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The key secret to achieving a guaranteed financial success in life By Sani Hamid
(Singapore, 21 January 2013) – – I have often been asked how one can achieve financial success in life. Is it by investing smartly? May be by securing a high paying job? Or creating multiple sources of income? When I reply “no” to all of these questions and simply say, “by ensuring your monthly balance is positive”, people give me a strange stare as if it couldn’t be that simple. But believe me, it is.
Many people fail to realize that the very foundation of achieving financial success stems from the simple principle of CONSISTENTLY having a POSITIVE balance every month. More simply put, one’s total income must exceed one’s total expenditure month after month, year after year. In layman terms we call it the ability to save.
If we look at the earlier question, when we talk about investing wisely, we forget that the ability to do so, stems from the fact we have excess funds to invest. Such excess funds can only come if we manage to save up to invest. Separately, having a high paying job doesn’t necessarily equate to financial success as I have seen so many individuals who command good paying jobs but at the same time are drowning in debt because they fail to consistently create positive monthly balances.
In fact, I dare say that anyone who can consistently post a positive balance every month, month after month, throughout his life, regardless of his income will be financially successful. To put it in another way, Individual A who earns $4000 per month but creates a positive balance of $400 every month because he limits his expenditure to $3600 is clearly more financially successful than Individual B, who earns much more at $8000 but spends $8400 and thus has a $400 negative balance every month. In fact, even individual C who earns $1500 per month and spends $1400, thus manages a $100 positive balance every month is more successful than Individual B!
Why am I so adamant that a monthly positive balance equates to financial success? Simple. By definition, anybody who has a positive balance every month, regardless of the size of that balance, is creating new assets or reducing existing liabilities. For example, with an additional $400 every month Individual A can either choose to invest the money or pay down his existing debts. On the other hand, anybody who has a negative balance every month is creating a new liability or drawing down on his existing asset. For example, individual B will either need to draw down on his savings, or borrow $400 to cover his excess spending for every month that he or she has a negative balance.
The subsequent case studies will help to highlight how positive balances are really the source of the creation of assets and reduction of debts, and vice-versa.
Case 1: Individual A has managed from this month onwards, to create a positive balance of $400 per month. He presently has:
After 3 months, his situation improves to:
Debt $0 (his original $1200 debt is reduced by $400 p.m.)
Over the next 3 months, his situation improves further:
Savings $1200 (his original $0 savings increases by $400 p.m.)
As we can see, Individual A’s situation which started from $0 savings and $1200 debt evolved to $1200 savings and $0 debt over a 6 month period. This is all because of Individual A’s ability to consistently create a $400 monthly positive balance.
Case 2: Individual B has from this month onwards, suffered a negative balance of $400 p.m. He presently has:
After 3 months, his situation deteriorates to:
Savings $0 (his original $1200 savings is reduced by $400 p.m.)
Over the next 3 months, his situation worsens even further:
Debt $1200 (his original $0 debt increases by $400 p.m.)
As we can see, Individual B’s situation which started from $1200 savings and $0 debt evolved to $0 savings and $1200 debt over a 6 month period. This is all because of Individual B’s inability to consistently create a $400 monthly positive balance i.e. has negative balances.
The above case studies clearly show how two individual’s path or situation can differ drastically all because of one has a positive balance and another with a negative balance.
In summary, it may sound very simple, but maintaining a monthly positive balance is the ONLY way to stop one’s debts from growing, pare down one’s debts and grow one’s assets. Only then one can truly say he or she has achieved financial success.-/-
This article is the first of a monthly contribution to www.halal-u.com from Mr Sani Hamid. He is the Director of Wealth Management (Economy & Markets) at Financial Alliance and head of Financial Alliance Islamic Wealth Advisory (FAiWA). A former sovereign ratings analyst with Standard & Poor’s, Sani is a Certified Financial Planner (CFPTM), holds a Master of Social Sciences in Applied Economics and an expert in technical analysis. He has a Certificate in Islamic Banking & Finance from the International Islamic University of Malaysia. He can be contacted at [email protected]