The 5 Keys of Financial Management for Investors

Financial Management is one of the most important keys to success and achieve financial freedom for everyone. Here, i would like to share the 5 most important keys for financial management especially for Investors.

1) Divide your monthly income into different accounts

The most easilier ways is to open a few separate accounts. Basically, opening an account is free of charge for all banks. Here are the list of account that should be opened to protect your cash and please remember that "You should control the Money, Not the Money to control you."

i) Saving Account - An account that without a ATM debit card. You should not withdraw any money after you have deposited inside this account.

ii) Investment Account - An account that prepare for investment such as Stocks, Real Estate, Bonds, etc.. This is the account that you should keep saving until you find the right time to invest in order to build your assets.

iii) Expenses Account - An account that will used for monthly expenses, such as grocery shopping, phone bills, utilities bills, etc.. This is the account you should know the exact amount that are going to spend each month.

iv) Entertainment Account - An account to relax and credit yourself. Personally, i wouldn't suggest that you should put more money into this account unless your income is super high. Do not spend more than 15% of your income into this account at the early ages. As we should be more aggressive to build our investment portfolios in order to enjoy in the older ages.

v) Tax Account - An account that should save up for your yearly taxes. People always borrow money at the end of year to pay off all their taxes which will end up increasing their debts.

I would suggest everyone to install some of the apps such as "Spendee" on your smartphone. It is one of the Virtual Budgeting apps that could help you to categorised, improved and track your expenses and saving. If you are a person that spend a lot, i would recommend you to set a budget to yourself for spending each day and review it every night.

2) Don't use credit card to borrow money (Not even stocks)

Do not use your future money to invest into any stocks unless you feel that you are too smart and good like "Warren Buffett". Credit card is the type of things that allow everyone to use their future money for now. If investors spend their future money into the stocks or other investment tools, they will only end up paying off all the debts for the remaining years.

3) Liabilities

Do not buy things that will depreciate in the future. Such as Cars (unless you are the Uber/Grab driver, which they are using cars to earn money), Gaming Computers (unless you are the professional gamers that you need it to win the competitions with prizes), etc..

Investors should not increase their liabilities and should only focus on increasing their value of assets. Smart investors will save up the liability money for a great shot on any types of investment such as properties with healthy rental yield. Normally, i will always tell myself that, i will try to save up as much as possible for all the assets. Although i feel like i am half broke with many healthy debts, i will imagine that all these healthy debts will soon become my passive income in the later years.

4) Inflation

Inflation is one of the most common things on earth and your hard saving money will soon be depreciated in the banks. A 3~4% per year inflation will increase all values and prices. Hence, investors should seek for investment vehicles that could be able to help to generate at least 4% per year to win over the inflation. If investors are paying mutual funds, please check that the annual return AFTER DEDUCTED ALL COMMISSIONS are still be able to provide 4% return (At least). If investors are investing in stocks, then check your yearly stocks performance.

5) Return of investment 

The return of investment is the most important keys for all investors. During the bull market, investors stocks portfolio should be more than / win over the Index Return. Or else, investors should just invest into the index fund instead of stocks. For instance, the S&P 500 from 2017 to 2018 is around 20% return and investors stock portfolio must be more than 20%.

Many investors make their fortunes through the properties investment. The average property price raised return for around 4~5% each year, which win over the inflation and a steady cash flow from the rental yield. Investors are based on the following 2 important methods to make fortunes in property investments.

i) Leverage over time
ii) Rent over Mortgage.

In order to be financially freedom, investors should build and invest more on their assets and most importantly, a passive income is always the Ultimate Goals for us.