Saturday, 10 January 2015

Whats is Your Cash Flow Pattern?

Finally I finished the Rich Dad Poor Dad book, there's so many things to learn from Robert Kiyosaki. One specific thing that is simple and realistic is the Balance Sheet and the Cash Flow Pattern. The bank doesn't ask you for your academic report card when you want to borrow money, they are only interested how well you know how to manage your money. Do you think your house is an asset? do you think your car is an asset? Find out below, what three types of Balance Sheet and the Cash flow pattern of Poor, Middle-Class and Rich;

The Poor:

This guy is like most of us who lives with our parents, he depends on his salary every month to pay on his expenses. Every month he gets his salary to pay for his necessities.

He may have saved money inside his POSB Savings Account every month for future uses and to earn interest of 0.00275 if I am not wrongl, For every $10000 he puts in his POSB Savings Account he earns $25 a year for the interest part.

He have to depend on his pay check to survive, forever.

The Middle-Class:

Say, this guy is a lawyer by profession, he earns a significant sum of income every month, say $8000. Since he have high income, he used that to buy 5 room HDB/Condo, a BMW 5 series some Credit Cards. Take a look for his cash flow pattern. He earn his $8000 so that he could pay off his needs and his wants like HDB housing loan, Car Loan, Credit Card Premiums/Interest Charges.

He is alright if he keep working and pay the HDB loan, Car loan and his Credit Card. He lives a comfortable life with his high income.

LETS SAY, one day he got out of job, would he have enough to pay his Housing/Mortgage loan, Car Loan, Credit Card Premiums? He is somewhat Rich due to his High Income but then not Wealthy.

Wealth means the duration you can sustain yourself without working.

He have to depend on his pay check to survive, forever.

The Rich:

This guy earns his money from his salary, he injected his money to purchase and grow his Assets. He don't buy a car, don't buy a house because it is a Liability to him.

One day, he is able to quit his job when he feels it is enough for him to live with his Income generated from his Assets every month, to pay for his Expenses. He uses the income from his Assets to buy another Assets for himself House and Car. He pays tax but Property Tax from his Real Estate Investments where he rents out to generate income.

Some people asks how Rich is Rich, that really depends on what you really want. If you feel comfortable living with a $2,000 Income after deducting all the liabilities, If $2,000 income solely for necessities is enough for you to have a comfortable life. Than I say you are Rich.

Because a Rich Man isn't the one who has the most, but rather the one who needs the least.

My Cash Flow Pattern:

I am like The Poor and Middle-Class, trying very hard to become like The Rich. 50% of my income will go into the Assets column, $600/mth to Stocks and 500/mth to Prudential Endowment Plan.

My liability now is only the Housing Loan of my parent's HDB and which I'm staying in, I don't have any other liability at all at this moment.

Few of my friends upon signing on Army as a regular, they bought a car right away so that with that sign on bounty. Because they don't understand how money works.

Expectation vs Reality
I know talk is cheap, but in reality it is not so easy in Singapore, especially with the High Cost of Living and High Cost of Property Prices. Want to depend on that Government for your retirement? You don't even know what your CPF money is being used on in the first place due to lack of transparency.

But if you really want to break through and get out of the Rat Race, if we don't want to work till old and hope the Government can support us for the rest of our lives after retirement, which there's uncertainty. Shouldn't we take control now instead of following the current system what people are doing?

Study Hard -> Get Degree/Masters -> High Pay Job -> Work Till Old -> Get controlled amount of CPF -> Die without having back all CPF Contributed.

What is an Asset/Liability
I hope the above illustrations can make people understand about Cash Flow and the difference between Assets and Liability.

Assets are things things that put money into your pocket.

Liabilities are things that takes money out of your pocket.

When a dollar come into your hands, this is where you make your choice to become either rich or poor.

With that, thank you for the time!

1 comment:

  1. I think you're looking at it from a micro perspective. Unless you're born rich-rich, otherwise, you won't have the initial capital for you roll. Look at our wages in our society, its miserable. Now take a look at our fixed expenses- expenses that you cant run away from. I can safely ballpark the amount of fixed expenses to be approximately $1 - $1.2k (that is if you don't own a car, you're living independently , not leeching off your parents and family-less). Hypothetically speaking, in accordance to statistic, 80% of locals earn less then $2.5k on monthly basis. So lets take $2.5k as the figure. $2.5k - 20% mandatory tax (CPF), you're left with $2k. Less your fixed expenses of $1.2K. You're left with a balance of $800.

    Say i take out this $800 to roll, obviously i expect it to be a long term rolling process. You roll with $800, at the end of the year, you would have invested $9.6k (if the fact that you're not retrenched, replaced by cheap labour, progressive economy recovery, no slumps) Out of which, you prolly yield few hundreds out of it after factoring in inflations. For a start.

    So should a typical deskbound rat set out for this investment to plant their seeds, it means saying goodbye to everything. Throwing the money in to harvest the crop somedays. They will have to say goodbye to their social life, their friends, and everything else that they stood for. Probably their sanity as well. Not everyone has a windfall of a lumpsum to work out the balance sheets debit/credits for themselves.

    Why not, instead of being in a rat race yourself, think and venture into business yourself? Instead of looking at a fixed remuneration, you get to look at it from a variable stand point.

    Rich dad poor dad is a fantastic book. It should be read, applied and tweak in accordance to our economics. Where you look at the macro and zoom into the micro. Dont just read and follow blindly cause we have other contributing factors to a decision making process.