Archive for the ‘Finance’ Category

10 Proven Tricks To Build Up Your Emergency Fund

Summary – The keyword is fluid & 6 months salary

If you read financial related blogs, almost every one of them will advise you the same thing – Start your emergency fund. Technically this fund will serve as a safety net should anything happen to you. You never know.

For example, you are sacked from your job. With your emergency fund, you will be able to support your family and still pay all those monthly bills while searching for other jobs. Imagine not having one, you car will be taken from you, maybe even your house. How on earth will you be able to focus on job hunting with all those problems?

So start your emergency fund, Recommended value should be around 6 – 9 months of your monthly expenditure. Let me repeat, “expenditure” not your salary.

These tips may help in establishing your emergency fund.

1) Eliminate bad habit that cost money

Bad habits that cost money are like smoking, drinking, partying every other night etc. Look into your daily activities and identify which unimportant activities is draining your money. List them down and decide right now whether that habit is good or bad. If it’s bad, put a stop to it.

How to get out of a bad habit? Aha.. That will require an entry of its own.

2) Pretend everything cost $5 extra

If you buy your monthly groceries, and it total up to $120, Take out $125 instead. Pay up for the groceries, but the remainder $5 is to be put into your emergency fund. Do this to every purchases you do. Call it your personal tax if you want.

You will spend less for sure, and you are saving more. What harm can it do?

3) Budget and rebudget

Now you should have cut all the unnecessary expenditure. Make a budget for the month. Here is how you can do that.

Record everything you bought and spent up to the cents. This is the time consuming part, just bear with it for about 3 months. You just want to have a clear picture of how you are spending your money.

Once you have recorded every expenditure of the day, write it down in your Excel file and tally it with your actual balance in hand. If it is tally, that means you are monitoring your finance well. If not, that can only mean that there are some money lost without you knowing it. Figure this out first.

By the end of the month, you should know how much exactly are you spending on food, entertainment, bills etc.

Assuming you are spending $2000 for the whole month. Take 10% out and that would be $200. Now check back your budget. Where can you squeeze out that $200.

Certainly things like phone bills, entertainment, electricity can be cut easily. Remember this is only temporary. Once you have achieved your emergency fund target, you can do what ever you want :)

4) Snowball saving

Remember the snowball technique? That technique was actually used for eliminating debt fast. However we can adjust the technique so that we can now save faster. Always pay the minimum amount of any bills and just put the extra money to your saving.

It would help to get yourself a piggy bank. When you cannot see your money, you will be more likely to forget about it. Rule of thumb – Never pick up the piggy bank to weight them. You will be tempted to count the money inside.

5) Create multiple bank accounts

I would suggest 3 accounts. One is for rainy days, another is for death or 911 cases and the third one is to be forgotten.

One of the advantages of keeping separate accounts is that you will always see the total amount saved as low. This will hinder any temptation to use it. Imagine you are saving about $80 per month in one account. Will you withdraw that money for your entertainment when you know how hard it is to save that amount of money.

6) Use online banking.

If you can, please use online banking. It is very easy to do and you can transfer all your money to another account without touching the money.

You see when we always have that feeling of a think wallet, we will know subconciously that we have a lot of money. Anything happened, however minor, we will straight away withdraw the money since we know it’s there.

7) Play “Kutu”

“Kutu” is the name of the game played here in Malaysia. It is pronounced as Koo Too. A group of 10 people will sit down and agree to pay $100 per month for 10 months. They will then set up a schedule on when to receive the money. For example, January is for Joe, February is for Tina.

When it is January, one person will collect $100 from everyone and surrender the money to Joe. The next month, they will collect all the money and surrender it to Tina. This will go on until all 10 people have received their share of money.

One thing that must be clear. All the 10 people must be very trustworthy. The system will be a mess if somebody start avoiding payment etc.

8] The Lost Key strategy

This is another favorite of mine. Surrender your ATM card to your spouse. But do not give her the pin number. This way, both of you cannot use the card to withdraw money. The money will be safe.

You just need to explain to your spouse that the reason you didn’t give her the pin number is due to safety reason. Not because you didn’t trust her. You don’t want this saving exercise to ruin your relationship now do you? :)

9) $1 doesn’t have any value

An item cost about $7, and you pay with $10 bill. Convince yourself that the $3 change (which is in $1 bill) have no value.

But of course do not throw away that $1 bill, just put it into your piggy bank. Believe me, you will achieve your target in no time.

