Financial management is a key for success for individuals, families, companies, societies and governments. No one can perform their duties without proper finance. At the individual level, there is an inspirational story that proves how financial management can make you prosper and achieve your financial and life goals. John is an Indian immigrant who travelled to the U.S. in 2003, at the age of 25, with only USD1000 in cash. In 12 years only, he turned it to a wealth of 2.3 million dollars (1st below figure). He is the owner and content creator of Financial Freedom Countdown Website, where he shares his stories and experiences. The key of his success was in financial management, which was all about how to obtain money (financing) and how to spend money (assets and investments). These are the two corners of financial management. Thus, not only did he build great wealth, but also reached his goals of early retirement at the age of 40. Financial management was John’s key to prosper and achieve his financial and life goals. Thereby, Management with Merits (MANWIM) Channel is pleased to fulfill its mission of society’s prosperity (Manage to Prosper) and assistance to achieve goals by introducing one of the best and most updated financial management books globally. The channel is honored to introduce (Fundamentals of Financial Management) Book 2019, 15th Edition (the most recent one), by Brigham and Houston, published by Cengage, U.S.A. (2nd below figure). It will be the 3rd and last book in the channel’s 2nd Year Program of books, within the service of Global English Management and Leadership Books. In spite of the suggestions we received from some friends to discuss a specific topic, we chose this book as our 3rd in the 2nd Year Program to be in tandem with our previous topics. Nothing can be achieved without proper finance. We will discuss the book, using our unique approach of (Simplicity, Entertainment, Practicality) within the months of May – Aug, 2021 (3rd below figure). Definitely, we are extremely thankful to our friends who suggested a topic of discussion. However, we found out that their topic was not consistent with the track of topics and books in the 2nd Year Program, starting with the 1st book (Principles of Marketing, 2018) and then the 2nd one (Human Resource Management, 2020). Thus, we promise these friends that we will discuss their topic in an independent session next meeting within the (Vlogs) Service. To download the associated presentation of this topic and access our related sessions, kindly go the video at our YouTube Channel and click on the appropriate link in the description section below the video.
What is Financial Management ?
The book stated financial management as part of finance. It noted three areas within finance, namely financial management, capital markets and investment. Despite that, we believe that financial management is a broad topic that covers all of these disciplines. The mere purpose of financial management is to help individuals, companies, societies and governments achieve not only financial goals, but also societal and welfare goals. Financial management has two corners. First is how to obtain money, which is financing. We discussed this topic in our 2nd book, 1st year (Entrepreneurship 2016) when we talked about how to provide financing for new ventures. The video is embedded for you below. The other corner, which is closely interrelated with the 1st one, is how to spend the money, namely assets and investments. Amounts of financing depends on the required assets and investment and vice versa.
Financial Management to Solve Problems
Going back to the story of John stated in the introduction, he went to the U.S. as an immigrant to escape the difficult and harsh conditions of his childhood and life in his home country (India). He arrived in 2003 with only $1K in cash, so he couldn’t even find accommodation because he didn’t have credit card. Also, he couldn’t drive, so he was exhausted from walking as his primary way of transportation. He faced multiple problems and hurdles on his first days. However, he resorted to financial management to solve his problems and hurdles. He took a decision to find solutions to his most prominent difficulties within 12 months only. His efforts paid well. In short time, he got his 1st job as a software engineer, saved money, secured a credit card, learned driving and bought his own car. He was careful to adopt a strict saving strategy of minimum 50%. His dedication on the personal and professional levels allowed him to get his dream job at Silicon Valley, after only 4 years of employment. Silicon Valley is the global center for Information Technology and one of the most technologically advanced cities in the world.
Financial Management at Silicon Valley
It was difficult for John to exercise his financial management strategies in Silicon Valley because it’s one of the most expensive cities in the world. The first decision that he took was to buy a house because accommodation was extremely expensive at Silicon Valley. He used financial management to implement this decision efficiently. He bought a house with a big yard, at the price of $1M dollar in mortgage. However, he didn’t pay the mortgage installments from his own income. Instead, he built an extension in his yard, rented it, and used the money to pay the mortgage. Thus, he included both financing and investment to make and implement good financial management decisions.
