IT'S fiendishly fascinating that features from far-flung corners of personal finance (sometimes) fit firmly together in phenomenally fine fashion.
In the last five weeks, I've derived enormous satisfaction taking New Sunday Times readers on a sequential tour of key financial planning terms starting with the letters A, B, C, D and E.
If you missed any of those columns or want a whirlwind reminder of what I wrote for you over the past month and a bit, you may read all five pieces (and a whole lot more) here: www.nst.com.my/authors/rajen-devadason.
I hope doing so accelerates your personal DIY (do-it-yourself) journey in financial planning.
In terms of specific advice, I suggest you continue reading, thinking and dreaming about where you are today and where you aspire to go. Commit to lifelong learning.
My free ebook 26 Books to Take YOU All the Way to the Top contains the titles of excellent works on financial planning, economics, business and investing that I have found helpful in my own journey of self-education. You may download it here: https://freecoolarticles.com/26BooksForm.html
However, a pure D-I-Y approach to financial planning is not for everyone. Therefore, if you wish to build a viable shortlist of competent licensed financial planners, visit https://smartfinance.my/planners and carry out your own searches, initially by geographic location. Identify perhaps four possible candidates and then contact them to assess their suitability based on your needs and preferences. Have fun!
Today will be the last piece in my trek across the rugged alphabetical landscape of financial planning.
Next week, in honour of the world's greatest investor Warren Edward Buffett having turned 90 years young on Aug 30, 2020, I'll lead you through some of my favourite Buffett-principles which have helped me directly and thus, in turn, helped my financial planning clients.
For today, though, here are three personal finance terms starting with the letter "F" that are of central importance to ambitious people eager to scrutinise their current cash-generating skills and who yearn to incrementally move away from relying upon their earned active income to fund their lifestyles:
1. Fiscal discipline
2. Financial Freedom (FF)
3. Fear & Greed
FISCAL DISCIPLINE
Most people assume the word "fiscal" is a synonym for financial. Purists, however, recognise that fiscal refers to a specific aspect of money and finance, namely, their "budget" elements.
So, anyone — you, perhaps — who exercises fiscal discipline is sagely opting to live below his or her income.
The best way to do so is to set a written budget, tweaked and tailored to fit each different month, and to then stick to it!
Many people know that is great advice; most will ignore it. A few will heed it. That minority is the slim subset of humanity with a fighting chance of attaining...
FINANCIAL FREEDOM (FF)
Most people are familiar with this magical personal finance term.
Nonetheless, we would be hard-pressed to define it. That's why I created this formula many years ago:
FF: PI > OE + RPoPoD
Don't let the terms and symbols freak you out. Here's what my simple formula states:
We will achieve Financial Freedom (FF) when the total Passive Income (PI) flowing into our lives each month is greater than our monthly Operational Expenses (OE) plus our monthly Regular Payments on our Portfolio of Debt (RPoPoD).
[Note: On the nights of Sept 7 and Oct 5, I plan to run identical free Zoom webinars entitled The ABCs of Financial Planning with Rajen Devadason. You're welcome to sign up to attend either one of them at: https://learn.rajendevadason.com/webinars-with-rajen (I strongly suggest you register using a notebook or desktop computer until I resolve an irritating mobile-related glitch!).]
FEAR & GREED
Investment markets over the long haul move in logical, often placid, fashion.
But once in a while there are sudden swings in mass investor sentiment driven by one of only two specific emotions:
When greed is on the ascendancy, asset prices rise on the back of the irrational exuberance of speculators. Prices rise too high, too fast.
Despite the flashing economic indicators of trouble on the horizon, greed pulls many more speculators, and even gamblers, into the market. Their feeding frenzy pushes prices even higher... for a while.
Eventually, inevitably, the bubble bursts as bearish sense and sensibility supersede bullish pride and prejudice (thank you, Jane Austen). Prices fall, then tumble and finally plunge.
Fear rises and feeds upon itself. Prices keep falling below rational fair value. These drops only end when coolheaded value investors begin nibbling at great assets being given away for cents on the dollar.
The world's best professional and retail investors have trained themselves to be "greedy" when others are fearful and to be "fearful" when others are greedy.
This description is simple, perhaps even simplistic, but seasoned investors who succeed in taming their natural inclinations to heed the herd mentality and who instead act in a contrarian fashion will, on average, do better over an investing lifetime than their lemming-like neighbours.
Just remember, nothing is ever a sure-thing when we invest. Like quantum mechanics, it is more about calculating probabilities.
So, the best we can do when investing is to tip the odds in our favour by diversifying widely and boning up on centuries of volatile investment market behaviour.
© 2020 Rajen Devadason
Rajen Devadason, CFP, is a Licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com You may follow him on Twitter @RajenDevadason.