Becoming a millionaire involves discipline, hard work, and financial education.

A lot of us are dreaming to

become a millionaire and I was one of those. That is why I simply created this blog entitled Millionaire Acts – to
know how a millionaire acts and to mimic their success.

Based on the book that I read entitled “The Millionaire Next Door” in which the authors conducted a study on
how millionaires live, we can deduce what these millionaires undertook to achieve their “millionaire” status. And
I will summarize it together will all the lessons I learned on how to become a millionaire.

MILLIONAIRES ARE FRUGAL INDIVIDUALS:

Millionaires know how to pay themselves first. If you are an employee like me, the first thing you should
do is to pay yourself first whenever you received your paycheck. Set aside enough savings first before you
spend the rest. Use the equation INCOME minus SAVINGS equals EXPENSES.

A good way to know how much you should save is by using the universal rule called Pareto’s Principle of 80/20.
In business, you must put most of your efforts on the 20% that bring in 80% of the income. In saving, 80% of
your savings come from 20% of your frugal living. In other words, you should live within 80% of your income and
set aside at least 20% of your salary every payday.

Millionaires live below their means. Most millionaires are not fund of showing their wealth by living a lavish
lifestyle. We are oftentimes compelled by media to live extravagant because that’s how media portrays how
millionaire lives – large houses, luxurious cars, expensive jewelries, etc.

However, a lot of millionaires are simple. They wear simple clothes, live in a simple house, drives simple car and
yet you will know they are already a millionaire by examining their bank accounts, their stock portfolio and other
investments.

Millionaires know how to budget. One way to live below your means is to budget your income. You should
assign every peso for each of your expenses every month after taking out your savings from your income.

MILLIONAIRES ARE FINANCIALLY LITERATE:

Millionaires know how to invest. The first thing to be financially literate is for you to know that the value of
money depreciates over time because of inflation. And that is why you need invest. You need to let your money
work for you because you worked hard to earn it. You should know how to read numbers and to understand
some basic accounting terms.

Millionaires are familiar with the terms active income and passive income. You should have a lot of
income streams. If you lose one, then there could be other streams that can support you. You should not just put
all your nest eggs in one basket but in a diversified portfolio that may probably contains stocks, bonds, real
estate, and other investment vehicles. Educate yourself with these types of investments and how these
investments provide returns for you and what are the associated risks involved.

Millionaires start early. You should be informed that time is essence in becoming a millionaire. It’s not a
quick-reach step on top of a ladder but it involves a lot of time. It’s not an overnight success.

MILLIONAIRES ARE DETERMINED TO BECOME MILLIONAIRES:

Millionaires have goals. You should start with a goal. It will serve as your target and gives direction to your
actions. There will be a lot of temptations out there that can sway you away towards reaching your goals but it’s
just a test of how determined you are. You must possess the drive and the will power to overcome these
challenges. You should have the discipline to achieve success. Overcome your fears. Believe in yourself that you
can become a millionaire! You can do it!

Millionaires have mentors. You should get yourself a mentor. He will serve as your guide to become a
millionaire. He might not be physically present all the time to teach. You can buy his works of art like books in
which he shared all the things that he went through in order to achieve his millionaire status.

Mingle with the same people who have the same mindset as yours. Learn from each other. Create value to each
other. Surround yourself with positive people, people who can help you and teach you to reach your goals to
become a millionaire. Read books that inspire you, that keeps your drive in flame.
Overall these are the collective thoughts I knew on how to become a millionaire. But I can summarize all these in
one line - EARN MORE and DESIRE LESS

Are you ready to become a millionaire? Are you a millionaire in the making?

I’ve been spending my time lately really educating myself on financial literacy. I admit my job has been so
boring and not challenging so instead of killing myself to boredom, I’ve been using my additional time efficiently
and effectively by adding additional knowledge on my financial education.

In addition to my article, “what’s makes rich gets richer?” I’ve recently watched a video of Robert G. Allen, the
author of the best selling books Nothing Down and Creating Wealth as he discussed the difference between
linear income vs. residual income.

I came to these two terms before when I first knew about Cashflow Quadrant of Robert Kiyosaki. To him, there
are two main divisions of the cash flow. One is Active Income where you work for money and one is Passive
Income where money works for you. In Robert Allen’s video, Active Income is also called Linear Income and
Passive Income is also called Residual Income.

