Do you know how to use your money? Who gives you advices on what you should do with your money? Is it your friend who is currently driving his BMW? You have to remember that not because your friend drives a very luxurious car means he is already financially successful because most probably, your friend is suffering from his monthly mortgage.
Chances are you are also among those people who are on the verge of facing financial disaster. The irony of life in terms of money is that people spend hours and days to earn but it only takes hours to spend. It takes days or even months to borrow money from the bank but no matter how hard it is, it is still harder to pay the money you borrowed. Now that you are faced with mountain of debt, you’ve been asking yourself “should I use a financial planner?” Well, get real! You cannot just watch your finances bury you to debt and in this situation, the best thing you should do is hire a financial planner.
Hiring a financial planner is easy; the hard part is how to get the perfect financial planner for you. With so many people claiming thy know how to manage and plan your finances, how would you choose? In fact, finding the perfect financial planner is simple as long as you know what to look for in a financial planner. Basically, the financial planner you are eyeing to hire should be experienced and qualified in providing the services you want. The second thing you should look for is trust. He or she should be trustworthy that you will feel confident to make him manage your finances. He should also be someone who will not take advantage of your needs. That means his compensation should be reasonable because of his services and not because you badly need him.
One needs to be smart in managing his finances. Once in your life, you have forgotten this and that is the reason why you are suffering from debts now. However, there is still one thing you can do to save your finances and that is to be smart in hiring a financial planner.
Thursday, June 26, 2008
Sunday, June 15, 2008
How To Set Financial Goals
Everyone must have financial goals. Let me rephrase that - ‘Everyone must have well defined financial goals’. And of course these goals have to be realistic to a certain extent. Goals can be divided into short term and long term goals.
Long Term Goals: There are different definitions of long-term goals. Some people define it as ‘goals that can be achieved over your lifetime’. To me this is a bit vague…For me its anything that needs to be achieved in the next 10 years or more. Reaching these long term goals require lot more self-discipline and commitment than reaching short term goals. Some examples of long-term goals are - funding for your child’s secondary education or saving up for a comfortable lifestyle for your retirement.
Short Term Goals: Goals that you want to reach within the next five years are called short term goals. Example: saving for the deposit for your home or saving for your next big travel expedition….
Some tips on reaching your financial goals:
* Determine What They Are: Create a file for your goals.. Write down what your long term goals and short term goals are.
* Target Period: Write down by when you want to reach your goal…example by 2010 or 2015 or 2020…
* Make Them Specific: Write down how much you need to save to reach those goals. A bit of research is probably required to make them specific. First you need to determine how much you need in today’s terms to reach these goals. Then you need to convert that figure to future date value (its value in the target period)…I will write more about the future values in another post.
* Action: Then write down your steps for action…Maybe for your child’s secondary education expenses you plan to buy an investment property and pay it off by the time the child begins his/her secondary education. Whatever the action you plan to take to reach a goal, write it down and then of course act on it…Start investing.
* Periodic Review: Go back and visit each of your goals periodically…Look at your investment performance and check to make sure that they are on target.
Long Term Goals: There are different definitions of long-term goals. Some people define it as ‘goals that can be achieved over your lifetime’. To me this is a bit vague…For me its anything that needs to be achieved in the next 10 years or more. Reaching these long term goals require lot more self-discipline and commitment than reaching short term goals. Some examples of long-term goals are - funding for your child’s secondary education or saving up for a comfortable lifestyle for your retirement.
Short Term Goals: Goals that you want to reach within the next five years are called short term goals. Example: saving for the deposit for your home or saving for your next big travel expedition….
Some tips on reaching your financial goals:
* Determine What They Are: Create a file for your goals.. Write down what your long term goals and short term goals are.
* Target Period: Write down by when you want to reach your goal…example by 2010 or 2015 or 2020…
* Make Them Specific: Write down how much you need to save to reach those goals. A bit of research is probably required to make them specific. First you need to determine how much you need in today’s terms to reach these goals. Then you need to convert that figure to future date value (its value in the target period)…I will write more about the future values in another post.
* Action: Then write down your steps for action…Maybe for your child’s secondary education expenses you plan to buy an investment property and pay it off by the time the child begins his/her secondary education. Whatever the action you plan to take to reach a goal, write it down and then of course act on it…Start investing.
* Periodic Review: Go back and visit each of your goals periodically…Look at your investment performance and check to make sure that they are on target.
Saturday, June 7, 2008
Financial Mistakes You May Be Making
All of us make financial mistakes, and research in the new fields of evolutionary economics and behavioral economics are starting to explain why. It will be good to have this knowledge someday. But in the meantime, here are ten of the more common money mistakes you may be making, so you can start correcting them now.
1. Making A Competition Of Financial Decisions
Trying to “beat” anyone else in a financial transaction is a bad habit, unless you are playing poker or negotiating a business or investment deal. The first people to buy new technology get to show it off, but they also get the worst version at the highest price. If you “win” at an auction it means you paid more than anyone else was willing to pay. Looked at that way it doesn’t seem so smart.
Evolutionary economics explains why we feel this need to “win.” It developed as a way to gain a better position in the tribe, which increased one’s survival odds thousands of years ago. This tendency of ours is of very little value in a modern economy, so ignoring such urges is wiser.
