Covid – Canada- FIRE movement – these three factors seem not to have anything in common. Funny enough, together they have gradually reshaped and rewired my mindset for personal finance.
A few years back then when I was living in Vietnam in one reputable Big 4, my job was (quite) secured. I had a great team, a great boss. Due to the nature of consulting, my job revolved around deadlines and deadlines. That rendered me exhausted after work and all I just want to do was to relax, instead of thinking about my money or my financial situation. I didn’t really have to live paycheck to paycheck, but I didn’t have a plan or a budget. I traveled a lot, spent much on clothing, dining out. Somehow job security and a comfortable life had a way to make us lazy. I guess
As of this writing, I have just moved to and lived in Canada in only two years . My income is in Canadian dollar yet my expense is in Canadian as well. In many ways, the living standards here is very high and expensive, especially for rent and food / eating out. Being here all myself, no family, no one was there to look out for me, I started to have to look out for myself financially. I became more aware and mindful of how much I earn and how much I can save. Emergency fund starts to feel like a real thing for me.
Just after a few months, the whole world was hit with Covid-19. We were faced with great uncertainty. People were losing jobs. Companies fired or started to downside. Job security no longer feels that “secured”. The Pandemic was very serious in Canada at that time, unlike in Vietnam. Everywhere people realized the fragility of the world they are living in, including me.
Accidentally, I started to become more interested in personal finance and followed some Instagrammer who didn’t dare to share their whole personal financial situation to the world. That picked some interest in me. People are now talking about financial independence, how 9-5 jobs suck the life out of them, how Covid-19 has reshaped their way of thinking. Actually, there are more than one way (besides a corporate job or start-up) to increase your income, let the money work for you when you sleep and reach the financial independence stage early.
So what is actually FIRE? There are so many definitions of FIRE. To me personally, FIRE simply means not having to worry about money anymore. We can choose to go to work because that’s what we want, or that work fulfill us. Make us feel valuable. We no longer have to work to pay the bills, the mortgage. Freedom from financial pressure could be one of the most worthy ambitions of all.
Naturally, these 3 factors have reshaped my mindset and I hope to share that with you
HAVE A CLEAR UNDERSTANDING OF MY FINANCE SITUATION
A lot of people – myself included – are afraid and lazy to find out how their financial situation is. There are a number of reasons, usually understanding and tracking expenses gives us a feeling of “uncomfortable”, we get annoyed because we don’t think we’re spending that much, or we don’t want to face the “hard truth”. “, or I think I’m not spending much
This is actually wrong! sporadic amounts when adding up a lot. We often think that our income is simply nothing per month, or we don’t want to waste time tracking income and expenditure, it’s petty. This concept is actually both true and false, there is no one answer. suitable for all. However, if you are not a millionaire, if we are just ordinary people dreaming of a big goal of financial freedom, we have to start with one simple step: know the income, Spend, save, invest, how much do you save each month, each year, and how much are your total assets? How much do I owe the bank for my mortgages, credit cards etc.? Understanding finances helps us confidently create a plan to build our assets / pay off our debt in the next step.
Although it sounds time-consuming, in my experience, if you do it once a week, it only takes 30 minutes, or 10 minutes a day. The value of that note-taking goes far beyond the time you spend on it. The only difficulty is your mentality.
I have been using Google Spreadsheet to track my spending and income for the past 4 months and it has become a very easy habit. You can refer to the tools I use to manage my finances here : MY WEALTH DASHBOARD
THE LATTE FACTOR
I just learnt about the very interesting concept in personal finance lately, it’s called the Latte factor,
This is one book discussed in details on the concept, it tells a simple story yet very engaging, with extremely understandable explanations for those who are new to personal finance. If you can’t buy a paper book, you can buy an ebook version to read on Kindle/Kobo at Amazon by following the link below.
So what is actually the LATTE FACTOR?
Figuratively, the Latte factor is to represent small, petty expenses each day, like a $5 cup of coffee, a lunch, a dress… When looked at individually, those expenditures are insignificant. , but when included in the calculation, the sum of those expenses can be much larger than we think. If instead of spending we invest, over time that money can bring us closer to our goal of financial freedom.
The power of an individual coffee cup
A latte per day doesn’t cost much, but its power to financial goals is truly remarkable. I changed my mind about money quite a lot after reading this book. The simplest thing is that I don’t buy what I don’t need.
Although I still buy coffee when I want (not that I am too thrifty to buy a cup of coffee). However, before I buy every cup of coffee or something) I start to become “mindful” and understand its value to my long-term goals. So I no longer spend recklessly and mindlessly anymore. A cup of coffee can save my soul on weak days, so it’s worth it. But there are other times when I buy just because I like it, so the question is am I willing to trade off the joy for a moment with being one step further away from my goal?
