Category: Money Matters

I came across an interesting old article called “10 Rules to Building Wealth.” I enjoyed the article and thought it made sense, so I’m presenting a summary of the article here:

1. Start early – The power of compounding interest is amazing. The earlier you start paying debt down and saving money, the better off you’ll be.
2. Use your EPF – If your employer offers a EPF matching program, you’re crazy not to take them up on it. Not only are the funds compounding tax-free, the matching program brings your returns higher than any reasonable investment out there.
3. Keep it Simple – If you have a full-time job outside of picking stocks, leave it to the experts and pick a proven mutual fund, or even better, simply pick a market index. .
4. Don’t Try to Beat the Market – It’s almost impossible for you to beat the market, and even most professionals have yet to do it over any significant period of time, so stick to basic mutual funds or market indexes.
5. Don’t Chase Trends – Your goal is to grow assets over the long-term, there is no sense in trying to time the market or chase trends.
6. Make Saving Automatic – Once you’ve found the debt solution for yourself and successfully paid off your high-interest debt, make saving automatic by setting up a plan or direct debit.
7. Go Heavy on Stocks – If you’re in it for the long-term (which is how you build wealth), go heavy on stocks, they’re above-average performers.
8. Hold Down Fees – Avoid mutual funds or asset management programs that charge high fees.
9. Ditch Credit Card Debt – Ideally, credit cards are to be used only for convenience. The high interest rates these cards charge can quickly eat into your returns or savings plans. Find your own debt solution and get out of credit card debt as soon as possible.
10. Defer Taxes – Buy and hold, avoid selling assets if you don’t need to, as this creates tax liability, when you could be deferring this liability and earning interest or returns.

Start saving now!

The saying “there’s no time like the present” is particularly meaningful when it comes to saving and investing. That’s because of the magic of compound interest, sometimes referred to as the ‘rule of 72’.

Save your next pay rise

When you receive a pay raise, think about saving the extra money you receive each fortnight. You can do this by reducing any non-deductible debt you might have, such as credit cards or your mortgage. Or you could make extra contributions to your super, or other forms of saving. You probably won’t even notice it’s gone, and you will be surprised how quickly this money can grow.

Keep track of your money

Keep receipts for all of your purchases during a week, then add them up. You’ll be surprised how much money you spend on smaller impulse items – money you could be investing instead!

Set goals

Choose your investment goals and a timeframe in which you will aim to reach that goal. Your timeframe will help you decide where to invest your money.

For example, for a short-term goal like an overseas holiday, you might choose a more conservative investment such as a managed fund or other cash based investments, so you can access your money at any time. For longer-term goals like retirement, you might look to invest in growth assets, such as shares, through your superannuation account.

Though we are often taught that debt is bad, even on this website, in some cases, it may actually make sense to retain a debt, especially if the alternative costs more. For example, it does not make sense to drain all of your financial resources paying your mortgage off, if you know that if anything goes wrong, you will incur high interest credit card debt.

In other cases, it simply isn’t feasible to pay cash for large purchases, like a home or college. In fact, in these situations, debt may actually be beneficial to your financial picture.

In the majority of cases, you will not have the cash to purchase your home outright. You have to carefully consider how much money you can afford to put down and also how much home you can comfortably pay for. Obviously, the more money that you put down upfront, the less you will pay in interest and for your home.

But before you rush to drain your cash reserves and put down every available cent to cut the interest payments on your mortgage, you will need to consider other financial issues. Since mortgage rates are typically a lot lower than interest rates on other debt, using all of your available cash towards purchasing your home is not always a wise decision.

Traditionally prospective homeowners put down a 20 percent down payment in order to get the best mortgage deals. However, in a booming housing market, prospective homeowners are wooed by low down payment and no down payment home loans. It is important to remember, though, that the less you put down the higher your monthly mortgage payment will be and he more you will pay in PMI.

So it makes sense to not pour all of your cash into a home, especially if you will end up with credit card or other personal debt, because the interest payments on mortgages tend to be lower than the interest payments on other debts. Plus, you can deduct the interest on your mortgage when you file your yearly taxes.

When it comes to paying for you child’s college education, it makes more financial sense to allow your children to borrow for college rather than to borrow against your retirement. In this case, your children have numerous financial resources available to pay for college, such as student loans and scholarships, often at discounted rates. However, when your retirement funds are gone, they are gone.

Also, your retirement funds are not considered when applying for financial aid for your child’s education. This is why using federal loan programs for your child’s education makes better financial sense than borrowing against your retirement.

Many people consider borrowing against the equity in their homes to pay for college. This is not recommended, because you risk losing your home if you run into financial difficulties.

