Posts Tagged ‘Action Plan to Financial freedom’

Learn The First Important Step To Achieve Financial Freedom (Part-3)

October 14th, 2009

 

 

 

 

 

 

  

Financial Freedom

Financial freedom is achieved when one is able to live in his mean without earning an active income. In other word, one’s passive income is more than enough to support his desired lifestyle. Passive income is defined as income earned without one actively involves in the income generating activities, while active income is income earned that requires active involvement in the income generating activities. A person who is financially freed, can choose to work or not as long as he wants but still live in his desired lifestyle - indefinitely.

In the Action Plan to Financial Security (Part-2), action plans are defined to come out with income streams that could support one’s basic lifestyle. In order to be financially freed, one needs to come out with higher passive income streams that can support their desired lifestyle, freely. To be able to spend freely, one usually don’t need worry too much on his spending habits and the amount he spends. However this is very subjective, to some people, to be able to spend freely, he wants to be able to buy luxuries and still have abundance of money left to support his lifestyle. While for some other people, to be able to live and spend freely don’t require that high of a cost.

Action Plan to Financial Freedom

Since to be able to live and spend freely are subjective and depend on the person’s desired lifestyle, in your action plan, you need to list of the desired items and state the costs involve, such as below:

  1. Upgrade to a higher range car with a monthly commitment of 1,500 to 2,000. Totally around 18,000 to 24,000 per year including higher insurance cost and maintenance fee.
  2. Buy a home/condominium in a good neighbourhood with monthly instalment of 2,500 to 3,500. Totally 30,000 to 42,000 per year, including miscellaneous costs.
  3. Buy the luxury items you always wanted like jewelries, watches, handbags, clothes and etc. Try to give an estimated lump sum total for these item, say 20,000 per year.

Total expense in above 3 desired items = (18,000 to 24,000) + (30,000 to 42,000) + 20,000 = From 68,000 to 86,000

These are my ideas of luxuries. If you have more desired items, you may list it down into your action plan and add to the total expenses, after all, the definition of financial freedom is very subjective from one person to another. Since this is the extra from your basic lifestyle, it also means you need additional income streams that could generate as much as 68,000 to 86,000 per year.

The same steps you need to follow in drawing out an action plan to become financially free; list out as many income opportunity ideas you can come out with, the step-by-step descriptions, targetted income for each, deadline to realize each income stream, etc and then total up these passive incomes. It is also make sense to expand the same passive income streams that provide you the financial security. Since you have the experience and also the know-how, it will be easier to think of innovative ideas to expand the existing passive incomes. Below are some general ideas to improve the existing income streams:

  1. Part time business – Look out for expansion business opportunity. Look for greater innovation for higher business income, or improve business efficiency and reduce cost. If the business is easily duplicated, it will be easier to expand (open new branches).
  2. Internet business – open to more internet business opportunity, there are a lot of ways to improve internet business revenue. Upgrade your existing web site in appearence. Improve sales letter effectiveness. Optimize internet traffic so more people get to know your product. Create more intellectual properties/product.
  3. Blogging – Enrich the content of your existing blogs by providing more informative and unique contents to attract more audience. Besides, one also can use other third party services to improve the blog’s viewing traffic such as article submission to reputable sites, press release, link exchange, etc.
  4. Dividend – top up to existing stock ownership, one also can increase the return in stock dividend. However, in order to largely increase the dividend return to support the desired lifestyle, investment capital is also huge, approximately half to a million.
  5. Real estate rental income – acquire more positive cashflow income. Again, in order to largely increase the rental income to support a different lifestyle, one needs to acquire many more of such assets thus require more intensive upfront investment capital and time to raise the capital.

If you have successfully completed the action plan to become financially free – total additional passive income that is more than enough to cover your desired lifestyle expense. Then congratulation! you have made the first of a thousand steps to achieve financial freedom. You may start to work on the steps defined immediately. Along the journey, you need to constantly review your progress by referencing the action plan. For easier review, it is also a good idea to come up with an exhaustive check list of steps or items that are done or to be done. To end this article, I wish the best of luck to our financial freedom!

There is a saying…

~~ A journey of thousand miles starts from a single step ~~

5 comments »

Posted in Business, Financial Planning, financial freedom, investment

Tags:

Learn The First Important Step To Achieve Financial Freedom (Part-2)

October 14th, 2009

 

 

 

 

 

 

 

Financial Security

Financial security is achieved when one person’s total passive income is able to cover all his basic expenses. Passive income is defined as income earned even you don’t actively work for it, while active income is income earned that requires active involvement in the income generating activities. People who live within financial security can live the most basic lifestyle without earning an active income, for as long as he/she wants – indefinitely.

Examples below are some of the very basic expenses need to be covered by total passive income in order to live a basic lifestyle:

  1. Home and car loan plus interests
  2. Transportation related cost like petro, car maintenance cost, insurance cost, public transport cost, etc
  3. Food, groceries and basic home suporting items
  4. Home utilities include water and power.
  5. Satellite TV subscription fee. If it is your basic need, then you should include that as well.
  6. Children expenses like school and tuition fees.

