Personal Finance 101

1. Repair Your Old Clothes

Don’t throw old clothes. If you get to see how people in poorer countries live, you’ll learn to appreciate the clothes that you have. Sew your torn clothes and wear them. Don’t rush out and buy new clothes every other week.

2. Ask for a Rate Reduction

Ask and ye shall receive. At the risk of having NPL’s (Non Performing Loans), banks would rather lower the interest they charge you than to have you default on your debts. So don’t be shy in asking. You wont lose anything by asking. I managed to get a 200 dollar reduction in my monthly mortgage repayment, which actually allowed to me to keep paying my old rates and reduce the principal amount of the loan quicker.

3. Say NO to Starbucks and McDonalds

While the coffee from Starbucks might be slightly better than a regular Java, is it worth the USD8 that you pay for it, compared to the USD2 for a regular Java? The USD6 that you save on a daily basis comes up to USD180, which can reduce your credit card interest charges by a considerable margin. And the Big Mac from McDonalds might send you to the hospital with a cardiac arrest. Say NO to FAT. And while you’re at it, stop smoking and reduce alcohol consumption. All these will add dollars into your pocket and increase your life span.

4. Switch Your Bulbs

Switch all the bulbs in your house into energy saving bulbs. You’ll start reaping your savings within 10 months. And besides, you’re doing your bit for the environment.

5. Swap Books with Friends

Check out Craigslist for people who want to share books. Swap books with them, or friends and family. You’ll end up reading a lot more books for a lot less dollars.

Tags: debt reduction, manage money, mcdonalds, save money, starbucks

In current economic times, its always good to go through these age old money management tips.

1. Save a minimum of 10% of your monthly income

Saving a portion of your monthly income is the start of all debt management. Experts usually recommend 10% of your monthly income. The more the merrier but what if you cant save 10% every month. Then start with 2%. If you earn 3 thousand a month, 10% would be 300 and 2% would be 60 dollars. Can you save 60 dollars a month?

Don’t scoff and say that 60 dollars is too little and thus negligible. Every penny saved is not a foolish endeavour. 60 dollars a month is 720 dollars in a year and 7200 in 10 years.

The secret to doing this is to automate the process.

David Bach in his best seller, The Automatic Millionaire (one of the best books on getting out of debt that I’ve ever read), advocates automating your bill payments so that you never miss a payment and incur penalty charges.

Similarly, automate the saving of the 60 dollars into another savings account. They key to making this money grow is to make it difficult for you to withdraw the money. Don’t get an ATM card for the savings account. The more difficult it is to take the money, the higher its chances to grow for you.

2. Have at least four to six months of your monthly expenses in your emergency fund

Every one should have an emergency fund. How much money in the fund is based on your monthly expense and how long it would take you to find your next job. If you’re in a very niche market (which means you’re in demand because you have unique skill sets), then 1 or 2 months of savings should be fine.

But for the rest of us, we need around 4 – 6 months of savings.

Life always has its up and down. It’s nice to know that in severe emergencies, you wont lose your house when trying to save yourself.

3. Retirement expenditure at 70%~80% of last drawn income

Don’t take retirement lightly. remember how much you eat during the weekends when you don’t have much to do. Well, retirement is the same. Okay, you might not eat much, but you will require around 70~80% of your last drawn salary.

Retirees like to to travel, after all the years working. All this requires money.

Never take money out of your Employees Provident Fund (EPF) or your 401k except for emergencies or buying property. This money is for your retirement.

4. Your life insurance cover should be at least 7 to 10 times your annual income

While financial experts agree with this rule, the exception is that it depends on whether you can pay the premiums. Your life insurance depends on how many people depend on you for their livelihood.

A life insurance is meant to cover your earning potential. An example would be:

Assume you’re a 35 year old who earns Rm120,000 per year and your child is only 5 years old. Let’s assume he’ll be independent when he’s 25, so you realistically need money that will last him for another 20 years. That should be 120,000 x 20 = Rm2.4 million. At 10 times your annual salary, your life insurance should be for Rm1.2 million.

5. Your home loan payments should not exceed 33% of your monthly income

Most banks in Malaysia conducts credit checks and will usually set the borrowers limit to 33% of your monthly income. The rule of thumb for housing loan repayments is that when you’re buying the house to live in, then go for the shortest loan term possible while staying within the 33% limit.

But if the house is for investment purposes, then stretch the loan repayment period for as long as possible. This will allow you to have very low repayments. Why is this a  good thing? This is good during the times when you dont have tenants staying in your house and you have to fork out the loan repayment from your own pocket!

6. The percentage of your portfolio to be invested in equity should be 100 minus your age.

Take risks when you’re young because when you make mistakes, time is on your side. But when you’re aging, you have to wise in your dealings and as you age, you should lower your exposure to equities.

Always take into account your objectives, risk tolerance and investment timeline.

Identify what types of investments you’re comfortable with and determine its objectives and duration. Consider rainy days.

Then consider your attitude towards risks. How much risk can you take? As the stock market fluctuates, can you sleep well? If you cant, diversify your portfolio between equities and bonds and units trusts (mutual funds).

To close this topic, always track your portfolio. Always know their value and monitor their performance. This allows you to sleep better at night.

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Tags: financial planning, investment, manage money, Personal Finance, Real Estate, stock market, tips