Invest in yourself first

If you have been following this blog since the start and if you are new to investing or if you are working for others, you will probably think I am crazy......"why do I have to invest in myself first"?, you would ask. At the start I talked about "Pay Yourself First", now I want to talk about "Invest in Yourself First". Yes, before plunging yourself into the share market or dumping your hard earned money into some deal which some good sayers told you its a money churning wheel, you have to master the trick of the trade first.

If you are an employee, which majority of us are and if you are still trading time for money, you are on the single line earning power - linear power. Do not be mistaken, I am not against working for others, in fact for the "baby boomers", most of us only know how to earn a living by trading our time for money. We were brought up to "Go to school, get good grades to get a good paying job" and that is the way we are being conditioned. And that is the way the Y Generation are being brought up too. Thats why I am saying "Invest in Yourself First".

Be patient, do not be in a hurry to put your money to work for you. Learn all you can before deciding on what you want to do.

I have kept my postings simple and easy to follow with keywords relating to investing and if you seriously read, take action on the simple to-do steps you will eventually be resetting your mind to be an "investing mind".

Exponential Growth ..... the Wonder of Compounding

The Power of Exponential Growth

1 + 1 is 2



2 + 2 is 4



4 + 4 is 8



8 + 8 is 16

This is how the dictionary explain the phrase "Exponential growth"

• (microbiology) The period of bacterial growth during which cells divide at a constant rate
• extremely fast growth. On a chart, the line curves up rather than being straight
• growth of a system in which the amount being added is proportional to already present; the bigger the system, the greater the increase
• in everyday speech, exponential growth means runaway expansion

The surprising characteristics of exponential growth have fascinated people through the ages. Lets see what the story of the chessboard, borrowed from a dictionary, can teach us.............

Rice on a chessboard

A courtier presented the Persian king with a beautiful, hand-made chessboard. The king asked what he would like in return for his gift and the courtier surprised the king by asking for one grain of rice on the first square, two grains on the second, four grains on the third etc. The king readily agreed and asked for the rice to be brought. All went well at first, but the requirement for 2^{n - 1} grains on the nth square demanded over a million grains on the 21st square, more than a million million on the 41st and there simply was not enough rice in the whole world for the final squares. (From Meadows et al. 1972, p.29 via Porritt 2005)

Second Half of the Chessboard is a phrase, coined by Ray Kurzweil, in reference to the point where an exponentially growing factor begins to have a significant economic impact on an organization's overall business strategy.

The total number of grains of rice on the first half of the chessboard is 1 + 2 + 4 + 8 + 16 + 32 + 64 + 128 + 256 + 512 + 1024 ... + 2,147,483,648, for a total of exactly 2³² − 1 = 4,294,967,295 grains of rice, or about 100,000 kg of rice, with the mass of one grain of rice being roughly 25 mg.

The total number of grains of rice on the second half of the chessboard is 2³² + 2³³ + 2³⁴ ... + 2⁶³, for a total of 2⁶⁴ − 2³² grains of rice. This is about 460 billion tonnes, or 6 times the entire weight of the Earth biomass.

On the 64th square of the chessboard there would be exactly 2⁶³ = 9,223,372,036,854,775,808 grains of rice. In total, on the entire chessboard there would be exactly 2⁶⁴ − 1 = 18,446,744,073,709,551,615 grains of rice.

The Chessboard story, which is mind boggling, is to simply illustrate the power of compounding...... no wonder it is dubbed as "The 8th Wonder of the World". Now that we understand how powerful compounding is, lets us look for ways to make use of this principle to multiply whatever money we have..............if you are saying you don't have, relook at your expenses, read again Point No. 2 of my initial post...... get out of debts and start saving now, no matter how small, to start with. Put your plan into ACTION.

Linear Growth

lĭn'ē-ər
adj.
of, or relating to, or resembling a straight line
having only one dimension

Linear Growth was what I was talking about when I posted on "Income Creation" where you work for money; either in your own business or as a professional or working at a job for others. In linear income growth you get out what you put in, nothing more, nothing less. If you work for others, you wait for the year long increment and bonus which sometimes can be a disappointment. If you provide services for others, you wait for the project to come and worked hard for the fees paid to you. In these 2 scenarios, your life would probably be....

• you get one day a week to spend with your family
• you might not get more than $40,000 a year (more for professional) no matter how hard you work
• you get your hard earned annual leave of 14 or 21 days but you are too broke to take the family for a rewarding holiday and for professional if you take off, your income stopped
  
• you seldom get time off and when you do you are either exhausted or broke to enjoy it
• you get your paycheck end of every month, and you have to be back on the time-for-money treadmill again the next month

Of course there is a way out. We can break this time-for-money trap with leveraging. In my last post, I used the Coca-cola story to illustrate the power of leveraging. Now there are lots of way to leverage..... big corporation leverage by using their employees. By copying the right kind of leverage in the right situation you can literally grow bigger and faster........ which takes me to the next subject..........EXPONENTIAL GROWTH

The Power of Leveraging

The concept of exchanging "Time for Money" is really limiting. There is that much we can do with our 24-hour, so we will have to look for other ways and means to add to our income, to achieve the goal we have set for ourselves to create wealth.

