Tuesday, September 30, 2008

Scenario : Passive Investor

" This DOES NOT apply to me because I am already doing GREAT with my Investment ! "

Not quite ....

A Good investor knows that A Good Investment is one that can continously compound return for you, but carry the risk of losing big time overnight, if not everything.

So if you are a Good and Rational investor, you WILL set aside some of the current return and practise like a Young Work Force.

That way, no matter what happens to your current investment, be it losing everything.  Its ok, because you have the capital to restart the legend again.

Scenario : Small Business Entrepreneur

Similar but different than Young Work Force, Small Business Entrepreneur may not have Consistent Income.  Therefore, instead of putting aside a fix percentage of your income, you just put aside a Fix Amount

However, don't forget that when you are self employ, your main goal is to Turn Your Business into AutoPilot !!  Meaning you HAVE TO come up with a SYSTEM that can run your business on its own.  Else you will always be self employ, which is Really not much different than a Job in personal finance terms.

Self Employ : You work for your self, you set your own rules but you still depends on your buyers to survive.  The day you stop finding buyers is the day your income stops.

Business : A system is in place so even if you take a 3 months holiday, the business runs as usual.

Investment : You dump your money in and you get back a larger sum after a period of time.

Scenario : Young Work Force

Scenarios for Young Work Force

1.  Get a job, earn some money.  ( Do something you like most and do it with persistency can earn you most in long run )
2.  Setup Standing Instruction to transfer 10%-30% from your income account to another dedicated saving account.
3.  When the saving account reaches 50% or the same amount of your Income account, save the extra to a 1 month Fix Deposit
4.  When the 1 month Fix Deposit is as much as 2-3x your monthly income, start another 3 months FD.
5.  Like wise you start keeping 3 months and 1 year FD.  Its totally up to you how much to put in each FD.  If you don't have patient, you may even choose not to start a 3 months FD.  But you HAVE TO do Steps 1-4 as minimum.  Else my guarantee to you is considered void.

( you can jump from 4 to 6, but you cannot skip 4 and 6 )

6a  Start putting money into Mutual Fund or Unit Trust ( for now, they are the same )
6b  The way you invest is like step 2, except it is not by percentage but a fix amount.
6c   Start a mutual fund with RM1,000 and automatically put in RM 100 every month. ( from saving account or income account ).  Make sure the automated systems runs for the next 3-10 years.

7a  Understand that stock market is a 'representative' of country's economy
7b  Select businesses that you like, have worked with and/of have high hopes in.
7c  Analyse the figures and management of the company to decide which business you would like to own too
7d  Buy that company shares ( if in doubts, just start with Blue Chips )

Results : If you start at age 22 with a monthly salary of RM 2,200

by only doing step 2, you will have more than RM 200,000 by age 52
by doing step 3, you will have an extra of RM 100,000
by doing step 6, you will have another extra of RM 120,000

So you have about half a million CASH by the time you are about 50.

It may not be a Huge Figure but don't forget, this half a million is by doing Nothing but only setup the initial steps.  It may take only the first 3 years to setup everything.

Monday, September 29, 2008

Banks ...

The principle is .... Bank makes money from you. So if you think you can make money out of banks, then you must be more naive than the banks.

Having said that, it doesn't mean you cann't make money WITH the banks, together with them ...

Unfortunately due to banking history and its old pratices, they will hide everything they think is benefiting you.  ( btw, before there are moneys, there are already banks ).  Although they are regulated by goverment to protect you, but they still have the room "Not To Voluntarily Offer You Information".  

With Banks, if you don't ask the right question, you will NEVER get the right answer.

So all the traditional banking products including Saving Accounts and Fix Deposit just let you get by.  You don't really earn anything from there if you consider inflation.  In the past, Banks didn't want you to know about Mutual Funds and Insurance.  But now they don't have that choice anymore.

In short, you put your money in Saving Accounts and Fix Deposit when you don't know what else to do with them.  AND you think its higher risk to keep them in your own place.  If someone stole your money from your place, you lost them.  If someone stole your money from the bank you deposit into, usually you will still get your money back, thanks to legislation and laws.
Inflation => You Lose
(Saving Accounts + Fix Deposit) - Inflation -> You Lose LESS
But you still don't earn.

(don't assume yet, mutual fund and insurance aren't going to get you out of your rat race neither, if its that simple, I wouldn't need to start a blog at all)

some global Financial Tips ...

Just a short break to look at some tips what you can do for your own finance planning.


This link is from USA but nevertheless some concepts can be adopted here too.

Sunday, September 28, 2008

How about Insurance ?

Some may asked how come there isn't any insurance in your pyramid ?

That is the tricky part.  You see, insurance has come a long way and no one can deny it is one of the CORE financial tools.  Some may even think that IT is the Mother of all finance.  That is because you can literary start with Nothing and gain Everything by setting up an insurance business.