Now, how do you distinguish between the two? Ask yourself the following questions:

How many times do you get paid for every hour you work? If your answer is only once, then it’s active
income! In active income, one hour of effort equals one unit of money one time. However, in passive income,
you will get paid many times for every hour of effort. A doctor can only see one patient at a time so he gets paid
for every patient that he has.

Do you have to be present to earn income? If your answer is yes, then that’s active income. If your answer
is no, then that’s passive income. A lawyer earns active income by presently attending to his clients.

Did you get the picture? Passive income is a stream of income that you can own. It can be a “hands-off” income.
It’s an automatic pilot. The secret of the rich is to increase their streams of income. This is done not by
increasing their active income by taking a second or even a third job but by increasing their passive income.
Now, where can we get this passive income?

Here are some of the sources:

Interest Income. Yes, we can earn passive income from the interests of our savings deposits. We can also earn
passive income through the interests of our bonds.

Dividends. We can also earn passive income through our stock investments. Companies share their income to
their stockholders by either giving them cash or stock dividends for every share they own. Alternatively, we can
also earn it through the dividends of our mutual funds or uitfs. Or probably from insurance policies which also
gives dividends.

Real Estate. Real estate investments can also earn us passive income. My ideal real estate is a self-liquidating
asset. That is you buy a property, pay the down payment only not the whole contract price, and rent it out to
tenants. The monthly rental income from the tenant itself will be the one paying for the monthly amortization of
the mortgage to the bank. The rental income will be our passive income in this case.

Royalties. Ever wonder why even though Elvis Presley was now dead, he still earns income? Yes, that’s the
power of passive income! His albums that he did before when he was still living continuously earn royalty
income for him. For every album sold, he gets a royalty fee that’s why even he’s dead, he is still earning.

The same goes for the author of books. Just imagine how rich J.K. Rowling, the author of Harry Potter, has
become. She might be getting pennies for every sold copy of her book but it gets multiplied a million times as
her Harry Potter is a best seller book with millions of copies sold. Not only that, she also gets royalty fees from
the film Harry Potter series itself.
Another source of royalty income is thru franchise fees. The original owner of the business gets a royalty income
for every franchisee that he has. Just imagine how rich are the original owners of McDonalds now that it has
thousands of franchisees worldwide.

Websites. With the coming of industrial age, successful internet entrepreneurs have also built passive income
thru their blogs or websites. I have seen a few of them and one perfect example might be one of the largest
adsense earners. His website, one of the largest dating websites called Plenty Of Fish, attracts millions of visitors
per month enabling him to earn an easy US$1 Million per year.

Networking. This is also called MLM of Multi Level Marketing System. This is another form of passive income
yet a lot disagrees to its pyramiding concept. It’s like building a team of sales people who will provide you with
huge passive income as your group and sales increase.

So there you are the sources of passive income. The secrets of the rich is to increase the streams of income
more on the passive income rather than on the active income so that if one stream of income dries up, there will
be other streams to support them. This what makes rich gets richer.

Someday, if God permits, I would like to be an author of a book. I would personally want to have passive income
from its royalty fees. Or possibly buy a real estate where I can have passive income through rental income of
tenants. As of now, I rely on my active income from my paychecks with just a very little passive income from
interests on savings and dividends from stocks.

Do you still have other sources of passive income in mind?

One of the early eye openers for me is about this book of the famous author Robert Kiyosaki entitled Rich Dad
Poor Dad. This book was a huge success with millions of copies being sold worldwide. In this book, Robert
Kiyosaki had two dads, one is his biological dad tagged as “poor dad” and one is his friend’s dad tagged as “rich
dad.” Both dads taught Robert Kiyosaki how to reach his financial goals and achieve success but with different
approaches.

His poor dad spent so much time in school earning him a doctorate degree landing on a high paying job but
ended with a lot of bills left unpaid while his rich dad did not finish school but ended up owning a business
empire. How did this happen? Just look at the contrasting ideas each dad have:

His poor dad says: “I CAN’T AFFORD IT!” while his rich dad says: “HOW CAN I AFFORD IT?”

His poor dad says: “MONEY IS THE ROOT OF ALL EVIL!” while his rich dad says: “LACK OF MONEY IS THE ROOT
OF ALL EVIL!”

