Singapore Entrepreneur - Get Started in Investing Today

If the previous two blogs are what you want to achieve in your life, then get started into investment. There are many ways to grow your wealth. If you are not, by any chance, an heir of an inheritance, or not having any luck in striking a first prize lottery, then investing and starting a business would be the most pragmatic ways to bring you maxium returns.

Of course it's easier said than done. And we do not want to jump into any get-rich-quick business scheme which promises you the sky. What we want to do is to do some self-evaluation on what is your capability and aptitude in a particular area. The most comforting fact about growing rich is, you do not need to be clever ot have high IQ. You also do not need a Degree or Masters in MBA. In fact, many wealthy people who I know of, are simply businessmen who didn't even complete their school. The negative impact of receiving high in education, it makes you less risk averse in taking the plunge to start a business. Armed with a degree, you'd be more attracted to join big enterprises with promising career. This is actually a trap to most people into a rat race cycle. On the contrary, people who drop out of school usually have nothing to lose and have more opportunities to try on many things. They give themselves more exposure into starting up businesses. Of course, they need a little bit of luck and lots of planning to grow their business.

I shall talk about 2 areas of going into investments; starting out your own business and investing into equities in my following blogs.

Singapore Entrepreneur - It's All In The Books

Singapore Entrepreneur - The Power of Compounding Interest

My young Engineer once wondered aloud: "When will I ever earn my first Million dollar". He started using his salary and multiplying the number of years to reach one Million dollars. He told me he needs about 25 years. I told him that is only "revenue". He hasn't factored in his "cost" which is his expenses. Furthermore, inflation rate of about 4% per annum needs to be factored in. So, in reality, he will never be a Millionaire in his life. And even if he is, 25 years later, that amount is only worth half the amount today.

The scary reality about inflation which many people tend to neglect is that it is compounding. Your wealth is eroded by 4% every year and that is compounding at an exponential rate. There is a simple rule called Rule of 72 which could help you estimate how much long today's 1 Million Dollars is eroded by inflation to half its value. If you take "72" divide by the rate of annual return, it would give you the number of years it takes a value to become double or half. Take for example: "72/4%" = 18 years. This means it will take 18 years for $1M to be eroded to $500,000 (in today's value)in 18 years if the inflation rate is 4% per annum.

On the other hand, Rule of 72 helps you to estimate the number of years it takes to double your wealth based on your achievable annual return rate. Take for example, if you manage to find an annual return rate of 10%, it would take 72/10% = 7.2 years to double your investment. The power of compunding interest is that every dollar you earned from interest is re-invested into the capital. This simple technique gives a powerful exponential growth to your investment.

Singapore Entrepreneur - Financial Freedom

When we complete our studies in school, we look for a job which gives us a monthly salary. Each year, based on performance or gratuity, we get an increment to our salary. This trend carries on as we proceed to our mid-career life. We spend part of our pay on necessities, bills, some on personal entertainment and save the remainder of it. High salaried employees like bankers and lawyers may earn at least half a million dollars a year. Thus buying luxury items like sports cars or indulging in high life are no big deal to them. The more we earn, the more we would spend. But if we lose our job, we will lose all the capability in spending. It means to say, our lifestyle is very dependent on our income. Welcome to the Rat Race society.

What is to be financial free? Financial free is a lifestyle you have created such that your passive income is enough to cover your daily expenses and lifestyle. Passive income is an income that you do not have to actively work for it, like a job. To be financial free does not necessarily mean you have to be very rich. It is with respect to how much you have to spend to support your lifestyle. If you live a simple life in prairie house and live on some vegetables and chickens you plant and rear, you don't need any money to spend and you don't need income. Hence you are financially free. On the other hand, if you have a family to feed or a lifestlye to enjoy, you would then need a stable income to support your expenses. If this income is passively earned and is able to support your lifestyle, it means you are financially free. You are out of the rate race.

Examples of passive income are dividends payout from investments in equities, or owning a business which constantly brings in healthy profits.