Of course, with a longer expense list and higher cost, it will naturally take a higher passive income to achieve financial security.

Action Plan to Financial Security

In order to achieve financial security, we need to come out with a plan on how we can build additional income streams. In order to build additional passive income, we need to be constant look out for income opportunity. Below are some examples of high level description of income stream you can start building:

  1. Look out for business opportunity and build a part time business during free time.
  2. Internet business opportunity. Start a internet business selling your own product or other peoples products
  3. Write blogs to earn advertising income
  4. Invest in high dividend stocks to earn dividend income, however to earn decent income through stock dividend usually require very large investment capital – approximately few hundred thousands.
  5. Invest in real estate such as condominium, apartments, and shoplots to earn rental incomes. However real estate investment usually require high upfront capital as well. Zero downpayment purchase that provide positive cash flow are difficult to acquire but not impossible.
  6. Fix deposit. Due to economic outlook, the FD rate is no longer attractive, at least for another 1 or 2 years. If one truly commited to achieve financial security, this method is not recommeded.

The above are my ideas of generating passive income and it is not limited to just above. If you have some better ideas, do write it down into action plan list, list down as many income stream ideas as possible. For each of the idea it is also important to state; the steps you need to take, targetted income amount for each, how long required to achieve each income stream objective, deadline, etc. When you have listed down all your income streams ideas with all mentioned inputs, total up all the targetted passive incomes. Are the total passive income streams enough to cover your basic expenses? If yes, then congratulation, you have just finished your very first action plan to become financially secured. You may immediately start taking the step one-by-one.

The next part is on financial freedom, which is the ultimate goal in our action plan…

2 comments »

Posted in Business, Financial Planning, financial freedom, investment

Tags:

Learn The First Important Step To Achieve Financial Freedom (Part-1)

October 14th, 2009

We often dream about financial freedom, we want to and more often talk about becoming financially free. But how many of us actually do something different to achieve this dream? Without a concrete action plan, and clearly define road map, no matter how ambitious is the dream, chances of becoming financially free will almost equal to none. Without a clearly define road map to follow, one will soon forget the dream of freedom and go back to live their normal daily life. Action plan can be constant reminder serves to remind a person of his objectives, goal and estimated deadline. Besides, in journey to become financially free, you will want to review your progress against the action plan to see how much progress you have made and how far away you are from your goal.

In order to become financial free we need to know what the definition of being financially free is. Financial freedom being the ultimate goal, of course, before achieving that, we need to know the two pillars supporting the freedom; those are financial stability and financial security. The later two are the basic fundamentals of being financially free; it is like the foundation of a skyscraper that built on a strong concrete foundation, in case of financial freedom, it is built on financial stability and security. In short, in order to achieve financial freedom, we must first achieve financial stability and then financial security.

Financial Stability

Financial stability is achieved when one person is able to live his life without income for 6 months or more. Wealth is measured by time instead of amount of money you have. Take the example of a fashion designer whose monthly income of 10,000 with monthly expense of 8,000 and a school teacher who only earns 2,000 with monthly expense of 500. Who do you think live a more stable financial? The answer is the school teacher. If both person lose their job, the fashion designer who live a high maintenance life style would not live through a month to go bankrupt, but for the school teacher, with a saving of 1500 per month in minimal, he/she can easily live for another 3 months without active income. In the first step in our road path to become financially free, we need to make sure we are financial stable before we can talk about financial freedom.

Action Plan to Financial Stability:

Now think. If you have less than 6 months to go into bankruptcy without a job, you need to start doing something. Below are some typical scenarios:

1. Get out of debt now! If you are living on a mountain of credit card debt, and you can’t seem to reduce the owing balance each and every month. From you credit card bill, list out items that you don’t need to spend. Without this desire items, it is easier to pay off the credit card.

2. When you can’t seems to save even though you are not on any retail/credit card debt. This happens when you pay yourself last. In order to save, you need to pay yourself first. Every month when you get your paycheck, put aside a percentage into saving and spend the difference. An average person will do the opposite that’s why they can never save, and the worst is they don’t even know where the money goes.

In the action plan, one needs to state how much money to allocate to debt settlement every month with a deadline. Only after all accumulated debts are cleared off, one can start saving for financial stability. Subsequent action plan needs to find out total expense of one self. Since financial stability is defined to be one’s ability to live through 6 months without any income before going into bankruptcy, thus the amount of money to achieve financial stability will be total expense times 6 (months), let us call it Financial Stability Amount Requirement FSAR. Next, state how much money you committed to save every month, let call it monthly saving commitment MSC. With all these figures: FSAR and MSC, one can easily find out how long he/she needs to achieve financial stability. Simply divide FSAR by MSC. The result of calculation is the duration required to achieve financial stability, one will know exactly the date he/she can achieve financial stability.

The next part is on financial security and writing the action plan to achieve it…

1 comment »

Posted in Business, Financial Planning, financial freedom, investment

Tags: