Are you a good steward of your money?

Recently I read this book Creating Wealth by Robert G. Allen; it talks about the seven principles of wealth. One of them I wish to highlight is Wealth Principle 4: Wealth seekers are always on the offensive, not defensive.

Most people are concerned with security, especially with money. Whenever when faced with risk, failure or debt, they tend to go for low-yielding “safe” investments. You need to understand that these kinds of investments don’t produce wealth. Most average investors believe that the worst thing that can happen to them is losing their capital, they are so afraid that they focus their money on the defensive. He is more concerned with saving money, buying ILP or Unit Trusts rather than more lucrative investments.

There is a famous parable in the Bible call “The Parable of the Talents” in Matthew 25:14-26:

14"Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. 15 To one he gave five talents of money, to another two talents, and to another one talent, each according to his ability. Then he went on his journey. 16 The man who had received the five talents went at once and put his money to work and gained five more. 17 So also, the one with the two talents gained two more. 18 But the man who had received the one talent went off, dug a hole in the ground and hid his master's money.

19"After a long time the master of those servants returned and settled accounts with them. 20The man who had received the five talents brought the other five. 'Master,' he said, 'you entrusted me with five talents. See, I have gained five more.'

 21"His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!'

 22"The man with the two talents also came. 'Master,' he said, 'you entrusted me with two talents; see, I have gained two more.' 

 23"His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!' 

 24"Then the man who had received the one talent came. 'Master,' he said, 'I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. 25 So I was afraid and went out and hid your talent in the ground. See, here is what belongs to you.' 

 26"His master replied, 'You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? 

The Lord gives five talents to one servant, two talents to another and one talent to another. Upon returning, the master found out that two of his servants have done very well with their “investments.” But the last one was afraid, he took the talent and buried it in the ground, all because he did not want to take risk! God’s words are explicit, he reprimanded the last servant for not being a good steward of this money. Instead of making it grow, he chose to invest the money in bank, or maybe in his safe?

The profitable servants is on the offensive, they were willing to risk to make their money grow, the unprofitable servant is on the defensive. He only wish to preserve, to protect and therefore he did not grow his assets.

But is there a place for defence? Of course, any soccer coach can tell you that a good team must be balanced with both offensive and defensive units. But still, the best defence is a good offense.

Concept of Wealth from Rich Dad

The book Rich Dad Poor Dad by Robert Kiyosaki is an astounding book, it changed certain mindsets I have about building wealth. It is highly recommended especially if you are just starting out. But be warned, the ideology behind it might offend you and you might not agree with it. In fact, most of the principles taught in the book contradict what my parents taught me. Let’s look into some of it:

The Rich don’t work for Money

If you ask most people what is the most important thing in order to build wealth, most of them will tell you the answer is having a good JOB, a great JOB. On the contrary, a wealthy person begs to differ. Having a job is important, but that alone certainly cannot make you wealthy. To a wealthy person, a job is temporary. It helps you in the initial stage of your wealth building plan by generating cash for you to accumulate them in order to propel your portfolio on auto pilot mode (passive income). In fact, the rich believe in money working for them, not the other way around.

It is commonly held in our society that finding a good job, working hard and moving up the corporate ladder will lead us to wealth. But having a job merely supports our necessities (food, shelter). There is a quote saying “Wealth is when small efforts produce large results. Poverty is when large efforts produce small results.”

So the key is not work harder, but work smarter. Your goal is to acquire assets that can generate passive income and in a long run, you ought to be wealthy!

Stacking up your assets

What do you considered as an asset? They are things that can generate income or go up in value. Some good examples of assets are:

• Real Estate
• Stocks
• Bonds
• Unit Trust

Why assets are so important?

A true asset is where your money is working for you and provides you with cash flow. The more assets you have, the more your cash flow grows. As long as your expenses and liability is less than your asset-produced cash flow, you are growing richer. And with that, it can set you up on auto pilot mode which ultimately leads you to financial freedom!