10) Personal loan

This should be used only as your last resort. If you are having trouble committing to your saving habits. Apply for a personal loan with low interest and put all the money in your account as an emergency fund.

The advantages

  • Your emergency fund is ready
  • People will harass you daily if you didn’t pay
  • You can even make money if you choose carefully

The disadvantages

  • You are losing money from paying interest

Conclusion

Emergency fund is a must. If you don’t have one, start working on one. Just make sure it amounts to 6 months of your salary and the saving is fluid (You can take out the money anytime you want)

– I Wonder –
How do you save your money?

————- Personal Note ————-
The lost key strategy is a bit dangerous to be used. You may end up losing your card, or forgetting your pin number or worse both.

Luckily I still remember I have an account there.

Photo Credit – Striatic

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5 Subtle Tips To Educate Children About Money

Summary – 5 tips to educate children about money

Every now and then a reader will send me a question for me to write a post on. A few weeks ago, Zakiah had requested our help in her comment to the article (One Sentence That Will Flood Your House With Stuff). She would like to know how to control her daughter’s bad spending habits. Currently they go out every week and will end up buying new clothes every time.

Educating children is definitely a work not for the faint-hearted. You will need to read a lot and ultimately to be familiar with the most updated techniques available. In addition to that you will need to modify the technique accordingly because every child is different. All these will be 10 times harder when it comes to educating teenagers. I know, I’ve been there.

Listed below are some tips you can use to kickstart that subtle course of valuing money.

1) Spending money to value money

Parenting expert are debating on this. Some of them believe that encouraging the child to save money is the best way to teach them about money. Another team of expert believe that the children will value money more if they are allowed to enjoy what they have saved.

I tend to agree with the latter. Encourage the children to save, but do not stop them from spending the money. Since they can’t spend what they don’t have, they will learn better about valuing money this way.

2) Use their shopping habits to your advantage.

If they like shopping, bring them shopping. Give themselves a budget of about $100 each and just when they were about to buy clothes that cost about $100, try to persuade them to check out other store. Highlight to them other clothes that cost slightly more expensive.

Now they have to choose whether spending the money they have now for cheap $100 clothes, or they can return home and save for a few more weeks for that more expensive clothes.

I know, this may sound counter productive. We want them to stop buying clothes instead of encouraging them buying. But believe me, in the long run, they will start to have that mindset of saving for a better thing. And when they start to think for their future, they will be more open to other money saving ideas.

3) Start a money saving competition

Announce a money saving competition to your children. Who ever can save the most will get their money doubled. The losers get nothing. You should make this as exciting as possible. A few points you need to know –

  • Make it a one year long saving competition. Who ever save the most money in a year will get his/her money doubled. One year should be long enough to have a permanent impact in the children’s mind.
  • Set up mini competition monthly. For example, who ever save the most in one month will get 100 points. The person with the most points collected in one year will be given another prize. This is to keep the excitement up through out the one year long competition.
  • Maybe create task (money saving wise) that will give out more points.
  • Put up ranking board to remind the children of the competition.
  • The secret is to make it as exciting as possible without making it too complicated.

4) Give them an inspiration

Try to find a real life inspiration when it comes to money saving. You may have a relative who is a successful man and let him share the story of his success to the children. He must be a good storyteller. We don’t want them to be afraid of saving money now do we? Rehearse the story with him, and give him pointers on what to stress and what need not to. You know your daughters better right?

5) The ground rule of educating children about money

  • Make it as subtle as possible. Children especially teenagers don’t respond well to a formal teaching.
  • Keep the process exciting, more exciting that shopping.
  • Help them visualize the high end target. For example, involve them in discussion to buy an expensive house. Ask them for help calculating the interest and monthly payment.
  • You must have a clear policy on when to give money to the girls. For example, they are only given a pocket money of $300 per month. If they want more, they will have to wait for next month.

– I wonder –
Any other tips you guys might want to share about educating children about money?

————- Personal Note ————–
I was 10 years old if I’m not mistaken. And I had saved about $40 in my piggy bank (It’s the shape of an elephant really). I know because I keep track of how much money I have.

One day, my father’s friend came over and I accidentally broke / scratch his helmet. My father then made me pay for the damage and I paid for it cryingly. I think that must be one of the experience that greatly taught me about valuing money.

