Wednesday, July 9, 2008
A tried-and-tested one that I myself use is emptying out your spare change at the end of the day (your purse or wallet will be much the lighter for it), and putting it in a jar.
It's surprising how much money money people can save this way.
You can use what you saved from "spare change" money to:
(1) help a charity
(2) buy a treat for a friend
(3) buy a treat for yourself
(4) add to your savings account
Monday, June 23, 2008
Passive income refers to income generated through very little to no additional work on your part.
Examples of passive income:
For example, interest on your bank deposits can be considered a passive income. You just put your money in the bank, and it grows, without any need for active involvement on your part.
Other examples include:
* rent from any property you own
* royalties from something that you invented
* earnings from something you created such as writing a book or creating a website
* dividends from your investments (stocks, bonds, and other investments
* earnings from a business that you don't play an active role in running
Why you should start thinking about passive income:
We of course only have so much time in a day, so if we had to actively work at every additional dollar that we earn, we'd be exhausted!
That's why it's important to start learning about how we can create passive income. Read up on investment in property and shares; study the markets to find out how they work, and which income sources provide the most stable, secure forms of passive income, etc. It's never too early to start doing this!
An understanding of how and where to create sources of passive income will help you to be more financially secure.
Make a start today by opening a savings account which earns you interest, if you haven't already done so. Remember the lesson on Compound Interest in previous blog post (Start Saving Early: Compound Interest) where we learnt that the earlier you start, the more you stand to earn?
The term “blue chip stocks” refer to prestigious, well-established companies.
Characteristics of blue chip companies:
Good record of earnings over a long period of time
Good record of dividend payments to investors
Strong financial position; with not much debt in their books
Large in size relative to the market
Leaders in their field or industry
Relatively stable, solid companies
- The term 'blue chip' probably originated from the game of poker, where the chips with the highest value are the blue ones.
- Probably the most well-known list of blue chip companies is the Dow Jones Industrial Average, a collection of thirty stocks is selected by the editors of the Wall Street Journal.
Examples of blue chip stocks:
In America: Wal-Mart, Coca-Cola, Berkshire Hathaway.
In Singapore: SingTel, Singapore Airlines, Singapore Press Holdings.
Why invest in blue chip stocks?
Blue chip stocks, because of their stability in terms of growth and dividend payment, are excellent as long-term investments, providing you with relatively stable, secure returns on your investment.
Tuesday, June 10, 2008
Different banks in different countries may vary in the number of days they consider a 'year', either using:
- 365-day year (even for leap years)
- 365-day year (except for leap year, when 366-day year is used)
- 360-day year
FORMULA FOR INTEREST CALCULATION
Simple interest calculation is based on this formula:
Amount in Deposit Account
MULTIPLIED BY Interest Rate per year
MULTIPLIED BY number of days the amount is placed in the deposit account
DIVIDED BY No of days per year used as basis for calculation (365, 366 or 360 days)
AN EXAMPLE OF HOW MUCH YOU WILL GET USING THE DIFFERENT BASES FOR CALCULATION:
Let's say that we put $100,000 in the bank for 60 days in 2008 (a leap year) at an interest rate of 5% per year, this is what you will get at different banks
BANK A - 365-DAY YEAR BASIS IN 2008
= $100,000 x 5% x 60 days / 365
BANK B - 366-DAY YEAR BASIS IN 2008
= $100,000 x 5% x 60 days / 366
BANK C - 360-DAY YEAR BASIS IN 2008
= $100,000 x 5% x 60 days / 360
Tuesday, June 3, 2008
So, really, the Cheapest item is not always the best when you calculate in terms of how much use you get out of it.
Think about it this way:
I could easily buy a pair of sneakers for $10, but I wear it once, and then throw it away because it's too uncomfortable. Costs me $10 the only time I wear it.
Or I could buy a $100 pair, and wear it 100 times before it wears out. Averages out to $1 each time I wear it.
Great questions to ask yourself when shopping:
How often will I use it?
If it's something you use every day, it's worthwhile looking for something that's of better quality, and will last longer. But if it's something that you may only use for a short period of time, like a pair of sunglasses that will go out of fashion next season, try looking for something which costs less.
Does it have the features I need?
