Sunday, August 24, 2008

Managing Money Part 1: FFA

Sharing a thought...

This time, I would like to share an idea by T Harve Eker on managing money.

According to Mr Eker, in order to have great wealth, one has to know how to manage whatever wealth one has right now before greater wealth could come. Based on his observation and experience, he said that people who possesses poor money management skill would not be rich as they are capable of losing everything within a short period of time.

What he has said reminded me of the Felda settlers' case of many years who were paid millions of ringgit by the government for taking over their land for development purposes. Most of these land owners became millionaires overnight but did not maintained their rich status for long as they used whatever they had to settle their existing debts AND incurred further debts as they purchased more material possessions that do not increase their Networth Value.

Mr Eker, author of The Secrets of the Millionaire Mind is of the opinion that money should be used to generate more money so that it is able to produce passive income to support the lifestyle that we desire for a long period of time.

Being a practical person, he has shared with us his method of managing money...

Create 6 jars or accounts. This week, I'll elaborate on the first jar ie the Financial Freedom jar.

This jar is our Golden Goose (hope you remembered the Golden Goose story otherwise click below video). The objective of this account is (yup) give us our financial freedom. We could only deposit money into this account and withdraw it only to invest, buy a business, or any ideas that could help to generate more money/income. This account is to be left as a legacy. It is important for the next generations to be taught the same method of managing money. The amount to be placed into this account is 10% of your net income.

The income generated from this account could be used to support your lifestyle but in no circumstances should the principal be used/spent. If you recalled the Golden Goose story, the principal is the bird itself and its egg is the income. It is advisable for us to use the eggs initially to produce more birds so that there will be more eggs to be enjoyed later. Spending the principal placed in this account is liken to killing the goose that lays the egg.

If we are able to use the eggs wisely and protect the goose/geese, we need not have to worry about our future as there will be adequate eggs to enjoy for a long period of time.

So, save and invest now so that it could multiply (the effects of compounding) and become big enough to acquire more goose to produce eggs for you daily. One way to achieve this is to live a simple life so that your objective for a comfortable life in future is achievable for a long period of time.

Start managing what you have now, no matter how little it is, and you'll be rewarded in due time.

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