Photo Credit – Kevin

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Shopping List

Summary – Shopping is like war, finish your mission and get out of there ASAP
It’s weekend, and you are thinking of going to the mall for some shopping. That’s like preparing to go to a battlefield, where almost everything you do will result in some loss of blood (in this case, money)

However you are not the typical guy who go into a war unprepared. You have learnt almost every little tips to control your expenditure especially combatting impulsive buying. You prepared a list of what things to buy. You start your engine for the shopping trip. Not long after that, you are back with a lot of items you actually don’t need, fewer money to save and sometimes a huge debt in your credit card account.

Where did you go wrong? My guess, it’s the list. Here are some suggestion on how to improve your shopping list.

1) Research monthly items
Take two months to actually do the experiment. Whenever you go shopping, jot down every little things you buy, the quantity and the price. List that down and make a proper list of all the items you usually need every months.

2) Print it out and make 5 copies.
The best way to make a shopping list is by putting a checkbox near to the items on the list. Once you have print it out and make 5 copies, you must use them for 5 months. And if there are additional items you want to add, you need to add them manually by pen. Do NOT print another copy.

The whole idea is to make adding new items into the shopping list as difficult as possible. That is why I suggest we make 5 copies and finish them first. This way, by the fifth month, we will usually forgets what other items we add to the list in the first month.

3) Map the shopping list according to your grocery store.
When you are making your shopping list, try to visualize you entering your grocery store. What do you see first? What essential items can you get there? Try to make that shopping list in such a way that you don’t need to go through the same area in your grocery store twice.

The idea is to minimize the time spent in the store. The lesser the time spent, the more money can be saved.

4) Put a warning message on the list
A warning like “Every cents counts, Do NOT buy it” will work just fine. Make it extra large and bold it if you have to. For a more personal touch, put a picture of you begging so that you will not overspent. That should do the trick.

5) Give yourself sufficient money
Remember when we did the research in step 1? You are jotting down the price for all the items. Now whenever you are going on your shopping spree, calculate the total amount you will need to buy the whole items. Add another 10% to the total amount and give the rest to your shopping partner (i.e. the mrs)

Forget that you have surrendered the remaining money to her and shop away knowing that you only have exactly the amount of money to buy the thing on your list. Works like a charm..

– I wonder –
Any other ideas for a more effective shopping list?

——– I wonder ———
The mrs is actually a bit annoyed when I first introduced her to my shopping list. A lot of items are added. Can’t blame her. My first shopping list is for a bachelor, so I have to overhaul the list altogether with her.

Now the list has become a necessity whenever we go shopping. If not, we might forget something :)

Photo Credit – BruceTurner

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Bottle of Water

Summary – To spend your money, you must first know where it is.

I was having tea as usual yesterday at the canteen when suddenly I realize that I have no recollection when is it that I started having tea. I guess it goes way back to my studying time.

Assuming I have tea every day since 1996, and each cup of tea cost about 50 cents, that would add up to $180 per year. And if I save that 50 cents in a bank with 4% compounded interest, by end of this year I will have an extra $3100.

That money is more than enough for me to take the mrs for another honeymoon in Langkawi :)

But nothing good can come from regretting the past. If I want to do anything, I should be doing it with what I have now. So I come up with a mission.

From now on, I will bring along a bottle of water whenever I go to work. And when I go to take my breakfast, I will only drink water from the bottle. No more going to the canteen, just to buy canned drink when I’m thirsty.

Roughly calculated, I usually go to the canteen at least twice daily. One for breakfast and another just for a quick drink on a hot day. Assuming I’m saving $1.50 everyday, by the end of the year, I will have an extra $500 every year just from that alone.

The money can be used to hire designer to renovate the blog design, or to aggresively promote the blog, or as a prize for blog’s contest and of course for blog maintenance.

I think it might just work. What do you think?

The actual message of today’s article.
If you want to spend on something, make sure you know where the money will come from. Don’t just subscribe to your favorite magazine, apply for personal loan, buy a car without even knowing how to pay for it. You must know from where you can get that spending money (maybe from your increment, or annual bonus etc). If you don’t bother to figure this out, you will end up bankrupt in no time.

——- Personal Note ——-
My mill is actually undergoing its annual inspection. It is now not operating until the 12th of May where an officer from the Department of Safety and Health will inspect and approve the mill’s operation.

Due to that, I am relatively busier these few days. And with the hot weather, no wonder I’m beginning to frequent the canteen a bit more than my average :)

Photo Credit РMuhammad.u

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