AS the sun finally sets on the old year, we look ahead to safer, saner days. What might we do to stack the odds in our favour?
Christmas happens to be my favourite time of year. I love the church services, the joyful carols wafting through the air (and airwaves), the miniature manger scenes depicting the birth of Jesus, the twinkling lights on green Christmas trees reflected against bright baubles of red, gold, white and blue, and, of course, a veritable smorgasbord of edibles often featuring roasted lamb and oven-baked turkey.
Sadly, in the midst of all this bounty, life remains hard for many of us, both in Malaysia and abroad, largely due to the grinding privations of this wretched, endlessly evolving Covid-19 pandemic.
So, as we enter the new year, how do we ensure — or at least raise the probability of — prospering financially in 2022 and beyond? How, indeed? While I don't have all the answers, here are three things we might may consider doing to improve our lot in life:
1. Adopt diversified forms of economic protection;
2. Step boldly beyond our personal comfort zones; and
3. Learn the difference between capital and cash flow.
DIVERSIFIED PROTECTION
While we can never wholly shield ourselves from the vagaries of existence and the vicissitudes of life, we should always seek out useful knowledge, apply it, and thus, incrementally nurture wisdom.
The seventh chapter of George S. Clason's personal finance classic The Richest Man in Babylon (TRMiB) is entitled 'The Walls of Babylon'. In it he describes a ferocious, extended attack upon that storied city-state by ancient Assyrians that ultimately failed because of Babylon's thick, high and impregnable walls. Clason writes:
"The walls of Babylon were an outstanding example of man's need and desire for protection. This desire is inherent in the human race."
Over centuries we have developed ever improving ways of protecting ourselves. Clason says as much in the closing paragraph of that riveting chapter of TRMiB:
"In this day, behind the impregnable walls of insurance, savings accounts and dependable investments, we can guard ourselves against the unexpected tragedies that may enter any door and seat themselves before any fireside."
We owe it to our families and ourselves to buy the right forms of affordable insurance, to save our money wisely, and to invest prudently to buttress the brickwork of our economic defences.
ENTRAPPING COMFORT
Not everyone is cut out to start a business. But many people who should do so don't because they're either too comfortable or too afraid to try. The British founder of Maxim magazine Felix Dennis died of cancer in 2014. A year before that, his personal wealth was estimated at a cool half a billion pounds. In his rollicking 2006 book How to Get Rich, Dennis writes:
"I employ a great many people smarter than I am. That's not false modesty, that's a stone-cold fact. The only two reasons such geniuses continue to work for me and put money into my pocket are that, on the positive side, they enjoy their work, and on the negative side, they fear losing what they have already gained — challenging work, congenial colleagues, a certain status and the promise of promotion and pay raises."
There's nothing wrong remaining an employee in the public or private sector all your life. But in this day and age, it is the successful business owner who retains the lion's share of the maelstrom of wealth endlessly swirling about us. That's the aspect of entrepreneurship everyone else envies.
The flip-side, though, is the 90 per cent failure rate worldwide of fresh business start-ups. Only you may decide if it is worth taking the astronomical risk of venturing out on your own; living by your wits and honing your ability to sell (all of us in business are salespeople, whether we embrace that identity or not); and, yes, abandoning the safe harbour of conventional employment.
CAPITAL AND CASH FLOW
The general level of financial literacy worldwide is dangerously low. That's why you'll find many of your friends have merely a hazy understanding of the distinction between capital and cash flow.
Note: We build up capital (specifically equity capital that we own instead of debt capital we owe) by managing our cash flow position and saving our various cash flow surpluses over time.
Both financial quantities are vital. So, ask yourself if you're living in a way that recognises their interconnectedness and importance. Japanese author Ken Honda writes about them in his unconventional book Happy Money:
"When you think of money, it is easy to mix up stock and flow." Honda refers to our stock of capital and also to our flow of cash or, quite literally, our cash flow.
In my opinion, the wisest way to build layer upon layer upon layer (or sequential buffers) of financial protection is to accumulate capital by underspending — within reason — and to allocate that freshly generated capital perhaps into a viable business but certainly into various investment assets that pump out diversified streams of liberating passive income.
So, with that I wish you a bountiful New Year! I hope you'll pay the price of success throughout 2022 so that your ensuing years grow bigger, bolder and brighter.
© 2021 Rajen Devadason
Rajen Devadason, CFP, is a Licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason or via rajen@RajenDevadason.com. You may also follow him on Twitter @Rajen Devadason and on YouTube (Rajen Devadason).