Route to Financial Independence

Friday, February 25, 2022

Predictions in 2022

Time flies and we are in 2022.This comes a bit too late but well never too late as long as 2022 has not end. Here are some of the predictions in 2022.

01 Pandemic to Endemic

Although there are further mutations of the virus, mankind is inventing vaccines and booster shots to produce immunity against the virus. No one knows when the viruses could be wiped out but one thing for sure is that the pandemic could become just like common cold for more developed countries with high vaccination rates. Countries will not enter endemic phase at the same time. The faster the country enters the endemic state, the faster it can get back to pre –covid standards. It will create a larger economic inequality between the richer and poorer countries. Richer countries will be able to allow travel much earlier and this will get the economy back up.

02 Future of Work

Due to the pandemic, people realised that they have the flexibility to choose their working hours. Employees prefer work life balance which they know that they can work more productive remotely. It is also a win win situation for the employers as they can scale down their office spaces for substantial savings. This might lead to more people resigning and reprioritizing their lives goals.

03 Inflation and Rise of Cypto

Inflation is running at a nearly four decade high in the United States and Singapore is not spared from rising inflation rates. Higher inflation erodes the value of money in your bank account. Gold has been used as a hedge against inflation however crypto has been gaining popularity in recent years. Non fungible tokens (NFTs) and the metaverse will continue to boom into 2022. Even Facebook is taking a claim in the metaverse. The blockchains and its impact is definitely a thing to note in 2022.

04 Travel worries

How many of us have not been travelling due to the pandemic, I think all of us are looking forward to being able to travel to far and exotic countries. However due to the impact of the lockdowns and travel bans, a lot of the travel related industries was impacted. Jobs are lost and reduced, time and money is required to attract the talents back into the related industries. Not only increased salaries, rising oil prices will cost travel fares to go up. Thus people will go and hunt for shorter trips within the countries or countries nearby instead.

05 Potential Business Opportunities

Online retail will continue to prosper, however due to the disruptions of the supply chain caused by the pandemic, there will be further delays in shipments, resulting in scarcity of resources and goods. This will give rise to the second hand economy. Consumers do not mind using second hand goods to save some money and to wait for new products to reach the shopping racks. The rise of the second hand economy is also fuelled by the consensus to create a more sustainable future to deter the impacts of climate change.

Friday, February 18, 2022

2 tips to make you spend money wisely

I don't know if you agree with this point of view. It is not easy to make money, and spending money is a form of knowledge. How to master the art of spending money? How to allocate expenses reasonably In the uncertainty of life?

Can you tell the difference between consumption and investment? For example, is buying a fitness membership an investment? Lottery tickets are irrational speculation, and why do so many people buy them? How to turn money into a valuable asset?

01 Distinguish three "wallets"

"Spending money smartly is as hard as earning it".

Regarding this point, there is actually a big misunderstanding in spending money. Most people think that spending money means saving money and buying cheap things. Living within your means, being diligent and thrifty are the ways to spend money.

However, to really utilise money, you must know how to distinguish between three wallets.

Each of us has three wallets, a consumption wallet, a speculative wallet and an investment wallet.

Consumption wallet: To satisfy own needs such as clothes, daily necessities, etc

Speculative wallet: To speculate and spend on items that involves some luck, such as lottery tickets art pieces, thinking that they may go up in value in the future

Investment wallet: To spend money on items that will go up in value in the future such as investment products, entrepreneurship, etc.

In general, spend more investment wallets, moderate consumption wallets, and avoiding speculative wallets are the first important things to remember about spending money.

02 Only buy things that will be worth more later

Since you want to spend more money in your investment wallet, how do you use it in real life? That's what we're going to talk about next: the principle of making more money.

This principle is: only buy things that will be more valuable later.

The question is: how can I know how much the things I buy will be worth in the future?

Probably the hardest part is estimating the values and discounting them. In the eyes of economists, almost all items can be converted into money for comparison.

For example, your job requires you to be fluent in Chinese, and once your Chinese proficiency improves, your monthly salary may increase.

Under such circumstances, it costs a few hundreds to sign up for a one-year training course, which seems to be a very cost-effective investment, because it can bring you more monetary returns in the future.

This is an estimate of what the purchase will be worth in the future and can help you decide whether to spend the money.

However, with regards to this estimate, there is a loophole. Because you ignore an important factor, and that is time. In other words, future money is not as valuable as present money.

Therefore, when you spend money and invest to calculate future income, you cannot directly compare the amount of money you may earn in the future with the amount you will spend now, but you have to give a discount to the future money. This discount is called in economics. Discount Rate.

This principle sounds simple, but most people are often disregard this problem.

If you understand the concept of discount rate, you will know that the sooner you get more money, the less discount you will lose. Not to mention that if you get the money in advance, you can make other investments and bring additional income.

In addition to considering the discount rate, another factor you need to consider is how long it will take to get the return, and at that point, whether the return you want will still mean as much to you.

If you tell a 20-year-old young man, "You give me 2 million now, and I will give you 10 million in 30 years", many young people will be willing, because for them, they will be 50 years old in 30 years, and still Lots of time to enjoy this money.

