Last Level! Burn and Give

the reason why this article came by so late cos i was contemplating on the best way to explain the concept of burn and give.

then today, a friend said something to me that i felt embodies the whole concept:

Invest only with money you don't need.

So, if you have arrived at this level, you technically have too much money. YES. u read right. TOO much money (as if there will ever be the case.. unless u are Bill Gates) Cos when you invest with money you don't need, there is less emotional attachment to the cash, so making decisions can be more rational, which should technically be better informed.

This is what i mean by burn. By investing. Blue Chips, futures, options, hedge funds..the higher risk types. Do take into consideration your risk profile before u partake in any of the above. If losing all your seed money can kill you, don't do it. As simple as that.

Or, alternatively you can always give money to worthy causes- trustworthy charities, adopt a improvished child through worldvision, natural disasters funds, your parents, or if you have some left and felt that you have gained something from this website,you can always feel free to donate a bit to me! (come drop me an email! ^^)

Giving is actually a really amazing thing. Cos normally, what you give out, comes back to you in a richer manner, especially when you least expect it. Like the saying goes " what goes around, comes around". Although you shouldn't really be giving with the ulterior motive of having somethng back.. kinda defeats the entire purpose of it...

In any sense, the act of giving (unless u are scrooge reincarnate) does have the tendency to make people feel good..try it! ^^


So a recap:

Level 1: Health Fund ( insurance, medical protection)
Level 2: Rainy day Fund ( 4-6X your monthly expenses)
Level 3: Assets ( at least 2 X your monthly assets)
Level 4: Burn and Give ( invest only with the money you don't need and GIVE!)

Hope you enjoyed reading this series. Do drop me a comment~

Level 3: the holy grail of having money without working

So you are finally feeling reassured and secured with the amount of cash you have in your rainy day account. What's next?

What's next on ur path to become financially indepedent?

You invest in assests and reduce your liabilities.

WHat are assets and liabilities then?

Assests are generally items that can generate cash for you while liabilities are stuff that you have that makes you burn cash away.

Assets are stuff like property which you make money from rent, businesses that can generate income for you, milder forms of investments like mutual funds. These are the ones that generate income for you.

Liabilities are things like owing a car even if you live 2 blocks away from where you work, bills like maintenance and gas outweight the value that you can get from it. You get the gist. It's basically stuff that devalues from the moment you have it and depreciates further when you use them.

So, how much value should your assets bring you in order to be considered to be a fair amount? (of course the more assets the better!)

Basically, a safe amount whereby you can stop working at your job (unless ur asset is your business, but the other alternative is that you can always become a shareholder) is when the monthly income from your assets becomes twice that of your monthly expenses. The logic being, if money from your assets can cover your monthly expenses, you can start planning for retirement!

P.S: The thing to note is that your needs changes as you mature so be mindful of adjusting your rainy day funds and assets accordingly to your expenditures.

Last stop- Burn and give! what is it about? STay tuned and find out^^

Level 2: Rainy Day Fund

So what is the rainy day fund about?

Rainy day fund is basically the money that you have and can save in the bank after you put aside money for your monthly expenses (bills, food, rent, insurance,party..yada yada..The list goes on. Makes you wonder what's left after all that to save~~)

But anways, what is the rainy day fund for and why is it important?

TO BUY TIME AND REASSURANCE.

Yup, you saw it right. To buy time and reassurance. What do I mean by that? Allow me to walk you through the logic.

Basically, one should always aim to have at least 4-6 times the amount of what they spend monthly in the rainy day fund.

i.e

Amount of $ in Rainy Day Fund = 6 x Monthly Expenses

Why that specific amount then?

Well, in the event whereby if you ever lose your job (touch wood!), [that is if you ever intend to work for others~], you will have at least 6 months to look for another job that suits you, instead of you trying to suit the job cos you are hard up for money. This is what i meant by buying time and reassurance.

Plus, it's always good to have extra money in the back for emergencies or for the occasional quick getaway!

So, that's it for level 2 of the pyramid of financial independence :) Look out forthe upcoming article to find out how you can work towards maintaining your lifestyle without having to work!

Pyramid of Financial Independence

I got my first real job when I was 15, waiting on tables in a coffeeshop. I can still remember how much I got for 6 hrs of work in a day-the grand sum of $25.

But actually, my first work experience was even earlier, as my parents used to own a food stall and I remember helping out after primary school.

My family had its fair share of monetary woes, from gambling debts to medical bills. My dad was diagnosed with liver cancer a few years back and that illness would have almost wiped out our savings had my dad not bought insurance. That being said, this was the catalytic event that eventually made me the partial breadwinner of the house since the grand old age of 18 (rent, bills, food, u name it, i paid it) and that got me really scared. Which was a good thing cos it prompted me to think about how I can better manage my finances. There is no way I will let myself be in that similar economic situation again.

And this is where the pyramid in the above diagram came about. I call this my pyramid of financial independence and before i go on further, let me do the decent thing and explain what financial independence means.

What does financial independence mean to you?To me, it's the ability to have steady income coming in to maintain a certain stardard of living, even when I am not working. To have the freedom to pursue my real interests without having to worry about money. How is that possible, you might ask. Well, have patience and read on. Allow me to walk you through my game plan. :)

Pyramid of Financial Independence

Like a pyramid, the base is the most important feature. Why is the health care fund so important and how different is it from your ordinary savings account? Well, from personal experience, health care is NOT CHEAP! Treatment for cancer from start till remission stage/or death, can easily cost more than 20 K in Singapore. I imagine the price of health care would be much more higher elsewhere, like in the US. Fine, so u say ~ I have 20 k in my bank savings account. That will do. Why do i need to specifically set up a health care fund for myself?

Hmm..my somewhat tactful answer would be..Well, what do u live on when you use the 20 k in ur account to pay for your treatment? Air? ~~

It had been said that 1 in 5 over 60 yrs of age would have some form of life delibitating disease like cancer, or heart disease. Look around now and look at the people beside you. If there are 5 people in the room now, it could happen to one of you! (ok fine, so mayb it was too dramatic but the stats still hold) Enough said.

Go do yourself and your family a favour by investing in at least 2 forms of health insurance - Life insurance and medical insurance. A typical life insurance contract usually contain 30 critical illness coverage, terminal disability and of course, death. Shop around, (insurance institutions are dying for your biz) and take your time to choose one that is most suitable for you and income level. Personally, if you are hoping to make some money outta your life insurance policies, i suggest you look elsewhere. Life insurance doesn't make you much money, after taking inflation into account. Take the life insurance as a form of savings. See it as a form of savings to pay for whatever possible illness you might experience in the future. There is nothing taboo about this. It is just being realistic. Better to be realistic than be faced with no money in the future to pay for a possible illness right?

As for the medical insurance, there are sooooo many different kinds out there, but basically, what you should be looking for is coverage for hospital stays, and minor medical treatments. Sudden minor medical treatments can be very expensive too. Remember, a little now runs a long way in the future. ^^ Invest in a less hassle future now! ( haha, do i sound like a financial planner peddling her stuff? )

Righty, that about covers all bases for the red base. Stay tuned for the upcoming article on the purpose of the yellow base- Rainy day fund !!

Disclaimer: I am by no means a qualified financial planner. I don't work for any financial institutions (yet!) or sell any financial products. This is just my personal experience and opinion.