By viewing these two contrasting ideas, his poor dad’s brain stopped working when he said those, killing his
initiative and promoting negativity while his rich dad’s brain kept on thinking on ways creating initiative and
promoting optimism. Which one is best? Of course, undeniably, it’s rich dad’s ideas! Here are some more
comparison of Rich Dad vs. Poor Dad Thinking.

Robert Kiyosaki continued and coined the term RAT RACE. This is the race of our lifetime INCOME and SPEND.
We receive our income regularly from our paychecks yet we spend the same to pay bills and satisfy our wants.
We are now trapped in this rat race. We live our lives to pay our everyday bills! Now, how can we escape from
this rat race trap? By understanding the Cashflow Quadrant.

This is understanding where our income flows. It was divided into two main sections. The left side called “Active
Income” and right side called “Passive Income.” What’s the difference? Active Income says “You Work For
Money” while Passive Income says “Money Works For You.”

It is then further subdivided into four quadrants. Quadrant 1 is the so-called Employees. Quadrant 2 is the so-
called Self-Employed. Qudrant 3 is the so-called Big Business Owners. Quadrant 4 is the so-called Investors.
Where do you belong to these four quadrants? Let’s examine it one by one:

Quadrant 1 - EMPLOYEES. I do think that most of us belongs here. We have a job. We have to work hard,
follow instructions from our bosses and superiors and get paid. We don’t own our time. These are people who
love security or tenure. They will work hard to climb up the corporate ladder. The higher they climbed the
ladder, the higher they pay is. Sad to say, the higher their pay is, the higher also their taxes. And it’s not them
getting rich, it’s their bosses, it’s their company. Time will come, they will get tired. Their body will collapse
because of age. And when they stopped working, they will also stop receiving income.

Quadrant 2 - SELF EMPLOYED - They work for themselves. The difference with the employees is that self-
employed own their time since they don’t have superiors. They can decide for themselves. These are people
who loves to be independent. They don’t want to work for others, instead they want to work for themselves.
These are doctors, lawyers, and small business owners. But still, they are an employee of themselves. And if
they stopped working, they will also stop receiving income.

Quadrant 3 - BIG BUSINESS OWNERS - They love delegating tasks. They concentrate their efforts more on
activities which produces most profits. They hire people who are more intelligent than them to do the work for
them. They have built a solid system and they own it. They have built their resources to make this possible. And
so they can leave for vacation and can leave work for some time but still earns money because there were
people working for them. Examples of this are the taipans and tycoons and some franchisers who have built a
solid business.

Quadrant 4 - INVESTORS - These are people who have built their assets and are not working for money
anymore. Instead, the assets they have accumulated works for them providing them constant income even if
they don’t work. These are people who are called “living on interests”. They are living thru the interests of their
assets and investments. Money works for them. They have invested their money to have more money. They can
differentiate which one is an asset and which one is a liability. Examples of these are investors in the stock
market, real estate, etc.

Did you see the difference? The only way to escape from the rat race is by travelling from active income to
passive income, from employee or self-employed to becoming a big business owner or investor. And this is the
challenge that Robert Kiyosaki left to us readers.

As a final note, I’m leaving this quote from Mr. Kiyosaki.

“The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets. The
poor and the middle class work for money. The rich have money work for them.”

Furthermore, if you want to become a millionaire like Robert Kiyosaki, I would like to refer to you on how to
become a millionaire.

Also, you can visit Robert Kiyosaki’s blog here.

After reading Adam Khoo’s “Million Dollar Interview“, I was really motivated to be the best that I can be. If you
don’t know, Adam Khoo is the youngest millionaire in Singapore at the age of 26.

In this ebook, he told how he did to become the youngest millionaire in Singapore at the very young age of 26
and now a multi-millionaire owning 3 businesses that rakes in $20 Million in profits yearly.

Some of the outstanding views with regards to his principles are the following:

1. Learn the fundamentals. Most of all, you have to learn to sell. You’ve got to learn finance, you have to
know how to read numbers, you’ve got to know how to manage cashflow. I firmly believe in what he said that
you need to manage your own personal cashflow first before you can manage the cashflow of a business.