If we can find a way to leverage our time and effort our goals will be achieved faster and easier.

The dictionary explains the word "Leverage" as the mechanical advantage of a lever. Lever, an old French word means "to make lighter" and................Leverage in financial dictionary means - "Use of borrowed funds to increase purchasing power and, ideally, to increase the profitability of an investment."

Scenario:

If Investor A wishes to invest in real estate. The property costs $100,000 and produces
Net Operating Income of $10,000 per year. If purchased with all cash, Investor A's annual Rate of Return is 10% ($10,000 ˜ $100,000). If she leverages the investment by borrowing $75,000, her return on equity may be higher. If the debt cost is 8% ($6,000) annually, the leverage results in a return of 16% ($4,000 ˜ $25,000). However, if the debt cost is 12% ($9,000), the leverage is negative because it reduces the return on equity to 4% ($1,000 ˜ $25,000).

Leveraged Growth
Working Smart Not Working Hard

The

story

In 1885, Dr John Pemberton developed the now all famous Coca-cola, a carbonated drink. Both small town and big city dwellers enjoyed carbonated beverages at local soda fountain or ice cream salon. Often housed in drug stores, the soda fountain counter served as a meeting place for people of all ages. But.......this is limiting time, effort and location.

In August 1888, Asa Candler paid $2,300 in cash to buy over the rights of Coca-cola. Two young attorneys from Chattanooga believed they could build a business around bottling Coca-cola. In a meeting with Candler, they obtained the exclusive rights to bottle Coca-cola across most of the United States....... for the sum of $1. By 1909, nearly 400 Coca-cola bottling plants were operating.

By 1920, the ideas and zeal of the 2 young attorneys fueled steady growth. Six-bottle cartons were a huge hit in 1923 and by end of 1920s, bottle sales exceeded fountain sales. Before bottling people had to go to a local soda fountain to order a coke - or there is no coke. Bottling changed all that, consumer need not go to a soda fountain to enjoy a coke because they could buy a six-pack and bring the fountain home with them. It has created a world of convenience...this is leveraging of time, effort and location.

Wealth Creation versus Income Creation

"Go to school, get good grades to get a good paying job" is our way of life and we ended up working for money. This is Income Creation....... trading our time for money by working for others or ourselves. Now... is this the only way we know how?? Lets analyze and see what we can get out of this so ever famous term called WEALTH CREATION.

What is Wealth? To different people it means different things and to me W E A L T H means....

Having enough money and enough time

with great health
to do what you want,
when you want and how you want

An American survey states that you are only considered rich if you have a monthly income of USD 50,000 without having to spend time earning it. That is TRUE WEALTH. Ultimately, I can suppose that all we actually want is FREEDOM. Not having to get up early, go to work, be exhausted and stressed and come home to the end of another day....

J Paul Getty,

millionaire says...

If you want to be rich,
just find someone
making lots of money
and do what he's doing.

Income Creation

Ethan...... he is soooooo cute. A 6-year old acting so adult.

I stumbled upon this little video and I thought "Wow, it will say a lot for my next post". Little Ethan performing in his concerts will make him very very rich but if he does not put a certain percentage of his income into some kind of investment, he might just end up like all of us (the 95% of the population) trading our time for money.

We are all slave to temporary income!!! Its the time-for-money trap. We worked 9 to 5 from Monday to Friday whole year round for the salary paid to us. All money will be used to pay for our dwelling, food, clothing, transport, furniture, utilities, entertainment etc......... At the end of the day, what do we have left? For Malaysian, we retire and claim our EPF money for our retirement, but is it enough? Of late you read a lot of news topics like "Most Malaysians not saving for retirement". ARE YOU READY FOR YOUR GOLDEN YEARS?? Maybe if you live frugally and don't get sick..... your retirement money will take you to the end of your days but........................

Are your suffering from “EXCUSITIS” disease”?

You have just done your annual medical check up and your medical report seems fine except that you have to take care of that cholesterol level which is on the borderline. Or that blood pressure of yours which is on the borderline. But your medical examination will not be able to detect the EXCUSITIS disease.

Excusitis disease is very easy to diagnose…… have you been postponing putting that 20% of your earnings into an investment account? Or have you been telling yourself the following:-

I am too old

I am too young

It is too late

I don’t know how to invest

It is not easy to get rich

You have to work very hard

It is not easy/It is too difficult

I will wait for the right time

I can’t do it

I am not good in handling money

I don’t have time

At anytime if you have utter or even thought of one of the above negative statement, you are sick…. no matter what is stated in your medical report…… YOU ARE SUFFERING FROM THIS DISEASE CALLED “EXCUSITIS” disease.

S T O P ……. stop making excuses, stop procrastinating……. Put your thoughts and feelings into a plan…… put your plan into action……. start now.