In the midst of this very challenging oil and gas period, the lesson learnt is that no matter how defensive certain segments in the industry does, in the end, if the industry suffers, all your customers will lay in to you, unless you are a sole sourced provider. (My full analysis here)

Nordic Group operates in the scaffolding and insulation space of the oil and gas industry.

On 12 Jan they put out an announcement that they had renew many of the maintenance contracts with a duration of 1 or 2 years with several of their petrochemical and pharma customers.

While the oil and gas industry suffers, these refining spaces still needs to keep them in good condition due to strict regulations. If they are not safe they cannot operate.

With low oil prices, refining functions need to do well to offset the poor performance in other areas.

The dollar value stated in this announcement look small at $7.7 mil considering we are trying to target a $10 mil/year earnings.

The margins for these maintenance should be much lower than their maintenance projects. Note that these maintenance are daily man power and resources maintenance around the facility whereas there is another maintenance projects that is done every 2 to 3 years during plant shutdown.

The latter will be more lucrative.

The latter in this case may get delayed.

But essentially they have more or less secured the cash flow for the next 2 to 3 years.

Its what happens in the future when the oil majors Exxon and Chevron decides to delay the maintenance projects.

Share price of Nordic Group still holding strong in this onslaught. I believe their holders are strong holders.

I cannot understand some lunch conversations or small talk during family gathering.

Perhaps because of the structured way I look at things, some of peoples point of view dont make much sense to me.

One very common one is the definition of Rich.

Here is some of the ways rich is defined:

She doesnt use a coupon to get a discount for her fast food when the coupon is there for her, because she is rich.

They can afford to have 4 children, therefore they are rich

They work in civil service, they are much richer than us

He drives a continental car and fetches her to work, he is rich to be able to afford that

The family goes for 3 holidays a year, one that is non-southeast Asia, they must be rich

If he can buy that 3 bedroom condo he must be rich

He plays the stock market, he must be doing damn well

The people they are talking about might well be rich, but notice that there is much inference here.

What we show on the outside and what people see defines how rich we can be.

A person is also rich, when they can afford things better than you are.

The flaw in assessing how rich we are is that what you own and the lifestyle you live do not fully show the extend of how financially dependent or financially independent you are. The person driving the Audi could very well be struggling to pay for the Audi but need the Audi due to the sales nature of his job.

Comparing against oneself do not show the extend of wealth as if you are earning $1000/mth a lot of people would be richer by that definition.

We need a better scale or meter.

And we also need a sensible way to show how a person have improved his or her financial situation over time to put them in a better position.

It is this reason why we want to build wealth the right way.

The following 8 different stages are the stages that we can measure how a person have progressed in life when it comes to wealth.

I didnt create this set of milestones in our journey towards financial indepenfdence. Joshua Sheats from Radical Personal Finance formalize these stages and there is no reason to take and change it when they describe the progression very well.

Through these stages, you can also use it as a benchmark to measure how rich your peers, family and friends are.

A person at this stage, to put it simply have a lot of baggage.

Firstly, he or she has to depend on others for survival, for extravagant things or to take care of daily expenses.

Net Worth (Equity) = Assets Liabilities

Net Worth is usually what we use to determine if a person or entity is in a good financial shape.

The Assets are the stuff that:

The Liabilities are

A Financially Dependent person have a negative net worth meaning the assets that he has is less than the liabilities.

A Financially Dependent person has to borrow consistently from banks, institutions, friends and family for the lifestyle that he or she lives.

You might see him always driving the newest cars, switching from a HDB flat to a condo and bringing his family to European holidays for 3 years in a row.

If you assess his net worth it might be a different story.

Secondly, a financially dependent person is unable to keep his cash outflowsbelow his cash inflows.

Net Cash Flow = Cash Inflow Cash Outflow

Cash Inflow are:

Cash Outflow are:

A Financially Dependent person is likely to have a net cash flow that is negative.

How can a person spend out more than he or she earns?

