It's a pretty good read, similar to his other classics like Awaken the Giant Within. The most important concepts he advocates are exactly what I believe in: long term investing, avoiding management funds with high fees, compounding your money today for the future.
The specifics are more applicable to United States, but the concepts and ideas are much more important. (e.g. Their 401K can be thought of as CPF in Singapore) Anyway, I don't intend to do a thorough review of his book.
I just want to borrow his ideas of "financial milestones" and expand upon them for my own purpose. In the book, Tony describes 5 major financial milestones, and I altered them slightly into smaller steps for the milestones of my life.
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1 - Financial Stability
The foundation of any financial management. You achieve this when you have no bad debts, 12 months of emergency funds and sufficient insurance coverage. At this stage, there is no passive income to speak of. Everyone should seek to reach this asap, or a single bad accident could wipe you out.
From what I have read online, 4 out of 5 young Singaporeans have NO savings at all. That just sounds crazy to me. If you can achieve this, you are in good shape to start your financial dream.
2 - Financial Security
Tony describe this as the stage where your home mortgage, utilities, food, transport and basic insurance (the absolute basic necessities) can be paid for without having to work to pay for them again.
I feel this is the toughest milestone to reach because it requires one to start saving and investing. You need to overcome the fear of investing and the temptation of quick money, then take the first step forward. Many people I know see it as impossible, and eventually resort to gambling and other 'get rich quick' methods because it just takes too long to see results.
We see it as a huge mountain to climb, but it's not. A journey of a thousand miles begins with a single step. We are still young, and we need to take baby steps. We need to set baby goals to keep ourselves on track.
How about setting your first goal as generating enough passive income to cover all your lunch expenses? That's a simple enough start. As you reinvest your earnings and compound your money, you will grow your passive income faster and faster. Before your realize it, it'll be enough to cover your all your food expenses. Then your phone and internet bills!
I think a good time to reach this stage would be 5 - 10 years, depending on whether you are married/single (have home mortgage or not).
3 - Financial Vitality
The third level of dream refers to the situation where you can not only meet all basic needs, but have some extras for enjoyment! When achieved, your personal items, minor healthcare, entertainment and 'small indulgence' costs can be covered without working.
For me, that'll include things such as movie tickets, video games, the occasional lottery tickets, social functions (e.g wedding dinners) and dental/doctor trips.
Personally, I feel this would be a breeze if you are already at stage 2. You probably take half the time it takes to go from 1 to 2.
4 - Financial Independence
The most well known form of the financial milestone. Financial independence is attained when your passive income is sufficient to provide the same lifestyle you have today without working.
Congratulations! You can now afford to quit your job and "shake leg" at home. You don't have to worried about getting laid off, or struck with emergencies anymore.
For me, it would include all my recurring expenses + my average major purchases (like IT gadgets, vacation) for the year.
On a side note, it's important not to lose yourself after attaining stage 4. Remember why you started out on this journey in the first place.
5 - Financial Freedom
The ultimate financial dream - not only can you cover your current lifestyle, you have enough passive income to cover your "desired lifestyle" (throw in your luxuries)
Yeah, throw in your multi-million bungalow, Rolls Royce and the likes.
This varies greatly from person, and if your current lifestyle is already your desired lifestyle, then 4 and 5 would be the same. Who is to say you must want a big fancy house and car?
I wouldn't even want to think about this stage at this moment. I feel there is a bit of a "dream" factor built into this one, to have something to work towards after achieving financial independence.
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As you can see, it becomes obvious why I have been diligently tracking my expenses. It lets you know exactly how much you need per month to meet your financial milestones!
For my personal journey, I planned to introduce a "100% margin of safety" as a conservative buffer. This is mainly due to guard against future increase in expense and financial turmoil. In other words, I must achieved 100% passive income above the stipulated amount before I considered myself to have reach the milestone.
A journey of a thousand miles begin with a single step. Take that first step today.
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