108 a year, $1080 in 10 years, and $43,200 in 40 years! If you look at it that way, wouldn’t you want to spend the 9 dollars on something that you truly care about?

Not to mention, there are many other ways to watch movies for free:

1) Hulu

2) Youtube

3) Veoh

Of course, it doesn’t only apply to Netflix, because if you love movies, you SHOULD subscribe to Netflix. But it could be a membership subscription costing you $97 a month that you don’t use. It could be that overdraft fee that you incur every month that you don’t bother calling to waive it. It could even be the tax deductible commuter credit card that you never bothered to get!

And I’m not suggesting to cancel all the subscriptions. I have at least 3 subscriptions that cost me more than $50 a month, but they are stuffs I am really passionate about and I believe they’re well worth the money.

The important thing is to be conscious of your expenses instead of letting them run wild by themselves.

Reautomate for Maximum Returns

Revisit your automation process every 6 or 12 months and see if things make sense for you. Things can change quite a bit (think of the promotion, raise, and freelance income). Here are 3 steps you should use to reautomate:

Identify your recurring expenses from month to month. Just think for about 3 minutes. Do you use all of them? If not, cancel them and kill the expenses. You can always spend on them later.
Determine the dollar amount that you’re saving and investing for. Do you think you can add more dollars to it? If yes, do it.
Calculate how much returns you’re earning from this exercise in terms of monthly cash flow. You’d be surprised. This step is also important to give you motivation in doing the exercise consistently. You’ll be motivated by how much progress you make.

On a side note, to make sure you remember to reautomate every 6 or 12 months. Set a reminder in Google Calendar and make them repeat forever. Fortune 500 companies do this probably every month, or every week!

Here’s my event on Google Calendar:

A well designed financial plan will get you much further in your journey to financial freedom, and it is what this blog is all about. As usual, feel free to leave your comments and thanks for hanging out!

The Personal Finance School Series:

1. Personal Finance School: An Introduction to Effective Personal Finance

5. How You Can Spend, Save, and Earn Half A Million Dollars

4. Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

6. Your Money Will Work for You 24/7, If You Are Willing to Work FIRST

8. The Most Important Personal Finance Lesson of All…

Are You Ready to Earn More Money?

Ken Siew — Sun, 14 Mar 2010 22:32:19 +0000

I recently sent out a survey to you and other subscribers about what personal finance topic you would like me to cover on this blog. Unanimously, all of you said “earn more money”. It surprised me a little, as I thought there would be at least some folks who would say “investing”, “getting out of debt”, “saving money on commute” and others.

But the truth is:

You will also earn more money by doing all those!

It’s not a trick question. There’s always been a misconception about what earning money is all about. Earning more money doesn’t have to be a totally different revenue stream that you have to create (which would take more than a post to explain).

The definition of earning more money is to keep more cash in your pocket, period. The cash could already be in your pocket yesterday, or it could be cash coming in tomorrow. I’m not saying you shouldn’t try to earn more money by creating a new revenue source, I think you should. I’ve shown several tactics in my free report to get you started.

Again, what matters are cash flow and net worth. If you pay 100 dollars more off your debt this month, you will pay MUCH less interest in the long run. Let’s do a hypothetical case using a credit card calculator from Bankrate.com.

Say, you have $10,000 dollars in debt, and your credit card interest rate is 16%. Here are 2 scenarios I ran using the calculator:

Scenario 1: $200 monthly payment

Scenario 2: $300 monthly payment

In summary, if you just pay $200 every month, you will pay $1,123 in interest. But if you pay $300 instead, your total interest payments will go down to $692, a 40% drop!

There you go, instant cash flow of about $400 you could spend on something that you love! (or keep if you want)

Are You Ready to Earn More?

Once you straighten out your finances and build a very effective personal finance system that works for you, you can then spend your time on creating a new revenue stream.

