7 Rules of Thumb to Financial Planning

My interactions with most people suggested that most of them have not got enough financial muscles for everything they wish to have. In other words, the more resources you have, the bigger your plans and sadly to say, you tend to feel that money is not enough. However, regardless of the strength of your financial muscles, it is of vital importance for you to plan and practice due diligence in the management of your finances. The following are 7 Rules of Thumb to achieve financial freedom:

1. Create several streams of passive income - Never rely on one source of income only at all times.

2. Once you start to develop earning capacity, set aside a certain portion of your monthly income regularly to create an investment portfolio. Here, it is important to note that you do not need to start creating your personal investment portfolio with hundred thousands of dollars. A key point is: ideally, you should not touch the portfolio unnecessarily and only activate the funds for usage during emergency times.

3. Manage your finances personally at all times. What this means is never to allow other persons to have a right to handle your money without your knowledge or approval. The reason being, failure to do so may result in unfavorable and unpleasant situations at a later stage, especially if you lose your money.

Also, don't just supervise your investments and expenditures – always collect your money. Similarly, never allow people to owe you; regardless of how much money you have, always demand every dollar you earn to be paid to you.

4. Make a clear distinction and differentiation between monthly expenditures and investments. Do not simply label every cash outflow as an expenditure, cost or overhead.

Here is one easy rule that you may want to consider adopting: Expenditures are cash outflows thrown out of the window where you can't expect any returns on them. On the other hand, investments are desirable (of course, not every investment is desirable) and you may reasonably expect some form of returns on them.

In other words, investments provide the probability and/or avenue to bring you more money. Advanced investors may also want to consider investing into properties. However, the important question is that you should carefully consider whether you can/should afford such an investment at the moment, how much you're going to get back, how fast and whether it is acceptable.

5. Keep your expenditures to the minimum. As mentioned earlier, expenditures are cash outflows thrown out of the window where you can't expect any returns on them. In other words, it’s desirable to keep them low so as to avoid incurring unnecessarily cash outflows due to unwise costs. Incurring a huge expenditure on a regular basis is a huge stumbling block for anybody in the process of wealth creation & accumulation.

6. Avoid credit cards, loans and any other form of debt financing where possible. In this case, do not borrow unnecessarily if you are uncertain about your future cash flows. Never purchase anything on future incomes or promises.

7. Earn more than you spend. Simple as it sounds, this is the most important rule of thumb in this context. In other words, your personal finances must always be in green. Think about the following: If it is a habit of yours to change and swap your car every six months even if you should borrow, then it may easily happen that you won't drive anything in a very short time

In short, I will leave you to think about the following principle that I have strictly adhere to for the last fifteen years of my life: take care of the pennies and the pounds will take care of themselves.

About the Author: Sam Goh is the founder of Wisdom Capital, a wealth coaching firm that specialises in providing financial and investment planning workshops and seminars. He was awarded the MAS Money Sensible Youth Excellence Award in 2006, and since then, he has been holding the appointment of MAS Money Sensible Youth Ambassador. He was also involved in numerous media interviews such as The Straits Times, The Sunday Times & Money Smart program on Channel 8 etc. For more financial & investment coaching services, you may contact him at This email address is being protected from spambots. You need JavaScript enabled to view it..

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