August 27, 2009

The Financial Review

Posted in 4 Steps to Financial Freedom at 3:18 am by kimsan23

It’s been almost 2 years since I’ve started trying to make my first million.  It’s been a tough journey and it’s not getting any easier!  So far I am at 40% of my goal.  I had originally planned to be at at least 60%, but my journey took lots of twists and turns –so here we are.

Right now, my monetary assets are divided into 5 accounts –  only 2 of which have my permanent savings.  The others are for car payments, car maintenance and other miscellaneous expenses.

One thing I realized in the course of my mission is that one needs to review their plans every now and then.  I mean, goals adjust according to need.  Originally, I thought I’d start buying a house by 2010, well at the rate things are going, it looks like I’ll have to push back another 2 years.  I’m a bit disappointed but I guess this is still how the natural course of things goes.

Like any business, making or saving money must be examined with utmost detail and precision.  Here is my personal assessment of how I should have (and will do, moving forward) monitored my goal.

1. Revisit your goals to determine feasibility every 6 months. — I didn’t do anything like that till today!  I’m sure it will be useful in the sense that you keep everything real.

2. Make a list of your monetary assets and determine what could be reassigned to other functions depending on immediate need.  Try not to touch your personal savings, use the movable income!

3. Ensure that you still keep to your main goals, try your best not to sacrifice any goals unless there are monumental changes that have happened in your life that will clearly impact your spending/saving.

4. If any extra income comes your way, you can even add new goals or adjust time lines in case you are able to acquire money faster.

The key is to always plan ahead without suffering through the process.  Remember to reward yourself within the right margins.  Remind yourself that it is you who will benefit from all the planning and saving you are doing as early as now.

The fourth step in financial freedom is the allocation of monetary assets.  This should be in your planning and must be implemented once you have reached your financial goal.  I will definitely discuss this further in my next post.

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May 22, 2009

It’s BONUS time!

Posted in 4 Steps to Financial Freedom, extra income, planning at 3:07 pm by kimsan23

Most of us in the Philippines don’t get our bonuses til Christmas season.  Some of us get it quarterly or in the middle of the year.

I work for a company that has paid out bonuses both in the middle and at the end of the year.  They basically split the 13th month bonus (a mandatory gov’t benefit) in half.  The first half is given to the employee at the end of May, so that employees with kids could pay for enrollment and other school fees.  The other half is given on the first payday of December just in time for Christmas shopping.

For people who don’t understand our salary structure here in the Philippines, it’s basically this:

  1. 13 month pay – required by the government.  If an employee separates from a company before the year is over, he still gets the pro-rated value of this bonus.  It’s normally factored into a salary as more of a forced-savings kind of thing.  This bonus is non-taxable up to 30k pesos.  Beyond 30k is taxed.
  2. 15th and 30th paydays – most companies schedule paydays twice a month.  it’s normally the 15th and 30th of each month.  Other companies have it on the 20th and 5th of each month and others have their own schedules.  This is designed to help people budget their money for 15 days til the next payday comes.
  3. Additional bonuses – are really up to the company.  Some companies give a 14th-16th month bonus, quarterly bonus or mid-year bonus.  This is usually dependent on the financial standing and performance/productivity of the company.  It’s not mandated by law so it could be cancelled by the company at any time.

So how do you normally spend your bonus?  Since you’d already know at what time of the year it’s coming, it’s always wise to plot your spending in a chart or list so that you could maximize the benefit of the bonus.

Many people don’t have a plan, that’s why they end up spending all of their bonus without having a chance to save any of it.

Ever since I started becoming financially conscious, I’ve decided to always have a plan of sorts for any money that comes in on top of my current salary.  Even if I am fully aware that my bonus is coming, I still treat it as “extra income”.

My advantage really is that I don’t anyone to send to school.  And the tendency of people like me is basically to buy the newest electronic toy in the market.  As long as you have planned to put your money there, no problem.  Just make sure you are prepared for any other spending you might have to do.

Stick to the essentials before rewarding yourself with a big ticket item.  What do you need now?  Do you need to repair your car or home?  Make a list of what you need to spend on and what you want to spend on.  That way,  you could prioritize.

