Extra work

Not entirely TRUE in all aspects but nevertheless a great quote 

The Amount of Money

in your bank

at the time you Died

. . . 

is the EXTRA work you did

that wasn't Necessary

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A Perfect World

In a perfect world, everyone produce something.

Farmers grow plants, feed chickens, fishermen catch fish, builder made homes etc. So we can sit together at night and enjoy a complete dinner in our nice homes. It was easy to know who is suppose to do what, who produces what.

When there are too many fish caught, it has to be sold out of town. The fisherman doesn't have time to travel that far. So a delivery boy is helping the fisherman. The fisherman save time, hence catch more fishes and therefore its worth him paying the delivery boy. It is a value added chain, so service has become a part of perfect world too where everyone produce something, everyone produce some values.

It gets a bit complicated cause service is not as easy to quantify as materials. But its still ok.

A $1 fish may cost $2 in out of town because there are delivery cost incurred.

Soon more delivery services are needed. It is not easy to decide which of the 100 delivery boys is most reliable. So a manager came and organize a delivery company. The fisherman no longer need to worry about delivery, the delivery company will handle and be 'responsible' for the delivery part. If any single delivery boy does not perform, the company will immediately replace with a better one. Fish still reach destination on time. The fisherman doesn't need to worry a thing. What the management provided is a service on a service, there is still value provided.

Now the fish is $3 in out of town. The manager needs to eat too.

The fisherman's business grow much larger thanks to the great leveraging techniques. One day, the fisherman's primary school friend drop by and have a nice chat with the fisherman, asking the fisherman to let him handle the delivery part. Because he is more trust worthy, that they have known each other for so long etc. The fisherman agreed, perhaps due to the drinks or due to the flowery talks.

The primary school friend simply take orders for the fisherman and pass to the delivery company. Jobs still get done as usual but while doing that, he has raised the fish price to $5 in out of town. He gets $1 just for the deal he made. The fisherman gets $1 extra simply by letting his primary school friend take over the delivery part. The delivery company has nothing to loose.

Now it gets really tricky.

What did the primary school friend produces ?

What value has he added ?

What service has he provided ?

You can't say he has done nothing. He is instead smart, creating something from nothing. Is creativity really worth nothing ? He capitalize his relationship into a real asset.

The fisherman gets more value ( money ), the primary school friend earn something, the delivery company didn't loose anything. So theoretically speaking, the primary school friend has added value to the fisherman and himself. So it doesn't really break the law of perfect world.

The smart you may have already spotted the difference.

But at whose price ? Out of town folks used to pay $3 for a fish. $1 for the fisherman, $1 for the manager to make sure fish reach them on time and $1 for the delivery boy. Now the fish is $5! What is the other $2 for ? Well, that has nothing to do with any value received by the people in out of town. That was just a deal made between a primary school friend and the fisherman. The fisherman and the friend gets the whole $2!

Smart yes, add value to one or two persons yes, nothing wrong was done yes .... but whatever the primary school friend did, should NOT be included in the formula of 'PERFECT WORLD'.

In a perfect world, everyone produce something

FOR EVERYBODY.

Sounds familiar yet ? If not, may be you haven't read about Malaysia's GST yet.

This article was suppose to be read in this sequence.

Malaysia's GST - a MAGIC !

Secrect of the MAGIC revealed !

a Perfect World !

What can we do ?

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Personal Finance Portfolio should be dynamic

We often hear experts said

if you are young, you can take more risk, hence put your investment in equity.

then

if you are old, you should keep your capital in safer vehicle like bond etc.

But one important strategy they miss out is ... the dynamic of personal finance portfolio.

Says you are 25 years old, you will need a sum of money at 35 years old. Hence you can invest into equity. However, you must learn something about the equity market you are entering into. For example, you know that for every 10 years in your equity market, there will be a peak and a bottom. So perhaps by 3-4 years before your maturity date, ie. 31-32 years old. You should start considering withdrawing your equity investment and keep them in a money market or bond fund. This will preserve your capital and secure you from unexpected last minute change, ie. a sudden equity collapse.

for example;

age 25 : 90% equity, 10% bond

age 27 : 80% equity, 20% bond

age 32 : 40% equity, 60% bond

age 34 : 10% equity, 90% bond

Keeping a non dynamic portfolio expose you to risk the whole time. If bad luck hits you, you may lost all your 9 years of earning in the 10th year. So one must keep ones personal finance portfolio dynamic.

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value for money - linear or exponential ?

Value for Money ( short for V4M ) is basically how much values you get from the money you paid. It is often irrelevant how much is the price of an item or service. Whether or not a person pay for something is simply because of how he perceives the values he is getting.

If a person perceive values more than its price, he would paid for it !

If a person perceive values less than the price, he would NOT paid for it.

There are 3 types of V4M perceptions. This article will cover 2.

Linear model of V4M is basically thinking all features are alike. Hence for every feature the person is looking for, he would be willing to pay some price for it. But if a particular feature is substantially higher price, he would think its NOT worth it.

