10 factors that highly affect financial independence

10 FACTORS THAT

HIGHLY AFFECT

FINANCIAL

INDEPENDENCE FEBRUARY 2013

• Reality Checks• What’s required now• The 10 factors• Thinking ahead• References

Session Contents

Peter Drucker

“Half of the Leaders I have met

don’t need to be told

what to do,

they need to be told

what to stop.”

Reflection:

Required:

4

1. Live on 50% of your Net Salary

2. Career Transition Package

(1/10 of Annual Salary x Current

Age)

3. Emergency – 3 months’

Consolidated Pay

4. Earn 80% of your Monthly Pay

outside Pay Cheque

Required (Cont’d):

5. At least six (6) hours a week for

contact and

conversation on Domestic Budget

i.e. SAVINGS,

SPENDING, DEBT and INVESTMENT.

6. Debt – Burden ratio and Reverse

mortgage.

7. Economic spider web model

Required (Cont’d): 8. A Business and Investment Club.9. Avoid ANCHOR Effect

• Stuart Smalley• Surety position• Buyer’s remorse

10.Over-optimism • Known Knowns• Known Unknowns• Unknown Knowns• Unknown Unknowns

FACTS OF LIFE:Poor or Not Planning

“Are you like this financially?”

“The greatest glory of living lies not in never falling, but in rising every time you fall.”Nelson Mandela

10

Is your asset overheating?

LUXURY

COMFORT

BASICS

CHARITY

DIED

100 men aged 25 started life, they were all ambitious for success. Some came from wealthy families, some were poor; some had just finished school, others had been working for years.

10 years Later

@ 35

20 years Later @

45

30 years Later

@ 55

101

1

16 20 36 63515 30 34 54

65

570 5 0

1

46

2

1

1310 1

40 years Later @

65

50 years

Later @ 75

“These People didn't plan to fail… they failed to plan”

1st Factor (A):

According to a recent study by a Department of Health and Human Services, for every 100 people starting their careers, the following situation exist at age 65 …

(B):

Have annual in-comes who lived their dreamsAre deadHave annual in-comes who could hardly live on basicsHave annual in-comes who live in poverty

These people didn’t plan to fail … they failed to plan.

DESTINY …is not a Dream.

It is a Decision.

Most people have no specific plan. They procrastinate during their working years and don’t ever seem to get around to start to plan

The end result, FINANCIAL FAILURE!!!

Step # 1Set Financial Goals

Step # 2Prioritize those Goals

Step # 3Initiate a Plan of Action

Step # 4Review and update the Plan regularly

The longer we wait ... the steeper the climb

(C)

The Systematic Planning Method

Few People Save A Definite Amount First …

and Spend The Balance

• These people will generally make the best use of their money left to spend. • Because of the potential for waste in the first method the systematic savers will have just as good a lifestyle today and a better lifestyle tomorrow

SPEND

SAVE

2nd Factor – Hit & Miss Method of SAVING: There are only two (2) Methods of building Financial IndependenceThe Hit-And Miss Method

Most People Spend First … and Try to Save Whatever is Left

• It’s easy to spend!

•And there is generally little or no money left

SPEND SAVE

Nobody saves to fail but too many of us failed to save.

3rd Factor – Consumptive Saving: Saving money to spend it on something not worth

your while is saving like the Roller Coaster Way.

Roller Coaster Way of Saving

Spending so much today at the expense of tomorrow is a mistaken kindness.

Have you tried saving money in the past to spend it on something …save and spend … save and spend … Sometimes borrow money to spend?

Life Line

Started Working

Today Ret. Age

Financial Independence

What would you like to happen when you retire?

If you were to save for the next 20 yrs. As you have saved in the past,Do you think it will improve your financial situation?

4th Factor – The Impact of Inflation:

History tells us that inflation in here to stay.

The staggering effect of inflation causes shocks to the shilling every year!

Ush – Dollar Exchange Rate:

Because of Inflation; the Power of the Shilling is Diminishing!

Dollar Savings or Investments can help hedge against Inflation!

“No one would

remember the good

Samaritan if all he

had were good

intentions and NO

Money”

Margaret Thatcher

5th Factor – The Effect of Spending, Savings, Credit (Debt) & Investment:

1.Spending 2. Savings

3. Credit(Debt)

4. Investment

“We spend money we have not

earned on things we do not

absolutely need to impress

people who do not even care”

Mike Murdoch

Your Trend Analysis

1 – 2 Years Ago 2013 2013 and Beyond

Savings

Spending

Debt

Investment

Earning

Phase AgeYearning Phase

25 yearsLearni

ng Phase

Income Graph of a successful Salary Earner

0 years

6th Factor – Bad Investment:

To minimize investment risk, Investments must be diversified. Putting all money in one basket can cause

the outright loss of our money.