Because you can borrow from others. You can get your family to pay for your house or give you an allowance. The latter is a good situation to be in.

But is the person DEPENDENT on others?

Yes he or she is.

When you are dependent on others, the person have some hold over you.

In this case, they are your friends, boss, company and the banks. If they are not happy about something, they can push that situation to you to create stress in your life.

Can a person be having a positive net worth yet net cash flow negative?

Yes. The person may have assets that is of value, but his family members are servicing his assets.

He may also have lost his job, move on to a lower paying position, but still keeping his cars and big house, but having a very problematic time servicing his home.

Can a person be having a negative net worth yet net cash flow positive?

Yes. The person owes some debt, but he is keeping within payment which is a good thing. The person may be making a conscious effort to pay down the debt or to build up the assets.

He could be taking on debt for studies so that he can earn more in the future.

These are good debts.

But is the person dependent on banks or family members at this point? Likely yes.

Financially Dependent can be good or can be bad, we are not demonizing people at this stage. It depends very much on what the person builds up in his assets.

If a financially dependent person proceed to improve in how he or she manages the wealth, they become Financially Solvent.

When they achieve Financial Solvency:

A person that is financially dependent and progress to this stage shows either higher motivation, a change of their money beliefs and values, a more conducive environment that assisted them to realize they need to be more responsible.

As their net cash flow is positive, they can start putting money away to building wealth, paying down more debts or saving for some goals.

A person proceeds to achieve Financial Stability when they manage to build up some emergency funds.

A persons emergency fund, is more important then paying off all his or her debts.

Without the emergency fund, a financially solvent person would be paying off his debts with all his net cash flows and one hospital emergency, and he would have to turn to his credit card or other family members for help.

An emergency fund of $3000 helps a lot, even if it is not the full amount we usually recommend.

To find out how an emergency fund works and how to build it up, you can read this comprehensive guide that I wrote.

A person that achieves Financial Stability tends to have achieve Financial Solvency as well.

Debt Freedom is achieved when a person is able to pay off all his or her debts.

That seems drastic because for most people, their mortgage is 25 to 30 years, which means that it will take a long time to be free from debt.

However, we tend to consider Debt Freedom to be achieved when the person paid off all their high interest debt except mortgage debt.

Mortgage debt due to the duration and that the banks can foreclosed and sell off your place, tend to have the lowest interest, and essentially a dwelling is important to some for stable family building.

A person that achieves Debt Freedom tend to have achieve the previous 2 stages as well.

When a Financially Solvent person have a positive net cash flow, he or she can put the cash flow to building wealth.

When the person develops these Wealth Machines, their wealth fund would grow and be able to distribute wealth cash flow either by selling off assets systematically, or in the form of interest income, dividend income, business income.

Financial Security is reached when your Wealth Machine(s) is able to provide a wealth cash flow that is greater than your annual survival expenses.

The annual survival expenses is not all your current expenses, but is the minimal amount that, with this set of expenses paid, the family does not go hungry and can live on.

There are no luxuries or rich living here.

Financial Security is a stage that is very attractive because it gives a person optionality.

It enables the person to make a riskier career move without worrying too much about the repercussions, take a break from work, or pivot to semi-employment.

The person is one who do not have to give a crap about how the boss thinks when his basic survival is not determine by the moods of his or her boss.

Related: How much wealth do you need to achieve financial security, financial independence and retirement?

Stage 5 is a progression from Stage 4.

Financial Independence happens whenyour Wealth Machine(s) is able to provide a wealth cash flow that is greater than your annual current expenses.

We can rate a person having an Audi as rich, but to me if a person has an investment property and a portfolio that provides a wealth cash flow covering what he and his family needs now, that is truly a position to be enviable.

Once you are past stage 5, the rest is the stuff of fairy tales.

Financial Freedom happens when your stable of Wealth Machine(s) is able to provide more than your annual expenses but also one or two extravagant things that have previously not considered.

What is life if you slog so hard and not get to enjoy?

The rest is here:
Investment Moats Wealth Mentor for Financial Independence