7 ways to manage debts wisely

SMATRT MONEY SERIES
WE cannot just ignore or forget about our debt as it will never disappear for as long as it remains unpaid.

Therefore, the path towards a debt-free life would be to manage our debts wisely.

Below are seven highly effective ways of debt management:

- 1. Control the use of credit cards

The golden rule in using credit cards: "Treat them like cash."

If you don't have the cash now to purchase something, don't even think about taking the credit card out of your wallet!

Using the credit card in such circumstances is essentially spending future income which may not be payable in full later. And this is the start of getting ourselves straight into the debt-trap. If you don't trust yourself, then don't bother having one or if you already have a few, cut them up before they cut into your bank account!

- 2. Know where your money is flowing

If you can't track it, you can't manage it. Develop a habit of recording all your expenses for the month. You may write it down in the "555 Pocket Book" or the personal digital assistant (PDA) for the tech-savvy people. It is also a good practice to keep receipts. Add up your expenses and assess if you have overspent, by comparing it to your income.

Analyse those items that are taking the most money out of your pocket and see if you can do anything about them. You'd be surprised how much you're spending on those cigarettes, movies and "branded coffee". The main thing is to never spend more than you make.

- 3. Minimise the "nice-to-haves"

One of the reasons people fall into the debt-trap is that they don't know how to distinguish between the "need-to-haves" and "nice-to-haves". Food, clothing, home, life and health insurance and the likes are "need-to-haves".

You don't need a pack of cigarettes a day. You don't need a RM10 cup of coffee a day. You don't need to wear branded clothes all the time. You may not even need satellite TV or that 42" Plasma/LCD TV.

Go through your spending record and identify items that can be cut. Sacrifices have to be made and the larger the debt or the smaller the income, the bigger the sacrifice.

- 4. Create a budget

No country runs without a budget; neither should you. One of the most effective ways of managing our debts wisely is through proper budgeting. A budget gives us a "preview" of our financial position so that we can roughly estimate whether we would have a surplus or deficit.

If our budget already shows a deficit, drastic action has to be taken - you could either increase your income or cut out the "nice-to-haves".

In any case, a Budget is actually a Spending Plan that allows you to spend on areas that matter the most to you while ensuring that you don't overspend.

- 5. Look for cheaper alternatives

Revisit your monthly budget and see if you can use any other cheaper alternatives for the necessary items. For example, toothpaste - can we switch to brands which give better value for money? Check its net weight and decide on purchasing the brand that gives you the same value for a lower price. Sometimes, cheaper may not always be better. What we should be looking out for is value-for-money.

Is it cheaper and faster to take the public transport instead of driving? Is it better to shop for Christmas gifts much earlier, like during the Mega Sale instead of waiting till year-end?

Think of creative ways of cutting your expenses and yet maintaining your quality of life. This can be fun, too. Get your family involved by asking them to suggest and reward the person with the best idea.

- 6. Stay away from temptations

As the saying goes, "Out of Sight, Out of Mind". Many a times when we go shopping for our groceries, we end up buying things that are not on our shopping list.

This phenomenon is worse when we have kids around us. They tend to throw in a candy or a toy into the shopping cart and before we know it, we have spent more than we budgeted for.

Parents are partly to be blamed as they, too, can be tempted to buy things that they do not need. Unable to resist the magnetic pull of products on discount, ice-cream, potato chips and that pair of sandals on offer get "drawn" into their shopping cart. And we can always justify our actions by rationalising that "It's on offer!" or "I'll not buy any more sandals for the rest of the year!" but... we'd know better.

So, stick to your shopping list and keep everything else out of sight.

- 7. Remember to reward yourself

"All work and no play makes Jack a dull boy," so goes the saying. Managing our debt and getting out of it is hard but it doesn't have to be painful.

Once in a while, you should reward yourself by buying yourself a well-deserved gift or treating yourself to a good hearty meal. By rewarding ourselves, we'd feel motivated to stay on track.

You can actually organise a "pot luck"at your place instead of going out to eat and amaze your friends with your culinary expertise. Have picnics with your family and think of creative games or activities that you can do as a family. Make this whole exercise as fun as possible and after a while, you will come to realise that a lot of the best things in life are free.

There you have it - the seven highly effective ways of managing your debts wisely. We have to bear in mind that if we do not manage our debts wisely, they will manage us in return and it can be painful. The road to managing your debt wisely would be a smoother one if we try not to think of all these as a sacrifice, but as delayed gratification.

Remember: "Our actions today can determine our destiny tomorrow."

