Day One Highlights (1 December 2018)
Chapter 1 : Foundation
Part 1: Interpretation of News
Always learn how to link the major world news into your financial situation, applying First Order
and Second Order Thinking
By Using PEST - Political
Economic
Social
Test
More about PEST analysis here
: https://www.businessnewsdaily.com/5512-pest-analysis-definition-examples-templates.html
Learn to Conduct PEST analysis on your own personal situation
Part 2 : Understand What Financial Independence is/ How much you will need to reach it
A) The Asset Based Approach
Project the number of years left in your life x expenses
Pro - do not need to project investment returns using this approach
Con - do not know exact date when you will die
B) The Cash-Flow Approach
Figure out how much dividends can you reasonably get from an income portfolio
eg. If you need $30,000 a year, and can invest comfortably for 6% yields, you will need
$30,000 / 0.06 = $500,000
Pro - portfolio can be much smaller than the asset based approach
Con -you have to monitor your portfolio to ensure that you can get 6% of every year
Financial Independence to Early Retirement
Generally speaking, it is safe to choose to retire early if your expenses is kept around 4% of
your portfolio size every year.
eg. If you spend $24,000 a year, you will need $600,000 for a safe retirement.
Part 3 : Learn some Basic Key Concepts of Personal Finance
Foundational Ideas
1. Compound Interest
2. Risk and Return
3. Diversification
4. Rebalancing
5. Business and Accounting Basics
Understand 3 Key Equations
Assets = Liabilities + Equity -> Balance Sheet
Profits = Revenue - Expenses -> Income Statement
Net Cash Flow
= Cash fm Operations + Cash Flow fm Investment + Cash fm Financing -> Cash Flow Statement
Psychological Ideas
6. Growth Vs Fixed Mindset
7. Goal Setting and Visualization
Part 4 : Obtain the Psychological Resource to Start Your Journey towards Early Retirement
Read the Book : Mindset -The new Psychology of Success by Carol S.Dweck
Part 5 : Set a Clear Goal towards Reaching Financial Independence
Write it out and Take Action
Chapter 2: Earning More Money
Part 1 : Financial Capital Vs Human Capital
Manage your Financial and Human Capital - 1) Grow it
2) Diversify it
3) Insure it
4) Leverage it
Part 2 : Life-Energy Exchange
How to Calculate =
Weekly salary Earned divide by Weekly time (taken for actual work, includes outside networking)
Eg. A legal associate in her 20s doing litigation work
Items Adjustment
Salary $875
Time 74 hours
Life-Energy Exchange rate : $11.82/hr
ie. One hr of her time is worth $11.82/hour to her but her company billed eg $300/hr to their
customer.
Use this rate to make Important Career Decisions to Job Hop to another company.
Part 3 : World of AI Disruption
Categorize your Day Job and Figure out whether it is likely to face technological disruption in the future
Three Types of Work:
1) Mechanical Work
2) Services Work
3) Symbolic Analytical Work
Strategy
Shift from mechanical work to services work
Shift from services work to symbolic analytical work with communication skills
Avoid work that may be disrupted by AI.
Part 4 : Streams of Income
Optimize your earnings by liberally mixing your Primary Sources of Income with Secondary Sources of Income from the Gig Economy and your passive income from investments.
Part 5 : Advise on Earning More
1) Know your Ikigai
2) Know your Career Strengths
3) Job Hop Strategicallly
4) Join the Gig Economy
5) Negotiation Skills
6) Government Incentives
7) Improve Communication Skills
Chapter 3 : Saving Money
Part 1 : Foundational Concepts
Psychological Foundations of Savings -
The more conscientious a person is, the more he will save
Things Vs Experiences -
Always try to go for spending money on Experiences
Mindset Change -
Change "Money should be spent to generate happiness" to "Spend Money to eliminate suffering".
Saving Money -
You can only Save what is left after " Earning - Expenses"
To Save More, either Earn More or Spend Less
Part 2 : How Much to Save ?
Target Stretch goal of 30% of your median income
Savings Milestone
Step 1 : Save 6 months of living expenses (eg Approx $1,430 x 6 =$ 8,580 )
Step 2 : Aim to have at least $20,000 in savings account to maximize happiness
Step 3 : Aim to save Passive Income that covers basic expenses
(eg $1,430 x 12)/ 7% + $20,000 = $ 265,142
Step 4 : Aim for Early Retirement
(eg $1,430 x 12) / 4% + $20,000 = $449,000
(4% is the safe rate of withdrawal when you retire)
Where to Save ?
Go for Multiplier accounts that offer higher interest rate
What about existing Debt?
If you have debt, it is better to just keep 3 months of living expenses
Expenses Tracking Tools
Track your expenses into Daily, Weekly and Monthly
Part 3 : Resisting Marketing's Lure
Understand how Ad man thinks and you will be able to resist the power of well-placed
advertisement
Advertisements exploit your need for
1) Security
2) Enjoyment
3) Adventure
4) Power
Part 4 : How to Cut Cost ?
1) Major Life Decisions
2) Recurring Expenses
3) Daily Expenses
Chapter 4 : Investing Your Money
Part 1 : Foundational Concepts - Capital Gains, Dividends
Part 2 : Trading Accounts and Brokerages
Part 3 : Basic Asset Classes - Equities, Bonds, Cash Commodities, Crypto-Currency
Part 4 : Diversification and Rebalancing
Part 5 : ETFs, Stocks and Unit Trusts
Part 6 : The Permanent Portfolio
Part 7 : Downturns and Timing the market
***** The End *****
