Saturday, 25 February 2012

Managing Your Financial Health! =)

On Tuesday, I attended a talk organised by Acts Church intended for young working adults, on managing our financial health. It was quite beneficial even for me, a campus student. The talk was conducted by Dr. Wong Hong Meng, a Chartered Accountant with over 30 years of professional experience. I heard that his first seminar on goal setting was rather boring, but thank God this time it was in fact very informative! It's never too young for a person to start thinking about retirement (preferably now), cause when it would be too late when you start thinking about it at the age of 55. For me, I'm aiming to spend most of  my retirement period in Perth (Australia) cause I personally think that it's a very calm and serene place.

There are 4 key elements in personal finance i.e income, expenditure, assets and liabilities. The inequality between income and expenditure would result in saving, while that between assets and liabilities would result in net worth. These are two cases that we should always work out. First, when income more than expenditure, positive saving would occur; which in turn would increases assets. Increasing assets would increase income and greater surplus for saving would occur! That's why money makes money, and the rich people get richer and richer. Second, when we have positive saving, we can reduce liabilities (debt, loan etc), which in turn reduce interest expense and increase surplus for saving!

To build wealth, you will need to reduce your liabilities and increase your assets (whether in the form of business, property, shares, bonds, fixed deposit, current/saving accounts etc). These 4 key elements in personal finance shall be managed carefully and you will succeed soon! We should always reduce expenditure and ask ourselves these 3 questions:

1) Do I need it?
2) Can I afford it?
3) Is it worth it?

If it's not worth it or you cannot afford it but you still need it then ask, is there an alternative?

Here is a very meaningful quote for everyone to ponder upon:

We use money we don't have to buy things we don't need to impress people we don't know.

Isn't it very true? Many times we buy things that we don't actually need it and eventually put it aside. We buy it cause of special discount and there greed comes in. Human being is wired in such a way to take advantage of every possible product incurring lower cost with maximum total utilities. Hence we must learn to control ourselves, resist the temptation to buy things we don't need to impress people we don't know. What is the purpose of you buying expensive branded clothes, shoes and all? Not to be offensive to faithful loaded people who like to collect branded items, but have you ever thought why did you even delve into such group of people? For me, I prefer to buy something reliable, durable and comfortable enough (not too lavish) and that's it! By so doing, you can actually save a lot! Imagine this, if you are spending someone's else money, will you spend it without thinking more than twice? =)

This paragraph would be all about borrowing. As a Christian, we should not borrow at all as it can be very very costly. Motives of borrowing often positively correlate with sins. Borrowing to meet basic needs should not happen at all. Borrowing to maintain quality of life... pride? To improve quality of life... ego? For investment... greed? You might argue that borrowing within means is okay, that's right especially you are starting up a business. But bear in mind that 90% of new startup companies will fail within first few years (due to smaller size and devoid of economies of scale) and be prepared to lose all your money by then! Biblically speaking, debt is a curse for disobedience and freedom from debt is a reward for obedience. By borrowing, we make ourselves to be slaves to lenders should you by any chance experience default.

Save early and invest early! Never look down on the power of compound interest, cause compound interest alone can be very rewarding over time! I also learnt about leveraged investing (heard of it somewhere before this), but beware of the risk involved in it! Basically it's using other people's money to increase size of investment in a hope of multiplying the return of investment. Should the value of investment goes up, you will gain a few multiple times than what you are supposed to gain initially without leverage. BUT, if the value of investment goes down, you will lose a few multiple times of what you are supposed to lose too. Risky, but rewarding. Always be very careful when using this tool in investment!

Lastly, Dr. Wong warned us about the pyramid schemes as most of them are scams. If someone comes forward and introduce you to a scheme with very high return of investment (guaranteed more than 5%), beware! If the person couldn't even explain the business they are involved in, or couldn't show the governance process, or too complicated to be understood, reject it! You will never regret for your wise decision. No business can promise return of investment of more than 10% per annum unless with back up by the government or banks. Otherwise, the business would have been of a very high risk one. The higher the risk involved, the higher the rewards; and of course greater lose should the odd against you.

That's it for financial talk! Not too hard to understand I guess. I went to yumcha with my church friends after the talk and  I reached Casa at 12.10am that day. Again I didn't study much and trial exam is coming in a month! =/ But I'm quite happy that I finally get started in doing my past year papers for Physics. Tan Kelvin (my ex-classmate) told me to do the past year questions straight for Physics, and I will learn from the marking scheme a lot, and this might be faster than reading notes alone. Indeed, reading notes didn't help much for me to understand Physics more, practice did. =)

That's all for now! Ciao~ =)

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