For example, a person is looking for a phone that has Wifi feature and cool-look feature. A typical wifi phone may cost him $500, a cool looking wifi phone may cost $2,000. A linear V4M guy will go for the typical Wifi phone.

Exponential type of V4M model describes a person who values most on perfection. He understands that many providers can easily give an average services / products but it is very rare for a provider to provide a perfect solution. Hence he is willing to pay any price for one particular feature especially when such feature is not easily available elsewhere.

An exponential V4M guy would have go for the cool looking wifi phone as per above example.

One will always find Linear V4M guy a FRUGAL person. He analyses well before making a purchase. He may go for 2nd hand goods as long as they still work well. Such a person is always the next door millionaires whom you never knew.

Exponential V4M guy on the other hand is the high society type of person. The only way he can sustain his life style is by being filthy rich. His perception on values is also the main driving force for him to stay rich. Such a person is always a very high cash flow fellow but often unable to retain a net profit.

There is no right or wrong in either V4M models. But it is important for you to recognize your own V4M model and then focus on living that life. Problems arise when an exponential V4M model guy thinks he is frugal OR when a linear v4M model guy keeps over pay.

What is your V4M model ?

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There is NO such thing as Passive Income !?

21st century personal finance is moving away from saving and focus into the income arena. In short, the gurus are now educating public that saving is NOT good enough, hence sourcing for passive incomes on the another hand is a BETTER solution, than just saving alone.

While the concept is definitely true and correct but unfortunately as the hypes go bigger and bigger, the idea of passive income has been abused and more scams started to appear in the market, as if they were the gurus as well. Except the 'passive income' they refer to is barely promoting their own original same old products. The personal finance market has become so competitive that even some real gurus have no choice but to go beyond the line in their marketing effort - Robert Kiyosaki is no exception in spreading "Saving is bad".

Although passive income is very well defined here using income ratio 1:100 but is there really such thing as Passive income ? When I looked up dictionary, these words come up

PASSIVE : not participating, inactive, not reacting, inert or quiescent.

None of these words correctly describe a well implemented passive income. I use my best judgement to find a good location, a value property and a pay master tenant. I setup a profit take target and an exit strategy in my investments before I leave and let them auto pilot. All of these are very participating, actively applying my knowledge and experience, reacting appropriately when necessary etc.

The word "Passive" also gives people a psychology of No Need To Do Anything; As if an easy to get rich scheme with a better cover.

Hence this article wants to pursue all readers to stay away from the term Passive Income. Its negative, misleading and now abusive by the over-stress marketing effect. Instead, think of Smart Income !

There is no hard and fast rules for Smart Income. Any income can be earned the regular way or the Smart way !

An employee can use minimum of his time effectively to earn the highest salary or benefits. A self employ can easily leverage on Internet to earn income repeatedly. A business owner can employ a system to run his business. An investor can setup an autopilot mechanism.

So no matter which income quadrant you are in, it is possible for you to turn that income into a smart one. Its a matter of HOW you earn your income, NOT WHAT you do.

Are you pursuing smart income ?

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21st century Economy Politic Quadrant

The Economy-Political Quadrant may seems like telling where to keep or invest your money despite good or bad time.

It indeed works very well during 20th century. Unfortunately comes to 21st century, not only has the year changed, personal finance arena has changed drastically as well.

Gold has been speculated so much that it MAY no longer be the standard of money.

There used to be only 'property' in the city. Now there are satellite towns, suburbs ... agriculture lands and even dust bins ( recycle ) have become valuable estates too. While property remains the right category to invest into whenever economy is booming, but predict the right future seems like tougher than buying lottery.

Government bonds used to be de-Facto action when a country is stable. But in today's world, a country is as smart as a taicon's finance. One day they are the LARGEST, the next day they are GONE.

Stock market used to be the back bone of a country's economy. However, the market of derivatives has become so HUGE that the REAL and PHYSICAL is NO LONGER more real than VIRTUAL

So in 21st century, the element of Stock-Property-Funds-Gold is really questionable. However, one fundamental that doesn't change is that

you will have to identify what to do at what time that is BEST for YOU !

Hope you will find your own very best Economy-Political Quadrant soon !

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Economy Politic Finance Quadrant

There are 2 BIG main external factors affecting our investment decisions

• Economy
• Politic

When the time is really bad (economy downturn and politically unstable), its best to park your money under something that is really stable, ie Gold. Which is by definition usable anywhere you go in anytime.

When its good time, invest direct to the stock market would yield very good return.

When the economy is not so good in a strong country, the government bonds or related money market would be able to yield higher return than just gold.

However, the most dispute solution in good economy unstable country is investment in property. This is mainly due to easier rental and higher chance of capital gain.

By simply moving money around depends on the political and economy situation, one was able to achieve more than 12% compound return for the past 20 years. That is equivalent to a 10X return.

But by no mean this is easily done. Some of the concerns include;

• how would one know exactly when economy/politic turns good/bad ?
• is Gold the ONLY option ?
• property may not easily liquidated
• how to choose which property or stock market ?

. . . which can be explored further.

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