Source : AKPK
Related post:
Secrets to achieving a loan-free life
Heed the warning signs
No problem$ if you plan well
Shop smart for the festivals
Resolutions to stay financially fit
Smart ways to spend your bonus
Spend smart during holidays

Secrets to achieving a loan-free life

SMART MONEY SERIES:
We looked at the burden of having too much debt and suggested some smart ways of managing them last week.

This week, we will learn how to manage loans, especially home mortgage and car loans, which probably form the bulk of our loans. Ultimately, we want to be able to live in peace and to be truly free from debt stress.

Should you take a loan?

Now, most of you may think the question is absurd and may be saying to yourselves: “What, you expect me to buy my house and my car with cash?”

But before you flip the page, let’s try to understand some basic principles about taking on a loan.

First of all, we have to be aware that “the borrower is the slave of the lender". Wow, are you aware of this?

When we borrow, we are at the mercy of the lender and we would have to work very hard throughout our lives just to settle our debts. We would have to sacrifice precious time with our loved ones and forego pursuing our own hobbies because we have to put in longer hours at work.

Why? Because we have loan commitments. In essence, most of us, irrespective of our professions, are working for the banks.

Secondly, we should “never go into debt for anything that you don’t expect to appreciate in value". This is a good principle to follow the next time you intend to take a loan.

Take, for example, your car. There are so many young people who can’t wait to get behind the wheel, and not just any wheel. Their cars must be trendy, stylish and sporty.

It’s truly amazing how a fresh graduate could afford a brand new car, but wait... you don’t even need to put a down payment these days! Just vroom the car out of the showroom and pay later, goes the marketing pitch.

Do you know that the value of the car drops by 10-20 per cent the moment it leaves the showroom?

If you really “need” to get a car, buy it with cash. Otherwise, there’s always the LRT, buses or car-pooling (This can help reduce traffic jams, as well.)

Having said that, there may be times when taking a hire-purchase to finance your much needed car is warranted.

There are manufacturers who may want to clear their existing stock and offer very attractive financing schemes.

You would have to compare the cost of borrowing with what you can earn from your savings/investments.

However, hire-purchase rates are never the same as bank interest rates. A good rule of thumb would be to double-up what you’re offered as your financing charge.

So, remember this: for hire-purchase rates, what you see is not what you pay!

Do you own your home?

Now, let’s take a look at our dream home. It’s probably the single largest loan for most of us. We have to consider carefully before committing to one.

As mentioned last week, not many of us are able to buy a house outright with cash.

Instead, we apply the 90/10 formula — 90 per cent loan, with 10 per cent down payment for the purchase of our home.

Unless you’ve bought your home outright with cash, you can’t really say that you own your home. You may have a home but not own it, at least not yet.

Technically, the bank owns your home until you’ve fully settled all your loan obligations. Only then, the legal ownership of the house reverts back to you.

To purchase a house, it’s seldom feasible to buy it outright with cash and it’s quite all right to take a loan.

This is because a house will, in most cases, appreciate in value over time and is generally a good hedge against inflation.

However, you would have to ensure that your monthly instalments are not too burdensome to the point that it affects more important areas of your life.

It would be meaningless to be living in your dream home but having to constantly worry about how you’re going to make the next monthly instalment.

Remember, our ultimate goal is to be able to live in peace and be free from debt-stress.

The sooner the better...

The sooner we are able to pay off our mortgage, the faster we will be able to live in peace and be free from debt-stress.

In the process, we will be able to save thousands of ringgit in interest charges (which you can use to buy your car!)

So, how can we pay off our loans faster and own our homes earlier? Let’s reveal the secret...

Until recently, there were only term loans, and if you were committed to a 30-year loan, you’ll take exactly 30 years to pay it off.

By that time, your house would have probably doubled in value (as would your age).

You would be proud that you made a wise investment decision 30 years ago, but upon further analysis, you would realise that you have paid as much interest, if not more, than your original loan amount.

In short, the value of your house must appreciate that much to make up for all those interest charges.

So, don’t go popping the champagne just yet, unless you bought your property for RM50,000 at that time, and it is worth half a million today.

The trick to a debt-free life is to pay off your loans as soon as possible to save on interest charges.

Nowadays, banks offer various loan packages with various features and flexibilities.

You should carefully pick one which suits your requirement and pay close attention to other terms and conditions, like penalties and so on.

A good package may be one that allows you to pay any amount at any time and at the most competitive rates, with the least restrictions.

Set a goal of a desired time-frame by which you want to fully settle your mortgage, and commit yourself to that goal.

Dump your bonus into it along with all your “angpows” or pay more than the required amount every month.

In no time at all, you can say to yourself, “I own my home.” What a great feeling that’d be!