For example, we have a $40 digital camera which we hardly use, because we still print out our pictures, and it doesn't take pictures that are good enough for that. But our $500 camera? We bring it with us everywhere we go!
Monday, May 26, 2008
Raising money for charity is essentially about earning money for a cause you believe in. And you're never too young to start helping out with various causes. But how do you go about it?
First, find a cause that you personally find worthy, and can get excited about.
Then, contact organisation or organisations that work within that area. Find out whether they have existing fundraiser projects that you can join. That is a good way to start -- to join others who are already experienced in fund-raising.
Read up on how to organise fundraisers and how others have successfully done so.
Once you gain some experience, try coming up with creative projects for raising money. You are likely to raise more if your fundraiser moves people in some way, or creates a dramatic impression. For example, if you're working on a charity for pets, you might want to organise a pet competition so that you can get pet-lovers together, and tell them about all the good your chosen charity is doing.
Submit your proposal to your charity, and gain approval. People are more likely to donate if they know you are officially affiliated to the charity.
And don't forget to advertise your event. Get your friends and family to pass out flyers. Ask if your local community newspapers will put your event in their listings. etc. etc.
Make sure you plan and organise your event so that it runs smooothly. You'll have to calculate how many people you need to take care of booths, games, competitions, etc, and source for volunteers. You'll also have to remember to train your volunteers. Also, since your main objective is to raise funds, make sure you have persuasive people in charge of talking about the charity and collecting donations. You may also want to approach local businesses to sponsor prizes, etc. in return for acknowledgements in flyers or billboards at your event. Approach your local media to see if they're interested in covering your event -- that could give valuable publicity to your charity.
Lastly, at the end of the event, keep a careful account of how much has been collected and arrange for it to be delivered to your charity.
Are you thinking now that raising money for charity is really not much different from starting a business? You're right. When you raise money for charity, you're learning all the different skills that you'll need to succeed in the business world.
Monday, May 19, 2008
To add to your savings, you can do more than rely on on your allowance. Some common ways of earning money for young people:
People would be relieved to have someone help out and take care of their young kids once in a while so that they can take a break, or run out to do some errands.
2. Doing chores for family and neighbours.
Look around for a need and ask if you can fill it. For example, if a neighbour has an overgrown lawn, ask if they'd like you to take care of it.
3. Tutoring those younger than you.
This is a great way to earn money, and learn something yourself. Tutoring helps reinforce what you yourself learnt, and you'll be honing your communication skills at the same time! Even better, you'll be helping someone else do better in school.
4. Starting a small business using your skills.
If you're especially talented at making something, you may want to look into selling what you make.
5. Part-time job
A great way to get a steady income. Check out jobs around your neighbourhood. You can usually find jobs helping to stock stores, or cashiering duties, sales assistant jobs, etc.
Have you found other great ways of earning money? Do share with us here.
* Make sure that your studies don't suffer as a result of all these other chores/jobs/schemes. After all, as we've discussed before, education is one of the surest ways of earning a higher income in adulthood.
* Also, don't be tempted to make money by illegal means.
* Get-rich schemes are usually too good to be true. So don't be taken in by those.
Monday, May 12, 2008
But did you know that the longer you keep it there, the greater the magic of Compound Interest?
WHAT IS COMPOUND INTEREST?
Let's say your grandparents gave you $10,000 at the age of 10, and you put it into your savings account. The bank's interest rate rate is 3% per year. And it remains at 3% over the next three years.
The first year, you'll earn $300, or 3% on your $1000.
So the total in your savings account is now $10300, without any effort on your part!
Leave your money (including the interest) in the bank for another year at 3% interest, and you'll be earning interest not just on your initial deposit of $10,000, but also on the $300 interest that you earned at the end of the first year, ie, you'll be getting interest on $10,300.
Remember: Compound interest is interest on your interest.
At the end of 2 years, the total in your account is now $10,609.
And that's not all. The longer you keep the money in the bank, the more compound interest works in your favour. Leave the money and the accumulated interest in the bank yet another year, and you'll be earning interest on the accumulated total of $10609, 3% of $10609 = $318.27.
So at the end of 3 years, you will have $10,927.27.
