Warren Buffett, CEO of the Berkshire Hathaway and one of the most successful investors in the world, said, “The best investment you could ever do is to educate yourself.” Let us begin becoming financially literate by understanding these 3 basic principles:
1. What is an investment?
As explained by www.investopedia.com in its very economic sense, “An investment is any purchased good that is not consumed today but will be used in the future to build wealth.” This definition implies that it starts with an intended delayed gratification. An investment is best used to produce passive income while you earn aggressively. Finding a product that will allow regrowth of the capital you bought it with is the key.
2. What is the difference between passive income and aggressive income?
In his book “Rich Dad Poor Dad”, Robert Kiyosaki shared the importance of passive income over active income. To embrace the advantage of the first one over the other, he pointed out that active income is what you earn from your day job. Passive income is called so since you get it without doing much of a workload. Having an investment to earn you some passive income is the name of the game. You will get paid via the ‘investment’ you have made.
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| Sample financial statement that the boardgame Cashflow provides. |
For example, you have bought an apartment and had it rented out. Basically, the monthly rental payment you get from it is passive income because you did not actually have to do any work for it compared to your 8-hour day job. Simply put, you did not have to report for duty to anybody at anytime. You are earning money even when your attention is on other things. The capital you bought and renovated the apartment with was your investment and this can earn you back your capital and more! Understanding the rate of return based on how an apartment is in demand, you are actually making your investment work for you. This way, your apartment becomes an asset.
In buying or purchasing an investment, it is important to know when it becomes an asset or a liability. Let me set the meaning of each financially speaking. An asset is anything that puts money into your pocket. On the other hand, a liability is something that takes away money from your pocket. Plain and simple.
Now, how do you know if your investment is an asset or a liability? Every good investor plans out how the money he puts out would come back double at least. Let us look at our first example. Most people think that owning an apartment is an asset. Without proper education about realty properties, you will most likely buy the apartment just because you wanted to own something. If your only purpose is to show off that you own a property, chances are, it may turn into a liability because it is just going to demand a mortgage fee, estate tax and renovation fee at least every year.
Whereas if you had a plan from the beginning to have the apartment renovated to resell it as soon as its worth appreciates, it becomes a potential asset. And since the trend with properties as to when it’s going to appreciate is very dynamic, you make “time” work for you by renting the apartment out. You earn while waiting for the right timing to resell it. In that sense, it becomes an asset because it brings in passive income.
These 3 basic principles and the 3 laws of money, which is (1) save, (2) invest and (3) re-invest, are the key elements to consider in understanding the importance of an investment. It is thru learning these that we could be guided as to what kind of investment suits us best. What fits our budget depends on the small and big deals we would consider. There are investment vehicles that could cater to our demands as a consumer. We just have to be skillful in choosing a good opportunity. Choosing to act now is the only skill you need to start with and you'll be surprised that this is the skill you need to hold onto for the rest of your journey to financial freedom.
These 3 basic principles and the 3 laws of money, which is (1) save, (2) invest and (3) re-invest, are the key elements to consider in understanding the importance of an investment. It is thru learning these that we could be guided as to what kind of investment suits us best. What fits our budget depends on the small and big deals we would consider. There are investment vehicles that could cater to our demands as a consumer. We just have to be skillful in choosing a good opportunity. Choosing to act now is the only skill you need to start with and you'll be surprised that this is the skill you need to hold onto for the rest of your journey to financial freedom.
There is no guarantee that every investment will pay off though. Risks and mistakes are all part of it. This is why it is imperative to find a good financial advisor as soon as you are ready to invest to avoid major errors. Surrounding yourself with people who have the same pursuit is also a big help. Doing so will make you more driven. Expose yourself to trusted groups such as The Global Filipino Investors, SAFE (Society to Advanced Financial Education) and the Truly Rich Club. Seek education thru www.investopedia.com that you can access online for free, and most of all, read financial books like Napoleon Hill’s “Think and Grow Rich”, Robert Kiyosaki's "Rich Dad Poor Dad" and Bo Sanchez’ “My Maid Invests in the Stock Market… and Why You Should Too!” for further research.
Why do we have to invest?
To wrap it up, an investment is important because it can provide security. Whether you choose to invest on properties, artwork, stocks or agriculture, having this investment is making your hard earned money work for you instead of the other way around. When your passive income from this investment keeps on coming and you are able to earn enough from it without needing a job, you will have more time to pursue other opportunities. Moreover, you will have spare time to do what you love to do; may it be to travel, to paint, own a business, be with your family, or anything else that having a full time job hinders you to do. And let us not forget an ultimate achievement, which is being in a stable economic position to help the unfortunate. You as an investor may be able to give a lot of jobless people something to do. You could be a teacher of your own experience by encouraging others to have the same perseverance and you can be a good example for other achievers to get motivated. If all people would be able to invest and the world experiences riches in its abundance, that in itself is a good investment that you are creating a platform for.
Related posts:
1. A STEP BY STEP GUIDE TO SUCCESSFUL STOCK INVESTING WITH THE EIP COL EASY INVESTMENT PROGRAM - this is the very steps I made for mine. Hope it could help you out too.
2. HOW FINANCIALLY HEALTHY ARE YOU? - Here are questions that will help you know your financial status.
3. PARADIGM SHIFT - We all are rich of the single most essential commodity of all time. This post talks about it. Read on to find that thing you already own.
To wrap it up, an investment is important because it can provide security. Whether you choose to invest on properties, artwork, stocks or agriculture, having this investment is making your hard earned money work for you instead of the other way around. When your passive income from this investment keeps on coming and you are able to earn enough from it without needing a job, you will have more time to pursue other opportunities. Moreover, you will have spare time to do what you love to do; may it be to travel, to paint, own a business, be with your family, or anything else that having a full time job hinders you to do. And let us not forget an ultimate achievement, which is being in a stable economic position to help the unfortunate. You as an investor may be able to give a lot of jobless people something to do. You could be a teacher of your own experience by encouraging others to have the same perseverance and you can be a good example for other achievers to get motivated. If all people would be able to invest and the world experiences riches in its abundance, that in itself is a good investment that you are creating a platform for.
Related posts:
1. A STEP BY STEP GUIDE TO SUCCESSFUL STOCK INVESTING WITH THE EIP COL EASY INVESTMENT PROGRAM - this is the very steps I made for mine. Hope it could help you out too.
2. HOW FINANCIALLY HEALTHY ARE YOU? - Here are questions that will help you know your financial status.
3. PARADIGM SHIFT - We all are rich of the single most essential commodity of all time. This post talks about it. Read on to find that thing you already own.
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