Assets and Liabilities
Based on the popular book ‘Rich Dad Poor Dad’, assets should be generating positive cashflow for you, whereas liabilities takes money out of your pocket.
For example, if you purchase a stock that pays out dividends, this investment can be considered an asset. If you are collecting rental from a property(minus expenses ), that can also be considered an asset. Both generate positive cashflow.
Liabilities are your daily expenses, insurance, your needs, wants. Anything that takes money out your pocket are liabilities.
At the end of the month, we need to ensure savings is a positive number. If savings is negative, it will mean the individual is in debt. There are ways to ensure this:
1) Living within your means — Simply put, your spending should not exceed your income. If you do, try to track your monthly expenses and starts trimming. Reduce unnecessary spending, such as cutting down on daily atas coffee, expensive lunches, online shopping etc.
2) Debts — Not referring to mortgage. If you have credit cards debts, take the money saved and start paying them off. Credit cards interests can be as high as 25%, do not accumulate the debt and just pay the minimum requirement. A small debt plus continuous spending can snowball the sum into something huge which can be regrettable.
3) Emergency fund — After paying all your debts, build an emergency fund of up to 1 year. Take your daily expenses and multiply that by 12. Set aside that money for rainy days.
4) Lastly, invest your money to generate passive income.
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Build a long term portfolio. One common portfolio is the “Bogle head portfolio” can also be known as the lazyman portfolio because it does not require much monitoring.
Bogle head/Lazyman Portfolio
A lazyman portfolio is made famous by the late Jack Bogle who started Vanguard, a great innovator for low cost investing. It can be build around three ETFs. They are Index ETF tracking the global economy, an index ETF tracking a country’s index and lastly a bond ETF. Since I am a fan of Vanguard, the portfolio will be:
1) Global Index ETF — VTI or VWRD or VWRL
2) Country ETF — VOO (alternative is SPY, VUSA etc)
3) Bond ETF — Ticker: BND or A38(for Singapore investors)
These ETFs allows diversification for investors, and given it’s low costs, it has been gaining popularity over the years. ETFs provide sectorial and geographical diversification. For investors who has no time to dwell into individual businesses, it is a great way to start. I have briefly touched on these ETF in this post Rule of 72. Link: https://wordpress.com/post/lazymaninvesting637459160.wordpress.com/21
This is one way to form the fundamentals of your investment. It also builds confidence and also an opportunity to learn more about the market. As knowledge is gain, investors can start investing in strong companies be it for growth or dividends.
Apart from building a portfolio on your own, investors can also use Roboadvisors which I will talk more about it in later posts.
Disclaimer: Not financial advice, please do your own due diligence before any investments.
Thank you for reading.