2. Find your passion. This is one of the most important factor. It would be better if you love what you’re doing.
If you love what you’re doing, then you cannot really feel the stress of the “work” being done. And you will just
see money flowing into you.

3. Learn to Save Money. High income does not necessarily mean being rich. No matter how high your income
is, if you don’t know how to manage it, then it won’t last.

4. Set Goals. You must first start with a goal. You must need to have a target point. If you don’t know where will
you go, then you will be lost. Not meeting your goals does not mean a failure. It’s just a way to know the right
strategy. You wouldn’t know what works and what don’t if you didn’t fail.
5. Overcome Fears. Of course a lot of us have fears. We need to learn in order for us to overcome these fears.
You are afraid of investing? Then learn how to invest. Learn about stock market, real estate, etc. Being
competent reduces our fear.

6. Believe in yourself. You have to believe what you are doing because only then you can convince other
people if you know and firmly believe in what you’re doing. Set as an example.

7. Millionaire Habits. He mentioned some millionaire habits: a.) Take responsibility. If you take responsibility,
then you can then make changes. b.) Learn how to invest more than you spend. c.) Always strive for excellence.
Give more than what is expected.

8. Mix with right people. Mingle with the right people. You must surround yourself with positive people, with
mentors who can be there to help you become successful.

9. Create Value. Wealth is value. And creating wealth means creating value. Learn to create value to others by
helping them reach their goals and helping them to solve their problems.

10. Act Now. Don’t just read and understand the teachings but act now!

With all these outstanding views and principles, I wouldn’t doubt that he really indeed became the youngest
millionaire in Singapore. He serves as my example and inspiration to reach my own goals in the future.

Today, I will tackle about the two ways to achieve financial freedom. Achieving financial freedom is one of the
goals that a lot of people want. Who else does not want to enjoy their lives to the fullest without having to worry
where to get their day to day meals? Who else does not want to spend their time with their loved ones without
the stress that work brings?

In my journey towards financial freedom, I learned two ways on how to achieve it. I am not saying that I already
achieved financial freedom but here are the two lessons I learned on how to move out from the rat race to the
fast track that Robert Kiyosaki discussed in his famous book Rich Dad Poor Dad.

Generate passive income. Probably the most important but the hardest way to achieve financial freedom is to
build assets that will generate passive income. In one of my articles before, I discussed several sources of
passive income. It can be from a real estate investment; the royalty fees from a franchise, a music album, and
other intellectual properties; stock dividends, interests income from simple investments, etc.

For you to move out from the rat race, you must build assets that will work for you to put money inside your
pocket. As Kiyosaki said, assets are anything of value that puts money into our pocket. In contrast, liabilities are
anything that drains money from our pocket. Some of us buy liabilities we thought are assets. You must be
careful though in determining which are assets and which are liabilities among the things you buy.

However, this is not to say that you should deprive yourself with some of your wants. The very idea of building
assets is to generate passive income enough to buy both your wants and needs. As soon as you built enough
income generating assets, then you can enjoy the rest of your life with vacations, leisure, and some other forms
of luxury and enjoyment. Be careful though not to spend too much to the point of disposing those passive
income generating assets to fund your wants. In order to successfully do this, you must learn about
financial intelligence.

Earn more and desire less. You may have probably heard this phrase since I already tackled it before. “Earn
more and desire less” is the ultimate heart of frugality. In Filipino, “Ubus ubos biyaya, bukas ay nakatunganga.”
No matter how much you’re earning, if you’re not spending it wisely to buy assets that will generate passive
income, then your expenses are not worthwhile. Unless you’re one of the richest persons on Earth like Bill Gates
and Warren Buffett, there is a possiblity that your source of income will dry out and you’re not prepared when
that happens.

In addition, I’ve learned from personal finance educator Francisco Colayco that your future is the most important
expense. Therefore, you must then prepare and save for that particular expense.
One of the most liberal idea of famous Rich Dad Poor Dad author Robert Kiyosaki is that SAVERS are LOSERS!
Yes, you’ve heard it right, Kiyosaki said that savers are losers! You may think that this is in contrast with the
notion of personal finance as it talks about saving money but no it isn’t.

Just like in Sports like the upcoming 2010 Winter Olympics, an athlete must first prepare to achieve his end goal.
He then sees the end of the line before he even starts. In preparing for the big event, he must exercise and
condition his body, prepare for some tactics and improve his skills to perform well. Tactics are “techniques” to
reach the goal earlier than the rest and thus, it is imperative to study these techniques to win the game.

