Analyse your current situation

Before we start planning for a real budget, we must identify the different kind of budget there are.
Budget consist of the Net Worth Budget and the Cash Flow Budget.

Net worth budget is used to measure how much of your resources can be used to achieve your financial goals. These includes sleeping assets (Emergency cash), working assets (investments), lifestyle assets (properties for usage only) . You should also consider your liabilities. A car, is not an asset. its a liability.

Assets minus liabilities equals net worth. Net worth is a measure of wealth. Most of the times, only sleeping and working assets can be used to meet your financial goals.

For personal budgeting, we use the cash flow budget.

For this, there are two rules.
1) Use less than 35% of your income to service long term loans.
2) Regularly save more than 10% of your income.

Real vs Superficial Investment

Before we go into detail on what I mean by Real and Superficial Investments? I would like to pose a question. Are you keen in investing and belief in concept of money growth through investments? If your answer is NO, my next question is, Was it because of a bad experience you have personally encountered or heard from your love ones. What exactly is investment?

Investment is the choice by individual to risk his savings with the hope of gain. Rather than store the good produced, or its money equivalent, the investor chooses to use that good either to create a durable consumer or producer good, or to lend the original saved good to another in exchange for either interest or a share of the profits.

In simple layman's term, It is risking something for more things. Investment can come in many forms. In business, investment would be like putting money in a product which you predict will give you better return as its demand rose and value appreciates in future. In short, how well the product sells is an indication of how much your money will grow in terms of returns. In finance, the concept is the same, however instead of a product, you are putting your money on companies. How well the company does is indication on how much your money will grow in returns as well.

If you see closely, these two are actually linked. By investing money in the financial market, for example, stocks and shares, you are putting your risk on the performance of the company. And that risk is also affected by the product the company produces or sells. So, indirectly, you are putting your money in the product. This is what Warren Buffet meant by knowing the company first before you put your money in.

So what am I getting at here? How is this linked to Real vs Superficial Investment?

Each of us have the desire to be rich. I mean lets face it, who desires to be otherwise right. When an opportunity is presented before us in the form of unbelievable returns, most will grab it without thinking much about it. True, we are told not to miss out on opportunities. However so, we are also told not to be reckless.

Example

Suppose an advertisement is placed that promises extraordinary returns on an investment – for example, 20% on a 30-day contract. The objective is to deceive laypeople who have no in-depth knowledge of finance or financial jargon. Verbal constructions that sound impressive but are essentially meaningless will be used to dazzle investors: terms such as "hedge futures trading", "high-yield investment programs", "offshore investment" might be used. The promoter will then proceed to sell investors--who are essentially victims of a confidence trick--stakes, by taking advantage of a lack of investor knowledge or competence.

Without the benefit of precedent or objective prior information about the investment, only a few investors are tempted, usually for smaller sums. Thirty days later, the investor receives the original capital plus the 70% return. At this point, the investor will have less incentive to put in additional money and, as word begins to spread, other investors grab the "opportunity" to participate, leading to a cascade effect deriving from the promise of extraordinary returns. However, the "return" to the initial investors is being bought out of the investments of new entrants, and not out of profits.

This my friends, is what you might call, the Ponzi scheme.

One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – commonly reinvest their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors showing them how much they earned by keeping the money, in order to maintain the deception that the scheme is a fund with high returns.

Promoters also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time, in exchange for higher returns. The promoter sees new cash flows as investors are told they could not transfer money from the first plan to the second. If a few investors do wish to withdraw their money in accordance with the terms allowed, the requests are usually promptly processed, which gives the illusion to all other investors that the fund is solvent.

The catch is that at some point one of three things will happen:

1. The promoters will vanish, taking all the remaining investment money (minus the payouts to investors) with them;
2. the scheme will collapse under its own weight, as investment slows and the promoters start having problems paying out the promised returns (the higher the returns, the greater the chance of the Ponzi scheme collapsing). Such liquidity crises often trigger panics, as more people start asking for their money, similar to a bank run;
3. the scheme is exposed because the promoter fails to validate their claims when asked to do so by legal authorities.