Don’t Become a ( Wage Slave )
After 18 months at Silicon Valley, John had an emotional experience that led him to decide not to be a ( Wage Slave ). This term denotes people who sacrifice their family and personal life and commitments for the sake of work. One day at work, John’s senior vice president, a lady at her 1st 70s, told him that her sister, who lived a way from her, had been extremely sick. However, instead of trying to take a temporary leave to visit and see her, the vice president delayed that because a huge new product launch was scheduled. About two weeks later, the vice president got a call stating that her sister had died. This incident deeply affected John. He couldn’t believe that work commitments were more important than close family ties and responsibilities. Despite that the VP earned at least 3 times of John’s earnings, he described her as a “wage slave”. In John’s perspective, nothing should have prevented the vice president from fulfilling her family duties in visiting and helping her sick sister. As a result of this experience, John determined not be another wage slave by sacrificing his family and personal life for the sake of work. He seriously adopted the “Financial Independence and Early Retirement” scheme. Again, financial management will be John’s key to read and learn about how to use proper financing and investment techniques to reach financial independence and retire early.
FIRE (Financially Independent, Retire Early) Motion
John’s search and investigation led him to discover the FIRE (Financially Independent, Retire Early) Motion (1st below figure). He also became one of their believers and practitioners. FIRE is a philosophy that believes in the importance of financial independence in order to retire early, which can be obtained by minimizing costs and maximizing income, savings and investments (2nd below figure). In fact, John’s life and financial strategies were broadly aligned with FIRE’s approach. Thus, he didn’t change plenty of things after discovering FIRE. The only thing that he adapted was the way of his investment in order to be aligned with FIRE’s rules. The two simple and interconnected rules that FIRE rely on are the Rule of 25 and 4% Rule, as per the 3rd below figure. Rule of 25 helps you determine how much money you should save, collect and invest to reach financial independence, which is 25 times of your annual expenses. On the other hand, the 4% Rule tells you how much you can spend of the interests and profits of the investment of this wealth after reaching the independence, without affecting the source capital of it, which is 4% of your wealth. The rule assumes that your wealth, if properly invested, will give a rate of return of 7%. Thus, the Rule states that you should spend only 4% of the return, while leaving 3% as safety margin, in addition to the source or root capital. FIRE movement offers plenty of examples, explanations and electronic calculators to help you work out exactly the requirements of their rules, as per the 4th below figure.
To be Like John, Financial Management is the Key
All of you can be like John and achieve Financial independence and early retirement. However, the key to that is financial management. You must assign your goals and make rational financial management decisions, both short and long term, to become financially independent and retire early. Despite that John is still working until now in Silicon Valley, he is not taking it too seriously. Instead, he is maximizing remote working to get comfortable with this style after he leaves his full time job. He stated that probably this would be his last job. To conclude, without financial management, you can’t achieve any of your financial and life goals, including financial independence and early retirement. We would like at the end of this post to point some key websites, pages, reports and posts that we relied on to produce this session, which are:
- Financial Freedom Countdown Website, by John
- Camp Fire Finance Website, by FIRE Motion
- How I came to the U.S. with $1,000 and built a net worth of $2.3 million (CNBC “Make It” Post)
- Here’s How This Immigrant Hacked His Career To Grow His Net Worth From $1,000 To Nearing Early Retirement (Forbes Post)
That was our session for today, guys. Thank you so much for being with us. Please support the channel strongly so we can continue our glorious mission. Our production is every Thursday. Please subscribe to the channel at YouTube and activate the notifications bell there. Please stay with us, follow us, participate with us, and widely share the channel and all its electronic contact platforms.
Important Note: Based on the recent update and announcement on Thurs, Jan 21, 2021, the weekly production of videos each Thursday will be temporarily stopped from Thurs, Jan 28, 2021 to the 2nd annual anniversary of the channel (Aug 13, 2021). All the sessions of the 2nd Book in the 2nd Year Program (Human Resource Management 2020) will follow the new schedule. Besides, the 3rd book in the 2nd Year Program (Financial Management 2019) will be delayed to become the 1st book in the 3rd Year Program.