The 9 Steps to Financial Freedom

The 9 Steps to Financial Freedom


Suze Orman's book stands out from the field (she covers most of the topics other writers do) are two very useful insights:

(1) That our psychology and subconscious has a lot to do with how we do (or do not) manage money;

And (2) money, in and of itself, does not have power over us; indeed, it is the other way around -- the way we manage our money speaks about who we are.


Other than these two insights (which are eloquently communicated) Ms. Orman covers the basics - as tortuga has posted - "get out of debt, make sure your family is protected (emergency fund, life insurance, etc.), invest for retirement and college for the kids," etc.

She does a very good job in the relatively short book of covering these fields in sufficient depth. A note to those who dislike her philosophical/religious diversions -- do not let them stand in the way of receiving some excellent advice.

Honestly, she talks down to my level and wifey's much like the Gardner brothers of The Motely Fool fame "To amuse, enlighten and enrich" type of prose.


According to Suze:

Step 1

"The road to financial freedom begins not in a bank or even in a financial planner's office but in your head. It begins with your thoughts.

And those thoughts, more often than not, stems from our seemingly forgotten past with money."

Step back in time to see how your feelings about money can be traced to your past. We all have "money messages" passed down from generation to generation.

When Suze Orman was 13 she watched her father dive into the flames of his burning take-out chicken shack in order to rescue his cash register. In that moment Orman learned that money was more important than life itself. And so it became her quest to be rich. But years later, when Orman became a wealthy broker with a huge investment firm, she was profoundly unhappy. What went wrong? She had not yet achieved financial freedom. In her nine-step program, Orman covers the ingredients to financial success--confronting our beliefs and fears, learning the nuts and bolts (and insiders secrets!) of savvy management, and finding the spiritual trust that leads to abundance.


Step 2

"Facing your fears and creating new truths.

Don't you find it strange that you can raise a family, hold down a job, fix things that are broken, and deal with everything that comes up in your life – except your money? "

The book sets the premise that you never learn to deal with money successfully until you overcome your fear of money...of not having enough, and fear of taking action with your money. It's about how to make money work for you so you have more than enough because you learn to devote energy, time, and understanding, to money. The three ways of getting money in this world:

(1) Work for it
(2) Inherit it
(3) Invest the money you save (the most powerful, respectful way to get money there is) e.g., DRIPing.


Step 3

"Being honest with yourself."

Quit using plastic cards for money. They are addictive and destructive as drugs, giving you a quick fix by satisfying temporary desires.


Step 4

"Being responsible with those you love."

Establish life insurance, wills, power of attorney, estate planning, etc


Step 5.

"Being respectful of yourself and your money."

If you do what needs to be done with money, you will attract money to you.


Step 6

"Trusting yourself more than you trust others."

You and your money must keep good company. Credit cards are never good company. Get out of debt. Respect yourself and your money by making every penny work for you. Trust yourself more than you trust others. Find the "little voice" inside you; listen to what it has to say.


Step 7

"Being open to receive all that you are meant to have."

When you are in control of your money and have enough to be generous, money flows to you.


Step 8

"Understanding the ebb and flow of the money cycle."

Money has natural cycles as it ebbs and flows through your life. Money flows through our lives like water...plentiful at times...a trickle other times. These transitions are exciting or scary, but are all part of the natural cycles of money. There are two important reactions to these cycles:

(1) You must take the long view of your financial future
(2) You must believe that what happens is positive and let it be.


Step 9

"Recognizing true wealth."

If you choose to entrust your money to someone else, and you really don't know how money works, unscrupulous people can take advantage of you. Further, you discover the thrill that comes from wanting to deal with your money instead of just having to deal with it.

Get in touch with your money; delight in spending it as you did as a child, but enjoy choosing not to spend it too; take pleasure in putting some away for later.

Most of us need to spend our money differently. Not drastic action like getting by with one car. Unrealistic budget cuts, like diets, never work.

Rather, decide to spend $25 to $30 less per month from fifteen or twenty of your spending categories; with each decision you make to spend less, you are gaining power over your money, and you will find creative ways to reduce your spending so you hardly notice. Rather than being dictated by a restriction, your actions are guided by the choices you make. This is the hardest step to financial freedom; you become honest with yourself about how you really stand.

LBYM! Spend less by putting your money away before you see it. Pay yourself first.

It's not what you make, but what you keep. Time plays an essential role in building future wealth because the longer you contribute, the more you'll have and with time, the contributions you have already made do more work for you. The thing that makes time so powerful is our youth and compounding.

The important thing is to understand the nature of money and take the right steps to make it work for you. Recognize true wealth. People can not be measured by their net worth. Money does not make you financially free; only you can make yourself financially free.

