Achieving Financial Freedom

After hearing about some success stories of my friends, I have become kind of interested in achieving financial freedom too. After some contemplation and research, this is what I think of it:

Definition of Financial Freedom:
a. All of modern life's 7 basic major liabilities in life out of the way:
1. No more property mortgage (no need to pay anything to have a place to stay).
2. No more car loans (no need to pay anything to have access to transport).
3. Savings for wedding and honeymoon complete (can be up to a 200k project).
4. Savings for retirement available (enough money for use from 50 to 80, 90 years old, about 500k).
5. Life and medical insurance covered (300k sum of money).
6. No more worries about children's college education (about USD500k a piece).
7. Sum for emergencies always available (USD100k available anytime).

b. Working becomes an option, not a necessity. i.e. If you lose your job today, or decide that it is not something that you are interested in and want to move on, you can leave your job without worrying that you have no money to do many things.

c. In addition, you can have capital to pursue your own dream (if you have one). Basically, to make significant contributions to society you really need capital. And if it's not your own, you might end up having the liability to spend too much time on fulfilling other people's interest. Anyway, I have two personal goals, and I would really like to have my own capital to pursue them:
1. I want to contribute to education. For instance, I want to have my own private language school with my own concept of teaching languages, and then slowly promote this system such that it is also endorsed by more people. It may not work out, but I can at least try this without worrying about money.
2. I want to set up a charity old folks' home when I am an old man. And then I want to be the oldest man there, as well as the director, and this will be encouraging to the old folks who come to my home, since no one is probably older than me. And then I will expand my old folks' home into an old folks' community, such that school children will not have to do community service by visiting old folks' homes anymore; instead, we the old folks have all the time and freedom in the world to visit young people who are in need instead, or the other old folks who are not happy.

Why is financial freedom important?
a. Family and friends are the most important things to me, and probably for many people as well. Most working people have no time for friends, or even family, because if they don't work hard enough, or perform well enough, they can risk losing their job / not being promoted / not getting enough bonuses to do what they want to do. If financial freedom is achieved, then family and friends can really come before work.

b. The way our Asian society works nowadays is kind of stressful. The dad and mum has to take care of the elderly as well as the minors, and that means that they really have to spend most of their time trying to earn money to ensure that everything is going well. If we can be financially free when we retire i.e. still get income to support ourselves although we're not working, then our children won't have to rush their studies and find a job so that they can start contributing to the family income and to take care of us. Effectively it relieves a load for the younger generation, although it does not mean that we now have the luxury not to teach them the ropes of life.

c. Finally, as I described above, some of my personal goals can only really be achieved if I have the capital to pursue them.

Steps to financial freedom:
Depending on what stage you're in, you will start to invest your money in different products or use a different strategy. I guess different people start in different stages depending on their family background. This financial freedom game is pretty much like 'Age of Empires' or 'Civilization' where you progress from Stone Age to Bronze Age to Iron Age and the Steel Age and then the modern world, and you can move into any stage once all the prerequisites are met. Only difference is, in life you don't get to choose which stage to start from - it depends on where you're born into. The idea is, don't debate too much as to why you're starting at stage 1 instead of stage 3 like some of your friends. As long as you are seeking progress and achievement, you will reach stage 3 one day, so just focus on reaching the next stage. Anyway, here's an overview of the stages:

Stage 1: Low capital (less than USD$10k)
Stage 2: Mid capital (USD$10k to USD$100k)
Stage 3: Large capital (USD$100k to USD$1 million)
Stage 4: Small Investor (above USD$1 million)
Stage 5: Medium Investor (above USD$10 million)
Stage 6: Large Investor (above USD 100 million)

Some Details of each stage
At stage 1, you don't have much of a choice. Your goal is to progress to stage 2 as soon as possible (aim: 1 year) and you can either:

1. Do E-trading and with a combination of knowledge, hard work and luck, double capital every few months. If your risk profile is suitable, go for high growth stuff too (400% and above per year)
2. Start a small business, and try to double your capital every few months. Use the doubled capital as the amount of money that you can afford to lose and invest it in something high growth.
3. Use your salary (if it is high enough) to make yourself reach 10k within a year. Mainly be very disciplined and put aside all bonus for investments (details covered in another post).

At stage 2, you can either diverse more in e-trading or start to venture into lower risk investments - e.g. 20% to 40% growth funds if you are lucky to find one that accepts your capital. Start also to purchase something like life insurances if you have not received it as a gift from your parents. Basically life insurance, if not used, will double or triple by the time they mature. It's very slow growth, but this will help buy some peace of mind for the family if anything unfortunate happens and it is also money that you will definitely get back in some way anyhow. This covers liability 5 (insurance) and also puts aside a bit of money for liability 4 ($$ for retirement). Stay here for a maximum of 3 years.

Stage 3 brings forth the opportunities to have a diverse portfolio of investments, once you hit over 400k. Basically if you have 100k in several 20 - 40% growth stuff, you are not banking on just one to grow. Stay here for another 3 years, if not faster.

In Stage 4 you have 1 million dollars. To grow it into 10 million dollars, you need to have not only a good eye, but also a good stroke of luck. This is probably a time where your risk appetite has grown lower, because now you have something to lose, but it is also the time to redevelop it. Search for something like emerging markets, research them well, and put the money with someone who's Otherwise you won't reach the 3-4 million mark where you can take less risks and look for more stable growth. This is, in my opinion, this is the hardest stage to break through, and this can cause a mid-life crisis or bring you back to stage two or three if you make a wrong investment decision.

When you reach 10 million dollars, it's time to put aside money for many various uses... e.g. retirement growth, children's education, money for personal goals etc. and lock the rest of it in things like property (which will never depreciate in the long run). Some people will buy into companies etc: unless you have specific knowledge and are current: it's probably not the best choice. Property will be like the lazy man's investment option. At this stage you're kind of in a financial freedom stage, but may not be able to freely explore your personal interests yet, depending on what kind of personal interest you have.

And finally, at 100 million dollars - you're probably sound enough or you wouldn't have come such a long way, so you wouldn't lose your money so easily... you will have surpassed financial freedom. Some people donate their excess money to charitable purposes or to pursue a spread of education or something like that. Hopefully people who are so rich dedicate themselves to good causes, and when they recognize that they have too much money and can't do anything with it - they will give out the excess for other people to have. So really, Bill Gates was pretty admirable when he did that.