What is NOT a Ponzi scheme

• A multilevel pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:
  • In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a multilevel scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means no investment return).
  • A Ponzi scheme claims to rely on some esoteric investment approach, insider connections, etc., and often attracts well-to-do investors; multilevel schemes explicitly claim that new money will be the source of payout for the initial inenturevestments.
  • A multilevel scheme is bound to collapse a lot faster, due to the necessity of exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to "reinvest" their money, with a relatively small number of new participants.

• A bubble. A bubble relies on suspension of disbelief and an expectation of large profits, but it is not the same as a Ponzi scheme. A bubble involves ever-rising (and unsustainable) prices in an open market (be that shares of a stock, housing prices, the price of tulip bulbs, or anything else). As long as buyers are willing to pay ever-increasing prices, sellers can get out with a profit. And there doesn't need to be a schemer behind a bubble. (In fact, a bubble can arise without any fraud at all - for example, housing prices in a local market that rise sharply but eventually drop sharply because of overbuilding.) Bubbles are often said to be based on the "greater fool" theory. Although, according to the Austrian Business Cycle Theory, bubbles are caused by expanding the money supply beyond what genuine capital investment supports, and in this case would qualify as a Ponzi scheme, with expanded credit taking the place of an expanded pool of investors.

• Although non-fraudulent in intent, a pension fund can share some of the characteristics of a Ponzi scheme in that, except during the final period of the fund's life-span, the outgoing cash used in any month to pay pensions is usually taken from the incoming contributions of the active members of the pension scheme. In a year of poor equity returns such as 2008, a pension fund can often perform worse for its members than a Ponzi scheme.

• Robbing Peter to pay Paul. When debts are due and the money to pay them is lacking, whether because of bad luck or deliberate theft, debtors often make their payments by borrowing or stealing from other investors they have. It does not follow that this is a Ponzi scheme, because from the basic facts set out there is no indication that the lenders were promised unrealistically high rates of return via claims of unusual financial investments. Nor (from these basic facts) is there any indication that the borrower (banker) is progressively increasing the amount of borrowing ("investing") to cover payments to initial investors (as, again, Ponzi was not the first to do).

• Mult-ilevel marketing

If you are planning to invest your hard earned money, do take into consideration of a few factors

• Time horizon - The period of investment. Investments need time to mature. A safe time horizon will be 5 years or more. There is no fix rule, however, statistically, 5 years will be able to generate good returns depending on the risk profile. There fore make sure that within that time spent, you have no use for the invested money.
  

• Risk Profile - This is crucial to determine the type of fund that is suitable for you. Financial advisers need to run through a few questions to determine your risk appetite. The process might seem pointless since you might believe that you already know what you want. However, believe me, it is to your advantage.

• Fact finding - Do make sure that the advisor run through a few questions. This is essential to see your financial capacity and stability. Sometimes we are so eager to do something that we tend to overlook certain factors. The advisor will go into detail to see the capacity and feasibility of the amount of your investment.

Reference = Wikipedia

Begin with the end in mind

Before we can make any budget or whatsoever, we must have a reason for it. This reason or goal will help discipline ourselves to stick to the plan in whatever circumstances. You might want to ask yourself questions like: What do you want to achieve? Who is involved? Why is this goal important?

Examples of goals and dreams are:
$20,000 to establish an emergency fund in 6 months
$500,000 for my child's university tuition fees and living expenses in the states.
$3,000,000 for my financial independence so that I can retire to enjoy my desired lifestyle with my love ones in 20 years

Once you have your own goal in mind, we can budget for it.
Importantly, you must recognize the need for it. Write it somewhere, look at it twice daily, once when you wake up and the other when before you turn it. This will help you believe in your plan and make sure you keep to it

After the plan is made, the next steps would be the action sequence. Plans on paper are dead. Action is what propels it nearer to the goal.

