How to be financially intelligent

What is the purpose of financial freedom?

The aim of this blog post is to make you think and shift your mindset towards financial freedom (and to be financially intelligent). Wouldn’t it be wonderful if you are financially independent and able to live your life as you want? If you are working from Monday to Friday, imagine waking up and every day is the weekend. That is what it feels like to be financially free.

In other words, financial freedom gives you options to do what you want to do. Financial freedom does not mean you have to retire. You can continue working in your current job if you want to or immerse yourself in your hobbies.

How can I be happier?

Maslow’s Hierarchy of Needs states that we are motivated by certain physiological needs. A pyramid represents our needs with the most basic needs at the bottom and more complex needs at the top.

Most of us are struggling to cover Levels 1 to 3. But to be happy, we need to go beyond to reach Levels 4 and 5. We reach Level 4 through respect and appreciation from others. This is where you make positive contributions to the world and get recognition from it. Achieving financial freedom will help propel you up these levels. In other words, financial freedom should make you happier!

• Level 1 – Physiological needs (air, water, food, shelter, sleep, clothing, reproduction)
• Level 2 – Security and safety needs (personal security, employment, resources, health, property)
• Level 3 – Social needs (friendship, intimacy, family, sense of connection)
• Level 4 – Esteem (respect, self-esteem, status, recognition, strength, freedom)
• Level 5 – Self-actualization (desire to become the most that one can be)

To start your journey to financial freedom, you need to be financially intelligent. What do I mean by this? Let’s start from the beginning.

What is financial literacy?

Based on Webster’s definition:

Financial literacy is the education and understanding of knowing how money is made, spent, and saved, as well as the skills and ability to use financial resources to make decisions.

Where did I learn about financial literacy?

Having a basic understanding of money is important. Most of us never received financial education in school. I remember I got my financial education from observing my parents. My father worked a 9-to-5 job, lived frugally, saved his money, bought a house and stopped at the age of retirement.

My parents told me to study hard, get good grades, graduate, get a good job, get promoted and work until retirement. For my parents, financial freedom and living the good life only started at retirement.

I imagine that’s how everyone lived and should live. But these days everyone is talking about financial freedom and travelling the world. Everyone wants to retire before 40 years old.

How is your financial journey?

Most people take the long road. They work hard, save money and hope for a promotion. And they do this until they retire. They may have a decent retirement.

Some people take the side road. They work but don’t save.  They may end up in trouble during retirement when their expenses are no longer covered.

A minority of people take the short road. They are fast-tracked towards financial independence and freedom.

How secure is your job?

We assume we are going to work for life. But in reality, our jobs are not secure. The purpose of this post is to open your eyes and ears. Working in the United Nations used to be a secure job for life. But the UN and other organisations have budget issues. They are hiring more consultants and interns instead of creating regular posts. So, we cannot guarantee job security.

For me, financial freedom means having options and security. What if I lose my job? What if I don’t like my supervisor? What if I get bored with what I am doing? Being financially free means I have a choice.

Wealth depends on how much you save

Imagine two people, Mr Spender and Mr Saver.

Mr Spender earns $10,000 and spends USD11,000. He has a growing debt of $1,000 each month. Basically, he is living on borrowed credit. At the end of the year, he is $12,000 in debt. This debt will keep growing due to interest charges if he does not pay it off.

Mr Saver earns $5,000 and spends $4,000. He saves $1,000 per month. In one year, he saves $12,000.

Wealth doesn’t depend on how much you make. Wealth depends on how you spend and save money. You must be able to save first before you can invest!

Are you financially intelligent?

What’s the difference between Mike Tyson and Michael Jordan?

Mike Tyson is a former professional boxer with a successful 20-year career.

Michael Jordan is a former basketball player and one of the most recognised names in NBA history.

As of 2022, Mike Tyson is worth $3 million whereas Michael Jordon is worth $2.2 billion!

Back in the day, Mike Tyson had up to $300 million but ended up losing it all. He spent on items such as luxury cars, Siberian tigers, and gold plated furnishing for his home. He filed for bankruptcy in 2007.

This is similar to how lottery winners lose all their money in a couple of years due to frivolous spending.

On the other hand, Michael Jordan receives royalties from Nike. He spends his money on sport-related businesses. He also owns several restaurants and a Nissan dealership.

In other words, it does not matter how much you make. What’s important is how much you keep!

Is it too late to achieve financial freedom?

Even if you are in your 40s or 50s, it is never too late. But we must be realistic in our goals. Those who started saving and investing young would have an advantage. This is thanks to compounding.

According to Robert Kiyosaki’s 4 quadrants of cash flow, there are 4 types of people.

• E (employee – get paid according to working hours, no leverage, work for money) – trading your time for money!
• B (business owner – get paid from business revenue, leverage, people work for them)
• S (self-employed –  get paid according to work value, no leverage, work for money)
• I (investor – get paid from investments and real estate, leverage, money work for them)

If you are currently in quadrants E and B, you would want to move to S or I. People in S or I, make money in their sleep!

As a UN employee, what can I do now?

The easiest way for UN employees is to start investing in high yielding assets like an index fund. This will get you from quadrant E to I.

Remember to rebalance your portfolio based on your asset allocation (bonds and stocks). If you are older, you will have to save more and invest as soon as possible.

How to live a balanced life?

I enjoy living a minimal, simple and somewhat frugal lifestyle. But not everyone is like that and I understand.

So, to have a more balanced lifestyle, you could use the money-saving concept, popularised by Mr T. Harv Eker.

In the 6 jars money management system, you would save a percentage of your salary in the various jars. But to achieve financial freedom quicker, put more into the financial freedom jar!

• 55% necessities (rent, food, bills)
• 10% play (leisure, luxury)
• 10% financial freedom (stocks, mutual funds, passive income, real estate investing)
• 10% education (coaching, mentoring, books, courses)
• 10% long-term (big purchases, emergency fund)
• 5% give (charity)

How do I know if I am financially free?

You are financially free when your passive income fully covers your expenses!

Final Thoughts

Wealth is not how much you earn but how much you save. Always live below your means. It is never too late but start investing as soon as possible to take advantage of compounding. You are financially free when your passive income fully covers your expenses.