My Financial Freedom Recipe

With the current economic turmoil in the Philippines, I find it quite fitting to write this topic involving the so called recipe to financial freedom. My aim is to impart this simple recipe to my fellow Filipinos in the Philippines. This recipe is not my idea. I have derived them from some famous books that I have read during my idle time.

A lot of Filipinos today are having a problem as regards with making both ends meet. All blame it to low basic salary, high cost of living, and rapid inflation. Problems which even the people of Babylon have faced some thousands of years ago. Meaning, this has been one of man's problem since then and yet, only a few knows or rather acknowledges this simple recipe. Below are the seven basic ingredients(derived from the book entitled The Richest Man in Babylon) together with my personal comment:

1. 10% of your earned income you save.

My comment: If you want to abruptly escape the rat race, increase your savings from 10% to 20%. This may be difficult in the beginning but as time goes by, you'll get accustomed to it.

2. Control your expenses.

My comment: Make your expenses be around 60%-70% of your monthly income. As regards with your credit, have it at around 10%-20% of your total monthly income. Regarding debts, always remember that there are good and bad debts! A good debt is a debt that will give you an amount that is more than your owed amount. Thus, allowing you to be able to pay your debt and at the same time, earn some money out of it(better known as investing with zero capital.). A bad debt on the other hand is the exact opposite of a good debt.

3. Make your saved money multiply.

My comment: Invest with anything that will make your saved money grow. Maybe, as a start, by saving in the bank. One thing to note though: investing in a bank is not a fast way for your money to grow(your money will grow at the bank but it will take years before it can make you a "financially free" individual. Sad to say, we do not have the privilege to live long enough to enjoy the bank's fruit.). There are other ways...it's up to your creative mind to discover them.

4. Guard your saved money(those you put in investment and those you saved) from

loss.
My comment: Always put an insurance or anything that will assure you that your money will never be lost from the investments or savings that you have made. In FOREX investment, there is a Stop Loss option to minimize your loss once the tide goes against you. Same with buying a brand new car, you always ensure that it is covered by an insurance.
5. Invest to have a house for you to live.
My comment: This is no longer much applicable today as can be seen from the outbreak in the US, wherein a personal house is no longer an asset but a liability! Better invest with this one last(particularly now that job assignments are quite so dynamic-one day you're in Luzon, then the next day, you're being re-assigned in Mindanao.).
6. Insure a future income.
My comment: Always invest with those that will provide you a continuous cash flow. One good example:royalty payment from your invention or song composition.
7. Increase your ability to learn.
My comment: Always attend some seminars or other learning activities. This is to enable you to be always competitive(remember: the world of advancement never stops!).

Then, to further monitor your development towards financial freedom, you may want to use the following indicators(as presented by Robert Kiyosaki of Rich Dad Poor Dad.):
wealth ratio = (passive income+portfolio income)/expenses > 1.00
Speaking of income, there are three types of income, they are:
1. earned income (worst will be with 50% tax deduction)
ex: your j.o.b.(which stands for just over broke!)
2. portfolio income (worst will be with 20% tax deduction)
ex: mutual funds, dividends from corporations, interest.
3. passive income (worst will be with almost 0% tax deduction)
ex: rental income, royalty income, etc.
Take note, in computing the wealth ratio, don't include the earned income. Part of the assumption of being wealthy is of not being an employee or a worker of anyone.
debt/equity ratio<1.00 equity ="assets-debt">

So that's it: the entire recipe to becoming a financially free individual! May this recipe be the guiding motivation of the Filipinos in the Philippines during this trying times. Always remember, if there is a will, there will always be a way...

regards,

Gerald Follero-Tan Eduardo