Debt Free, Stress Free!
Source : AKPK
Related post:
Heed the warning signs
No problem$ if you plan well
Shop smart for the festivals
Resolutions to stay financially fit
Smart ways to spend your bonus
Spend smart during holidays

Heed the warning signs

SMART MONEY SERIES:
In managing finances, things may not go as well as you have planned. So it is important that we should look out for warning signs that should trigger us to seek help.

IN our last article, we learned how to manage our cash flow effectively. However, there may be times when things don't go as well as we've planned. It's important that we look out for warning signs if we need help in managing our finances, particularly our debts.

Below are some indicators that should trigger us to seek help in managing our finances:

Frequent arguments over money

If you are arguing with your spouse frequently over money, then it's a sure sign that you are facing some financial difficulties. If this financial problem is not addressed promptly, it may lead to other marital problems and could result in a divorce.

High debt-to-income ratio

As a rule of thumb, we should limit all our debt obligations to about one-third of our take-home income (generally defined as gross income less EPF, tax and Socso deductions).

If our take-home pay is RM3,000 per month, then our housing plus car loan repayments (including other loans, if any) should not exceed RM1,000 per month. It's not surprising to find many families having a Debt-to-Income Ratio of more than 50 per cent. This would mean that they'd have less than half of their income left for basic living and child expenses.

What about those occasional holidays, gifts, outside dining and entertainment expenditures?

Most likely, they'd be forced into taking on more debt through credit card or personal loans. This will result in a vicious cycle and will only get us deeper and deeper into the debt trap!

Maxing out on credit limits

As a result of the above, that is, when an increasing percentage of our income is used to pay off debts, we would rely on credit cards.

If you notice that your credit balance is increasing each month, this would be another warning signal.

If left unchecked, you'd most likely hit the limit very soon and then start maxing out on the second and third card. Before you know it, you find yourself drowning in a pool of debt.

That's when your "good friend", Ah Long, will throw you a "float" to "save" you, not realising that this "float" of theirs is filled with rocks that will weigh you deeper down into the drowning pool of debt.

Paying the minimum only

Another tell-tale sign is when you start paying only the minimum of five per cent on your credit card balances. The balance would normally attract a finance charge of 1.5 per cent per month or 18 per cent per annum.

For example, if you have an outstanding balance of RM1,000 and decided to only pay the minimum of five per cent or RM50, whichever is greater, the amount of interest charged to you in the first month is about RM14.25.

You might not think of this as a lot but do you realise that if you continue this payment pattern, it'll take two years for you to fully settle your initial balance of RM1,000. The total interest incurred would amount to about RM173.

Imagine if the amount is RM10,000 -- it will take you more than seven years to repay and your total interest incurred would come up to RM3,740.

Of course, these numbers assume that you do not add-on to your present balance, but how can you be sure it will not happen? Yes... only if you cut your cards immediately!

Always late in settling bills

We are so used to the saying, "Better Late than Never!" However, when it comes to paying our bills, this is not a good sign!

Of course, we do not need to settle our bills immediately when we receive them but they should be settled by their due dates. If we are chronically late in paying our bills up to a point where late payment penalties are imposed, we need to re-examine our finances.

We don't want to end up in a situation where our electricity and water supply and telephone lines are cut or our cars are repossessed.

So, if we are a little behind most of the time, it's time to get behind the numbers!

Lots of IOUs

If we realise that more and more of our relatives and friends are avoiding us, most likely it's not because we've not bathed for a week!

Very likely, we have been borrowing money from them and have stacks of "I Owe yoUs" in our drawer!

Another early warning sign is when we tend to borrow to purchase things that we used to pay for in cash. This is an unhealthy sign and we not only lose control over our money but also our friends and relatives.

Sleepless nights

This is also known as the "Sleep Test". Can you sleep well at night or are you having sleepless nights thinking about your money problems?

In fact, the more you think about your money problems, the more money problems you would encounter.

Your mind attracts the things you think about most and we should focus on the solutions rather than the problems. And one way is to seek financial counselling and get started on a well-designed debt management programme.

This is not something that we can "sleep over" and hope that every thing will be fine tomorrow. We have to take action now!

If you do encounter any one or more of these warning signs, you should seek immediate help in getting your financial fitness back in shape.

Source : AKPK
Related post:
Shop smart for the festivals
Resolutions to stay financially fit
Smart ways to spend your bonus
Spend smart during holidays
No problem$ if you plan well

No problem$ if you plan well

SMART MONEY SERIES:
FAILING to plan is as good as planning to fail. This has been repeated so often that it has become a cliche.

But it is to our benefit, our financial health indeed, to pay heed to this saying.As much as we hate to admit it, planning is an integral part of our lives, not just in our finances but in every aspect of our lives.

