Food for Thoughts

Showing posts with label Money Matters. Show all posts
Showing posts with label Money Matters. Show all posts

Financial Health & You

~article taken from Malaysian Investor www.min.com.my
Lab 1 - Main Sources of Income Test
In order to know what your current financial position is, you need to review your inflow and outflow of money. You have to clearly identify your main sources of income, which are basically monies that go into your pocket, such as your salary, dividends, capital gains, rental income from your properties, distribution from business, interest from your bank savings and fixed deposits.
Your total income can be divided into three categories, namely earned income, passive income and portfolio income. Earned income is the money you take home as your salary. This is the hard earned money paid by your employer for the work you do. Normally, it is taxed at higher rate than any other forms of income.

Passive income is money received from property investment or distribution from business. This is a form of income that you should not work too much on, but it is still able to generate continuous stream without much effort on your part.

Portfolio income is money that you receive from the returns of your investment in financial assets, for example dividends from stocks, income from bonds as well as the returns from unit trusts. It is also another form of passive income whereby you would not have to actively be involved in generating the income.

Lab 2 - Main Sources of Expenses Test
An expense is the money that leaves your pocket. They are all expenses that you have to incur in order to maintain your lifestyle. Examples would include credit card payments, housing loan repayments, car loan repayments, utility payments, grocery bills, taxes, travel and entertainment and all other personal expenses.

In determining your financial position, you need to track all of your expenses. One of the main reasons that people discover that they do not have much saved up when they retire is because they never control their expenses. They lose track as to how they spend their money every month. The one pattern they constantly observe is that they always do not have enough money to support their lifestyles. As a result, they may have to incur additional debt to pay for their expenses as their earned income is insufficient to pay for all of their expenses.
One way to track your expenses is to write down every item that you spend on. JOT-IT-DOWN! - It is tedious but in the long run, a rewarding task, as you will be able to keep track of what your hard earned money is spent on. If you are unable to track all items, make sure that you at least aware of all payments made to purchase the more costly items. You will find it shocking to discover that a majority of you are genuinely surprised once you’ve discovered how much money you have spent on certain items. Please refer to the table below on how to build your financial statement.
Lab 3 - The 90 Percent Rule
Ken Little in his book titled Personal Finance At Your Fingertips recommends that you save 10 percent of your income. Have a look at the table below and you will see that income minus expenses equals to net cash flow (A-B). The 90 Percent Rule requires the net cash flow (A-B) to be at least 10 percent of your income (A).

In Malaysia, in view of the current high inflation rate, it is not easy to save 10 percent of your income. To us, it does not matter whether you are able to save 5 percent, 10 percent or 15 percent of your income, the more crucial issue would be that you start saving and start nurturing the habit of saving.
You have to start someday, why not today?
MY FINANCIAL STATEMENT
RM
INCOME

Earned Income

Job and Self Employment _______

_______

Passive Income


Real Estate (net)

Business (net) _______

Passive Income Total _______

Portfolio Income

Interest

Dividends _______

Portfolio Income Total _______

Total Income ___ A__



EXPENSES

Credit Card Payments

Housing Loans Payments

Car Payments

Food and Clothing

Taxes

Other Payments _______

Total Expenses ___B___

Net Monthly Cash Flow A - B

Posted in: on Saturday, June 7, 2008 at at 6:02 PM 0 comments

7 Common Money Mistakes to Avoid

~article taken from Malaysia Investor http://www.min.com.my/

If you are thinking of improving your financial health, first, you need to be able to recognize your financial mistakes so that you can learn not to repeat them.
Here are some commonly made money mistakes that everyone should avoid:

Mistake #1: Failing to Plan
If we carry out a survey on the people around us, we would be sure to find that not many of us plan our finances. The most common response that we can anticipate would be the classic excuse “We are just too busy with work and family that we hardly have any time left to do the planning”. As a result, most of us end up paying higher taxes, leave our savings sitting silently in lousy investments for years or overpaying for financial products. Since there are always deadlines to be met at work, we tend to let our finances run its own course, thinking that it is of lower priority as there are no deadlines to meet nor is there anyone to force us to look into our financial plans, unless of course we run into serious deficit.
However, the important point to note here is that PLANNING is typically found to be a strong habit among people who have successfully accumulated wealth, even with just a modest income.

Mistake #2: Spending Beyond Our Means
Nowadays, we constantly overspend due to peer pressure and consumer temptation that surround us on a daily basis . We are, to a certain extent, exposed to mild brainwashing with TV commercials, newspaper ads, sale circulars, and flashy shopping malls promoting the lifestyles adopted by the rich and famous, which of course involves having the latest mobile phone models, the latest luxurious cars, latest fashion trend. All these tempt us into spending exorbitantly and unnecessarily. The signals we get from not jumping on the bandwagon is that we will be considered left out of today’s scene. However, in order to do so, far too often, we end up spending way beyond our means. We will find that at the end of each month, the net salaries that go into our bank account are usually meagre, after servicing our car loans, housing loans, credit card bills and other utility bills.

Mistake #3: Spending Future Money
Buy now and pay later! This has become a norm nowadays and the credit card has become a must-have item in our wallet. In fact, a lot of us carry more than one in our wallets. No doubt of it is a convenient item to have around, however, some of us misuse it and treat it like a vehicle to spend our future money at will. It has become a common phenomenon where, by just settling the minimum payment at the end of the month, you will buy more now. As a result, the credit card bad debt snow-balls to an extent beyond our control. According to the bankruptcy report, the percentage of people declared bankrupt due to default in credit card payment has increased in the last few years especially among the younger age group. Be wise when using credit card. Making minimum monthly payment on credit card debt allows you to buy more now, but it will cost you dearly in the future.
Mistake #4: Delaying Saving for Retirement
Most of us aim to take up early retirement. In order to achieve this, we need to plan our finances to make sure that we have enough savings to sustain the life style that we desire even after retirement. However, many of us find that even when we approach retirement, we still struggle to meet the savings target that we have set for ourselves earlier. As our income grows, our savings are supposed to increase as well, instead, we more often than not, have big items to spend on, i.e. house upgrading, new car purchase, club membership to keep up with our peers, etc., that prevents us from depositing more into our savings.

Mistake # 5: Investing in the Wrong Products
There are various kinds of financial products in the market. However, in order for us to identify the right product that suits our risk and return profile, we need to equip ourselves with some basic investment knowledge and do the homework ourselves. Instead, most of us end up investing in some products, simply because we rely too much on the financial advisers, who might have the agenda of pushing higher sales for their products and therefore providing misleading information to us. It is always important to study the product characteristics or the management team track record before investing.

Mistake #6: Not Saving for a Rainy Day
Some of us think that purchasing insurance is a waste of money. However, we are vulnerable if we and our family do not have insurance to cater for any loss of income. In the event of some unfortunate incident, especially those affecting the family’s bread winner, without any cash reserve or insurance, it will be devastating to the whole family. By then, it would be too late to start thinking of income replacement.

Mistake #7: Focusing Too Much on Money Matters
All the above tell us to focus on our finances. However, on the other extreme, we must also not be too engrossed in accumulating our wealth to the extent that we lose sight of other priorities in our lives. While we plan our financial health, we must not neglect our own health, family and friends, career satisfaction and fulfilling interests. Without these, even with tons of money, we will not be happy.

Lastly, we need remind ourselves of the importance of planning our finances. If we are not fully, totally and truly committed to creating wealth, chances are wealth will remain estranged to us.

Posted in: on at at 5:48 PM 0 comments

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