It is always best, of course, to try to save for your child’s education. Then your child can borrow the portion that you cannot pay. Student loans have guaranteed low interest rates and no payments are due until after graduation, which a big plus when considering financing options for college.

Depending on the situation, sometimes debt makes sense financially. Debt such as mortgages and educational loans often cost less than other financial debt. In these cases, it may be wiser to borrow than to drain all of your financial resources. Becoming debt free is an admirable goal, but not at the cost of all of your resources.

When you are planning a budget, it is necessary to analyze how you are spending your money, so that you can see where you need to make adjustments in your spending habits. The first thing that you will need to do is take a look at the budget that you have created and figure out where you can cut expenses.

This is especially important if you are spending more than you earn. If you are in this position, you are not alone. As a matter of fact, statistics show that many families who bring in Rs. 5,00,000 or less each year are spending more than they earn. This data seems to back up the assertion that people are in the habit of spending more than they have, thereby creating debt and placing themselves in a precarious situation.

If you are in this situation, then it will definitely benefit you to construct a budget that helps you to minimize your spending immediately.

However, if you are not spending more than you earn, you may still want to evaluate how you are spending. By doing this, you are able to identify areas in which you may be overspending. For example, if your family is dining out every night, you might want to consider cooking at home more often.

When you are planning a budget, you should only include income that you are certain of receiving. This means that you should not include bonuses from your job or tax refunds as income. These things should be considered extras. When you receive this extra cash, it makes sense financially to save or invest this bonus income for the future.

When setting your financial goals using your budget, you should aim to spend only about 90 percent of your income. The remaining 10 percent of your income should be set aside for the financial objectives that you have relegated as the most important.

In order for your budget to be successful and to meet your financial goals, you need to track your expenses on an ongoing basis so that you can eliminate cash leaks. One of the simplest methods to track your expenses is to use some sort of personal financial software. Many computers these days include versions of basic financial software, such as Microsoft Money. By tracking your spending on an ongoing basis, you are able to maintain the spending levels that you have set as goals.

By tracking your expenses, you may also realize that some of the goals that you have set in accordance with your budget are not very realistic. If this is the case you will need to adjust your budget. It does not make sense to set financial goals that unattainable. You also should not set goals that are not very challenging.

Most likely you will make several revisions to your budget before you actually achieve one that is reasonable for your financial situation. Once you become used to using your budget to help you achieve your financial goals, you will find that managing your money is not as difficult as it may have first seemed.

Even with health insurance, all it takes is one major illness or injury to be stuck with overwhelming medical bills. When this happens, you might feel like there’s nothing you can do but pay the entire amount owed or file for bankruptcy. In most cases, however, there are several measures you can take to whittle down medical debts both big and small.

1. Check any medical bills you receive carefully. You should receive a detailed statement for any services or procedures you receive. Make sure that you have actually received what you’re being billed for. Did you receive each medication and service listed? Do the dates of service listed on the bill match up with your records? Are you being billed more than once for the same service or supply? The easiest way to check your bills for accuracy is to keep a record of what treatments your receiving and when you’re receiving them.

2. You’ll also need to check your insurance policy and make sure that the insurance is paying for what it’s supposed to. If they have denied payment for treatment or services that you think should be covered, ask for the matter to be reviewed.

3. Try to settle the debt for less than the amount owed by negotiating with providers. If you know in advance you’ll need treatment, negotiate beforehand. Offer to pay a discounted amount upfront, for example. This tact can work with emergency or unplanned treatment after the fact. If you simply can’t pay the whole amount, most providers would have something rather than nothing and will work with you.

4. Get help to pay the bills. There are programs available for people who can’t pay their medical bills. Ask your provider.

Of course you want to be able to pay for your child’s college education. Who doesn’t? It’s every parent’s dream, right? For those who can afford it, paying for college for the kids outright is a great thing. For most middle-class people however, the thought of paying the bill for four years of higher education or taking on more student loan debt can be downright nightmare-inducing.

Here are some things to remember when planning for your children’s college education:

1. Start setting aside money when they are young if you can, but it’s never too late to start.

2. Apply for every scholarship you can find. Start researching scholarships and involve your college-bound child in the process. As soon as your child is a junior in college, start looking for scholarships. Make it your child’s job to apply for any scholarship you can find, no matter how big or how small. Those small scholarships can add up quickly!

3. Don’t sacrifice your own future to pay for college. Don’t forego funding your own retirement account in order to pay for your child’s college. Think of it this way. Your child can get loans to pay for college and then work for years to pay them off, but you can’t get a loan for retirement and work to pay it off.