In achieving financial freedom, it’s not always sufficient to just save for money. That’s why Kiyosaki said Savers
are Losers. One must know how to invest their money to fight inflation. The very goal of investing is to have an
additional income because the value of our money decreases as an effect of inflation. The value of your money
today is not the same as the value of your money one month ago because of inflation.

Savers are losers because they only know how to save money in the bank through bank deposits which give
them very little interest income not even enough to outgrow inflation. One must build several assets that are
income producing to become passive income earner. Therefore, savings should be used to invest in assets. By
assets, I mean those investment vehicles that puts in money into your pocket.

Savers are losers because they deprive themselves of the comforts that money can buy. It may seem conflicting
but what Kiyosaki really mean is that we should know how to properly invest our money to have passive income
and use this passive buy our wants, preventing ourselves from deprivation.

Life is like a game of chances. You can win or you can lose. Everyday, we are faced with challenges, which can
either lead us to become a winner or a loser. Learning financial literacy is essential to increase your chances of
winning the game of life. Consequently, it is best to play the cash flow game to gauge how well did you grasp
the concepts in winning the game of money.

Recently, I watched another video again of Robert Kiyosaki as now he talks about the so-called Game of Money
where he described the four quarters of financial life dividing it into 10-year horizons and asked, “at which age
will you win the game of money?”

Let’s view the four quarters of life with some inputs so that we know how will we win the game of money and
retire as young as we can be.

1st Quarter (25-35 years old) – By this age, you’re probably done with your college education. Most of us
start our careers when we land on our first quarter of life. We want a high-paying job, buy a car, have our credit
cards and enjoy life. While many of us just want to enjoy life after graduation, it is advisable for us to:

Savings should be our top priority. When you receive your paycheck, take out a certain amount and deposit it in
a savings account. Once you accumulated enough savings, transfer the bulk of it into a higher yielding deposit
account. Compound interest will help it to earn more interest.

Get Insurance. Get insurance especially if you now have family and kids to support with at this age. The higher
and the healthier you are, the cheaper insurance costs will be.

Learn Investment Options. Think of investment options where you can invest your extra cash. You can invest it
in stocks, mutual funds, real estate, bonds, etc. Start to educate yourself financially.

2nd Quarter (35-45 years old) – By this age, you are probably at the top of your career and definitely earning
much more. But this quarter may also be the time when you’re starting to have your own family so that also
means higher expenses. It is advisable to:

Plan for children’s future. You are now working not just for yourself but also for your children. Plan for your
children’s future by getting an educational plan or open a time deposit that’s under your children’s name and
deposit an amount into it regularly.

Make sure you have enough for your emergency fund. Emergency fund is amount totally dedicated to
emergency expenses such as health problems, etc. A good amount would be equal to six months up to 1 year of
your monthly income. Place it in an easy accessible type of investment so that when your need arises, you can
easily withdraw it.
Have a business. By this age, you could have probably known a lot of networks from friends, colleagues,
acquaintances, etc. And since you’re earning much higher, then you could start your own business. Gauge
yourself on what business you should start. Examine your passions and skills in choosing the right business for
you.

Half Time – Kiyosaki referred after the 2nd Quarter as half time because you are in the middle before
retirement. It’s also called as “mid-life crisis”. It is now time to examine yourself. You are not getting any
younger anymore. Have you had enough savings to cover for your future? What did you accomplished in your
life?

3rd Quarter (45-55 years old) – By this age, you are probably on top of you career, possibly a manager or
vice president of the company. You could be earning more and your children may be in their college years or are
already working. Retirement is just around the corner waiting for you. In this quarter of life, it is advisable to:

Allocate much of your income to investment capital. Review your investment portfolio and ask yourself if you
need to transfer your funds into a higher earning investment scheme. Just be sure to have a through due
diligence before you transfer your funds.

4th Quarter (55-65 years old) – By this age, your children may well be on their own now with their respective
families already. You are now at the age where you can retire. You may choose to still be employed but it should
not be on stressful work as you are now prone to health problems brought about by old age, which means higher
health care expenses. In this age, it is advisable to:

Protect your capital. Try to preserve your capital so that you can live with on its interest. And make sure to make
your last will in order.