Guide questions:

  1. How much of this bonus should I put into savings? (I’d say answer this first before splurging on anything else.)
  2. How much should I use to pay for my debt? (Credit card, loans…etc.)
  3. Do I need money for my car or my house? (Unless you have established a separate fund for this, you need to ask yourself that question)
  4. Do I have enough to invest in a business?
  5. Do I have enough for my kids’/siblings’ school tuition and other fees?

and finally…

What can I reward myself with this money when I’m done allocating it to what I need?

Prioritize your spending specially when you come into a big amount of money.  This way, you will maximize the use of the most important employee you have in your life…MONEY.

Money doesn’t complain…doesn’t charge overtime…doesn’t take breaks and does all the work for you for as long as the price is right.  Make your best employee, money– work for your benefit.

April 29, 2008

4 Steps to Financial Freedom: ACQUIRE

Posted in 4 Steps to Financial Freedom, saving tips at 4:26 am by kimsan23

Many of us open savings accounts in the hopes of being able to put some money away as life savings. This is where our 3rd step comes in:

STEP 3: ACQUIRE (money into your savings)

Don’t forget to save a fraction of any extra income you may earn. Many people stop at step two– then they start spending (I used to do that a lot)! Reserve a portion of your earning to be acquired into your bank account or time deposit.

Most of the time, people are not able to grow their savings because they always put savings last. Like I mentioned in a previous entry, list savings first and deposit a fixed amount within three days of receiving your salary or payout. This is what many personal finance experts call — PAYING YOURSELF. Always pay your self first before paying bills and allocating money to other expenses.

And how do you ensure that your bank account grows? You must have discipline. Below are some measures I took to ensure my own discipline:

  1. Set a FIXED AMOUNT for savings every payday regardless of other costs. – This helps me stay within my personal budget. I live within my means because of this practice.
  2. Open a passbook account with NO ATM access. – Most of these types of accounts only allow withdrawals at the branch where you opened the account. A good idea if you wanna exercise self control in withdrawing money.
  3. Open a bank account that has penalties for certain withdrawal cycles – I don’t have this type of bank account but my friend does and it works wonders for her.
  4. Lock savings in a time deposit or long term investment – Once you have enough for a time deposit, lock it up! This means that you have acquired enough money to put in several investments. Don’t put all of your money in one account. Learn to distribute.
  5. Open an account for movable savings – This is for savings you can touch if and when you’ll need the money. This way, you do not deprive yourself of money for things like travel, car/house maintenance or repairs, financial emergencies and the like. At the same time, you still get to maintain a budgeted life-savings account.

In my case, instead of adding any excess money to the next budget, I just put it into my moving savings account for future use.

April 22, 2008

4 Steps to Financial Freedom: ACHIEVE

Posted in 4 Steps to Financial Freedom at 11:00 pm by kimsan23

After you work on your actual financial goal setter for both the long and short term, make sure to start working on your goals.  Our second step to financial freedom:

STEP 2: ACHIEVE (your goal by implementing your plan)

Implement your plans!  Look for the resources you need to grow the existing money that you have.  Make the money work for you.  Implement the plans that will predict gains and losses as well as cite avenues on how you can make your money grow.

Just because you have plotted your financial calendar to set your short and long term goals it doesn’t mean that you implement that and that only.  Implementation means a lot of dedication and focus on your goals but it also means being resourceful too.  There is nothing wrong with discovering new avenues in making money.  But always be careful when trying out something new.  The planning that you made in the first step now needs to be backed-up by research.  More or less you have set goals for certain amounts of money and timelines too.  In order to see what you can do to acheive those goals, ask yourself these  questions:

  1. How will I improve my current savings?
  2. How will I enhance my current investments?
  3. What investments are working for me now?
  4. What new investments should I get into?
  5. What are the additonal risks I need to take if I enter into a new money making avenue?
  6. How much am I willing to give up/lose when getting into new investments?
  7. Which of my assets are working for me?  If sme or none aren’t, what are my options?

