Blueroselady's Weblog

I wish you abundant happiness, health & wealth

Posts Tagged ‘accounting

How to achieve financial stability, security, freedom, abundance?

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Criteria of financial stability:
1. liquid assets to cover a min of 6 months of current expenses.
2. have insurance (life, hospitalization).

To calculate expenses, see a previous post on how to make personal income statement.

Let say in 2012 (based on an estimate for the 1st 8 months), my monthly expense is $2,700.
Therefore, I need to keep a liquid asset of ~ $16,000 in my bank account.
Stocks are also considered as liquid asset, but to be conservative and safe, I only consider cash in my calculation.

Tips:
1. Get a term insurance with a much cheaper premium than a whole life insurance. Understand that term insurances are often up to only certain age, e.g. 65 and its purpose is to protect your family (not your retirement).
2. If you want to also get a whole life insurance, try to buy it at younger age and to finish paying the entire premium early. Unlike long-term housing mortgage, which can be protected with mortgage insurance, I hear many cases of people failing to pay for the expensive premium of the whole life insurance hence their policy lapses.

Financial SECURITY means your passive income can cover your BASIC expenses.
Financial FREEDOM means your passive income can cover your CURRENT expenses.
Financial ABUNDANCE means your passive income can cover your DESIRED expenses.

Criteria for basic expenses:
1. housing mortgage, utilities.
2. public transport.
3. food (inclusive for my children) / groceries.
4. all interest payments for debts.
5. all insurance premiums (life, hospitalization, fire).

Let say in 2012, my basic expense is $1,500.
To achieve FINANCIAL SECURITY, I must have passive income of $1,500 per month.

I realize that these components (a) gifts / donations, (b) insurance premiums, (c) dining out, contribute to my non-basic expense in descending order, but I want to keep on giving and enjoying the fruit of my labor, so let us set our target higher.
To achieve FINANCIAL FREEDOM, I must have passive income of $2,700 per month.

To calculate my desired lifestyle, for now I only add 2 items (but the list may grow over time).
I want to be able to give meaningfully and travel the world.
To achieve FINANCIAL ABUNDANCE, I must have passive income of at least $5,000 per month.

I am working smart and hard to have more passive income. Keep on the spirit!

Written by blueroselady

September 18, 2012 at 9:10 am

How to make personal income statement?

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One of the most useful courses that I had in my undergraduate study was accounting.
We learned how to make income statement for companies.
However, the same principle can be applied to make our own personal income statement.
Only when one is able to manage personal finance well, one is capable of managing the finance of companies.

PERSONAL INCOME STATEMENT
You can use spreadsheets (e.g. excel) to keep track on your income and expenses.

Total savings = total income – total expenses

Types of income:
active
passive

Types of expenses:
personal
children
housing
transport

In more details …

ACTIVE INCOME
net salary.
401K / CPF: I do not include this since it will be many years later when I can withdraw.
commissions.
bonuses.
directors fees.

PASSIVE INCOME
dividends.
royalties.
interest income.
private business profits.
net rental income.

PERSONAL EXPENSES
dining out.
clothes: except for underwear, I do not mind wearing 2nd hand ones from my mother / sister.
entertainment.
communication (mobile phone, Skype, data plan).
insurance (life, hospitalization).
personal taxes.
gifts, donations.

CHILDREN EXPENSES
health : vaccination, medicine.
education (school, text books, tuition / enrichment classes): swimming, music if the children show keen interest.
school bus.
clothes: get all new underwears and few new ones for special occassions, get 2nd hand for most clothes because children grow fast.
toys: we strive to minimize this, instead bring children to beaches, parks and libraries. I had little toys so that I socialized a lot (other kids seem to have a lot of toys) and when my parents moved to non-residential area, I used my imagination to play.
allowance: we strive to minimize this by packing their lunch. I had no allowance until I finished my primary school education.

HOUSING EXPENSES
mortgage.
utilities (water, electricity, service and conservancy, internet connection).
cleaning (e.g. full-time maid, part-time maid): get your children and spouse to do duty roster.
groceries.
property tax.
fire insurance.
mortgage insurance.

TRANSPORT EXPENSES
public transport (trains, buses, air tickets): buy air tickets in advance for peak period.
car installment.
petrol.
maintenance / servicing.
car insurance.
road tax.
season parking.

See also how I strive to minimize my expense through frugal lifestyle.

Ideally: earn -> save -> invest -> spend
Vision (December 2013) : earner -> saver -> investor -> philanthropist

Written by blueroselady

September 17, 2012 at 8:56 am