Over Time – Kiyosaki referred after the 4th quarter as over time. If you haven’t had any accomplished things
when it comes to your financial future, then that would be a great problem because sooner or later you would be
“out of time” and the game of money will be “game over”.

We don’t want to retire old. As much as we could, we want to retire young so that we can still enjoy the things
that we want. How could we enjoy it if we are already old with a lot of health problems associated with old age?

Personally, just like what Kiyosaki did retiring at the age of 47, I also want to win the game of money and retire
on the second quarter of life. I want to enjoy life as early as I could without having to worry on going or having to
work. And that is the very essence of financial freedom.

What makes rich gets richer? We notice that the rich keeps on getting richer while some of the poor gets poorer.
Kiyosaki continued his teachings on his “Rich Dad Guide to Investing”. If you are not familiar, there’s this one
rule originated by the Italian Economist Vilfredo Pareto in 1897 called “Pareto’s Principle or 80/20 Rule” also
known as the Principle of Least Effort.

In business, we can apply it and we can say: put most of our efforts on the 20% of things that bring in 80% of
the income in our business. Kiyosaki agreed with the 80/20 Rule for overall success in all areas but not for
money. He went on to say that when it comes to money, he believed in the 90/10 Rule.

He noticed that 10% of people had 90% of the money. In the world of show business, 10% of the actors and
actresses had 90% of the money. In the world of sports, 10% of the athletes made 90% of the money. The same
90/10 Rule applies to the world of investing. That is, 10% of the investors gained 90% of the wealth in the world.
Would you want to be included in that 10% that owned 90% of the wealth?

Kiyosaki differentiated between an average investor vs. rich investor or commonly known as the 90/10 investor
with regards to their thinking. This is also what makes the rich even richer. Let’s look how rich investor thinks.

Most investors say, “don’t take risks,” the rich investor takes risks. The world is full of risks and this is
also applicable to the world of investing. We all know that a high return involves a high risk. And the higher the
returns, the more profitable the investment is. The rich investor thinks about how to improve his skills so he can
take more risks. While most investors lives in fear of stock market crashes, the rich investor looks forward to
market crashes as an avenue or opportunity to make more money.
Most investors try to minimize debt. The rich investor increases debt in their favor. I think this idea
has something to do with good debt vs. bad debt. A bad debt is simply a burden because it will drain our
finances. A good debt, on the other hand, helps us to manage our finances and somehow makes us even richer.
A debt can be considered a good debt if the interest income from where that debt is invested is more than the
interest expense of the debt availed. This is what you called in finance as DEBT LEVERAGING. Let’s look at
some of these examples of a good debt.

Charles availed of a loan from a bank to use in his business. The interest of the debt was 10% per year.
However, his business was good and in fact surpassed the interest of his debt averaging at 15% per annum. In
effect, he made 5%. So, his debt worked for him and in fact he turned debt into income. He just proved that a
rich investor does not necessarily have some money to make more money.

Credit cards are known to be good sources of debt IF we do not know how to discipline ourselves. Tyrone took
advantage of credit cards and he regularly pays his debt. In effect, he has accumulated points and later on
exchanged these points for a camera. He later on sold this camera and made income from it. Did he buy the
camera? No. It was just a freebie from being a loyal credit card user. His debt turned into income. The rich
investor knows how to increase debt to make them even richer.

Most investor has a job. The rich investor creates jobs. It suffices to say that a rich investor is an
entrepreneur. He belongs to the B-Quadrant or the Business Owner Quadrant of the cashflow. He is innovative
and possesses the qualities of an entrepreneur. He makes his business ideas into reality and in return helps
more people by providing employment.

Most investor works hard. The rich investor works less and less to make more and more. The rich
investor is financially literate. He accumulates assets and he makes those assets to make more money for him
enabling him to work less and less yet making more and more money. He makes his money work for him to
make more money. In effect, he can retire early and even if he sleeps, he is still making money. He belongs to
the I-Quadrant or the Investor Quadrant of the cashflow.

