Archive for February, 2012
Introduction of Warren Buffet
0One of the men I admire highly is Mr. Warren Buffet. At the time of writing this post, he is the second richest man on earth alive. As far as I know, he is the most famous investor. Through him, I am inspired to grow my financial resources similar to his approach.
Warren Buffett On Personal Finance
Interview Warren Buffett On Value Investing – CNBC
Warren Buffett’s Simple 4 Step Stock Formula
The Intelligent Investor, by Benjamin Graham
YouTube Playlist 1 of Warren Buffet
BBC – Warren Buffett & Dale Carnegie
Quick Introduction of Warren Buffet
Inflation and McDonald’s Ice-Cream
0Today I’ll talk about a phenomenon that most people would have not noticed of. This post is about how inflation affects the poor more than the rich when it comes to the increase in price of common products. To illustrate this, I will use the example of McDonald’s ice-cream.
I recall that in early 2009, an ice-cream bought at McDonald’s cost SGD $0.50. Today, at the point of writing this post, it cost SGD $0.70. Well… We know that inflation rate causes the prices of products to go up, right? Usually, the government announces a country inflation rate at 3%, yeah? So is this really true?
It is true when it refers to the country’s consolidated inflation rate. (I’m assuming you understand what inflation is. Otherwise, you might consider this definition that inflation is the falling purchasing power of money, for now.) However, it is actually not true for specific products. Let’s take a look at the ice-cream again.
| Year | Cost |
|---|---|
| 2009 | $0.50 |
| NOW | $0.70 |
Look at the price again, do you think it is anything near 3% inflation? How much is the increase of the price?
$0.70 – $0.50 – $0.20
There is an increase of $0.20 in price.
So how much is the increase in terms of percentage?
$0.20 / $0.50 = 40%
That means to say McDonald’s ice-cream has effectively applied 40% of inflation!
What does this mean? This means every product has its own inflation figure. However, this would also mean that another effect is going on, which would make the poor worse off than the rich. This is one of the reasons why the rich can become richer but the poor will have a harder time to become richer. Here’s why:
If Person A has $10 and Person B has only $1. Obviously, in comparison, Person A is richer than Person B. When both of them buys the same ice-cream, who do you think will deplete more of his money? Think in percentage.
| Actions | Person A | Person B |
|---|---|---|
| Originally owns | $10.00 | $1.00 |
| Buys ice cream at | $0.70 | $0.70 |
| Now left with | $9.30 | $0.30 |
That’s right. Person B essentially becomes much poorer because he has lesser in the beginning. By spending the 70 cents out of his already meager $1, he is only left with 30 cents. This 30 cents won’t allow him to buy another unit of ice cream, not to mention to invest and grow his money… He can do so, but it’d be more challenging… He can do so if he think like a rich, though.
On the other hand, Person A would still have in his possession $9.30! This means he could well purchase 13 more ice cream if he wants to! He has more money to spare. He could choose to spend his money else where if he wants to. But the true rich I know of would probably have the habit of setting aside a relative portion of his money to let it grow with certainty.
In conclusion, …
…inflation has a larger effect on the poor than the rich when it comes to the daily common products, especially necessities, such as food and transport.
Next time you buy an ice-cream, hopefully you can recall this story. If you feel like buying something on impulse, think again: are you willing and ready to absorb the inflation of that specific product? I’m not telling you to live under your means. In fact, I don’t believe in living under my means and be miserable. But I do wish the best of you in choosing the kind of financial lifestyle you’d desire, hence this article to add value to you.
Feel free to let me know about your thoughts. I look forward to hearing from you!
Cheers!
Desired Lifestyle and Time Horizon
0
This post will be an interesting one (I do my best to make every of my post an interesting one!).
Some terms mean a lot to me. Two of them are “desired lifestyle” and “time horizon”.
When it comes to financial planning, what do you start to consider first? The first two things I have learnt to consider are:
- Desired Lifestyle, and
- Time Horizon
Desire Lifestyle
What kind of life do you want to live? Author of best selling book, “The 4-Hour Work Week”, Timothy Ferriss inspired me to think that what most people really want is not to own a million dollars, but to live a life that owning a million dollars can give. Most people want to live like a rich. Good news: it’s not necessary to spend a lot to live and feel like a rich. He calls those who has enable such a lifestyle The New Rich. Basically, these are people who have high enough passive income, high enough disposable time to do what they like to do, and high enough mobility to move to wherever they want.
- Time
- Money
- Mobility
I also want such a life. Don’t you? In fact, I want to be in my Sweet Spot, to do what I like to do and can do well in. Call me a fool; call me naive; call me idealistic. I am just being honest to myself. I am a dreamer and I dream with my eyes open, so beware of me!
Time Horizon
How long do you think you’ll live? If you think you’re going to live for another hundred years, do you think your decisions will be the same as how you’d have taken if you think you only have ten more years to live? Let’s make it shorter. What if you’ve been informed by your doctor that you only have six more months to live?
I like to quote from the successful, especially from the dead, because they’ve made it through life. Here’s a wise saying from Mr. Steve Jobs:
Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.
When I was 17, I read a quote that went something like: “If you live each day as if it was your last, someday you’ll most certainly be right.” It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: “If today were the last day of my life, would I want to do what I am about to do today?” And whenever the answer has been “No” for too many days in a row, I know I need to change something.
Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.
*To view the live speech, scroll all the way down to view the embeded video.
Now, to put this in context, why would I want to chase after money and then retire? I might as well live a life I would have when I retire and scale up my ability to generate passive income… or so I think.
What about you? What is your desired lifestyle? If you can only spend 2 to 4 hours a day to generate income because you’re struck with a disease, or if you’ve only 6 more months to live, how would you have spent it? Spend more time with your kids? Hang out with your loved ones? Pick up a certain hobby? Write a book? Travel? Add more values to the under-prvileged? Why not start to make an adjustment to live such a life now?
Once again, they are:
- Desired Lifestyle, and
- Time Horizon
So there you have it… If you are planning your life, would you consider these two factors as your top priorities? Would you use them as your starting point for your financial planning?
I hope to hear from you soon!
Peter