I always tell the story of professional athletes who earn millions a year but go broke after they stop playing. Even if they didn’t understand money as much as you do, they would have been much better off if they had paid someone to design a financial plan for them.

It’s true that you won’t know for sure what will actually happen 10 years later, 5 years later, or even 1 year later. But as long as you have a plan to get to your ultimate destination, you will always be way ahead in the game. I’m gonna end this post with a quote by Thomas Carlyle:

Go as far as you can see. When you get there, you will be able to see further.

What would you do differently to earn more money today? Share you answer below!

Why and How You Should Kill the Debt Monsters

Ken Siew — Fri, 12 Mar 2010 02:24:22 +0000

There are a lot of talks around getting out of debt on TV and around the blogosphere (think Dave Ramsey and Man vs Debt). And you hear and read those people on the shows in the comments that they feel so wonderful after paying off their debt, or that they feel stuck because they are not making much progress.

In either case, seems like having a debt is a bad thing.

So, why is debt your biggest enemy in personal finance?

Because it limits your options.

If you have large debt sitting in front of you, you’re restricted in terms of your finances because it will stare at you with contempt until you pay it off completely. And if the debt has very high interest such as credit card debt (16% on average), you want to put as much money as possible into paying off the balance. Otherwise, you’d be working from Jan to April for the government, and then from May to July for the debt monsters (credit card companies and banks).

[I talked about credit card debt in more details in my free report, download it here to find out more.]

How to Pay Off Your Debt

If you have several different types of debt, which one should you pay off first? Low balance with high interest, or high balance low interest? Or the one that stares at you the hardest?

Wrong.

Don’t get into bad debt in the first place.

Before you scream at me, know that there’s a HUGE difference between good debt and bad debt. Good debt brings money into your pocket. Bad debt takes money out of your pocket.

For example, leveraging a loan from your local bank to invest in a business venture that has a consistent stream of positive cash flow is a great move towards financial freedom. It’s a good debt.

On the other hand, bad debt haunts you in your dream. It’s staring at you all the time and takes money out of you. You’re probably struggling because of the monthly payments too. Things would have been much better without the bad debt.

Ok now that I’ve set the stage for the best case scenario (zero bad debt), let’s tackle the not-so-good scenario – paying off your debt. There are 3 methods you should use if you have multiple types of debt:

1) Debt Snowball method

2) Highest interest method

3) Zen method

Call to Actions

Choose the one method that fits you the most. I’d prefer method #2 because I’m a rather logical person. Method #3 doesn’t apply to me (luckily) because I don’t have those kinds of energy-sucking loans. I’m sometimes tempted to use method #1 and pay off my debt but the logical side of mine seems to be able to keep me in control for the sake of having more money in my account. Thank God!

So, know yourself, choose the best method and stick to it. Don’t give up until you kill the debt monsters!

One exercise for you today: Which method works best for you? Leave your comments below.

The Personal Finance School Series:

1. Personal Finance School: An Introduction to Effective Personal Finance

4. Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

3. Why and How You Should Kill the Debt Monsters

5. How You Can Spend, Save, and Earn Half A Million Dollars

6. Your Money Will Work for You 24/7, If You Are Willing to Work FIRST

8. The Most Important Personal Finance Lesson of All…

Cash is King, Net Worth is Queen

Ken Siew — Sat, 06 Mar 2010 03:03:15 +0000

Cash is King. Period.

Okay, net worth is queen. Second period.

It is that simple. Always, always think about cash flow when it comes to your money. If all the big businesses are looking at cash to make sure the business is doing okay, why shouldn’t you do the same?

Cash flow matters, no matter what your net worth is. But you still have to know your net worth (Assets – Liabilities). But what pays your bills is cash, not your net worth.

It your monthly cash flow is negative, it doesn’t matter even if your net worth is $1 million dollars. And If you don’t do anything, you will eventually go broke before your broke point.