Predicting losses could be really scary.  I myself am wary of getting into investments like mutual funds or the stock market mainly because I am not willing to predict my losses.  On the contrary, predicting losses helps you plan better.  It gives you a birds eye view of what your financial situation might become.  As of yet, I am looking into playing the money market– I just need to psychologically and financially prepare myself for any losses I might incur.  I have to face the reality of risks and so far, I’m trying my best to make a Plan B just incase it doesn’t work out with mutual funds or the stock market.  it pays to be ready.  Being prepared for losing isn’t being negative — it’s being ready to leave something we have not quite perfected and arming ourselves to take on new challenges.

Sometimes, to achieve, we must fail.  I don’t wanna fail though.  So I’m gonna try my best to look into every nook and cranny, to evaluate and pick the best options so that I can start the second step.

*side note: I’m going to the bank tomorrow to check out Time Deposit Rates

April 20, 2008

4 Steps to Financial Freedom: ASPIRE

Posted in 4 Steps to Financial Freedom at 11:32 pm by kimsan23

This is where I start plotting my very own financial calendar. Last week, I briefly discussed The 4 Steps to Financial Freedom. I didn’t elaborate much on the personal application of these steps then so today, I’m gonna do just that.

STEP 1: ASPIRE (for your financial goal)

Dream about owning your own home, being debt free and having enough money and assets that will work for you through means like investments and deposits. Make a plan that you feel will get you to your financial goal.

The first step in the first step is to IDENTIFY LIABILITIES. The reason we’re listing this first is to develop a a sense of financial urgency. What do you owe people or agencies? How much debt have you incurred?

My liabilities list:

  • Monetary Loan – 30k (0% installment plan 6-mos.)

Second, RECOGNIZE and LIST DOWN your major assets that do not involve risk investments. You need to be able to determine your actual net worth. Assign monetary value (research to get accurate figures if you don’t know) to your major assets if they are not in the form of savings accounts or other investments. Identify your sources of income for each if applicable.

My assets list:

  • Car – 120k
  • Land – 200k
  • Savings – 100k (since June of 2007 – out of micro financing, small businesses, freelance jobs and salary)

Third, APPROXIMATE RISK INVESTMENTS. List down how much you have put in stocks, businesses (w/ running ROI), mutual funds and other risky enterprises. We do this to see if out risks cost higher than our assets.

My risks:

  • Business 10k – (ROI due in 2010)

Fourth, DO THE MATH. Compute for secure assets vs. debt. If your assets currently over-shadow your debts, then you are financially secure. If your assets total lower than debts, it’s time to try making your assets work for you to help you pay for your debts. If you own some land, try to see if you can lease it. Or maybe your current bank account isn’t the right one for you, you might need to switch to something with a bit of higher interest rates. As for the risk investments, you identify them to predict possible losses in the future. Do your assets cover those losses? If not, than play your investments smarter. Every time my business shares turn a profit, I actually take half that profit to put into savings. The other half, I re-invest into the business or I use when I micro-finance.

Fifth, SET GOALS and TIME LINES. Setting goals will help you determine how much you need to earn in a particular time frame to get to them.

My Goals:

Short Term:

  • Finish off debt by June 2008 (no extensions)
  • Make an extra 2-3k a month on small businesses
  • Buy life insurance by the end of 2008

Long Term:

  • 1 Million Pesos in 2010 (CASH)
  • Start buying a house by 2010
  • Retire by 2016 at the earliestL

Lastly, PLOT FINANCIAL PLAN. To be honest, I haven’t really plotted any of my long term goals just yet as I am still starting to explore personal finance. Still, I believe it is wise to do this early on (so, let me start tomorrow with a template). On your plan, include approximate amounts for savings, risk-investments, as well as emergency needs. Make a plan for each of your assets as well — it’s a smart thing to know where you envision them to be in a few years.

ASPIRE summary:

  1. IDENTIFY LIABILITIES
  2. RECOGNIZE and LIST DOWN ASSETS
  3. APPROXIMATE RISK INVESTMENTS
  4. DO THE MATH
  5. SET GOALS and TIME LINES
  6. PLOT FINANCIAL PLAN

Of course I’m aware that my goals could change but hey, let’s see how it goes in a few months or years or so. I will definitely work on a template for this. At least when my goals shift or change, I can easily see what my options are if everything is listed down for me.

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