Many roads lead to financial freedom

There are many roads that lead to financial freedom. As I traverse through the various different approaches in my blog, I realise that there are many small things we can do that eventually add up to help fuel our journey on this path towards financial freedom.

Different strokes for different folks
There are as many views on how you can achieve financial freedom as there are stars in the sky. Some ways may take a huge dose of chance, for example, in the buying of lotteries such as TOTO, 4D etc. However, most of us understand that the probability of being financially free from such approaches is so infinitesimal that we just buy TOTO for fun and not seriously with the realistic expectation of hitting a $600,000 jackpot or even the Hong Bao multi-million dollar draw.

Other ways provide for a higher probability of being financially free, but tend to require discipline, hardwork and a longer time horizon to achieve. For instance, the simple approach of:

1. Live within your means
2. Pay off debt
3. Save and invest prudently
4. Go back to 1

can help bring us closer to our goal of financial freedom, perhaps to retire by the age of 50 instead of 67. To semi-retire and turn our hobby into a small business that can sustain our lifestyles. To continue to work until 67 if we so choose but to feel unburdened by financial pressures of life.

Some people advocate using good leverage, i.e. to delay paying off housing loan and to build up investible cash for an opportunity to punt during times of crisis when stock and property prices are at their lowest.

Whatever gets you going
The route that we each choose to take towards financial freedom will be as varied as the tapestry of life. The threads of each of our individual styles, approaches and idiosyncracies come together in a riot of different colours, textures and lengths. Some of us will go all out and punt virtually 100% of investible savings into equities, hoping to make $100k into $500k within a few years through picking the correct stock on SGX. This is not unrealistic. During 2007, if you had bought SGX itself when it was $10 and ridden it to $15, you would have achieved a 50% return in a few months. However, such an approach is equally fraught with risks of sharp corrections in the equities market making that same $100k lose its value to $50k or worse.

Some people take a conservative approach, to invest 100% in treasury bills and fixed deposits. This helps you avoid losing money in the equities or other markets, but at 2%+ returns, the projected 2008 inflation of 5% will result in $100k being worth $97k, i.e. a net loss of $3,000 per annum due to the CPI eroding away the returns from such safe deposits.

Thus, your money loses real value due to cost of living, as measured by CPI, rising above the rate of return on your investments.

So how, brown cow?
What do we do then? Doing nothing is the worst case scenario. Leaving your money and savings in the 0.25% interest bearing savings account in your local bank is totally unacceptable. Transferring that amount to higher interest bearing savings such as Maybank iSavvy at 1.68% for $5,000 and above or treasury bills at 2.1-2.4% yields helps but still does not beat inflation.

To beat inflation, we have to seriously consider taking some risks. Depending on your own expertise and experience, you may need to start on the road towards investing in equities, bonds and other instruments.

What to invest in is really the question you need to answer for yourself AFTER you have done some homework, read about investments. Talk to people about investments. Visit blogs, websites, internet resources about personal investments. Sometimes pay some tuition fees through losing small money on investments to realise how challenging it is to consistently beat inflation over the long-run.

In short, we need to step beyond our comfort zones and get our hands dirty in being our own financial planners. Understanding the basics of personal finance, about managing our cash flows, about calculating our own net worth, in trying to establish what are our investment goals and how do we get ourselves geared up to attain those goals.

We need to take positive action and it starts with us.

No-one can nag us to do it.
No-one can make us do it.
You have to JUST DO IT.

Be well and prosper.