Looking at a simplified version of an income statement, you can understand the differences between the rich and the not-so-rich.

Let’s take John, a fresh graduate as an illustration. John works in a MNC with above average income as compared to other graduates. Every month, after paying off his tax, bills and spending on his wants and necessities, he is happy because he has got more than enough. So he decided to buy a Honda Civic. Few years later, he met his dream girl and got married. At first, everything seemed okay. With the income from John and his wife, they decided to buy a house with a 25 year loan.

Soon after they bought the house, their first child was born and his wife decided to be a housewife. John soon realized that his expenses are catching up and the money that he is earning is not enough to cover his expenditures, worse still, if the second child comes along. His car expenses and mortgages are killing him. With much consideration, he decided to sign up for night classes hoping to get promoted in his job. Few months later, his boss decided to promote him because of his hard work and productivity. But things aren’t getting any better. Soon after that, his second child was born. Expenses are rising and he decided to get another job to support his family.

Sooner or later, John realized that he is stuck in the infamous rat race. The harder he work (and having higher pay), the higher the expenses due to higher tax and higher spending. As you can see from the diagram above, the cycle repeats itself.

Let’s look at the income statement of a high income group. Another illustration is Peter. Peter just got out from the Army, and with a diploma cert, he found a job in a local company. His pay was not that bad as a diploma holder. Every month, with the money he earned, he set aside a certain amount of money first then pays off his tax, bills and necessities. With the remaining cash, he then spends that little money on his wants. With the amount of money he accumulates every month, he went on to buy assets such as stocks and bonds.

After a few years, he began acquiring properties and renting them out. The income generated from his assets surpasses the income from his job. On top of that, his expenses are being paid off by the income generated from his assets. After he got married, he realized he can choose not to work and still have more than enough money in his pocket. He set up a business and invests part of his money into it. A year later, the business grew and he decided to employ staffs to take over his business while he enjoys the reaping of his profits and have enough time to spend with his family.

As you can see, the initial stage might be tough, but after you kick off and set yourself on autopilot mode, you can have all the freedom you want! Always remember to acquire assets that generate cash flow and you are on your way to financial freedom.

Start now and take action. Do not have the mindset that you do not have enough money, you are not prepared or you do not have time. Take responsibility of your finance!

“As you begin to take action toward the fulfillment of your goals and dreams, you must realize that not every action will be perfect. Not every action will produce the desired result. Not every action will work. Making mistakes, getting it almost right, and experimenting to see what happens are all part of the process of eventually getting it right.”

Jack Canfield

Trade Opportunity: Hewlett-Packard Company (HPQ:US)

Hewlett-Packard Company is an American multinational information technology corporation headquartered in Palo Alto, California, USA. HP is one of the world's largest information technology companies and operates in nearly every country. HP specializes in developing and manufacturing computing, data storage, and networking hardware, designing software and delivering services… read more from Wikipedia.

5 year Chart of HPQ (Click on image to enlarge)

I believe most of you know about the sex scandal revolving Mark Hurd, the CEO of HP during early August which sent the price from $54.75 (52 wk high) down to the current price of $39.19 (around 52 wk low). Down by around 28%. Soon after that, he stepped down as CEO.

The news that brought the price down to its lowest this year after the 2008 financial crisis is actually short-term news. And short-term news is a good buying opportunity as we know that the news will not affect the company in long-term. Read here to learn how to differentiate long-term and short-term news

Fundamental Analysis

Honestly speaking, you don’t really have to bother much about fundamental analysis in the case of trading on short-term news. But it doesn’t kill to know a little?

I am using HP Probook right now and I am very happy with it. Its fast, don’t weigh a ton and the customer service is quite decent. Many of us know or at least heard about the brand, HP. This clearly shows that HP has a strong brand recognition.

