Lao Zi: “Govern a Great Nation as You would Cook a Small Fish.”
老子: “治大国若烹小鲜”
Singapore government just announced the national budget 2016 with surplus of $3.45 billion. In fact, without inclusion of investment return from Temasek, this could be a budget deficit. This shows the importance of investment in all levels: from national level, company level to personal level.
A nation sometimes is like a mega corporation with many departments (ministries). At the level of personal finance, we could also learn from planning of national budget:
1) Budget Surplus
Our total personal income of the year should always be more than total yearly expenses to generate a positive net yearly income. If the projected income is unstable, personal expenses should be reduced accordingly based on the priorities, aligning with personal goals. Alternatively, we need to find ways to increase the income by keeping the same level of expenses. A life with budget deficit could not last long, personal saving will be depleted eventually. When we buy a stock, also look for business with sound financial planning to generate positive net income and positive cashflow.
2) Bonus
Government has to redistribute the wealth, helping more for those needy people or motivating certain practices with financial reward. Company pays bonus or dividend to share the earning with shareholders during good time. At personal level, we could also pay bonus to ourselves, eg. going for an overseas vacation, buying a luxury handbag, dining in a high-class restaurant, etc. Similar to a nation and company, bonus can be paid only if there is a surplus, either there is positive net income or positive free cashflow, meaning your personal bank account $ figure in year end should be higher than in beginning of the year. If a person, a company or even a nation, paying bonus while making loss, this is a danger signal. Do not assume a company or stock which pays dividend yearly is a good company, this could be a value trap.
3) Investment
Although we may not be able to control our own profession to have consistent income, we could look for investment partners who could make money consistently. These partners could be found by carefully buying stocks of excellent businesses. The passive income from investment will help to supplement the possible budget deficit at personal level, especially when our own jobs could not earn enough or consistent active income. Even after retirement, the return from investment will help to grow our wealth, we could continue to enjoy our lives by paying bonus to ourselves.