At the end of 10 years, you'll have$ 13,439.16
At the end of 20 years, you'll have $ 18061.11
At the end of 30 years, you'll have $ 24,272.62
As you can see, the longer you leave the money and the accumulated interest in the bank, the faster your money grows. In other words, the earlier you start saving, the more you can make your money work for you!
COOL TIP -- THE RULE OF 72. There's an easy way to estimate how long it will take you to double your money if you put it into a bank and let compound interest work for you, at a particular interest rate. Very simply: Divide 72 by the interest rate you expect to earn. For example, say you expect the interest rate to be 3%. 72 divided by 3 is 24. That means that it will take you 24 years to double your money.
Tuesday, May 6, 2008
The point of this little anecdote is, just as it is very important to learn to save (and earn), it's just as important to set aside money to just 'live' today.
Don't make money be an end in itself. Don't let watching your money grow and grow become an obsession, like the fictional Silas Marner. It's important to experience life as well, because that's how you learn. So watch a movie, or have that treat that you've been craving for. Buy that present for your friend. Take that holiday.
The key here is Balance. Save and Earn, but know also that money is just a tool for us to use to make our lives more secure and more fulfilling.
Sunday, May 4, 2008
Along the same line of thinking, start studying marketing right now, even if you don't aspire to a career in sales.
I've observed that marketing is a skill that's extremely useful in everyday life:
1. INCREASES YOUR EARNINGS. We need it to learn how to make the best impression on employers, and thus get the best raises come review time. We need it to sell our ideas to management.
2. HELPS YOU TO COMMUNICATE YOUR BEST QUALITIES. Marketing and especially branding skills can help us to identify our best qualities, and communicate clearly to others who we are, and what our abilities are.
3. HELPS YOU WISE UP TO TRICKS AND TRAPS MARKETERS USE ON YOU. Knowledge of marketing skills and techniques also enable us to spot the tricks and traps that marketers use on us, and thus help us to save money in the long run. For example, when you sell a house, know that the aim of the agent (despite his or her sales pitch) is usually not to get the best deal for you, but to make the most commission with the use of least resources on their part.
Thursday, May 1, 2008
One of the most important long-term goals we can have is Education. So start planning for it early.
Step 1: Study possible educational options.
Step 2: Calculate how much it will cost to attend the course that you want.
Step 3: Ask your parents if that is within what they have saved for you.
Step 4: If not, visit your career counselor at school, and try to work out what options you have for getting the additional money needed for your further education -- scholarships, part-time work, loans, etc. Work out a plan to get where you want to go.
It pays to think of your education early, because in most cases, your level of education will correlate with the level of your earnings when you enter the workforce. And therefore have an impact on your financial security.
Sunday, April 27, 2008
One way I've found that really helps curb shopping impulses is to develop an interest or a range of interests that you're passionate about. it's so special to be able to CREATE, PRODUCE or GROW something with your own hands or your mind, rather than being passive consumers of what other people create. Try it, and you'll be surprised at how much pleasure it can give you, even if you're not that good at it.
I don't, for example, aspire to be a professional photographer. But I found that going out armed with my camera, keeping a look-out for interesting picture-taking opportunities helps me be more aware of the world and people around me. I noticed things about places, people, and the environment around me that I never saw before. And discovered that you don't need trips to far-off exotic places to find the unexpected, the different. And with digital cameras, you don't really need to spend a lot of money to keep up this hobby. Any photos that are simply awful? Simply delete them.
Don't let the desire to be 'perfect' stop you from enjoying what you yourself can create or produce. So what if your potatoes don't look as pretty as the ones you find from the store? It's the joy of the process of planting that matters. Same with writing or craftwork. They don't have to be professional or great. What's important is that you enjoy it.
Step 1: Write down your favourite activities. Also write down the items you love most in your room. What do you look forward to doing? What do you look forward to having?
Step 2: Think -- is there some element of any of those activities or items that you can make/create/grow/organise yourself? For example, I love beautiful images and photographs. That's why I decided to bring a camera along everywhere I go.
Step 3: Develop your interest step-by-step, at your own pace. What's important here is to make your interest your own personal haven, rather than approach it with a competitive attitude, or with the attitude that you have to be best. The key goal is to enjoy it.