This company also has been consistent in their dividend payout. Also, HP posted an 11% revenue jump and a 6% profit increase for its fiscal third quarter. The PE ratio of HP is now 10.91 which tentatively mean it is undervalued. And the ROE is 20.54%, which is considered attractive (more than 15%).

Technical Analysis

2 month Chart of HPQ (Click on image to enlarge)

From the chart, you can spot multiple buy signals indicated by the yellow circles. The price fell after the resignation of Mark Hurd and touched the support line on 27 August. I believe the price is going to head back to the resistance line and that’s your sell signal before plunging down again. And then, I speculate there is a possibility that the price might break below the support.

Conclusion

I would say HP is a good buy at the moment. Sell it once it hits the profit target of around 42 (resistance line). I don’t recommend you short sell it along the way down. But once it breaks the support line, another good buying opportunity emerges.

From the fundamental, you can also buy and hold it for long term. There is a high possibility that HP will eventually go back to their high.

Disclaimer

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One of my Short Term Financial Goal

That is to start earning $4000 every month by 30 June 2011 (Excluding my investments.)

I bet you must be wondering what my income is right now. Honestly, it is quite far from my target. Are you ready to find out? Yes? No? Whatever… I am going to tell you anyway.

At the time of writing, my current income is around $1000. Laughing out Loud eh? Mind you, I am still a full-student and I do part time to earn that amount.

So how on earth am I going to make $4000 a month? The answer is simple, prepare to work hard and work smart! With my qualification and experience, I don’t think I am able to find a job that will pay that amount. My solution? Simple! Work for myself! There are advantages and disadvantages in working for yourself, read my other post on the Pros and Cons of Self-Employment.

Currently, I teach tuition and guitar as part time. The idea is to leverage my time by having more students in a class, (instead of one student per class which is what I am doing right now.) I can multiply how much I earn in one lesson even if I charge a lower fee.

Also, another idea is to start an online business which I will not reveal now. I hope that in this online business, I am able to generate passive income.

The reason why I want to quadruple my income (from $1000) is because I choose not to limit my vision and to dream big. Seriously, I really don’t know if I am able to achieve it, but I am going to trust God for whatever He has planned for me. Nevertheless, I am all geared up to work hard for my goal. Even if I couldn’t achieve it, I am contented – because I’ve tried my best.

Also, recently I read a book “Secrets of Millionaire Students” by Stuart Tan. There is two other co-writer and both of them are YOUNG. And from the book, I read that their highest income per month can hit up to 5 to 6 figure.

And I listened to a this audio CD given to me at Invest Fair 2010, from the CD, this guy, at the age of 16 years old, he can earn up to $15,000 in 3 days by setting up workshop in schools. And the guy is none other than Adam Khoo.

When I listen to all this stories, this really got me inspired. I asked myself, If they can do it, I do it as well!

Pros and Cons of Self-Employment

Are you considering in becoming self-employed or work for someone else? The table below weighs the pros and cons of being self-employed.

Pros	Cons
Earn beyond limits There is no fix way of doing things and you can bring ideas into practice. And usually you are paid higher than those who are doing the same thing as you. Only difference is they work for someone else and they were usually underpaid.	Not financially secure You don’t get paid every month and your first few ideas might not work. If that happens, there is no income. Preferably, you need to have two months of savings before becoming self-employed.
Own time, own target Do you want to only start working in the afternoon in your pajamas? Or do you want to go swimming in the middle of the day while others are working?	No social interaction Most likely you will be working alone. You will seldom talk about topic and discuss things regarding your work unlike in an office. Most of the people you interact are your friends and families.
No office politics If you are working alone, there is nobody to stab you at the back, unless your dog does that. But if you hire, you are the boss, who dare?	Can be tough Working on your own can be very tough at first. You may have to start from scratch and manage your business records, market your product everything else by yourselves. Unless you hire, which it cost money!
Stretch your creativity You need to be constantly looking for ideas and that stretches your mind!	You need to be very disciplined There will be no daddy or manager to supervise you. This can be a good and bad thing depending on your personality. But the main thing is you have to bear the responsibility.
Learn to take initiative There will be no daddy or manager to supervise you. This can be a good and bad thing depending on your personality. And having initiative is very important.	No coverage and benefits from company Unlike working for a company which you might be subsidized for medical bills.

