82. Master Your Finances

Know for certain that you deserve financial wellbeing throughout your life. You deserve an early, long and wealthy retirement. Retirement is a function of income not of age. Specifically it is a function of Passive income - income derived from investments etc., not from your labour. When your Passive Income is greater than your current expenditure, then you can afford to retire. To master this concept play as many games of Monopoly, Cashflow 101 and Cashflow 102 as you possibly can. Engage your mastermind group in this activity regularly. Read all the books by Robert Kiyosaki and visit his Rich Dad Website and subscribe to his blog etc.

563. Retirement

Retirement is not a function of your age. It is a function of your income. When you have built up enough passive income to fund your lifestyle and continue to grow your investments then you can afford to retire - if you want to.

For so long as you can still hack it and you continue to enjoy your work, you should keep at it.

496. The Safest Investment in the World

"U.S.Treasury Bills are the safest investment in the world." - Richard Suttmeier. Unfortunately they probably have the lowest returns in the world. Science, Technology, and China's Drive for Modernization (Hoover international studies)

345. Charity

Give to charity. Give wisely. Pick charities that are important to you and support them. A part of all you earn is yours to give away to charity. You should allocate your income as follows : -

Income %
€100

Full 100
Tax 30
Debt 30
Expenses 21
Savings 9
Charity 10
Investment 9

When you give to charity you should give 10%. This is one tenth. The meaning of the word "tithe" is to give 10%.

Give to your charities with an open heart. Give gladly. Do not resent your gift. Operating on this basis, be careful about where you choose to give. Everywhere there are people who have plans for your money. It is yours until you give it and only you have the right to plan for its use.

Everywhere there are "charities" that spend more on administration than on the causes they claim to support. You should be clear in your mind that this is nothing more than exploitation of the cause for the benefit of the organisers and is nothing short of fraud. Have nothing to do with these organisations.

Another form of exploitation is the phenomenon of "chuggers". This is a portmanteau word made up of the "ch" in charity and the "uggers" in muggers. It is the practice of mugging people on the street for charity. When you put money in a collection box you have no guarantee that the person holding it will ever return the money to the cause. Avoid them like the plague that they are.

When choosing a charity to support, do not be swayed by emotional appeals. Check out the bona fides of the charity and only give if the money is going to the cause and not the organisation. Demand to see their latest audited accounts before you give and only give if you are satisfied.

Build giving to charity into your budget. That way, at the start of each year you will know how much you intend to give and when you intend to give it and to which charity. Then you have made the decision once and for all and can forget about it until you are preparing your budget for next year. This is basically a mind-clearing sytem. Do not entertain appeals for anything else during the year (but keep the appeals on file for your next budget.) If you wish, you can budget for emergencies like floods, volcanoes etc. and keep money in a fund for that, earning interest.

185. The Formula for Compound Interest

When considering investments, consider the power of compounding. Compound interest is where the interest you have earned is added to the investment and it itself generates more interest : The formula is as follows :

A = P(1 + r/q)nq

The nq outside the brackets above does not mean "multiplied by nq" but "to the power of nq".

P is the principal (the money you start with, your first deposit)

r is the annual rate of interest as a decimal (5% means r = 0.05)

n is the number of years you leave it on deposit

A is how much money you've accumulated after n years, including interest.

If the interest is compounded once a year:

A = P(1 + r)n

If the interest is compounded q times a year:

A = P(1 + r/q)nq


As a good exercise you should work out dozens of examples comparing the returns when interest is compounded and when it is just simple interest (SI = PRT/100).

Formula for the present value (discounted value) of a future amount

P = the present value of amount A, due n years from now

r = the rate of interest

For example, someone contracts to pay you $100,000 in ten years. What's that worth right now, if they changed their mind and decided to paid you upfront? Say the interest rate is 5%.

At simple interest:

P = A/(1 + nr)

If A = 100,000 and n = 10 and r = 0.05 (which is to say, 5%), then

P = 100,000/(1 + 10x0.05) = 100,000/1.5 = 66,667

At interest compounded annually:

P = A/(1 + r)n

Using the same example as for simple interest, this gives

P = 100,000/(1 + .05)10 = 100,000/1.62889 = 61,391

At interest compounded q times a year:

P = A/(1 + r/q)nq

Or in the same example but compounding monthly (q = 12)

P = 100,000/(1 + 0.05/12)120 = 100,000/1.64701 = 60716

118. The Past Does Not Equal the Future

This is an important fact to remember especially when it comes to investments. Just because a share did well in the past, it does not go to say that it will continue to do well in the future.

78. Envy Not the Wealth of Others

Do not look into the bank accounts of those others who are richer than you. Do not envy them their wealth. Rather, you should fill your own accounts from your investments and earnings. Keep your financial plan in front of you and keep to it.