Today, because we are already in the Industrial Age and because of the power of the Internet, the idea of
“money begets money” does not necessarily hold true. It does not require massive sums of money, land, and
people to join the crowd of rich investors. The price for you to belong in the 10% that owns 90% of wealth is
simply an idea and ideas are free. You can see that a new web retailer such as Google is perceived to be more
valuable today than say an investment bank such as Merrill Lynch with more than 100 years of solid experience,
massive real estate holdings, and more assets.

If you want to join the rich investor crowd or the 90/10 investors, you must learn to make money mentally more
than physically. What makes rich gets richer? They think like a rich investor!

Where to Invest Extra Cash?

Thursday, December 18th, 2008 at 8:21 pm

In my previous article regarding Time Value of Money, if you have extra cash, it is better to invest it somewhere
since keeping it in your drawer or cabinet alone is not the right approach. Doing so will let your money be
subjected to a depreciating purchasing power as every year, inflation rises. Let your money work for you. Make
your cash work hard for you as you have worked hard to earn it. Here are some of the reasons on why do you
need to invest.

As discussed, there are three considerations in making an investment decision. You need to assess yourself first
about RETURN, RISK, and LIQUIDITY.

Now, after carefully weighing these three considerations, you can then proceed to invest your extra cash. Here
are some options that you may explore as an investment vehicle for your cash. Note however that each of these
investment vehicles require minimum amounts and for some, even involves a holding period.

Savings – This is the most common and easiest form of investment. Just park you extra cash in the bank. The
interest, nowadays, ranges from 0.5% to as much as 2.5% per annum.
Checking – A checking account with a bank means that you can withdraw your money anytime by using a
demand draft or a check. Because of this, most banks do not pay interest for money deposited in a checking
account, although there are some special checking accounts that have interest.

Time Deposits – These investments earn higher interest than a savings and/or checking accounts. The catch is
that your money is tied up and you cannot withdraw it before the agreed time period elapses. In case you
violated these restrictions, you will incur a penalty.

Bonds – These are like public investment outlet units of public and private corporations. By buying bonds, it’s as
if you are lending money to a corporation. The bond certificate promises to pay you a fixed interest after a
certain period of time. For more details, visit my article on investing in bonds.

Stocks – For those who have high tolerance for risks, you can go into the stock market as a long-term investor.
Buy blue chip stocks that you plan to keep for a long time. Just remember, buy low and sell high. For new
players, here is an overview on how stock market works.

Unit Investment Trust Funds or Mutual Funds – Trust Departments of banks and Mutual Funds of
investment corporations both work this way: You deposit a minimum amount and the bank will invest the money
for you, in various high-income and high-risk investments. They get a commission on the earnings, and the rest
is yours. So it is possible that you will receive more interest than a specified time deposit account. But you can
also get less, if the investment does not make enough. For more information on UITFs and Mutual Funds, you
can refer to this article.

Treasury Bills (T-Bills) – Treasury bills are National Government’s investment outlet units issued through
commercial banks. These are like bonds but issued by the National Government. And so, by buying T-Bills, it’s as
if you are lending money to the National Government. And it also has a certificate which promises to pay you a
fixed interest after a given period of time.

Foreign Exchange (FOREX) – Open a dollar savings account or any currency of your choice along with your
local currency. Do not overdo it though. The market is volatile at times, and you could lose money if you do not
do it wisely. Invest in dollars or in any currency when the rates are going up.

Real Estate or Land – Some Filipinos find this as traditional safe havens for their excess cash. Depending on
the location, real estate is not easily converted into cash when your need arises. Some investors go for growth
of their real estate or land investment, others for their marketability. For readers, I would recommend to
consider the ‘best location’ when buying a property together with the affordability of the price, of course. A very
good real estate investment can be a ‘self-liquidating asset’ that can give you huge passive income in the
future. Consider this situation: Buy a strategically located condo where you can have instant tenants! Just pay
the down payment and the rest of the monthly amortizations will be paid by your tenant’s monthly rental
payment.

You can refer to my article on real estate property investment tips.

Retirement or Pension Fund – Many insurance companies offer this kind of fund where you receive a monthly
pension after reaching a certain age beginning 55 years old or above. Or alternatively, you can also receive its
cash surrender value upon maturity of the fund.

Educational Fund – We all know that education costs a lot. This kind of investment is best for people who have
school-age children or dependents. Get an educational plan as early as possible from a reputable company.
Many who availed of such policy years ago now reap the benefits considering that college education nowadays
involve huge expenses.