Although making money should not be the goal, eventually you may even be able to make a small business out of your interest(s). Good at making greeting cards? Why not sell your unique creations? Or your woodworking skills have become rather good -- there are people out there who would appreciate custom handmade items.
If you have any hobbies or interests that you're passionate about, why not share with us on this blog? Tell us how it has helped to make your days more fulfilling.
Wednesday, April 23, 2008
She wanted to go see Spamalot, but her family thought she was just a bit too young to fully appreciate the musical. So she made a deal with them - she gets to go if she can raise the money for her ticket. Her aunt agreed, not imagining that she could get that much money. But she did it, by determinedly doing chores for friends and family.
Now, that's the power of having a goal.
There are two types of goals that we should plan for - short-term goals (like a computer) and long-term goals (like college).
Let's start with short-term goals for now:
1. Set your goal. Think about what you need or want in the near-term, for example, a mobile phone, a computer, or maybe that latest Paramore CD. Or set a goal to get something for someone else. For example, if you know that your brother would love to have an MP3 player for his birthday, why not make that your goal?
2. Figure out how much more you can save each week if you cut out some non-essentials from your usual spending (like snacks and small knick-knacks). Don't dip into the amount you're already setting aside as your Savings -- that can go towards your long-term goal(s).
3. Set a date for achieving your goal, a date not more than three months away.
4. Develop a plan to reach your goal. Will the amount you save each week from cutting out on non-essential spending be sufficient for you to reach your goal? If not, perhaps you can earn some money -- tutor someone younger than yourself, babysit, do various chores for friends and family, run a lemonade stand, etc. If you're old enough, you may want to get a part-time or weekend job.
4. Keep to your plan. Sounds simple, doesn't it? But it's so easy to give up halfway. To motivate yourself, visualise your goal in your mind every time you're tempted to give up.
Tuesday, April 22, 2008
1. Getting bored with your t-shirt, sneakers or bags? You may like to experiment with dye and fabric paint to make them seem all new again. You will probably impress your friends with your one-of-a-kind creations. Or do your bit to help the less fortunate by donating items you no longer need or want to charity.
2. Reuse containers to store and organise your things. Or decorate boxes, bottles, cans and other containers to use as desk accessories.
3. Instead of buying garbage bags for your wastepaper basket, use the plastic bags you get from stores instead.
4. Scour garage sales and flea markets for secondhand items.
5. Try to resell items you no longer need. For example, if you look after your textbooks, you can probably sell them at the beginning of the next year to other students.
Any other ideas? Share them with us here.
Tuesday, April 15, 2008
I remember that year, a friend of mine queued up for at least half a day to get the latest pair of Hello Kitty dolls. When she managed to snag a pair, someone approached her and offered more than $500 for it. What had it cost her? Less than $5.
Of course, as such crazes go, the demand tapered off after a while. A few years later, the same dolls could be found a-begging at night markets for about $2 a pair.
The lesson here? Be careful when people start rushing to buy a certain item (whether it's Hello Kitty dolls, shares, or homes) and prices start going up very fast. If you have that item and you can make a good profit from such irrational demand, it's time to consider cashing out.
And more importantly, if you're tempted to join the rush, be careful of paying prices which cannot hold up over the long run. Think of the people who had paid hundreds of dollars for these Hello Kitty dolls. Today, those dolls are worth almost nothing.
On a related note, think carefully when buying anything that's 'in' or 'trendy', even when the prices are reasonable. Ask yourself: Do YOU really like it? For example, if you don't enjoy Harry Potter that much, why be the first in line to buy the hardback edition on the first day just because your friends plan on doing so? Remember the opportunity cost. You could be spending that money on something else that YOU really, really want.
Monday, April 14, 2008
This is very effective in curbing impulse buys.
2. Wait 7 days before buying.
You may be surprised at how often something appears much less attractive after you walk away from it.
3. Bring a water bottle with you whenever convenient.
Buying a drink or two when you're not at home can add up to quite a lot of money.
4. Cut down on sweets and snacks.
Not only will you save money, you'll be healthier too!
5. Get a library card.
Nowadays, many libraries are well-stocked not just with books, but also DVDs and CDs. You can also read your favourite magazines at the library.
