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This is not another article on why you 'need' to invest. We have already got so many articles on that subject. What we are looking at today is something deeper and more personal. We are going to discuss on why you 'want' to invest.
If Investing is defined as "an operation which upon thorough analysis, provides safety of principal and a satisfactory return", then we can say that we invest so that we can generate more money. (Obviously). What I notice is that there are so many programs out there that teaches you how to make money, however, what they do not do, is to discuss on why you want to make money. Many might think that knowing why you want to make money is not important or it is so obvious that making money is a good thing and there is no need to discuss about it. However, this is a very dangerous mentality. Let's do an exercise with me, try to ask yourselves the questions below.
Why do you want to make money?
When you have money what can you get?
Why do you want to get that thing?
Do you agree with me that Money is just a piece of paper or some numbers in your bank account that you exchange in return for some goods or services? Generally, we want to make money so that we can afford to buy the things we want, go to the places with the people we love, to have more time, perhaps some may be more noble, that is to help the less fortunate people. No matter what it is that you want to get with the money you make, I believe we can say that what we ultimately want, is to get happiness. Buying the things you want and going to places you like may bring you happiness, having more time may let you do the things you like or to spend more time with people you love,which also brings happiness, even helping other people may bring joy to our lives too. (Notice the keywords, happiness, love and freedom to do the things you like.)
The danger with us is that if we do not clearly define these ultimate gains that we want,is that we might lose them while chasing money. How often do you see people who blindly chase money while ignoring their loved ones or those who get depressed along the way or those tying themselves up with the job they don't like so that they can have more money. I certainly do not want that to happen to me, therefore, I have clearly defined what I want (You should too). That is, happiness, love and freedom. It is not logic to sacrifice these for money because it is a just a tool to buy those things. Do you agree with me that money can't buy everything? You certainly can't buy back the deceased loved ones that you have ignored while making money.
Then the question is, does money buy happiness? The answer is yes, and no. Yes, it does buy happiness, but it is for very short term. Have you ever experienced the excitement, thrill and happiness you get when you have purchased a new car? Of course you are very happy with it's sleek look, fast performance and comfortable seats. But after 6 months, does it feel the same? No, by that time, it will only be just like any other things, dull. You will resort to buying other things to give you the temporary high of happiness. This is not the way to achieve happiness.
What's even more dangerous is the greed that money brings out. You just can't have enough.
I have had first hand experience of this problem. Just 15 months ago, making my first profit has been so magical to me. RM1,500 is so much and I am so grateful and happy to be able to make that kind of profit. However, as I notice, I became more and more discontent,that even when making a profit of RM15,000, I still do not feel happy. Why? It is because I have already grown numb to that kind of earnings and is now aiming for much higher gains. Is this a good thing? You can argue so, as it helps me to aim high and achieve more. But how much is enough? or will I ever get enough? One year ago, I thought that I would be very happy to be where I am today .However, I notice that the higher you go, there is always something that you are not satisfied with, always someone that you want to be better than, you will never stop as long as there is room for growth.(I'm thinking about millions now) So, is money evil? If you do think so, please contact me, I am very willing to adopt them from you.No,I believe money is like fertilizer. It enhances you. If you're greedy within, it will make you more greedy. If you're already happy, it will enhance that happiness.
So,now you would ask, which one am I ? The one that is happy inside or the one that is hungry for more. I would say both, though I want to be better and better, I want to do it healthily, that is without sacrificing happiness,freedom and loved ones. The most important revelation comes from this understanding.
"Happiness is not found at the destination, happiness should be throughout the journey".
How to find happiness throughout the journey? I believe the key lies in gratitude. To be grateful of what you have now. Think about it, if you're reading this, you should be grateful. How many people doesn't even have access to clean water and ample food, not to say to have access to internet and learning sources. Even if these people wants to improve their lives, the lack of resources and the environment makes it extremely difficult for them to do so. I noticed that as soon as I focus on being grateful of what I have, I immediately felt joy in my life. I have a loving parents, close friends that support me, a comfortable house, a business that I enjoy doing and most importantly, health. Think of all the things I could accomplish with the health that I have. You really don't want to sacrifice health for money. One of the things that I am most grateful of is to be blessed with the knowledge of value investing. Because of it's low risk,high return and passive nature, it is a way to generate wealth while giving me the freedom I want without the emotional stress involved (Unlike trading, which requires time in monitoring that also taxes on the state of mind)
Since making money is not a problem anymore (I may be wrong, but I believe that as long as I continue investing in stocks by following the right method + right mentality , I believe I will achieve the financial freedom I want eventually), I can now try focus on doing what I love and spending time with loved ones while I still can. Each day, I will try to find things to be grateful of in my life, and you should too.
