As I look back on my financial journey last year, I can say that my wife and I were pretty lucky in 2009, being able to transition back to working as an IT professional in the Philippines even in the midst of the worst recession since the Great Depression.

As a consequence, our financial situation at the start of 2010 is relatively OK as summarized below:

* We don’t have any debts.
* We have an emergency fund.
* We have a little bit of savings on top of the emergency fund.
* We both have Life Insurance.
* We have started investing in RTBs.

As you can see, our financial situation is relatively safe. However, we are still slaving ourselves into the 9-5 job. We still need to wake up early in the morning, go to the office, sit in front of a computer, think & type on the keyboard the whole day and then go home to take a rest.

We have cash, but we don’t have TIME. I want to have both cash AND time. And I won’t get that if my cash is sitting idly doing nothing while I am working hard the whole day. I want my cash to work hard too, so that someday I don’t have to work as hard anymore. That’s why I want to learn to invest my money. That’s why I want to get into the money game.

I understand that aiming for financial freedom will take some time. And I’m ok with it. It will require that I learn more and more each day how the money game works. And I’m up to the challenge. I will probably lose some money along the way. And although I think it will be painful actually losing money, I’m looking forward to the lessons it will teach me.

Here are my 3 financial goals for 2010:

I originally planned to list 10 goals, but I realized it’s too much. I’m really not a big fan of remembering things so I’ll just keep it short this time.

1) Buy a House

Ever since I got married, my wife and I have been planning to buy a house. We worked in Malaysia for two and a half years and we were able to set aside at least a down payment for a decent house. The only problem is, we have NOT found our dream house yet. Worse, we don’t even know where we want to live.

Our work and my in-laws are both located in Mandaluyong. Naturally, we would want to live somewhere near to save on cost and for convenience. Unfortunately, Mandaluyong is not the most tranquil and home-friendly-neighborhood place often portrayed in movies. It is a busy commercial area and business district. So all you see are tall buildings, noisy buses plying the busiest highway in the Metro they call EDSA, and lots and lots of busy people going to their work everyday.

We want a nice single-detached home with enough backyard to have a little garden where our kids could play. We want a house where the air is fresh and we could walk along the neighborhood while watching the sunrise. We want a safe community for our kids, where they can play around with other kids, much like what we both used to do when we grew up.

The two pictures are contrasting to say the least. But there’s no other way to be closer in making our dream house a reality than to actively checkout the houses for sale now.

2) Invest 20% of My Money

As I’ve said earlier, our money is hardly working for us. Last Monday, my wife was shocked when she heard that the 180-day time deposit interest rate is currently at 0.25%! What??! Only 1/4 of 1%!?? I think I’d rather keep my money with me, thank you.

Yes, we’ve started investing in RTBs. We got 7% interest on a 7-year tenor bonds. But it’s hardly enough when you take into account the 20% tax on the interest as well as the rising inflation. I’d say it’s just a little bit over breaking even.

So this year, my goal is to invest the 20% of my money in something that will earn at least 10% per year. I’ve already opened an online stock brokerage account, but I have not bought any stocks yet. So my goal is to finally start investing. I’ll probably start actually investing in mutual funds, businesses, and more this year as well.

This is precisely the reason why I described my goals this year as “getting into the game”. It’s easy to read about the different vehicles on where to invest your money. But it’s another story to actually do it. You haven’t actually learned anything until you’re already doing it.

3) Be consciously alive

I spent my birthday last weekend having a nasty cold & cough. Hardly a great way to celebrate a birthday. On top of that, most of my holiday vacation was spent in my room trying to recover from another cold & cough I got a few days before. It’s very hard to celebrate when you’re getting sick all the time.

I want to enjoy life, while I’m young and even when I’m already old. Who’s to say that we should sacrifice now for the future, when what we have is only today. Yesterday is gone. We don’t know what will happen tomorrow, or the next day. Or even the next year. What we have is NOW.

So I’ll start enjoying the present. I realize that we can and should enjoy today and prepare for tomorrow. My problem has been always thinking about the future that along the way I forgot to appreciate the blessings I have today.

That’s not to say I should be spending like crazy. My goal is to start consciously living day to day with the energy of a young kid. Be amused. Be inspired. Be wondering. Be excited, once again. Be alive.

Yes, I will still think about my future. I will still try to learn from my past experience. But this time, I’ll try to be more conscious of the present moment. Just like now. I’m having a conversation with you, and having a great time.


Cheers!
Allan

Original article published @ Rich Money Habits Blog - http://www.akosiallan.com/my-financial- ... oney-game/

Congrats, it looks like you're on the right track. I just wanted to comment on one thing.



That's actually a pretty respectable rate of return, especially for a low-risk investment like bonds.



That's not realistic.

If your goal is to develop a realistic, long-term plan, then your anticipated rate of return should be no more than 8%, optimistically. 5%, conservatively. If you expect to earn 10% per year every year from now going forward, you will be disappointed. It simply is not a sustainable rate of return.

I don't blame you for believing that it is. In fact, I expect even as you're reading this right now, you're shaking your head and saying, "This guy is wrong, I'll show him." Lots of "experts" have spread the myth that expecting a 10% ("The Wealthy Barber") or even 12% (Dave Ramsey) return is a reasonable assumption. And it might have been, for the past 30 years. However, the next 30 years are what count. And all indicators point to significantly lower long-term returns.

You don't have to believe me, you'll see for yourself. All I am saying is, please do not overextend yourself and put your family's future at risk trying to prove me wrong. Diversify, and don't use leverage to gamble, chasing after that elusive 10%/year. Have a contingency plan in place just in case it turns out 7% is as good as it gets, so you can still achieve your goals.

Above 10% returns is realistic if you ditch the 9-to-5 job and strike out on your own. But it's a higher risk option because you're not diversifying but concentrating more eggs in a basket. That's actually the reality -- one of the top hedge fund managers the past decade only held less than 10 stocks in his fund and returned +40% annualized a year. But if you diversify (whether inside stocks or across stocks and bonds), return will drop in exchange for consistency. Since you don't like the 9-to-5 thing, you should consider your own business.

The other possibility is to invest not 20% but 50% of your income. The more you can put in, the less you spend. Slowly squeeze your spending down and you might be able to bail after another 15 years in your 9-to-5 job.

Sure, and another hedge fund manager did the same thing and returned -40% annualized a year.

What's your point?

Is there any way to tell ahead of time which fund manager is going to be the +40% one and which is going to be the -40% one? No, there isn't.

You are just misreading the tone of my message. I simply was saying to get outsized returns, you have to take outsized risks. I make no judgement on the suitability of a person to take such risks or where they might do it.