Therefore, it's better that we start planning early rather than regret later.

What is Financial Planning?

"In general usage, a Financial Plan can be a budget, a plan for spending and saving future income," says a Wikipedia article on financial planning.

"This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings."

"A financial plan can also be an investment plan, which allocates savings to various assets or projects expected to produce future income, such as a new business or product line, shares in an existing business, or real estate."

In very simple terms, Financial Planning is really about:

- Knowing where you are now
- Where do you want to go, and
- How to get there.

It's almost like planning for a holiday with your family. Take for example that you are currently residing in Kuala Lumpur and planning to take your family for a Cuti-Cuti Malaysia holiday.

You would first have to decide where to go. Let's plan for Langkawi during the next school holiday.

Then, you have to decide on how to get there. You may drive and then take a ferry, go by bus or train, fly or even take a cruise.

There are various means of getting to your destination and the choice will depend on a few factors - budget, time, convenience and practicality.

However, you may need to think of a contingency plan, just in case something happens along the way, like your car or the bus breaks down, the flight's delayed or even a road detour.

Similarly, in Financial Planning, we need to know what are our current resources, our financial goals and how to achieve them in the most effective and efficient manner.

Let's take a look at some reasons why Financial Planning is important to everyone, not only to the rich but the not-so-rich alike.

Why is it Important?

Money may not be the most important thing in life. Nevertheless, it is still important.

Every single thing revolves around money, from the time we open our eyes till the time we go to bed (and even while we are asleep).

If only money grows on trees, then financial planning would not be such a headache, would it?

Financial Planning is a systematic way of organising our financial affairs in the most effective and efficient manner in order to achieve our life goals.

And success is defined as the attainment of one's goals. In short, it is truly a key to success.

Sense of Direction in Life

Dr Stephen R. Covey gave an analogy in his book, The 7 Habits of Highly Effective People.

A lot of us, he said, get caught up in our "busyness" of life, to work harder and harder at climbing the ladder of success only to discover, upon reaching the top rung that the ladder is leaning against the wrong wall.

Through proper Financial Planning, we can then look at what is more important and meaningful to us. Then we can organise our finances and our lives around those things so that we do not end up on the wrong wall.

Understanding trade-offs/sacrifices

Though our wants are infinite, unfortunately, our resources are finite. Financial Planning would help us realise and understand that in life, there is always trade-offs or sacrifices to be made.

By changing our good old car for the newest model or our "not-so-trendy" handphones to the coolest model in town, we would have affected our retirement nest egg without realising it.

If we really want to achieve our important goals, we need to exercise delayed gratification and able to distinguish between needs and wants.

Coping easier with changes in life

The only constant in life is change and learning to cope with changes early in life would be a plus point.

When we are still single and carefree, the world is for our taking and we could practically live like there's no tomorrow.

However, when we settle down and start to build our family, our world begins to change dramatically.

It could also be the case of a person losing his job, going through a divorce, losing the breadwinner of the family or being diagnosed with critical illness.

We are better prepared to face these challenges in life if we have done proper Financial Planning.

Creating wealth

Ah, don't we just love this! Almost everybody wants to be wealthy but few have a game plan towards achieving it.

Wealth creation is not a sprint but a marathon, for it takes time, discipline and a lot of financial stamina.

With the help of a qualified investment adviser, we can select the most appropriate investments that suit our risk appetite to achieve our desired goals.

By adopting various investment strategies and proper asset allocation, slowly but surely, we will cross the finishing line of financial success.

Enriching our Lives

Financial Planning does not merely enrich us financially but also physically, emotionally and mentally.

Without the financial stress, we will be able to focus on other important aspects of our lives like our health, relationship with our family and friends and devoting our time to other charitable causes. We will be able to live a fuller life and in turn, enrich other people's lives.

Security

One of the important goals in Financial Planning is to get a deep sense of security in our lives.

We want to feel assured that no matter what happens, our goals can be realised, either for ourselves or our loved ones.

Through proper risk management and insurance planning, we will be able to provide our loved ones and ourselves with total peace of mind while we go about living our lives and building our wealth.

Success

Yes! Isn't this what most of us aspire - to be successful in life? The Oxford dictionary defines success as "the attainment of one's goal".

That's exactly what Financial Planning aims to achieve - helping us realise our life goals. Our goal should not be just having a lot of money in our bank accounts but rather what can money do for us.

Money can take care of our health through better quality food and health supplements. It can provide our children with quality education.

It enables us to spend more quality time with our family and friends. It also helps expand our horizons by allowing us to explore and learn new things through our travels.