6. Love shopping? Develop an interest in bargain-hunting.
It makes me feel really clever if I manage to find something for a lot less than what other people paid. And it's also lots of fun hunting for unusual things (which don't necessarily cost a lot) at garage sales or flea markets, rather than always buying at the shopping mall, where you're likely to get exactly the same thing that your friends already have.
7. Find interests besides hanging out at the shopping centre or mall at the weekend.
Try various activities to see what you enjoy. For example, if you get a kick out of volunteering, do that. Or if you're creative, why not develop art and design projects, or make crafts, or write. It can very liberating to be able to express yourself in your own way. Gardening can be a joy as well, if you love plants. If you enjoy working up a sweat, try participating in group sports -- you'll have fun, and make friends too.
8. Spend your spare time earning money, not spending it.
It can actually be fun to work. Try to find something you enjoy. If you love kids, why not tutor or babysit. One of the best jobs I ever had was working at a golf club (in the locker-room). I enjoyed the routine of cleaning -- it was a good change from studying, and the physical work actually made me more energetic. Love pets? Find a job at a vet or a pet shop, perhaps.
9. Find something you want, and save towards it.
Think of something you really like and want, and plan to save towards it. It should be something that excites you -- perhaps that MP3 player you've always wanted, or a laptop computer. Having a goal will help you cut down on frivolous spending and impulse buys.
10. Think up ways to save money.
Come up with any good ones? Do share with us on this blog.
For the purposes of talking about money management, we'll definite opportunity cost here as the cost of what you give up when you make a particular spending choice.
Let's look at a simple example: You spend $2 per day on snacks, or a total of $10 per week. A movie also costs $10. If you hadn't spent that $10 on snacks, at the end of the week, you could have gone to see a movie. So, the opportunity cost of spending on snacks is a movie.
So, next time you see that watch you absolutely must have, or that game you just can't resist, ask yourself: What's the opportunity cost? What if you don't buy that watch or that game? Could you buy something else that's even better with that same amount of money? Or could you have put that money towards something that's more important to your future, like your education? If you do this, you'll find that you'll start making better choices.
Friday, April 11, 2008
"All my friends have it!"
"I want to be like my favourite celebrity!"
"It's just THE.COOLEST.BRAND!"
All of us have fallen into these traps at one time or another. It's only normal to want to fit in with our friends, or possess the latest or coolest or best things.
But why just hand over your power to make decisions to your friends, your idol or the brand?
If all your friends are buying the latest mobile phone with lots of features like camera, WiFi and MP3 player, BUT you really don't like taking pictures, prefer to surf the net using your laptop which has a screen and keyboard which you find way more comfortable, and you already have a very good MP3 player which you find very convenient to use. Should you also just blindly spend $500 on that mobile phone when you can probably get a great mobile phone for $100 which fits your needs better?
So what if your hero is endorsing a particular type of sneakers? He or she is being paid to wear the thing. You decide for yourself whether it's for YOU.
As for brands, yes, some brands do offer great value even if they are really expensive. Their products are the result of great craftsmanship, creativity/uniqueness and innovativeness. And it's right that we should pay for such a great product, if we can afford it. But, nowadays, just as many brands slap their name on a rather generic product, and you end up paying a lot just for the addition of their name. For example, if you need a basic white tee, look for a good-quality non-branded one. Nobody will be able to tell the difference. Another danger when basing purchasing decision on the brand is that you run a high risk of buying something fugly just because a 'cool' brand tells that's the in thing this season.
That's not to say that you shouldn't look for cues from your friends, from celebrities, or from top brands. For example, if Clay Aiken tells you that "Kite Runner" is a great book, look it up on the internet. What are the reviews like? Does the book sound like something you'd like to read? What do other readers think about it?
In other words, ask the right questions so that what you buy suits the unique person that you are. It's your money. Only YOU get to decide how you spend it. Why let outside forces dictate and control what you buy?
So ask yourself:
1. Can I or my family afford it?
2. Is it within my budget?
3. Is there a similar item available that offers more value for money?
4. Does it suit my personality, personal style and taste?
5. Does it suit your lifestyle?
6. Does it fit my unique needs?
Thursday, April 10, 2008
We'll start with a very rudimentary plan, created by following the 4 steps outlined below. Remember, it's more important to have a plan you can easily follow than to rush into making the perfect spending plan. After all, the goal is to develop habits which will last you a lifetime.