Reference : ifast Insight magazine Nov-Jan 09

Next post : Analyse your current situation

Patience and sacrifice pays

Since young, we were taught to save. We were told repeatedly that every cent we save will eventually help us in future. Owing to this, we sacrificed our desire to buy that cool toy that we had always wanted because we bought the idea. True enough, not many of us have that discipline to save when we were young. Only those who believes the idea, those who religiously save up their pocket money and 'ang baos'; They are the ones smiling at the end of their university education, knowing that they have enough cash stashed away to start their first investment, help them buy that bike or car they wanted or even pay for that dream wedding. They are the ones smiling at the end of the day for they believe that patience and sacrifice pays off.

Have you ever wished that you could turn back time and save a bit more when you were younger? Have you pondered on the fact that if you had believe the idea, you might be in a better financial state right now?

Are we to repeat the same mistakes again and lose out in the long run?

Are we going to be in the same state years to come when we are old, regretting again and again of what should have been done?

The important question is, what are you going to do about it NOW? Time and tide waits for no man.

What are you waiting for?

The Insurance Salesman

Hi there, a friend pass me this video and I believe this is rather conception on how we view Insurance Agents locally. Base on bad experiences before, people might relate Insurance Agents as cheaters, leaches or even roaches for this matter.

True there are people who tarnish the name of the Industry. However, not all of them are as such. If you are to get insurance, do ensure that you undergo a full fact find. Do both you and the advisor a favour. This is essential as there are many clauses in the contract. For example, claims for TPD (total permanent disability)is known to be stringent. an example would be if you lost a limb, it must be from the ankle or wrist. lost of fingers or toes will not be compensated.

Anyways, enough with that, this isn't a post on insurance. If you are interested to know more do email me.

For video, go here ---- http://yanzryo.multiply.com/video/item/5/Bangkok_insurance_co._advertisment

Retrenchment Woes

Here are the list of companies who are restructuring.
Hope the link works

http://4.jfserver.info/community/retrenchment/retrenchment_full.php



source - jobscentralnetwork

Theres no where else to go but up

As most of us are already aware, we are now facing a serious financial meltdown. Some say growth is going to be as slow as post world war two. However so things might turn out to be, let us look at the silver lining instead.

For instance, the Singapore government has come up with a life buoy for companies to minimize retrenchment. These includes the $4.5 billion Jobs Credit scheme which subsidies employers' wage bills for their local resident workers, and the $5.8 billion Special Risk-Sharing Initiative to help companies get access to credit. Eventhough certain issues did rose pertaining to the $4.9 billion dug from the reserves, I am still relief by the fact that our government is at least doing something about the current crisis.

Let us look at things positively, good times never last and bad times never stay. whether or not we are directly affected by the current situation , we must be proactive about it. For those who are at risk of being retrenched, look up for alternatives, have a solid back up plan always. For those who are confident of keeping their jobs, have an alternative plan, to have that umbrella ready for rainy days to come.

It all boils down to planning ahead, for I assure you, we are going to meet with more and more of this kind of issues in future. For life is a cycle, if you are spared this time round, you might not be so lucky in future. As employees, we are all at mercy of our direct superiors and the market situation.

Make sure that you have at least 3 months emergency cash reserve. This has to be liquid and is stashed away in your savings. Also ensure that you have good coverage. By coverage I mean health insurance and personal insurance. Medical costs are not getting any cheaper and at times like this, a sound hospital and surgical plan (H&S) can be your savior in cutting costs in case you are hospitalised. For personal insurance, it is always good to have a comprehensive coverage that matches your current income. Incase of situations whereby you are terminally ill and unable to work during this times, you can rest assure that your family is taken care off and subsequently also if things get worst.

There are things in life that we tend to be ignorant of, or complacent of. During this times, there is no reason to continue to act as foolish. For when that storm hits us, it’s too late to regret.