2. Believing You Are Owed Something
Nobody owes you a thing unless you have a contract or a promise. Dwelling on what is “owed” to you is a financial mistake because it gets in the way of doing what is necessary. And why does anyone owe you a thing? For example, health insurance came to be expected of large employers based on nothing more than the fact that many provided it. Had enough companies provided cars to employees, we would think we are “owed” a car by our employer.
Forget what is “owed” to you. Just work honestly to get what you can. Ask for a raise, but if you’re not paid enough, find another job. Collect that unemployment benefit if it’s available, but don’t think others have an obligation to provide your income for you. Once you stop looking for your “due” you can start looking at how to make money and create what you need for yourself. Usually this means seeing what others want, and finding a way to provide it for a paycheck or a profit.
3. Believing Value Is About Prices
Suppose a television normally sells for $900 and is on sale for $400. Is that a good value? Most people may think so, but the value of personal items is measured by what the individual user needs. If you’re as happy with a $200 television, then the other is over-priced from your perspective. Such personal purchases are worth only what it makes sense for you to pay. If a $20,000 car is worth just $3,000 to you, then that’s that (and you don’t buy it).
4. Believing Value Is All About You
I once saw a man lose $30,000 by pricing his home too high and leaving it empty for years - one of the more common financial mistakes. With investments, value has nothing to do with what you think a thing is worth. The only important measure is what the market will pay for it.
People often confuse personal consumption items with investments, thinking, for example, that a car is an investment. A $22,000 kitchen remodeling project isn’t an investment either, if future buyers will pay only $10,000 more for the home afterwards. The owner might like to think it added $30,000 in value, but his ideas are irrelevant. He better enjoy that new stove and cupboards, because they were not investments, but a $12,000 personal purchase (that’s his net loss).
5. Believing High Profits Are Unfair
In any honest sale, the price is fair, or it wouldn’t have been paid. Consider if your own house had a market value of $400,000 and you wanted to sell it. Would you lower the price to make it more “fair?” Not likely, so why expect any business to charge less than what the market dictates?
How much profit is made on something is entirely irrelevant to what its value is. Your choice is to buy it or not. It’s a financial mistake to waste time complaining about a profit you would gladly accept if you were on the other side of the transaction. The truth is that you wouldn’t buy it if it wasn’t a fair price, and nobody (in a free country) is forcing you to. Spend your energy looking for a better alternative or finding ways to make more money instead.
1. Making A Competition Of Financial Decisions
Trying to “beat” anyone else in a financial transaction is a bad habit, unless you are playing poker or negotiating a business or investment deal. The first people to buy new technology get to show it off, but they also get the worst version at the highest price. If you “win” at an auction it means you paid more than anyone else was willing to pay. Looked at that way it doesn’t seem so smart.
Evolutionary economics explains why we feel this need to “win.” It developed as a way to gain a better position in the tribe, which increased one’s survival odds thousands of years ago. This tendency of ours is of very little value in a modern economy, so ignoring such urges is wiser.
2. Believing You Are Owed Something
Nobody owes you a thing unless you have a contract or a promise. Dwelling on what is “owed” to you is a financial mistake because it gets in the way of doing what is necessary. And why does anyone owe you a thing? For example, health insurance came to be expected of large employers based on nothing more than the fact that many provided it. Had enough companies provided cars to employees, we would think we are “owed” a car by our employer.
Forget what is “owed” to you. Just work honestly to get what you can. Ask for a raise, but if you’re not paid enough, find another job. Collect that unemployment benefit if it’s available, but don’t think others have an obligation to provide your income for you. Once you stop looking for your “due” you can start looking at how to make money and create what you need for yourself. Usually this means seeing what others want, and finding a way to provide it for a paycheck or a profit.
3. Believing Value Is About Prices
Suppose a television normally sells for $900 and is on sale for $400. Is that a good value? Most people may think so, but the value of personal items is measured by what the individual user needs. If you’re as happy with a $200 television, then the other is over-priced from your perspective. Such personal purchases are worth only what it makes sense for you to pay. If a $20,000 car is worth just $3,000 to you, then that’s that (and you don’t buy it).
4. Believing Value Is All About You
I once saw a man lose $30,000 by pricing his home too high and leaving it empty for years - one of the more common financial mistakes. With investments, value has nothing to do with what you think a thing is worth. The only important measure is what the market will pay for it.
People often confuse personal consumption items with investments, thinking, for example, that a car is an investment. A $22,000 kitchen remodeling project isn’t an investment either, if future buyers will pay only $10,000 more for the home afterwards. The owner might like to think it added $30,000 in value, but his ideas are irrelevant. He better enjoy that new stove and cupboards, because they were not investments, but a $12,000 personal purchase (that’s his net loss).
5. Believing High Profits Are Unfair
In any honest sale, the price is fair, or it wouldn’t have been paid. Consider if your own house had a market value of $400,000 and you wanted to sell it. Would you lower the price to make it more “fair?” Not likely, so why expect any business to charge less than what the market dictates?
How much profit is made on something is entirely irrelevant to what its value is. Your choice is to buy it or not. It’s a financial mistake to waste time complaining about a profit you would gladly accept if you were on the other side of the transaction. The truth is that you wouldn’t buy it if it wasn’t a fair price, and nobody (in a free country) is forcing you to. Spend your energy looking for a better alternative or finding ways to make more money instead.
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