Don't Be A Burden When You Grow Old

Don't Be A Burden When You Grow Old


By MA. SALVE DUPLITO
Editor

IF you have experienced taking care of your parents who have advanced in age, or know someone that does, you would agree that it's no joke.

Care-giving expenses, medical bills, the cost of adult diapers can stack up and - shoot me for being too realistic - often slowly take away a little of the love children have for their parents, day by day. What remains is the burden of caring for the old ones.

Most Filipinos' idea of retiring and growing old is for their kids to "pay back" their kindness as a parent by taking care of them when they grow old. Do you seriously want to be a dead weight on your children's necks when you are advanced in age?

Say this out loud with me: I will do everything I can so I will never be a burden to my family when I grow old! Careful financial planning, preferably starting the day you got your first job will ensure that your children will love you when you grow old.

Rex Ma. Mendoza, president of Philam Asset Management, Inc., points out in an interview with INQ7money that the steps to make sure that your children will fight over who will take care of you later on are surprisingly easy. They start with a commitment to plan your financial future and discipline.

Financial planning need not be uninteresting. It is only boring when you are talking with a consultant who wants to make it sound complicated so you would continue to get his services.

Financial planning is simply finding out where you stand financially right now, where you want to go, and coming up with a plan to go from here to there! Simple. But remember that it must do at least five things: beat inflation, minimize taxes, manage the unexpected, provide money for special expenses and enrich your retirement.

Beat inflation. There are several holes in everyone's investing buckets. Inflation is one of the biggest. A six percent inflation rate, announced by the National Statistics Office for 2000 for example, means your 1000 pesos in a time deposit account, will buy only 960 pesos worth of goods when you withdraw it next year. Computed until your retirement day, that four percent inflation rate per annum can account for a substantial amount lost from your investment bucket.

So make sure your financial planning strategy will include savings and investment instruments that would beat the inflation.

Minimize taxes . The way things are done at the Bureau of Internal Revenue, only tax lawyers can understand how much your tax expense should be. Opt for tax-free investments to avoid income taxes and tax-deferred investments to postpone these tax bites. That way, your funds can grow at a faster clip.

Manage the unexpected. Health and life insurance are funny products in the sense that you hope never to make a claim. But they are necessary for when things you don't expect do happen – like accidents, or fire, or even death. Listen to your agents with caution and make sure you don't believe marketing hype for high-commission insurance products.

Provide money for special expenses. I know a couple that has done everything in their power to budget their income but failed to set aside money regularly for sudden cash needs, like tuition fees. They end up using their credit card and now struggle to keep up with their monthly dues.

Enrich your retirement. Supplement your Social Security with a clear plan on how you can finance your retirement. With a regular income even after your official working days have ended, visiting with your children and even your grandchildren will be a pleasure, not a pain.

After all is said and done, developing the plan is one thing, sticking to it is another. Once you have created your blueprint, its up to you to make your plan work.

The Winning Mindset

The Winning Mindset

Hector De Leon (Save-and-learn.com)
April 6, 2009

A critical ingredient to investment success is to have the right mindset of who you are, what you want, and what you need to do. Most of us know what we want, some, with proper planning, know what to do, but a lot of us fail to realize and accept who we really are.

Here is a typical telephone conversation between an investment solicitor/banker (Jill not her real name) and a prospective investor (aka Mr. Belle not his real name either).

Phone rings…

Jill: Hello, May speak to Mr. Belle please?

Mr. Belle: This is he. Who is this please?

Jill: Good morning Mr. Belle. This is Jill from JMC-Duart Investments, and I’m calling to ask if it is possible to see you in person regarding an investment proposition.

Mr. Belle: What kind of investment are you carrying?

Jill: JMC-Duart is principal distributor for an assortment of mutual funds that have varying degrees of risk and potential returns.

Mr. Belle: I already have mutual funds. What is the average return on your stock fund?

Jill: In the last three years our equity fund has averaged over 16% net for shareholders.

Mr. Belle: Hmmm, that’s quite impressive but the market is really bad right now so I don’t think this is the best time to get into equities. In fact, just recently, I decided to redeem my equity mutual fund shares to limit my losses. The fundamentals are bad and the technical indicators are not very promising either. I don’t want fixed-income investments either because interest rates are currently too low. Call in a couple of months. If the timing is right, I might consider meeting with you to find out more about your funds.

What went on during the conversation? Well, in a nutshell, Jill tried to sell Mr. Belle mutual

fund shares but Mr. Belle felt that the timing is not right. Furthermore, Mr. Belle is an aggressive investor and considers only high yielding investment. He is also the type of investor who prefers to manage his own investment portfolio.

And what does Mr. Belle do for a living? He sounds like a banker, an investment officer, perhaps a stock broker or maybe he is a fund manager. Actually, Mr. Belle is a BALLET INSTRUCTOR. He knows a lot of the investment jargons because he is genuinely interested in investments so he reads a lot. But does that make him a professional fund manager? Not quite.

