Financial freedom requires financial stability in your job and business

To achieve financial freedom, we need money... lots and lots of it! As the Pet Shop Boys song "Opportunity" goes:

"I've got the brains, you've got the looks
Let's make lots of money
You've got the brawn, I've got the brains
Let's make lots of -"

Financial freedom requires money
That sounds deceptively simple. The concept is straightforward. Build up capital through savings and invest this in investments that will yield sufficient passive income that supports our lifestyle.

How do most of you earn your money? Many of you are employees, working in organisations, companies and businesses. Some of you are running your own business or are full-time investors.

This post will deal with financial stability with regards to jobs and touches on the topic of performance appraisals being a significant determinant of your financial rewards as an employee.

The performance appraisal drama
Performance appraisals are something to look forward to and something to dread at the same time. It is the time where all your hardwork, sweat and tears or all the shirking, tai-chi and acting busy bears fruits. Your supervisor or boss will determine if the fruits you receive in terms of bonus, increment or even the very security of your job will be juicy, delicious or downright rotten.

Appraisals in my own limited experience has been a mixed lot. The few organisations that I have worked with all have on paper robust performance appraisal systems. However, in reality, the appraisal is to some extent a drama where the supervisor and the staff act out their roles in this performance.

In this drama, the supervisor will hold the "power" to determine the staff's remuneration, especially the variable or performance-based component. Many moons ago, when I started my first job, there was virtually no performance-based component and one's increment and promotion was based largely on seniority and not screwing up your job.

Fast forward to today's management and human resources thinking about linking pay to performance. It is good in theory but often fails in practice. WHY?

Why performance appraisal in practice sometimes SUCKS
Many corporate cultures still fail to instil the need to communicate and feedback performance to staff the whole year round and not only during the drama of the formal performance appraisal session. Many organisations also do not clearly spell out key performance indicators and targets with staff. Hence, the staff meanders his or her way through what he thinks his or her boss wants or desires in terms of work outputs and outcomes.

This is not to say that all organisations suck at performance appraisal but not many do it well.

Love it or hate it, performance appraisals are something we need to do well enough. We need to do well to maintain our financial stability from the cash flows generated from our job that helps to build up our investible savings to generate that passive income that will free us from the slavery to our jobs.

Surviving performance appraisals

1. Know your boss
Performance appraisals are carried out by people. People pretend to be rational but are mostly irrational. So know what your boss likes/dislikes and AVOID PISSING HIM/HER OFF. If you are now thinking but hey, that's not fair, appraisals should be objective and not be about personalities etc. The operative word here is "should". Life "should" be about a lot of things but it is not. DEAL WITH IT.

2. Document your work
Your performance appraisal should list down your achievements and not just activity. Show what you have managed to deliver and achieve as compared to writing the things you do.

Negative example:
E.g. I managed to process xxx number of yyy within the year. [*yawn*.... sounds like you just push paper which is the reality but you can spice it up that much more....]

Postive example
E.g. I process xxx number of yyy within the year achieving 110% of target and enabled the dept/organisation to .....(insert KPI for organisation/dept)... [*wow* sounds more postive and forward looking]

3. Be a team player
Nowadays, it is difficult to find a job where you work exclusively alone. You have to work with people and try to be professional and if possible, friendly with all. Never burn your bridges no matter how much you feel like strangling your colleague or boss.

4. Get some visibility
Promotions and rewards are a zero-sum game generally. Not everyone can be promoted and not everyone can get the variable or performance based rewards. Besides working hard, you need to also show to bosses and bosses' boss that you are working hard. Visibility is the name of the game. At important meetings where big bosses are around, show some initiative and be heard if you can contribute to that issue at hand. Don't be overly fawning and fake as big bosses didn't get where they are by being deficient in emotional quotient. Just try to "shine" a bit and get some traction in their minds that you are at least not the pits or bottom 50%. That will get you ahead of the pack.

5. Don't get overly upset about appraisals
Some of us live and die by bonuses, increments and promotions. One of the things I've learnt in my journey towards financial freedom is that I get less anxious about these sessions because I am not reliant on the bonuses for my day-to-day living. Bonus ARE bonuses, i.e. something extra to spur me on but I make sure I live within my monthly salary. This frees me to be less of a slave to my job and to be able to function with less stress worrying everyday about what my boss thinks of me.

I hope that as 2007 comes to a close, those of you who are due for your appraisals do well and score that increment, promotion or bonus. But ultimately, work towards your financial freedom so that YOU ALONE determine your financial security.

Be well and prosper!

Science Fiction and Financial Freedom

I love to read science fiction and recently finished reading "House Corrino" (written by Brian Herbert and Kevin J Anderson) being one of the three prequels to the Dune series of novels. Dune was written by the Hugo and Nebula award winning author Frank Herbert. The prequels were written by his son and other well-known science-fiction authors.

To read science fiction is to dream of the future
One of the things I love about science fiction is how it fires up our powers of imagination. Science fiction (sci-fi) authors dream of worlds, technologies and a future that not many of us can conceptualise and envisage. They bring us out of the realms of possibility into the realms of impossibility. They free our minds to dream of a future bigger than any of us could imagine.

Some of you must be wondering how reading science fiction helps one to become financially free? I'd like to share that in order for us to achieve financial freedom, we must be able to dream about it. To first conceive of the possibility of having enough passive income that supports our lifestyle and then being able to live our dreams without worrying about our rice bowls.