WHY $5 is not $5?
To get 5 USD to spend for a cup of coffee, you must have an income of at least 7 USD (before tax), corresponding to A hour / minute of labor. If instead of spending X USD , you invest , after 20 years with compound interest of 10%/year, the amount you will have is as follows
|INITIAL INVESTMENT||AFTER 20 YEARS||INVESTMENT RETURN|
|1 cup of cafe||5||33.63749975||672.75%|
|1 month of cafe||150||2617.41034||1744.94%|
NEVER PUT ALL EGGS IN ONE BASKET – DIVERSIFY THE RISKS
This is simple and I guess everyone has already known it, but probably not everyone follows. This principle can be applied to a wide range of industries with the aim of reducing risk and diversifying risk. For example, We should not put all our money into savings in the same bank, what if that bank goes bankrupt? Never invest all your money in one type (stocks, securities, real estate, crypto), never rely on just one source of income (what if that income is lost? Risk management method, the risk is inevitable, but when we have plans to reduce risk, we can withstand risk much more.
DIVERSIFY INCOME AND FIND WAYS TO EARN PASSIVE INCOME
Perhaps during the pandemic, many people have realized the fragility and uncertainty of their own work, many have lost their jobs due to company dissolution, bankruptcy or downsizing. What the elders still teach is to find a stable job is no longer true. Today’s society is fiercely competitive, but there are many more ways to make money than in the past.
If we only rely on the monthly salary without actively increasing our income, if there is a risk with the job, the financial situation will be very stressful, in addition, there will always be a ceiling limit for most jobs. salaried employment (the upside is capped in financial language). You can only save at a certain level, the income remains the same, so how will your assets increase?
Income diversification is the answer, which can increase active and passive income. There are many ways, here are some of the ways I have been learning:
- Create a blog ( and monetize the blog via affiliate marketing, selling digital products, sell your services, write sponsored post etc.)
- Start ecommerce business (dropshipping, Amazon, eBay, Etsy etc.)
- Do affiliate marketing (for your favourite brands (Canva, Amazon) or other service providers, )
- Use your free time to do some freelancing job (on trên Fiverr or upwork – this is technically not passive income but it’s a great way to monetize your skills)
- Trade crypto, stake crypto (this is only for people with high risk tolerance and willing to do serious homework)
- Invest in private equity
- Be brand ambassador, KOL
Passive income is a sustainable way for us to soon achieve our goal of financial freedom, but this path is not easy and requires a lot of time and effort to set up the system at first. In return, your efforts will be compensated, you do not need to sell time to get money anymore. The feeling when you sleep, the money also runs into your account, it’s really “COOL” 🙂
I will write in more details about this in another post
INVEST AS EARLY AS POSSIBLE
I was a risk-averse person who does not like to take on much risk. I used to like to save money in the bank for peace of mind. But then I realized it was a decision I would regret later. With an interest rate in Vietnam of about 4%, just enough to offset inflation, while in Canada it is 1%, leaving money in the bank is a way to dissipate your assets, giving it to “inflation”. . Only a sufficient amount should be left for the reserve fund, the rest should be invested. Letting our time and money work for us is the wisest decision I’ve realized and changed. (if you’re curious: I’ve been investing in stocks for a few years and just started with crypto during this time)
POWER OF THE COMPOUNDING INTEREST
Albert Einstein once described compound interest as the “eighth wonder of the world,” saying, “he who understands it, earns it; he who doesn’t, pays for it.” Compound interest is when the interest one earns on a principal balance is reinvested and generates additional interest
The earlier you invest, the better you’d be because you will use time in your favor. You can see the simple table below for illustration
As you can see, after 15 years, with 8% annual growth rate, your initial investment has grown 466%.
With 10% annual growth rate, the balance after 15 years would be 672%. Only 2% difference in a year can have a tremendous impact on your investment account.
That, is the simple beauty of compound interest, and the power of time.
Therefore, if you start to contribute to your investment account , or start investing since you were 25, the result will be significantly different if you only start investing when you are 35.
Personal finance is an area that has not been appreciated and paid attention to in Vietnam, especially from the lecture hall. However, this is an extremely essential skill and cannot be ignored if we want to live a financially responsible life and aim for financial freedom. This process for me is self-study, trial and error, reading and practice, I understand my “blind” points, how my psychology affects my financial management. Therefore, I want to focus on this topic to share my experiences and knowledge with everyone, so that everyone can learn how to better manage their finances.
what about you? What lessons have you learned about managing your money? Let me know in the comment.
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