STEP 1: Find out what you currently spend your money on.
Before you start planning how to spend your money, it's important to know your current spending pattern. So note down everything you buy over a typical week.
STEP 2: Identify what you really need.
Take your records from Step 1, and divide the items into two lists:
a) Basics List
Put the items which are absolutely necessary on this list. Be honest when making the list -- make sure you don't sneak in items that should count as luxuries. For most young people, the list may include food, drinks, commuting costs (petrol or bus/train fares), and other expenses related to school.
b) Luxuries List
This may include items like CDs, magazines, snacks.
STEP 3: Work out your budget.
This part is just simple arithmetic. Total up everything on your Basics List, and use that amount as a guide to start your first simple budget.
If your Basics add up to $35 every week, and you have $45 every week in your Spend Box, that means that your Spending Plan should look like this - $35 for Basics every week, and $10 for Luxuries.
Step 4: Stay within that budget.
Now that you've worked out your how much you can spend on what, just do this one thing. Use the simple plan you worked out in Step 3, and keep track of what you spend on Luxuries and make sure you never spend more than what you've budgeted.
There's of course much more to great money management than this, and we'll deal with those in later blog posts. The important thing is to make a 'baby step' and make sure you that you keep on walking. If you do fall, pick yourself up and start again.
As you master this one thing -- putting a cap on your spending on Luxuries -- you'll be more prepared to learn how to make the larger steps we'll be discussing later.
Wednesday, April 9, 2008
Then you may be using a method which is too complicated to follow. Some budgets ask you to note down all your expenses every day. Others advise you to spend as little as possible, which makes it as palatable as a diet!
But budgeting need not be hard or torturous. Once you get the hang of it, I bet you'll even enjoy taking charge of your money. What you need to do is take control in a way that's comfortable for you.
We'll start with a method I've found very useful. Some people call this the 3S Plan. All the plan asks you to do is divide up your income into SAVE, SHARE and SPEND boxes.
Step 1: SAVE
This should be your first priority. Take your income -- your allowance plus any other money you get on a regular basis -- and put part of it into your SAVE "box". Decide on the amount before you get your allowance each week or month. This way, you won't be tempted to put less into your SAVE box once you get the money in your hands.
Start with an amount that's comfortable for you. For example, if you get $50 every week, you may want to start by setting aside 5% or $2.50 per week into your SAVE box. You may want to work up to 10 or 15% or more as time goes on.
Step 2: SHARE
If you have an income, setting aside even a small amount every month can go quite a way towards helping people who really need it. Again, start by putting an amount into your SHARE box that's comfortable for you, and work up as you adjust your spending.
Step 3: SPEND
Put the rest of your income into your SPEND box.
If you get $50 every week,
and decide to save 5% and share 5%,
this is what your three boxes will have
at the beginning of each week:
SAVE: $2.50 per week
SHARE: $2.50 per week
In my next blogs, I will discuss what you can do with the money in each of the three boxes.
So, look out for the next part where I will talk about the SPEND box and how you can make sure that you have enough money for everything that you need.
An allowance is like an "income" that that an adult gets, except that you don't have to go out to work to earn it. You should be mindful, however, that you're getting the money because you're part of the family, so you should fulfill your responsibilities around the home -- chores, studies, etc. Getting an allowance allows you to take your first step towards managing your money like an adult.
Why limit yourself to an allowance?
Now, you're thinking... but but but my parents now give me money whenever I need it. Wouldn't it be stupid of me to change this?
Think about it. There are benefits for you as well. If you get an allowance, you get to be more independent, and have more control over how and when you spend or save your money. Even more important, when you have a steady "income", you will start learning important lessons, including:
- how to be responsible about money.
- how to save for what you want.
- how to make decisions on what to spend on.
- how to get the most value from your money
- how to make your money grow, etc.
Discussing it with your parents
If you do not yet have an allowance, you may want to discuss the subject with your parents. You'll probably want to discuss the following:
- why an allowance is important.
- the amount to be given to you weekly (or monthly).
- what you have to pay for out of that allowance.
- what your parents will still pay for.