However, the original intention of insurance is protection ( from the buyers point of view ).  And it is a game of statistic.  You contribute a small amount of money to a pool, if something unpredictable happened to you, you got compensated with a large sum of money from the pool.  Statistically less people will face unpredictable incidents than the total money contributed to the pool.  The remaining money left in the pool is what the insurance business earns. ( but don't kid yourself, its damn complicated in real life )

So from Personal Finance point of view, insurance is like a lottery.  You buy with a small amount of money, if you win, you got a lot of money back.  If you don't hit the jackpot, you lose the money you paid.  Then next month, you buy again if you want to continue playing. ( today its called Term Insurance )

Ofcourse the differences are :
1. Insurance is a proper contract, govern and regulated to protect your rights
2. Sometimes Insurance 'can be' a sure win lottery if you go with the contract that says 'Whole Life'
3. In normal circumstances, you Do Not Want To 'Win'

... and a few more technical stuff.
So its all about the 'jackpot'.  Or its all about the large sum of money you were hoping to win.  Why ?  Why do you need that sum of money ?  And why do you want to buy a lottery, take a chance to get that sum of money ?

Because you have a dream, a target, a goal.  Because you want to get that sum of money 'just in case'.

So in Good Finance Planning, you buy insurance when you have a Goal.  When you know exactly how much you need just in case you are not able to earn it if some unexpected happen to you.

That is why it does NOT fit into a Basic of Standard Finance Planning Pyramid.  You Don't Have to have an insurance in your finance planning.  But it will be a big plus if you do ... who wouldn't want to guarantee win a lottery eventually ? :)

So if you have goals in your life, you may need insurance.  For example :

You want to earn $100,000 to buy your dream car in 5 years time.  You may consider buying an insurance worth $100,000 just in case your plan is interrupted by some unexpected events (sickness, accident etc.) so you know no matter what, you are going to have your dream car !  And the best thing is, you don't have to lock down with your car, you can use that sum of money to buy other things you really want by that time.

Another common scenarios are dependant.  If someone depend on you for a living and you care about them, most probably you want to make sure their lives are substainable just in case.

So if you care about yourself or someone else, you may need insurance.  

But if you don't give a damn about everything, then insurance may not be the right finance tool for you.

Even if you don't care, you HAVE TO SAVE !  You may NOT regret NOT buying a lottery, but you WILL regret losing TIME - the only Golden Opportunity to Compound.  

Saturday, September 27, 2008

now Finance Planning starts ....

You already setup a Standing Instruction transfering a Fix Amount ( Percentage ) of monthly income into another Saving Account.  

Congratulation !  More than 90% of general population never survive till this stage.  Surprising or not, those who can make it to this stage are usually those non high flyers, the old guy next door or the geek who never leave his room etc.  And all of them became the millionaires next door that you never know.  ( Amazon agrees )

Basically what you have accomplished is managing your Cash Flow.  You have decided Future is Important and want to reserve some seeds instead of eating up all of them now.  Here onward is all about maximizing return of this Saving Account.

The key is Passive or Money Earns Money.  A way that the money grows by itself without you watching it, working on it ... if you are eager to talk about earning more money, goes back to the Income stage.  Increase all your want and explore all your wild ideas there ... here is about putting your wealth aside and comes back years later to wow yourself.

( The analytical part after Cash Flow is Asset and Liability but I leave this to later.  Lets stay on something simple and practical stuff first )

Basically you pile up your wealth pyramid like this ...

1. Bank Saving Account
2. Bank Fix Deposit
3. Bond Fund
4. Mutual Fund ( Balance Fund then followed by Equity Fund )
5. Stock Exchange

This is the part where challenges may come.  Different consultants share different approaches based on their own perspectives.  Not everyone pile up the pyramid bottoms up.  Not everyone draw the pyramid like that.

This is also the part there is no right and wrong answers.  Its all about how YOU want YOUR SAVING ACCOUNT to grow IN ANYWAY YOU WANT ...

So what should you do ?

If you are new to this and no other people is confusing you, just take this pyramid now.  Subsequent sharing will lead you to building your own pyramid.

If you already disagree with this pyramid or your existing consultants tell you otherwise, then this is a good time you take out a pen and draw your own pyramid now.  Whenever you have more than two ideas that cannot co-exist fully, then its time you pick the good from both and build your own.  Afterall, this is all about you yourself, not anybody else.

Friday, September 26, 2008

2nd, Save First ....

If you have any income or any return from you existing investment, the beginning of managing them is SAVE FIRST !

This may sounds old and boring to those who has heard it thousand times, but have you done it yet ? To add some spice to it, you should Save First Automatically !! Like a successful business, if you don't have a system that can run by itself, then you are most probably not having any business yet. So in Personal Finance Planning, if your Income Account is NOT Automatically SAVED into another Account, then you are most probably too dependant on self discipline that does not work in Most People ...

Wednesday, September 24, 2008

First .... Income !!

First, you should have some sort of INCOME first :)

You may work for someone, you may be your own boss, you may be a kid or you may be retire ... but still you should have some sort if income before you talk about Finance Planning.

Income can be active or passive, either way you NEED finance planning.

Lauch of another Personal Finance Blog in Malaysia

Lets see if this can become something you like ...

Before I post anything up yet, check out this web below. You can get a FREE crystal ball after filling up a very simple survey.


The web site expires and NO longer valid, sorry.