Monetary Value of Time

Assets are anything of value that you own that can be converted into cash. Examples include:

• Investments
• Bank and brokerage accounts
• Retirement funds
• Real estate
• Personal property: vehicles, jewellery and collectables.
• Cash

Your liabilities represent your debts, such as loans, mortgages, credit card debt, medical bills and student loans.

Determine your target net worth - where you want to be in the near-term and long-term future.

The following formula is helpful:

Target Net Worth=[Your Age−25]∗[1/5∗Gross Annual Income]

A 50-year-old with a gross annual income of $75,000 might aim for a net worth of $375,000 ([50 - 25 = 25] x [$75,000 ÷ 5 = $15,000])
Your net worth can be much more or much less than the amount indicated by the guideline.

A good early retirement strategy is built on maximizing three aspects: Income, expenses, and savings.

To build your early retirement strategy, you need to determine your retire early or financial independence (FI) number. It is the amount of money you need for work to become optional. Be aware that the number will (and should) change as you change, and your desired lifestyle evolves.

Based on a series of papers known as the Trinity Studies, you need to save 25-30 times your expected annual expenses to have enough money to last you for the rest of your life.

This multiple is based on the percentage of your investment growth that you would be able to withdraw per year. A safe early retirement withdrawal percentage is between 3%-4%.

• Productive assets are investments that internally throw off surplus money from some sort of activity. 

• Each type of productive asset has its own pros and cons, unique quirks, legal traditions, tax rules, and other relevant details.
• The three most common kinds of investments from productive assets are stocks, bonds, and real estate.

• It means investing in common stock, which is another way to describe business ownership or business equity.
• When you own equity (the value of the shares issued by a company) in a business, you are entitled to a share of the profit or losses generated by that company's operating activity.
• Equities are the most rewarding asset class for investors seeking to build wealth over time without using large amounts of leverage.

If we want our knowledge to compound, we’ll need to focus on the invariant general principles.

Half-lives show us that if we spend time learning something that changes quickly, we might be wasting our time. 

The calculation for insurance runs like this: The company is profitable when the cost of premiums that we pay is greater than the future claim that we may ask for (having a certain probability).

Cost of Premium > (Cost of claim) x (Probability of claim)

1. We believe that the probability of us experiencing the event that we are insured against is high.
2. The claim that we may get in event of something happening is substantial with the cost of premium being on the lower side (basically a bargain).
3. To offset substantial costs by paying less. This is when we know it's a bad deal, but the potential risk can be catastrophic and severe, so we are happy to pay more to avoid a probable calamity later.

• Create a full inventory of expenses in front of you: Categorize them into fixed and variable; urgent and non-urgent; necessities and luxury; avoidable and unavoidable.
• You can create a hierarchy of needs and decide which one’s to address first. It’s all about prioritizing. 
• Accept that you have limited resources and unlimited wants. But you have to manage your resources. The sooner you accept this fact, the better you can control your impulses towards avoidable expenditures.

It’s a statement wherein you can jot down your assets and liabilities.

• Pull together your bank statements and other proofs of the liabilities
• List down your assets like the bank balance, all investments, home value, and value of other assets.
• Take a sum of all the assets to arrive at the total value of your assets.
• List down your liabilities the (car loan, home loan, credit card balances etc.)
• The sum of all the liabilities will show the value of the money you owe.
• When you subtract the value of liabilities from assets, you get your Net Worth.
  

The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.

This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.

The principles that make a good budget, something you can stick to:

• Being Realistic: Being too strict is a recipe for failure.
• Making Adjustments: A budget is not set in stone, but a fluid thing.
• A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
• Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
• Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.

By making wealth your priority now, you could be both later. Establish a strong financial foundation that will give you financial security and peace of mind moving forward. 

Living paycheck to paycheck is a guaranteed way not to build wealth.

If you’re just starting on your personal finance journey, it might not be time for you to start acquiring these assets yet.

• Investing in stocks is simple if you avoid lucky stock picking. Keeping long-term perspective, invest early, especially in low-cost index funds.
• Rental properties.
• Small business ownership.
• Delaying gratifications.

Prioritizing tasks at work involves getting all your tasks and commitments in one place.  Take a piece of paper and make a list of everything you need to get done. Questions to help you:

• Do you have commitments to others like your boss, partner, kids, or clients?
• Do you have anything you need to submit? 
• Do you have any financial tasks that need to get done? 
• Do you have any planning that needs to get done? 
• Do you have any administrative tasks? Legal, insurance, staffing, or training?
• Do you have any professional development tasks that need to get done? Training, areas to research, skills to develop, books to read or study, or classes to take?

Find your goals. Without them, it is impossible to prioritize your tasks. Try to set 90-day goals, which is long enough to make meaningful progress. Questions to prompt goals:

• What’s the one thing you could do that makes everything else easier or unnecessary?
• If you were giving advice to someone else in your position, what 1-3 things would you tell them to focus on?
• What do you want to have accomplished over the next five years?