Bad investment can cause the outright loss of our MONEY.

One of the first things we need to understand about investments is that, the greater the rate of return offered, the greater the risk.

Wealthy people who can afford to lose some of their capital can take chances in an effort to obtain high rates of return. For most of us, however, this is not a prudent course of actions. There are at least two (2) reasons for this:

1. We simply cannot afford to lose “Hard Earned MONEY”2. Losses are difficult to overcome

So the best strategy may well be to invest for safety first and return, second.

“Wealthy people who can afford to lose some

of their capital can take chances in an effort

to obtain high rate of return. But for most

of us who can’t afford to lose hard earned

money can invest safely through VARIABLE

LIFE INSURANCE POLICY.”

frustrations; heartaches; pains; failures; negative

thinking; bad habits;

acceptance; concerns; behavior;

forgiveness; revenge; marital; financial; laziness;

in-laws; pride; envy; sensitivity;

7th Factor – Procrastination: FINANCIAL SECURITY is a DECISION not a DREAM!!!

Your future, is determined by your commitment to starting the process NOW – not TOMORROW, not NEXT WEEK – but NOW.

Expand Present

We say … I will decide tomorrowI will decide later this weekI will decide later this monthI will decide later this year

We Procrastinate!!!

frustrations; heartaches; pains; failures, negative thinking; bad habits; acceptance; concerns; behaviour; forgiveness; revenge; marital; financial; laziness; in-laws; pride; envy; sensitivity;

If we put back the past into its proper place, what do you have in the future?

NOTHING!What can you do with nothing?

ANYTHING!

NOW

Present DECISION

The present is a Decision which divide the past from the future

The reason why wecan’t move

forward … is because our

future is full of the past. Past Future COMPRESS

Why do most of us can’t do something

outof nothing ?

People will come up with all types of reasons as to why they didn’t do what they said they wanted to.

@ 25

8th FactorProcrastination …can be a very costly

decision

@ 35

@ 45

@ 55

@ 65

US $ 1,164/yr

US $ 3,700/yr

US $ 12,392/yr

US $ 50,878/yr

US $ 1,000, 000/yr

OR is the real reason … that we fail to take the time to organize our financial affairs and then develop a systematic plan that will

help us get where we want to be?

Saving a Million @ 12% return

We All Procrastinate!

• Early death• Emergency• Disability• Job loss• Long life span• The next generation’s agenda• Divorce• Business failure

9th Factor - Risks

PROTECTION AGAINST RISK

28

REAL

MO

NTH

LY IN

COM

E (U

SHS)

20 25 40 55

AGE65

What does potential future income look like?

1.8 m

Adopted from LIBERTY

29

20 25 40 55

AGE65

What does potential future income look like?

1.8 m

4.5 m

REAL

MO

NTH

LY IN

COM

E (U

SHS)

FROM TO

What seems ! What is!

What used to be! Today’s reality?

What is happening? What is likely to happen?

What has been happening? What could (might) happen?

What I deserve. What can I afford?

Who has tried it? It’s up to me.

What is easy? What is right?

Week end project Life long project.

10th Factor - Mindset Change

EARNING – KNOWLEDGE, SKILLS AND ATTITUDE

• Allocate hours for employment earning.• Allocate hours for your OWN earning.• Invest in own business – full risk.• Invest in others business – own shares• Invest in property and other assets.

Thinking Ahead…

When it comes to … Balanced Financial Planning

32

Financial experts recommend the following:

• CREATE an Estate of Protection Money (Premature Death and

Disability)

• BUILD a Foundation of Guaranteed Money

• INVEST for Growth to Hedge Against Inflation, AND ONLY AFTER

THE FIRST THREE (3) NEEDS ARE SATISFIED.

• SPECULATE for Rapid Growth, with Money you can afford to lose.

• Gotcha Capitalism; Bob Sullivan• Stop Getting Ripped off; Bob Sullivan• The Capitalist Nigger; Chika Onyeani• www.living up to 100.com • www. myFICO.com• www.kathleen rehl.com• www.gail van-oxlade.com• www.suzeorman.com• www.kiplinger.com• www.pkmojo.com

Online References

• “The Richest man in Babylon” George Classon• “The capitalist Nigger” Chika Onyeani• “Stop getting ripped off” Bob Sullivan• “Gotcha capitalism” Bob Sullivan• “In Deep Conversation” PK• “How to skip Retirement” PK• “Key Questions people don’t ask about retirement”

PK• “What’s next? How professionals are retiring

Retirement” Dona Roche – Tarry and Dale Roche -Lebrec

Others

Thank You&