Last, but not least, it allows us to give back to the society through sharing of our knowledge, resources and time with the less fortunate.

Therefore, true success is not merely about how much we have (quantity) but the quality of life that we live!

In the final analysis, Financial Planning is really a means to an end. You have to ask yourself whether this is the kind of "success" that you want.

Source : AKPK
Related post:
Shop smart for the festivals
Resolutions to stay financially fit
Smart ways to spend your bonus
Spend smart during holidays

Shop smart for the festivals

SMART MONEY SERIES:

The numerous festive seasons celebrated in Malaysia can put a dent in the pocket if one is not ready to stick to a budget. Here are some tips on how one can keep the expenditure in check by making wise decisions.

OH dear, it is that time of the year again. Unlike others, Malaysians enjoy numerous festive seasons; hence seasonal expenditure may occur too many times within the year!

Again, the usual advice: always plan ahead to protect your pocket.

There are many smart spending and saving tips you could consider before you find yourself heavily in debt just to pay off that seasonal expense.

Smart Tip 1 : Include festive seasons in your annual budget

I’m sure by now (since this is the fifth article in the series) you would already have started preparing a budget for your family needs.

Your annual budget would ideally include all relevant festive celebration expenses: groceries for the special meal, new clothes for the family, gifts for relatives, charitable donations, travel.

So, if you have already budgeted to have an open house and invite 300 people, your expenditure would not go out of control.

Smart Tip 2 : Be a smart grocery shopper

You know you’re going to prepare a fancy meal which will mean incurring more than the usual grocery bill.

Consider the following suggestions:
Have a shopping list based on the menu so that you won’t have to incur last-minute unplanned expense;
Buy large quantities of items you use a lot of;

Shop for items at the pasar malam or bazaars, where you might be able to negotiate, or hypermarkets ideal for bulk buying.

Smart Tip 3 : Buy off season

You don’t have to buy your family’s new clothes and gifts just two weeks before the festive occasion. There are good sales and bargains to be taken advantage of during off-season shopping.

It also saves you from the pressure of getting everything ready within a limited time; with no time pressure, you are able to better compare prices and get the best value.

Smart Tip 4 : Be careful with your credit card

Without a doubt, swiping the plastic card makes shopping fun and seemingly affordable. After all, you only have to worry about the bill the following month.

However, stop before you swipe. Do not spend money that you don’t have. If you can’t pay for it in the next couple of months, don’t charge it!

To use credit cards wisely, have a self check mechanism – record every purchase via the card and have a running tally so that you don’t go over your planned limit.

Actually, if you feel you may not be able to control yourself, a good precaution would be to just bring cash when you go out shopping – leave that plastic card at home.

Smart Tip 5 : Buy only things you need

Do you fall into this category? – “Too many of us are spending money we haven’t earned, to buy things we don’t need, to impress people we don’t like.”

Ask yourself if the item you are about to purchase is a want or a need.

For example, do you really need new curtains for ALL the windows in your home just to celebrate the festive season? Does your family really need the additional channels on your pay TV to watch those new Chinese New Year programmes? And do really need three new matching handbags and shoes to go with your new outfit.
Before you embark on your shopping for the festive season, make a shopping list and be disciplined enough to stick to it!

Smart Tip 6 : Save on transportation costs

If you’re travelling by air, festive season tickets are usually quite expensive.

So PLAN your festive destination early so that you can get the best travel deals.

In Malaysia, the first inclination is to check out budget carriers, and if the budget carriers don’t fly the route, you can always turn to travel fairs.

If your destination is within driving distance, driving would be a more economical option.

If you’re going to “balik kampung” with other family members, for instance, you could save even more by car-pooling.

Of course, in Malaysia, this would also be “peak accident” season, so you need to drive carefully and ensure that your car has been checked for road safety worthiness.

Smart Tip 7 : Be charitable economically

No matter what festive season you celebrate, it is generally the time to be giving and generous.

If you are really strapped for cash, have you considered making homemade gifts? Sometimes the time, effort and care that you put in to create a gift for a loved one is more valuable than an expensively purchased item.

Your children may have creative ideas and may assist you – e.g. making gift wrappers out of recycled cloth or coloured paper.

Perhaps, that additional matching handbag and shoes (in Smart Tip 5) you frivolously bought could be converted into a gift for a loved one. After all, being generous is synonymous with being selfless.

So, before you let your celebration mood free on a limitless shopping spree, be smart and consider the tips above.

If you’re always on top of your finances, no matter what joyous time of the year it is, you can enjoy the celebrations abundantly with peace of mind.