(Also,understand that happiness is a choice, you can choose to be happy now for no particular reason (and also get out of depression), but that needs a very good control of your state of mind, for us now, we can be happy by focusing on the positive things, life is already tough, don't make it worse by focusing on the negatives.)
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How much do you need in order to retire?
To answer this question, we should ask ourselves, how much do we need to spend every month? What kind of lifestyle do you want to live?
Let's take for example, I'm a modest guy and am comfortable with RM5,000 per month.( Today's value). How much money on hand,do you think I need in order to retire?
Notice that unlike most speakers out there, I did not inquire about your age, you will see very shortly why the number of years you expect to live on does not affect how much you need in order to retire soundly,given that you are able to replicate the below situation into your portfolio. Besides,who can predict when they're gonna die? The following part of the article is very powerful, before you read on,I invite you to find a place where you will not be interrupted as you will discover how easy it is to retire. Sit tight and be prepared to be astonished as I open your investment eyes.
Let's move back to the above situation, a nice guy with not much commitment,he only needs to provide for his parents and himself and they will all be living a humble lifestyle with RM5,000/month. How much does he need to retire forever (at least until he kick the bucket)?Below is the magic number :
If you want to retire at a small town with RM5,000 pumped into your account for you to use monthly,You'll only need Rm1,000,000.00 . Why?
Theoritically, if you use RM5,000 per month, all your RM1,000,000 would have been used up in 16 years and 8 months.Say,you're 30 years old now,by 47,you'll be broke if you retire with only RM1,000,000.
So why did I say you can retire without worrying about how many years more you will live?
Let's introduce the dividend paying stocks!!
There are few kinds of stocks in the market,one of them is the dividend paying stock. These companies are usually established cash rich company with strong free cash flow. These stocks may not be able to generate amazingly high return but they are stable and most of the time will not be too badly affected by the economic dips. Most importantly, they generate dividends. When these companies have more cash than what they know what to do with,what do they do? They give them out, straight to the shareholder's pocket. How we usually measure these companies are through it's dividend yield.
Dividend yield(%) = (Dividend Per Share for the whole year / Price of Share at the time of purchase) * (100)
Let's bring out the first business I have ever invested in, Padini.
As of the time of writing, Padini is giving out a projected dividend of 10 cents per share (And growing based on record) . Divide 10 cents by the share price of 196 cents and you get a dividend yield of 5.1% and supposedly growing). 5.1% if considered okay. But I would always enter to support the price of Padini shares at 1.61 which yields a dividend yield of 6.2%.
Now,multiple this 6.2% to your 1 Million ringgit and you should obtain RM62,111.00. Make it easy,say RM60,000.00 per year, divide it by 12 months and you will arrive at the number I have shown you above, RM5,000 per month.
This means that you will enjoy a passive income of RM5,000 per month doing nothing. No bosses,no difficult customers,no stress.
Do you know what is the best part of this idea? Your RM1,000,000 is still there. That means after 10 years,if you choose to donate all your money to charity, you can still use the RM1,000,000 in your assets account. Given that the share price does not climb, which is not likely the case as the share price will increase as the company make positive progress. Just imagine if it is compounded at only 10% per year. Retiring at a small town with a PASSIVE INCOME of RM5,000/month just to find out that your humble pie of RM1,000,000 has turned into RM2,600,000.00 in just 10 years.
Not too bad~
Of course, generating RM1,000,000.00 to invest is easier said than done but with the right method and determination, It's only a matter of time.The only obstacle between you and your financial freedom is your unwillingness to learn and to take action. I challenge you to say you can't afford to retire after reading this article.
Astonished by what you have just read? Share this with your loved ones for this might be the greatest gift you could give them. The guide to financial freedom.