Sunday 9 July 2017

The 10-10-10-70 Principle (Part Three)

Let Your Increase Do the Talking
The first 10% (Tithe/Charity) keeps the FLOW OF GOD’S RICHES towards us, and gives our life a meaning; the second 10% (Savings/Passive Capital) BUILDS US RICHES; the third 10% (Investment/Active Capital) gets us on our way to FINANCIAL INDEPENDENCE and finally to Financial Abundance. Never forget wealth is built. And, these are the foundations for doing this. This is a wealth-building plan. There is no magic around it. It will only work if you do.

Remember, "Poverty needs no plan. It needs no one to aid it because it is bold and ruthless. Riches are shy and timid. They have to be ‘attracted.’" (Napoleon Hill) "The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind." (T. T. Munger) "You’ll never change your life until you change something you do daily. The secret of our success is found in your daily routine." (John Maxwell)

There are those who advocate combining the second and third 10% as 20% Savings; while others advocate combining them as 20% Investment. The first is an attempt at playing it safe. It depends wholly on the system working in one's favor. It is, in a sense, the most passive approach to building wealth. Other than it's not being exciting, it leaves one fully exposed to the effect of inflation and taxation.

Yes, your money is relatively guaranteed. Yes, you have the power of compound interest. Yes, you are building riches. However, this alone does not get you to financial independence. It might make you rich (financially secure) though. For this to make any meaning, you HAVE to start early. What gives POWER/MAGIC to COMPOUNDING is “TIME.” TIME, INTEREST plus DISCIPLINE are the secret ingredients in the POWER OF COMPOUNDING. As Albert Einstein so rightly said, "Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pays it.”

The second school of thought (20% investment) assumes an all-out attack at becoming financially independent. One challenge, though, it might leave one with no fallback position, in a downside scenario. Remedies for this include, a first putting aside at least 6 x monthly expenditure. Another remedy is having a portfolio of investments.

An investment portfolio is a secret tool of the true investor, and way to becoming financially independent. There are at least three ways an investment portfolio can be put together. The popular one is aligning it to one’s risk tolerance. There are various standard postulations of these depending on one’s personality and remaining useful (active) work life.

Putting investment portfolios together is the bread and butter of Financial Managers/advisors. They do not do this for free. If you find a good one, hold on to him/her. There are not many of them in the industry. You can also put one together yourself based on how much financial education you have. There are several tools out there that can help you along this journey.

A second way of putting together an investment portfolio is to ensure coverage in any and every market/economic scenario. A true investor does not want to lose money, at least not in the long run. Hence, they put together a portfolio to meet this objective. Getting to this point takes a true understanding of the market.

An investment in your financial education is an investment worth your money in every sense of the word. And why would you not want to? THERE IS NO ONE WHO CARES MORE ABOUT YOUR FINANCIAL WELL BEING THAN YOUR OWN VERY SELF. WISDOM ONLY DICTATES THAT YOU ARM YOURSELF WITH THE NECESSARY TOOLS FOR THIS ENDEAVOR.

The third way (consideration) in putting together an Investment portfolio is deciding either to diversify or focus on a particular area(s). Both options have their pros and cons. Which one you decide to go with is a function of your personality and how much of yourself you invest in your financial education.

"Your decisions, not your conditions determine your financial destiny." (Anthony Robbins) Education arms you with the right tools for this. It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong. (George Soros)

Diversification is ideal for those who are risk-averse, and are unwilling, or not opportune to take an active role in their investing. Focus, on the other hand, is more suited for people who take an active role in their investment. They are risk (opportunity) seekers and want more out of life.

As you can see, there are several possible options with the second and third 10%. The starting point is to ensure you are putting the money aside. Then and only then can you begin to work on the option that might best suit you.

© 2017 Akin Akinbodunse

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