Life Insurance Fund – You do not benefit from this investment but your beneficiary will. This is a form of
investment that protects the most important asset and that is yourself. You need to invest in yourself. Without
you as an income-generating individual, especially if you are a breadwinner of the family, your family will be at a
big loss. Avail of a plan that gives your beneficiary double benefits in case of your untimely death. There is also
so-called ‘variable life insurance’ where a huge portion of your premium payment is allotted to several
investments depending on your choice and risk appetite. In this scheme, this will give higher potential returns.
Ask your insurance agent about it.
Memorial Plan – This may be scary but true! Life is full of expenses up to the very last minute which is your
death. Do not make it difficult for your loved ones you leave behind when you exit the world. We all have to go
eventually.

Jewelry – When you want to invest in jewelry, I do suggest going for gold instead of precious and semi-precious
stones. Gold’s value has appreciated over the past several years. More so, gold can easily be pawned while
stones are frowned upon as pawnshop collateral.

Durable Goods – These can be furniture, art paintings and sculptures, antiques and the like. Quality is the key
word to call this as an investment.

Lend Your Money – Of course with interest, a collateral and a signed and notarized promissory note. Ask for
postdated checks as your assurance for payment, and do not forget to register your real estate mortgage or
chattel mortgage if you receive collateral. You can ask your city hall register of deeds for this.

Invest In a Business – If you want to avoid the hassle of putting up and managing your own business, then
become a part of an existing business venture. This principle applies to Multi Level Marketing systems or MLMs.
If you want to join in an MLM company, you might as well read these 25 questions to ask your sponsor.

Pay Off All Your Loans – This is especially true if your interest payments are more than what you can earn by
investing your excess money. Sometimes, being debt-free is more than a payoff.

So if ever you have that extra cash, it’s a must to invest it to fight that inflation! Regular saving and investing
are the only key to achieve our financial goals.

I’ve been talking a lot about investments here for quite some time. But did you ask yourself, ‘why do you need
to invest?’ What’s the reason behind investing? Is it just for the sake of earning more? Yes, possibly that’s one of
your reasons. You’ve worked hard for that money. Now, it’s time for that money to work hard for you.

One of the main reasons why do you need to invest is to fight an enemy and that enemy I’m referring to is your
money’s primary enemy - inflation. You need to fight inflation!

Inflation is the rise in prices of commodities. Yearly, we do have inflation rate. Inflation decreases the purchasing
power of our money. Our 1 million today is not the same 1 million 5 years from now. So as years pass by, the
value of our money depreciates. In finance, we call this ‘time value of money’.

Can you remember how much is one bottle of coca-cola before during the 1970s? Well, I was not yet alive during
that time so I cannot tell exactly how much was it but certainly it’s not the same price that it has today.

Having known about inflation rate, you must then educate yourself to investing. You should invest in a type of
investment that could provide you an interest rate at least higher than the inflation rate. If the annual inflation
rate is 6%, then you must find an investment that will give you a yield or return of at least 7%. In that way, the
purchasing power of your money is preserved and you could have earned an additional income too.

If there’s an enemy, there’s also an ally or a friend. And the ally that I am referring to here is time. There’s this
famous saying that ‘the early bird catches the worm’. This saying is also true when it comes to investments.
You cannot get rich overnight. You need time for your investments to grow.

We can see time at work when it comes to investments such as real estate and the stock market. The earlier
you started, the higher your risk appetite is, and the higher your chances of getting better returns for your hard
earned money. Take for example the stock market. It is advisable to invest in the stock market in your 20s
because during this time, probably you are still single (thus, less expenses), has lots of energy and health
capacity to work (thus, more chances of earning more), and definitely has a lot more time before retirement
giving you enough time to ride the volatility of the stock market.

This is also evident in terms of a simple savings account in our banks. Compound interest, which is dependent
on time, will give us more income from our investments. For persons who want to achieve financial freedom,
there’s a lot more possibility of achieving it if you started early. When you started early, you have enough room
for errors and mistakes. Yes, you can probably lose some because of your high risk appetite but you have a lot
of time to regenerate it. You will have greater chances of succeeding.

So start educating yourself early when it comes to investments. Time is passing by. You don’t want to ponder
one day when you are old enough and ask yourself: “What have I done for the