This is a series of posts in response to a new and younger friend who is on the verge of signing up for a savings plan. I had told him earlier that I don't believe in savings plans because it is something which runs against my belief that I am my best money manager. He of course then asked me how to go about investing.
A straightforward question, isn't it?
Truth be told, I was surprised I could not come up with a simple answer. I mulled over it for a long time, wondering how I should sequence my reply. Should I go straight to the technical aspects? That wouldn't seem right because that alone would not be enough for one to stay on this path. I could teach him to budget, to look for good stocks etc. But why would he do it? Shouldn't he leave it to the pros?
So, I decided. I would have to put myself back in time, to the time when I was just like him, young and working full-time, with a little bit of savings stashed away but not knowing what to do about it. It has been many years since the day I decided to take my financial future in my own hands. More than 15 years, I believe. I hope my memory serves me well, but if it doesn't and my facts seemed a bit muddled, please forgive me.
It all started in dribs and drabs, no "eureka" or definitive moment per se. But it definitely came about because of a new "belief" or I would even say, "faith" that was slowly taking shape over my long periods of reading. I was asking myself questions like:"What if I didn't want to work till retirement?", "Was there a way to be financially free earlier, say around age 40?" or "Do you really have to be born rich to achieve financial freedom?". All these questions nagged me and I began seeking answers through the method I knew best - reading. I wanted to get out of the rat race.
The first books that left a huge impression on me were "Rich Dad, Poor Dad" and "The CashFlow Quadrant" by Robert Kiyosaki. They seemed like crazily simple books and had their fair share of critics. I even remembered feeling a little "embarrassed" reading them on the train. But something in them made a lot of sense to me. He gave me insights into another way of thinking about my financial situation. We have all been told to study hard, get a job, and that everything would be fine if we did so. Like him, something in me told me this is not the way.
"Rich Dad, Poor Dad" taught me to make money work for me, instead of me working for money. The author opened my eyes to the fact that by being an employee, I was working partly for the government (in the form of taxes), for the banks (in the form of loan interest), for others (in the form of bills) and subjecting my financial future to the vagaries of retrenchment or job disillusionment. I was relieved to learn that it's ok to be a "coward" and to be afraid to lose money, because that was what I was. The trick was, he said, to "start young" - a piece of advice often heard but seldom heeded.
I was deeply enamoured but equally bewildered by the concept of passive income - money that you earn even without you actually working! It seemed like an incredulous concept at that point. I also became convinced that wealth, not the type you flaunt with branded gadgets or flashy cars, is defined by "a person's ability to survive X number of days forward without work".
I immediately went on to devour his second book, "The CashFlow Quadrant".
For those who haven't read this book, Robert Kiyosaki's CashFlow quadrant namely consists of: E (Employee), S (Self-employed), B (Business Owner) and I (Investor). Very simply put, most of us are E's but E's do not end up rich. It's the B's and I's who do.
I calculated how much I would earn as a civil servant, given the usual "government" raises I would get every year, assuming I stayed working for many years. I also added what my husband potentially could earn. I came to a rather disappointing figure after deducting projected expenses. Being an employee (E) was not going to cut it for me in the long run. I do not relish working till the age of 62. What was left to do was either to be a B (Business Owner) or I (Investor). It was by simple elimination that I decided I needed somehow to be an Investor. Property seemed too expensive for us and so what seemed plausible as investment vehicles were stocks.
But there was a huge problem. We didn't have the money and we didn't know how. We both came from very modest backgrounds. My husband is the son of a taxi driver and housewife and me, well, much worse. Both my parents could not support themselves financially and my eldest sister had to start work earlier to help her younger siblings get through school.
We also didn't have a very good track record. Following the herd, my husband and I had bought into "penny stocks" based on stock tips or just gut feel. And were also clobbered by CLOB (pun intended) when it was declared "illegal". We were burnt in the stock market. Thankfully though, there wasn't much to burn.
Luckily, another book helped me see the light. I chanced upon it during one of my regular lunchtime escapes to the bookstore near my workplace.
Unlike the two books before, this was a relatively unknown book, "The Road to Financial Freedom" by Bodo Schafer. Schafer is a German millionaire, author and "money coach", who was able to live off the interest from his capital by the time he was 30 years old, so says the book intro. Frankly, I didn't check his credentials. I was that "gullible", you may say. Thankfully, his book taught me things that became really useful later. I shall touch about his book in greater detail in my next post because it has a much greater impact on me, in terms of the actions I took.
Let me end this post with one caveat: Only you are in charge of your own financial future.
I have deliberately written in a very candid manner to show three things: 1) my financial journey was not a linear learning curve - learning came from scattered sources. Mistakes were made, we learnt. We make new mistakes, we learn again, 2) You do need a lot of faith if you choose this path and a very supportive partner/spouse to journey with you and lastly 3) Believe that the world is here to help you when you are ready. It's important to believe because if not, you will stop searching.
In my next post, I will share on the book which literally changed my everyday actions.