A fund manager is a different kind of animal (no pun intended). Upon waking up in the morning a fund manager would look for the morning paper before his sleepers so he can catch up on anything that might have happened while he was asleep. He or she will have breakfast while reading the business section, somehow be able to take a shower while still reading, and drive to work still reading the paper (Don’t Try This at Home). The only time he lets go of the morning paper is when gets to the office and he comes face-to-face with his best friend in whole wide world - his Bloomberg terminal. He then spends the whole day in front of the monitor to watch the markets go up and down, up and down, . . . . . up and down all day long. After work, he goes home, has dinner, maybe a couple of drinks and goes to sleep. While asleep he will dream of the markets going up and down, up and down, . . . .up and down all night long.

I am of course exaggerating. My point is this. A fund manager eats, sleeps, breaths, and lives in the markets. He is capable of doing things with the markets that ordinary people can not do - like shoot an order to buy or sell a security at the snap of a finger (or at a click of a button if he or she does not have an assistant) and more importantly, stay emotionally unattached to the markets.

So if you are NOT a fund manager by profession then don’t fall into the trap of trying to think like one. The best thing for you to do is to THINK LIKE AN INVESTOR and let your fund manager do his job.

What to do with your first paycheck

What to do with your first paycheck

INQUIRER.net
04/02/2009

Filed Under: Personal Finance (This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)

Question: I finished my marketing degree this March and I’m all set to start working at a bank this April. My parents have always told me to handle my money well once I start working. What advice can you give to a new graduate like me starting on her first job with regard to handling money? — Annie

Answer: First off, congratulations, Annie, on your graduation and for bagging that job so soon!

There are so many things one can do with a first paycheck – treating your parents to a nice lunch or dinner, or having coffee with your very close friends. But while spending time with those dear to you may be good, it’s even wiser to have a long-term outlook and spend your first paycheck accordingly.

Here are some ways you can spend your first few paychecks and lay the groundwork for your financial independence:

1. Start an emergency fund. This fund will help you tide over the hard times if something happens such as a job loss or illness. Use part of your first paycheck to open a savings account which should be separate from your payroll account (so you can make sure you won’t touch or spend this fund). Commit to deposit at least 10 percent of your take-home pay to this account every month. Then once you have built up this fund, transfer some of it to a higher-yielding account like a special time deposit or investment vehicles like mutual funds or unit investment trust funds.

2. Get health insurance. In case your employer does not offer a health insurance package as part of your benefits, make sure you get one yourself. You can’t tell when you will get sick and need hospitalization. Insurance will ensure you will be able to meet your hospital and health care needs. And if you get a policy at your age, the premiums will be lower.

3. Get life insurance, especially if you have dependents. This will protect your family from financial burden should you pass away. It’s not too early to think of that and prepare for it right now. As with health insurance, the younger you are when you get a policy, the lower the premiums will be. You don’t need top-of-the-line insurance products right now. Just get one that will cover you for a fixed term and offers affordable premiums.

4. Pay off debts. In case you have tuition-related loans or other forms of debt, use part of your first paychecks to keep yourself debt-free. Then when you get your first credit card, be prudent in making purchases. Every purchase you make with a credit card becomes a debt you have to pay.

5. Start a retirement fund. Retirement seems a very long way off when you haven’t even started your job yet. However, if you commit to set aside a specific amount each month for the rest of your working life, you will have enough to have the lifestyle you want at retirement. Your retirement fund can take the form of a pension plan, a provident fund at work, and mutual fund or unit investment trust fund purchase. If you start saving early for retirement, compound interest will build it up faster. Hold this investment for the long term. Resist using this fund for other purposes (if you want to buy a car, for instance, start a car fund separately).

These may all sound overwhelming, but with these first goals, you will be on the road to financial dependence in no time. Remember the ant which saves up food little by little over time. At the end, the ant has enough food for the rainy days.

With these goals, adopt these money habits too:

1. As soon as you receive your paycheck, pay yourself first. That means taking away the money for your retirement fund and emergency fund, and depositing it directly to your account. By deducting the said amounts even before you spend your income, you will ensure you will have enough money for the future.

2. Spend less than what you earn. This is what is called living within your means. Spending more than what you earn means you are living in debt and are living to pay off your debts.

3. Make a budget. “A budget helps you organize your spending. It tells you how much money comes in, how much money goes out, and where the money goes,” says the booklet Use Credit Wisely published by Citibank. List down all your fixed obligations such as health insurance and life insurance premiums, rent, and the like. Then live on what is left. You can adjust your other spending (for food, transportation and entertainment, for example) based on how much money you have left.

Good money habits started early will benefit you in the long run.