Being Clever About Money

How do you make sure the money you earn does not disappear or get frittered away? How can you see your money grow steadily over the years, accumulating and expanding so you eventually experience a creation of real wealth instead of constantly having to make ends meet? Getting on top of your finances is not difficult but in addition to having good feng shui, you do need to follow smart advice, exercise discipline in the way you organize your cash flow and be alert to investing your surplus money. LILLIAN TOO suggests some ways to be smart with your money.

Begin your year with a firm resolution to focus unwaveringly on managing your money. Aspire to become rich and start taking control of your finances and do so in a conscious and serious manner. You need to have an attitude of respect towards money that is neither overly emotional nor excessively detached.

If you want to accumulate wealth, you must first establish the right attitude towards money! Understand that it is a tool and you are in control. You must never allow the management of money to overwhelm you. Let it be a natural part of your life, one of the skills you need to develop and absorb into your daily rituals of living so it becomes second nature to you.

Begin by getting a good idea of your current financial situation. Know the kind of budget you live under. Train your mind to think in a quantitative way, putting numbers to all your thoughts and ideas about everything to do with your money situation. You cannot be clever about money until you know the parameters of your financial situation.

Once you know what the overall position of your income and expense sides, you can start to think strategically about your money. This is the start of dreaming dreams and formulating strategies inside your head. Hazy goals eventually become clearer and this starts you on the road towards becoming financially savvy.

Start With Your Saving Potential
You begin by developing the saving habit. Amass some equity! The first goal is to endeavour never to be in the red in terms of cash management. Never allow yourself to run out of cash. Let this be the golden rule by which you live.

From here you will be in a comfortable position to make an estimate of how much you can save. Saving is a magic word in financial management and this requires you to quantify just two numbers; the first is your combined on-hand income; and the second is an accurate estimate of what you need to spend to adequately cover all the needs of your life. Do not forget to set aside a little something for special indulgences and little luxuries. When you undertake a disciplined assessment of your financial situation, you are much better equipped to know if your combined incomes (for couples) are adequate for the both of you. Put another way, it also shows if you are living beyond your means.

An Exercise In Budgeting
Budgeting is the first step in creating the habit of keeping track of your spending. This implies taking control of your money. You need to do this if you want to save and be able to invest. This is how wealth accumulation begins, by first creating some personal equity!

Next you need to extend your time horizon. Look beyond your current situation and see if you can work out how much money will be coming in and how much going out over an extended period of time, for instance 12 months. Include holidays and other anticipated expenditures. This is to see if your lifestyle is costing you in excess of what you earn.

Being clever about money requires you to think beyond conventional logic. If you find that you never seem to have enough money at the end of each month because the cost of living has overtaken your earnings, you should start shopping for more financially attractive deals on all your big expenditures.

Expanding Your Income Base
In addition to looking for opportunities to expand your income base, also shop around for better buys and bargain deals.  For instance, you can make it a habit to only shop for clothes and other luxuries during sales and to buy your necessities such as monthly groceries from warehouse outlets a little way out of town. You will be surprised how much you can “save” when you really put your mind to it. This does not mean you need to give up on things that make you happy; it means you start to shop smart.

To guard against impulse purchases, it is a good idea to pay cash for all major buys. We are usually more careful when we use real cash instead of plastic. Using the credit card especially when you own multiple credit cards makes it harder for you to keep track of your expenditures, so make the effort not to get addicted to your cards.

When You Have Surplus Money
If your income situation allows you to save, it means your financial position is healthy.

Once you have a little equity built up, start looking for ways to make your money work for you. Do not be satisfied with merely earning interest from the bank. There are ways of getting a higher return on your money and the way to find out how is to be on the lookout. Start by having a chat with your friendly banker about the different deposit plans they offer.


Buying Your First Property
Your first serious investment should be some kind of landed property. This is a really big deal because wealth creation in your life starts with accumulating assets and the first real asset in anyone’s life is the home they live in.

You will need to amass some equity to buy a house or apartment, at least enough to take advantage of easy house loans being offered by banks these days. If you have a steady job and you have at least a good thirty years more to your working life, you will find banks more than happy to offer you financing that will help you purchase your own home.

If you do not already own the home you are living in, you should definitely consider buying property to live in. Owner-occupied homes are easy to get financing for and in 2008 the earth element (which means property) represents wealth creation. So this is a good year to buy property.

Here’s a tip. Borrow as much of the cost of the house as you can, and go for the longest tenure. This way the equity you need as down payment will be less. I would say that it is not difficult to find banks willing to finance from 70 to 80 percent of house purchase price especially when they are in a “good” location. Remember to put top priority on location. Buy from reputable developers or if you are buying from an individual owner, make sure you invite your banker to give you an assessment of how much the bank values the property at. This is because the loan they will be willing to give you depends on their valuation of the property and not necessarily on the price you pay. As for tenure, it makes sense to stretch out the loan as much as you can so that monthly repayments are easier on you.

You will find that what you have to pay in renting living premises is lower than monthly mortgage payments, so make sure you do your sums to make sure you can afford the repayments. Owning your own house of course holds out the promise of long term capital gain. Your house is sure to worth more than what you pay for it if you think long term. As for the repayments, these become less painful as your earning capacity improves.

Trading Up
Owning your own home also allows you to trade up. Over time as your income improves and your family expands in size, you can use your house to help you trade up i.e. help you buy a bigger house. When property values rise, it usually goes beyond the ability of first time buyers. The only way to keep up with inflation is to have a landed asset, so make sure you have this most essential hedge against inflationary pressure.

If you are purchasing property for the first time, it is better to go for landed property and avoid condominiums. Apartments rarely match landed property when it comes to capital appreciation. It is also easier to sell, say a ten year old landed link house than a ten year old apartment.

Other Investments
As your financial situation improves and you start to think of other investments, be mindful of the issue of liquidity. Assets should be easily converted back to cash. In financial terms we describe this as the liquidity of your investment. As a small time investor, it is always good not to tie down your money unnecessarily. You must be
able to convert your investment back to hard cash with a single telephone call. It is for this reason that so many people “play the stock market”.

Playing the stock market requires luck as much as financial knowledge, and it is a whole different dimension to the management of your money. We will talk about this another time but for now focus attention on steadily improving your financial situation.