But if you say the same thing to an 80-year-old, he probably won't say yes, he thinks he may be running out of time and doesn't want to take the risk.

When people are young, they can appropriately allocate more stock assets, and their ability to withstand risk fluctuations will be relatively strong. Once there is a loss, they can also have the opportunity to use time and accumulated experience to "wait" the gains back.

02 Two strategies to reduce investment losses

When we invest, it is very likely that due to habit of judgment, the investment will fail. Is there any way to reduce the loss of investment?

In order to ensure stable investment and avoid risks, there are two strategies: one is a portfolio investment strategy and the other is an option strategy.

Portfolio investment strategy, to put it bluntly, is not to put all your eggs in one basket to avoid bankruptcy due to your misjudgment. You may already be familiar with this concept.

The second strategy is to use options. The essence of options is to pre-determine the right to spend a certain amount of money to buy a certain transaction within an agreed time.

For example, if you go to rent a house, you have to pay a deposit when you sign the contract. You may have to pay 10% of the rent. This deposit is actually an option.

If in the next month, you find a house with a cheaper rent, then you have the right to choose to abandon the transaction.

This is a right to backtrack that you buy yourself in the future when your investment may fail.

This idea can give us a good direction, that is, when you are not sure about the investment results, you can spend a little money first to buy the right to this investment opportunity.

After a period of time, if you feel that the investment opportunity is not good or there is a better opportunity, you can do not need this part of the deposit and pursue a better choice, then the risk of this investment in life will be greatly reduced.

Friday, February 11, 2022

The company behind “All of us are dead” and “Squid Game”

Korean dramas “All of us are dead” and "Squid Game" have been top discussion topics on social media, and many people have followed this drama, and they have also given high ratings recently.

Why are those shows so popular? A closer look reveals that the producer behind it is Netflix.

When it comes to Netflix, everyone will think of a series of high-quality film and television dramas, such as "House of Cards", "The Queen's Gambit", "Black Mirror" and so on, many of which have been nominated for several Oscars.

If someone goes in depth into Netflix's history, they will find that its current business model is completely different from the original one.

So what did Netflix do in the first place? What exactly does it make money from?

Let’s take a brief look at how Netflix got its start.

Netflix first started as a DVD rental business. After the customer placed an order online, Netflix mailed the DVD to the customer's home.

This business model looks simple now, but in 1998, it was quite creative.

Because people at that time wanted to watch discs, they had to go to physical stores, which was very inconvenient; and suddenly one fine day, they could rent discs without leaving home. Who could resist such a temptation?

Netflix's business is really hot. As its users continue to increase, Netflix has tried to launch a "monthly subscription" service, paying more than ten dollars a month and renting 4 movies at a time.

With the new model, Netflix's subscribers rose to 300,000, and the company's monthly revenue was several million dollars.

But we also know that with the advancement of technology, movies can also be seen on the Internet, and the DVD format has gradually been eliminated.

Netflix keenly observed this technological change and quickly transformed itself into an online video site. To put it bluntly, it is like an "online cinema", which buys film and television drama copyrights from film companies and puts them on the platform for users to watch.

But this model still has its shortcomings. If the upstream price increases sharply, or the movie copyright is not sold to you, the business may collapse immediately.

After thinking about it, Netflix finally decided to produce its own content and attract users through self-produced film and television dramas. But the threshold for filming and TV drama is so high, how to go about it?

In 2013, Netflix launched its first self-made drama "House of Cards", which was well received. Since then, it has embarked on a "point of no return" for self-made dramas.

Therefore, from the earliest paid DVD rentals to the current paid to watch homemade dramas, it seems that Netflix's business has changed, but the essence of providing users the content they are interested in has not changed.

When we look at Netflix's stock price over the past ten years, we can see that its development momentum is indeed relatively strong:

You may want to ask, how does this company make money?

The answer is membership fees.

At present, Netflix has more than 200 million subscribers, and the monthly fee is 8.99 US dollars, and the annual revenue is more than 20 billion US dollars.

The membership fees charged by Netflix are indeed not cheap. But many people are willing to pay this money, one is for its many high-quality original dramas, and the other is that there are no advertisements on Netflix.

When we dived into Netflix's annual report, we found out that Netflix's revenue are mainly from 2 sources , 99% is membership fee, and 1% is DVD service:

Therefore, there is a conflict between the membership service and the advertising business itself. Netflix simply gave up the advertising business and attracted users by continuously outputting high-quality content + good experience.

According to the latest annual report, Netflix's annual profit is 2.7 billion US dollars.

Netflix uses big data algorithms and in-depth mining of user data to tailor films that meet the audience's interests, it can mass-produce high-quality original dramas; however, domestic video platforms usually require good scripts to be popular and self-made. The quality of the show can't always be that stable.

Therefore, Netflix has long understood that a video platform can only make money if it has the mindset of pumping lots of money to continue to produce high-quality content. Being able to gain insight into the development direction of the industry so early is the most remarkable thing about this company.