Not everyone can be self-employed. It boils down ultimately to the person’s personality and situation. You need to ask yourselves, do you have family responsibilities? Do you have the money you need to get started? Or saved enough money to keep you afloat until your business runs smoothly? Do you have the character and the discipline? Do you have the skills?

No matter what you have decided, there is no right or wrong answer. As long as you are willing to work hard, work smart and fine tune your character, you are bound to succeed! 

How to Set and Achieve Goals

“If You Fail to Plan, You Plan to Fail”

People become what they think about most of the time. And the key to become successful is to set goals.

Some simple steps on setting goals:

1.       Write your Goals on a piece of paper and categorize them into short term goal and long term goal.

Use the three Ps to set your goals:
-Present Tense: Use present tense and set a specific date that you’re going to achieve your goal.
-Positive: Set positive goals. (E.g. “I weigh 45kg” instead of “I will lose weight 10kg”)
-Personal: Write down the goal for yourself. Use “I” when you set a goal.          

A good example is, “I earn $6,000 every month.”

2.       Use the S.M.A.R.T goal setting (Personally as a Christian, I use the S.M.A.R.T.E.R goal setting below) to access every goals you set.

Specific – Be as specific as possible.
Measurable – Targets should be Measurable.
Action Plan – Have your action plan layout.
Realistic – Is the goal realistic? Set goals that are attainable
Time Conscious – Set a time frame for your goal. When you see yourself achieving it?
Expectation Management – Manage you expectations
Revelation – Have you seek God and prayed?

Start planning now and do something about it every day. After a year or so, review your list of goals. I believe you will either be happy or sad. Happy because you have achieved it. Sad because you didn’t set more goals.

Education: A Consumption or Investment?

During my secondary school days, I always wonder why I have to learn geography, Pythagoras theorem and trigonometry. Are those really useful and relevant to my career? The funny thing is most of us will forget what we have learnt after graduation (like how I threw my books away the moment I graduate – I’m serious!)

Don’t get me wrong, obtaining more education is usually a good thing. But we are going to look into it in financial context. Education can be both a consumption and investment depending on what business or career you are in. Taking a dance course would be classified as “consumption,” unless you dance for a living or you’re in a dance business. Basically, consumption makes you a better rounded and perhaps a more interesting person but probably will not bring any economic value.

But if you are a photographer and you take photographs in order to put food on the table, taking up photography courses would be deemed as an “investment.” By taking up courses, you learn skills that can enhance your productivity and increase your economic value in the market.

So is geography, Pythagoras theorem and trigonometry important? The answer is no! Most likely you are not going to apply them in your job (unless you are a mathematician or a scientist…) So why bother going to through primary, secondary school?

The reason is because school is like a training ground which prepares us for the “outside” world. In schools, we learn to be a problem solver, we learn that if we sow hard work, we will reap rewards, and also learn to communicate with different kinds of people. All these are extremely important. It is a place for us to have the right mindset, moral value and equip us with the ability to further improve ourselves.

Also, we study for the sake of qualifications. We can see how little a person with a PSLE qualification earns as compared to how much someone with a Master Degree. The difference is HUGE! So why bother going through education? It is simply so that you can get a higher pay job.

If you are still studying or you intend to further your studies, you need to ask yourselves what is the purpose. Is it to improve your economic value or just to learn something that you are interested in? You need to ask yourselves whether you think it is an investment or consumption.

To me, I enjoyed learning about investments and creating wealth. It is something of my interest and it creates economic value. This kind of education is the best as it is both an investment and consumption. Kill two birds with one stone!