Sources : AKPK
Related post:

Resolutions to stay financially fit
Smart ways to spend your bonus
Spend smart during holidays

Resolutions to stay financially fit

SMART MONEY SERIES:
While you are making your New Year resolutions to lose weight, quit smoking and promote world peace, don’t forget that all-important one that will put you on the road to financially freedom.

COME end of the year, you set yourself resolutions so that you recommit to doing things that are important to you. Then as the New Year's Eve party and fireworks launch you into the New Year, you say to yourself “What a great year this is going to be!” all geared up and keen to implement those good intentions.

As the Jan 1 holiday eases you into your plan for improvement, you're saying to yourself “I'll start those resolutions tomorrow, after all today is a public holiday”.

Ok, so it may take a while to take off, but will you still be acting on them come February? Eventually you resign yourself to just reset all over again for next year. Familiar with this scenario?

So how do you keep your resolutions? Sometimes, the goals you set are so high, you never reach them, so you slip back into your old ways. It would be much easier on yourself if you actually set realistic, reachable goals.

Get in shape, quit smoking, do charity work, promote world peace – they are all admirable resolutions, indeed. However, don't leave out an important one: Get yourself financially fit.

Resolve to set those financial goals. With written goals, your road to financial fitness will be less bumpy.
Indeed you would have heard this saying: “Failure to plan is a plan for failure”. Whether you want to take your family on a holiday, buy a house in three years, save for the haj or simply increase your savings, the important thing is that you plan.

With these goals then, you can make some solid, reachable financial resolutions for the coming year, some of which are suggested below:

Resolve to create a budget

A written monthly budget with details of cash inflow and expected outflow is highly recommended. You will be able to see where your important payments are and where unnecessary excessive spending can be cut down.
If you tabulate it monthly, you could extend it to analyse your cashflow for the year, the foundation for you to reach the goals that you wrote earlier.

Resolve to clear off credit card debts (and/or your highest-rate liabilities). First set a timeframe, e.g. six months to fully settle your outstanding balance; then set the monthly payment required to get there. If you can't fully settle the balance, you could increase your monthly repayments by a fixed amount, hence reducing the repayment tenor.
And while you’re on the clearing debt mode, you could also resolve to be a better credit card user and begin to control the amount charged on your plastic card!

Resolve to update your insurance

It is never too late (in fact, never early enough) for you to take up life insurance to protect yourself and your loved ones from unforeseen loss.

If you already have one, hats off to you for having covered a crucial aspect of financial planning. Once a year, reassess and make sure that you are protected from loss of income to your family (life insurance), medical trauma (health insurance) and damage to your most important assets (home contents, MRTA – mortgage reducing term assurance). Better safe than sorry!

Resolve to pay yourself first every month. I’m sure you know you’re supposed to contribute the maximum you can to your retirement account. The easiest way is to start small, say 10% of your monthly income, and work your way up.

Remember to do this beforepaying off your bills and expenses for the month. And for those of you who are ahead and are already doing this, consider increasing the percentage of your savings. Perhaps increase your EPF contribution from the minimum 11% to 12% to match the minimum 12% your employer is already contributing for you.

Resolve to set an emergency fund

If you’re not prepared for a rainy day, something as small as repairing your leaking roof can start a downhill spiral into debt. Ideally, you should save at least three to six months’ worth of expenses in an easy-to-access savings account, preferably a high-yielding one. This may sound like a lot of money for you to put aside but small amounts set aside monthly will get you there.

Resolve to save on your utility bills

We may only need to change our daily habits for this one. For instance, switch off the fan/air-conditioning unit/lights when you leave the room; don’t leave the water running unnecessarily (e.g. while you’re brushing your teeth); don’t have the TV switched on 24 hours even when nobody is watching; use energy-saving light bulbs (even though they are costly, they last much longer than the regular light bulbs). This resolution is a lot easier than counting calories!

Resolve to write or update your will

This is always the step that is least taken as it may bring upon morbid thoughts. However, we mere mortals know the inevitable and should plan for the benefit of those we shall leave behind.

Wills are not just for the rich; no matter how much assets and money you have, it is a financial responsibility for you to ensure that they are distributed to designated beneficiaries to avoid dispute. As for Muslims, even with the Quranic distribution (faraid), there are other factors for you to consider, for example, hibah (gifting), the one-third of your estate that you are able to distribute outside your fixed heirs. Also, if your demise should happen while your children are minors, you will be able to appoint a guardian for them.

In summary, by setting realistic goals and consistently working towards them, you can avoid being among the 25% of people who abandon their goals within the first 15 weeks of the new year.