Every financial decision you make, think about your cash flow. A lot of people buy real estate that end up making a hole in their pocket. [Note: If you're deciding whether to buy or rent, use this calculator to see if the number makes sense.]

Net worth is important in the sense that it gives you an idea of what your overall financial situation is. And when you run out of active job income, you can convert your remaining assets into income.

For illustration, say both Smart Johnny and Dum Dum have a positive cash flow of $200 every month, but Smart Johnny has a net worth of $10,000, while Dum Dum has a net worth of $0.

Now, if they could keep the cash flow consistent month to month then it’s okay. But Dum Dum would easily go broke if 2 things happen:

1) He gets laid off for a month, and he is totally surprised.
2) He spends more than his income for a month, after going wild in a party and spending 500 bucks on booze.

On the other hand, Smart Johnny is cool because he can rely on his emergency fund if something bad happens.

There’s also an opportunity cost for Dum Dum. If a great money making opportunity comes along, Dum Dum would not be able to take advantage of it, whereas Smart Johnny can use his savings to invest in the opportunity.

It’s true that Smart Johnny might have to take some level of risk in the venture, but he has a better shot at getting rich than not doing anything at all. And because you’re smart, you will not be satisfied with just being safe all the time anyway!

So…focus on the dollars, then your net worth. You will get rich faster than most people.

The Personal Finance School Series:

1. Personal Finance School: An Introduction to Effective Personal Finance

2. Cash is King, Net Worth is Queen

4. Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

5. How You Can Spend, Save, and Earn Half A Million Dollars

6. Your Money Will Work for You 24/7, If You Are Willing to Work FIRST

8. The Most Important Personal Finance Lesson of All…

Goal Setting – First Guest Post at Diary 4 Life

Ken Siew — Thu, 04 Mar 2010 15:34:14 +0000

My first guest post about goal setting just got posted on Diary 4 Life, a very active and popular personal development blog. The title is “5 Ways to Set Goals that Really Matter“.

Hang out there and feel free leave your thoughts and suggestions. I hope you will enjoy reading it as much as I did writing it!

Personal Finance School: An Introduction to Effective Personal Finance

Ken Siew — Sat, 27 Feb 2010 04:44:17 +0000

The biggest block of boulder that’s between you and financial freedom is really the reluctance to take actions. Whether you think you’re earning big bucks or investing your money in businesses, you’ll need to deal with personal finance, otherwise your hard earned money might just go down the drain.

To help you with that, I’m introducing this multi-lesson course called “Personal Finance School” to kickoff your personal finance journey. Once you’re done with this course, you’ll be way better than 99% of the people around you in dealing with money. You’ll keep more of what you earn, and earn more than what you do.

Ignorance is bliss they say. But you know it is not. You might be procrastinating, but being ignorant about money is the worst ignorance ever. Every second you delay taking actions is another dollar going out of your pocket (okay it depends on how much you have in your pocket first).

Think of it this way, if you put your money away in your checking account, the buying power is going down by the second because of the inflation. So you’re losing money when you work and when you sleep, when you should be making money instead.

There are a few reasons we make huge money mistakes like this:

1) A whole lot of ego – it is important to be confident and have high self-esteem for yourself. You are a unique person, and nobody else in the world can come close to being yourself, not even your twin. Yet, the more ego you have, the more likely you’ll be trapped in your own egoistic world and be closed to others’ advices on money. You think you got it all, but you might be wrong.

2) Higher income than average – But you also spend much more. It’s just crazy to go through the whole process of personal finance, why not just earn more and spend? Simple and happy. Or not. You might be living in a rat race, living paycheck to paycheck instead of paving your long-term financial road.

3) People love to justify their current situations – No matter what situation you’re currently in, you will find reasons to justify why you’re where you are and why you should stay as where you are. Once a person’s idea is fixed (think about first impression), everything that comes along after that will reinforce that idea, whether it’s true or not. It’s called “confirmation bias” in psychology.