Those of you who are into self-help literature covering positive thinking, daily affirmations, programming our mind or self-hypnosis know that our minds are our greatest assets. Fans of Napolean Hill's "Think and Grow Rich" acknowledge the power of our mind to imagine and to visualise outcomes of being financially free.

To achieve financial freedom in our lives, we must achieve it in our minds!
The power to achieve financial freedom, i.e. the point where our passive income derived from portfolio investments, businesses, royalties, patents, copyrights etc. flows in such abundance that it pays for our living expenses and continues to allow us to grow our investments in a virtuous cycle of wealth and prosperity.

We can achieve this only if we first achieve it in our minds. I.e. visualise our goals clearly in financial freedom. Establish it vividly as a SMART objective, where S=specific, M=measurable, A=achievable, R=realistic, T=(specified) timeframe.

Now visualising it once or twice before we go and punt on 4D, TOTO or Big Sweep (or even the stock market!) is not going to cut it. It has to be a consistent, disciplined effort to consider our goals and let our actions then flow from bringing us closer or further away from our goals.

For instance, let's say you just want to build up your investment kitty by $5,000 this year or grow it by 5%. That's a clear and specific objective. During the year, before you spend money on upgrading your handphone or buying that new accessory for your car. Consider how your earning, spending and saving decisions move you closer or further away from your objective. What are you going to do when your bonus comes in? Blow it all on a holiday for the family? Blow half of it and save the rest? Or save up everything?

What you decide is based on how you have set your objectives
There is NO RIGHT ANSWER. It all depends on what you have set as your objective. In order for us to stay on course towards financial freedom however we have defined it, we need to be crystal clear about it because it is that clinical clarity that strengthens our resolve to save and invest. You will do it only if you find the reason compelling enough. If your reason for saving and investing is not compelling enough, chances are, your mind will tell you the thousand and one other reasons WHY you should just enjoy yourself, spend your entire bonus because LIFE IS SHORT... WHY DEPRIVE YOURSELF, LIFE WON'T BE WORTH LIVING and so on and so forth.

Life is INDEED SHORT, in that all of us have the same 24 hours to do as we choose. To live to the heights of hedonistic pleasures or to suffer by denying ourselves all that makes it worthwhile to live. We have to choose either way. By being OPEN to the possibilities of FINANCIAL FREEDOM and re-examining WHAT TRULY IS IMPORTANT TO YOU can you establish what, how and why you want to achieve financial freedom through this regime of prudence, savings, wise investments and some degree of risk taking.

Dune
In the novel Dune, the desert Fremen of the planet Arrakis (also known as Dune) desire one thing above all. To terraform the climate of Dune from the blistering desert to a verdant oasis. Would they be able to achieve this despite the imperial intrigue, politics and warfare that threatens the very imperium? Read Frank Herbert's novels and find out. But one thing is for sure, the Fremen BELIEVED IN THEIR VISION for Dune.

Do you have the same fervour for your own VISION OF YOUR FINANCIAL FREEDOM?

Be well and prosper.

The thrills and spills of gambling in the stock market

The thin fine line between investing and gambling
There is a thin fine line between investing and gambling and I think I crossed that line somewhat during the last few weeks or so.

I have been analysing my own investment decisions and other than one major decision to buy into SPC which was mostly due to luck and a bit on peak oil prices, most of my other decisions have been largely hit and miss affairs. My portfolio is still performing decently around 8% return but mostly due to the stellar results of SPC. Hence, you can see that the other investments having been so hot. :-(

The stock market can be a seductive place where you can match your wits and money against another person or institution. You buy, they sell. They buy you sell. Now because NO-ONE can predict stock prices consistently, stock prices reflect all available information that flows into the market via a random walk. Thus, your guess really is as good as mine in terms of where stock prices will go day-to-day. Who would have know that SembCorp Marine would suffer such a huge foreign exchange loss due to unauthorised foreign trading activities?

Hence, when I stray from the path of investing in dividend yield stocks and start punting on speculative plays, the gambling motive supercedes the investment motive.

Gambling is fun!
I admit it, the thrill of seeing the prices of the stocks you just bought go up over the next few days and weeks is exciting. It strokes your ego and makes you feel that you have "beaten" the market. But during times of corrections, when your stock price puts you at a paper loss, you agonise over whether to cut loss or hold. I realise my recent trades have been more speculative in nature and hence have decided to take a short break from this trading mentality because I am not good at trading.

It is risky because the commissions more than wipe out the capital gains from stock price appreciation of a few ticks.

As the end of the year beckons, I realise I have to cool down my itchy trigger finger that wants to buy and sell to make a quick buck. That is NOT the way of investing for the long-term. I have since pared down my equity stakes to around 70% of my portfolio in the market as majority of my stocks are still blue-chips that should move in tandem with the STI. The other 30% will be channelled back to safer and boring treasury bills and time deposits to balance off my portfolio.

Knowing yourself
Knowing yourself is important in your journey towards financial freedom. Sometimes you can be so caught up in the excitement of "making" money on investments that we forget that the ultimate first rule of investing is NOT TO LOSE MONEY. Beating inflation with well placed stock picks can work but you need to consider the thin fine line between investing and gambling / speculating!

Be well and prosper!