Sources: AKPK
Related post:
Smart ways to spend your bonus
Spend smart during holidays

Smart ways to spend your bonus

SMART MONEY SERIES:

With bonus money in hand, many will naturally think of splurging. But before they actually do this, perhaps they need to reconsider a few things.
PICTURE this: you’re expecting your annual bonus next month, and it’s worth three months’ salary! You’ve been waiting for this moment; you’ve worked hard all year and the star performance you have shown at work is now paying off.

What better way to reward yourself than to just spend all that extra cash!

Whoa! Don’t give in to this temptation. Take a step back and reconsider.

Is this bonus really different from your regular income that you can just treat it as unexpected, disposable money?

There is an old saying that goes like this: “Money suddenly gained often drains away, while money earned gradually stays with you.”

So, before you spend your hardearned bonus, here are a few things to consider.

1. Revisit your financial goals
If your bonus is so huge it dwarfs your regular salary, it could be irresistible to change everything around you. But before you zip around in a new Proton Persona, think again. The impulse to change the quality of your lifestyle is a short-term frivolity.

It is best to look at the overall picture. What are your financial goals? Consider your immediate needs and the future. Perhaps your immediate need is to clear debts that have been weighing you down, or settle some overdue home repairs, and then invest the rest.

2. Prioritise your debts
An average person would certainly have debts – hence, addressing this is your top priority!

i) It is advisable to clear your tax on your gross bonus (if this hasn’t been deducted at source); you don’t want to end up with the tax amount as a future debt!

ii) Then you need to prioritise the debt with the highest interest rates. One obvious example would be your credit card — that 18% per annum interest does not simply translate to 1.5% per month. There is a cumulative effect on overdue balances that is always carried forward, and you could lose hundreds on revolving high credit card balances. Next, pay off any other costly personal loans.

iii) You could also reduce your mortgage. You shouldn’t underestimate the benefits of overpaying your mortgage. For example, if you pay RM5,000 off on a 20-year RM100,000 mortgage in the fourth year, you will save RM10,700 on the total owed, reducing almost two years off the repayment period.

3. Park an emergency fund
Once your debts are cleared, it is recommended to set up an emergency fund equivalent to three to six months of your current income for emergencies.

4. Treat yourself and your family
At this point, it wouldn’t hurt to take a reasonable sum to be a little bit frivolous, perhaps to take your family on that long overdue holiday. After all, you did work hard for this reward… but only after taking care of your important matters above.

5. Invest the rest
Now that debts are out of the way, please don’t think you’re on the road to financial freedom! All you have done so far is the responsible thing – addressing your priorities. Consider how much of the bonus is still available. If you have a comfortable lump sum, this is a good time to get your bearings before spending it all.

While you’re considering (this may take a few months), it might be worth parking the money where capital is preserved while earning steady income. For instance, you could earn 3% to 4% per annum on money market funds, where your money can remain fairly liquid while “working” for you.
Below are some investing options for you to consider.

a) Protect your life and your family:
Use life insurance to protect the financial well being of your family, if something should happen to you. There is a personal tax relief of RM3,000 for insurance premiums for education or medical benefits, and a RM6,000 relief for life insurance premiums to be taken advantage of. You should also compare its long-term investment potential with other investment opportunities.

b) Kick-start your savings or begin a good investing habit:
Whether you want to retire early, save for your children’s education or put aside some funds to perform the haj, this is the time to pump up your savings or investment funds. There are many investment tools to park where your funds can just grow and work for you e.g. unit trust funds or ASN, bank assurance or savings products, or real estate.

You could jump-start an investment portfolio (seek professional advice if this is unfamiliar territory) and then continue with regular savings from then on. Dollar cost averaging, where you invest monthly at a constant rate, is always advantageous over the long-term as you will balance out the ups and downs in the market.

c) Invest a lump sum:
There is no dispute that real estate is where real investment is, as vouched by Donald Trump and Robert Kiyosaki. If you're happy to put aside the cash out of reach for, say, five years, assuming you already have a healthy cash reserve, you might want to consider investing in property.

Alternatively, you can invest in equities or a well-managed portfolio of diversified stocks with the help of a professional investment adviser. Consider this, investing RM5,000 today at age 40 will give you RM20,300 in 20 years' time, assuming a 7% per annum growth rate.

At the end of the day, do consider your options carefully. Whether the difference your bonus brings is life-enhancing or not depends on your circumstances, the size of your bonus and how you react to the sudden influx of money. A rich man is one with knowledge, happiness and health.

Sources: AKPK
Related post : Spend smart during holidays

Spend smart during holidays

SMART MONEY SERIES:

When going for holidays, whether at home or abroad, it pays to plan ahead so that you don't end up spending unnecessarily.
LOOKING forward to holidays? Aren't we all. To have a decent break from the daily routine (not to mention work pressure!) is just heavenly, even if it is temporary.