What should you do? Just go out there and dominate your money, and don’t let money drag you to work and force you to wake up. Let your passion instead of the alarm clock drive you away from your bed in the morning.

But, before you do that, I need to tell you something:

Don’t make the same mistake twice.

Don’t go to school because you thought you had to, or you were supposed to, or if that’s the right thing to do.

But, do you even want to go to school again?

Maybe not. I seriously believe that not everything is right for everyone. Even personal finance (coming out from a personal finance blogger!).

Here are a few reasons you should not be reading any more:

1) You’re happy with whatever you got – you just want to watch more TV and drink more booze, and you have enough money to pay for the lifestyle. Even though you know you might eventually run out of money if you get laid off.

2) You’re very busy – you’re already working so hard at your work you don’t want to do anything else with your money, and you’re cool with your money flowing out from your pocket.

3) You don’t trust bloggers like me – you really have nothing to lose because the Personal Finance School is free. But if you still think I have some sort of agenda behind the scenes, you should stay safe and do what your survival instincts tell you.

However, If you still insist on going to Personal Finance School, please read on…

Okay, you have to start somewhere. Let’s pick a point that you should start from, and probably the most obvious thing to do (yet not many people do it, but I know you’re different!).

Decide on how you want to live the perfect day of your life.

And make a decision before you sleep today.

Why bother? Because it will totally change the game that you will play when it comes to money. It will affect every single aspect of your life, every single action you take on your journey to financial freedom and happiness. If you don’t even have a goal and a clear idea of what it feels like, how can you achieve it?

You need to do some deep thinking and explore your own world

Be really detailed about this. Make it unique to yourself. Beginning from the moment you wake up, list down the things you WANT to do for the perfect day:

1) What time do you wake up?

2) What kind of breakfast is ready before you?

3) What do you do after breakfast?

4) What do you eat for lunch? Assuming you don’t wake up too late and have brunch instead.

5) What do you do after lunch? Are you going to meet with your friends? Spend time with your family? WORK?

6) What’s for dinner? Are you going to cook or you have a chef? Maybe you want to eat out at a fancy restaurant?

7) What’s your night activity? Watch some TV? Read a book?

8) What time do you go to bed?

Here’s my own version of a perfect day:

1) Wake up at 9 am – I’m more productive in the morning.

2) Have plain croissant and strawberry danish, served with fresh orange juice. Fantastic!

3) Start working on my blog for 2 hours, then go work out at the gym in my house and then swim in my own swimming pool.

4) Feeling hungry after workout, get my tuna sandwich with fried potatoes and just iced water.

5) I’ll go to the mall with my family and catch the latest blockbuster. After I get home, I’ll play PS3 for a couple of hours (God of War III would be a great game).

6) Have awesome eel sushi and soft shell crabs! I’ll eat out with my family at a great Japanese restaurant with really fancy decor.

7) Check my emails and brainstorm for ideas to improve my online business. Work some more. After that, I’ll read a book for an hour or so.

8) Hit the sack at midnight and dream about all the good stuffs that will happen tomorrow…

There you go. The perfect day can be really simple. Again, this exercise is very important in helping you conquer the idea that whatever financial goal you’re trying to achieve is overwhelming. But once you know exactly how your perfect day is gonna be, you can then plan how much money you seriously need. It’s not that bad.

It will take work, don’t misunderstand me. And you might not live the perfect day every day. But as long as you have that image in mind and work towards it, be it driving a Porsche or living in a huge mansion, you are 110% more likely than the people around you to reach your goal.

And that’s it for lesson 1. Feel free to leave your comments or even describe your perfect day below!

The Personal Finance School Series:

1. Personal Finance School: An Introduction to Effective Personal Finance

4. Personal Finance Automation: The Art of Doing Nothing with Your Money, or Not?

5. How You Can Spend, Save, and Earn Half A Million Dollars

6. Your Money Will Work for You 24/7, If You Are Willing to Work FIRST