Hopefully, the laptop doesn't have to come along!

Before you take off to your dream holiday, have you planned ahead? Sure, you plan to do some sightseeing, relaxing, sport, dining and shopping.

More importantly, it is advisable to plan your spending. Before you overindulge on your holiday, remember, you will have to come back to reality and pay off the “goodies” bill.

Here are some tips to be SMART about holiday spending:

1. Have a holiday budget
A holiday budget should already be part of your annual budget. This is advisable so that you don't spend two months' salary on just your holiday and starve for the rest of the year. Your best guide is reviewing your last holiday expenses. If you've lost the records, do the next best thing – estimate. List out items you're most likely to spend on during the holiday - travel, accommodation, food, sightseeing, and, of course, shopping.

2. Plan your shopping
Whether you realise this or not, when you're travelling out of town or overseas, everything you see on retail is a “must have” – with justifications such as “you won't find this back home” (really?) or “it's definitely a lot cheaper here than back home”. Controlling your whims during these worry-less times takes a lot of willpower. What helps is having a list of things you intend to buy so that you don't go overboard. If you already know what you're looking for you can do some research, compare prices and get your items at the best bargains. Without any planning, you may end up buying an additional suitcase just to fit those new purchases. And, oops? end up paying for excess baggage as well!

3. Use your credit card wisely
It's so convenient to just swipe away and worry about the bill later. Beware! Your credit card is usually the source of major debt problems. To use it wisely, have a self-check mechanism – record every purchase via the card and have a running tally so that you don't go over your planned limit. When you return and are refreshed from Happyland, don't procrastinate in paying off your debt. If you can't settle the debt early, you could strategise to have them all paid off within, say, three months. If you can't seem to control your swiping, resort to spending in good-old cash.

4. Teach your children the value of money
This is probably a tough one for most parents, but you must agree that a substantial proportion of cash outflow is usually to please your children's unwavering demands, and you do want to keep them happy while you're on holiday. Hence, if your children understand why you can only spend X amount on toys, you'll ease any disappointment.

5. Plan your gifts
It would be very generous of you, indeed, to bring back souvenirs for friends and family. However, make sure you're not buying under pressure. Set realistic expectations. There is no need to prove your success to anyone: all you're really doing is having a well-deserved break – you didn't strike gold, you know! You could make a list of gift recipients e.g. loved ones, close friends. Jot down gift ideas and the estimated amount you wish to spend for each of them. Knowing what and how much would make you less prone to impulse shopping.

6. Plan holidays ahead
A post mortem of your spending on return from your vacation is critical. Where did you overspend and why? So you overspent on the gifts - perhaps your budget for gifts need to be increased next time, or perhaps you just need to spend less on gifts. Your office colleagues would probably be just as happy toshare duty-free chocolates instead of T-shirts. It’s the thought that counts!

With early research, you can be sure to catch the best deals for the next holiday season. Procrastinators will lose out on bargain air fair prices and/or room availability during hotel promotions. Once your next holiday is budgeted for, you can start saving early.

7. Future cash flow
Saving money and minding your spending shouldn't just be a priority around the holidays. It should be an every day habit, but take care of the fundamentals first – paying off credit card balances or debts and saving for education or your retirement. It is also recommended to have an emergency fund worth three to six months' living expenses in a cash account, in case of that rainy day.

There you have it – seven habits of a highly-effective holidaymaker that you can adopt immediately. You can now go on that holiday with peace of mind and ensure that you won't spend money you don't have.

Before you plan the next holiday, here's another self-check: are you still paying off last holiday's bills?

You have been warned.

Source: AKPK

Asia's Changing Markets

The Asian fruit-and-vegetable market is healthy and growing.

In Asia, imported red globe grapes are winning over Asian consumers; while in China, California Table Grapes and Washington Apples are becoming widely-recognized brands. These signs hint of a growing Asian market that is transforming in size, and moving increasingly from traditional spheres into modern retail facilities. While price remains king, there is more buying power for counter-seasonal produce and greater variety. In fact, taste, quality, safety and packaging are all playing major factors in attracting consumers. (Special report in Asia Food Journal Jan/Feb 08 )

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Asia Food Journal Achives issues

Market Outlook 2008

What does 2008 hold for businesses involved in food science, research and development?

Will it be a runaway year filled with high expectations and even higher earnings? A year filled with expansions in terms of markets, product innovations and acquisitions? Or, a so-so year that’s best gotten over with quickly?

Here are some of the comments from various leaders in different segments of the industry on what they think the New Year will bring.

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Food Industry Archive issues