Top personal finance lessons for '08

By Ma. Salve Duplito

2008, the year that bathed Wall Street with doubt and fear and caused financial systems across the globe to stop dead in their tracks, is about to come to an end.

It was a year of chaos and confusion.

It was a year when people wondered whether some of what they have long-assumed about financial markets were way off the mark after all.
Remember Alan Greenspan?

It was a year when that age-old phrase "the first shall be the last, and the last shall be the first" seemed strangely apt.

Isn't it true that in this crisis, the rich and the greedy are feeling the bigger brunt of the financial meltdown? Yet the ones who are at the bottom rungs of society will still feel the pinch from the crisis moving forward, even if they had nothing to do with it.

So, what are the top personal finance lessons that can be learned this year?

Ethel Bondoc, owner of Storytellers Inc., a company that cranks out creative videos for corporate clients, weddings and other events, tied the knot this year and became Ethel Bondoc-Nolasco.

Her personal financial planning, sans the crisis, would have been fairly straightforward with broad strokes she has learned from personal research and observation.

But the events of 2008 are making her extra watchful and careful about how to save for her first child, her first home and her first forays into investment and retirement planning, among others.

"I am more conscious about savings because it is really scary now. On one hand, we are thinking that the crisis might be more advantageous for us because corporations will be budget-conscious and will think about more affordable alternatives, which we offer. But we might also lose clients because of the crisis, so we are thinking about whether to expand or not," she says.

Despite the shaky financial picture, the top personal finance lessons for 2008 are back-to-basics principles that even the worst crisis since the Great Depression hasn't changed.

1. Crisis-proof your finances. A lot of us put everything we have into a hot tip, a popular investment, a moneymaking scheme, especially if we think it is an insider's scoop. We like the idea of striking it rich in one fell swoop and so we withdraw all our money from the bank and even borrow from relatives. The tenets of financial planning say this is a slippery slope to penury and regret. Remember never to bet the house and never to bet everything on one investment. Divide the money you don't need immediately and put them in different investments. Invest only what you can afford to lose.

Joelle Ona-Horca, a 35-year-old credit analyst at a foreign bank, says she realized she was too reliant on American International Group/Philamlife for her family's nonlife insurance plans. She says she is now diversifying.

"Diversify assets, not just the nature of the assets like money markets, stocks or bonds, but also the underlying issuer," she says.

2. Plan for the long term, but revisit your goals regularly. People make more mistakes when they panic in a down market.

Losing everything can drive anyone nuts, so we make the worst decisions especially when we are emotional. A long-term perspective allows us to sit back and watch the market first before jumping into the fray.

However, a biannual or annual revisiting of goals should also recalibrate our financial plans.

Joelle adds that bargains can be found not just in the malls and tiangge sales this season but also in the financial sector. "I'm letting the law of cost-averaging work in my favor by setting aside a set amount of money each month to invest--the bulk of which goes to a PSE index Fund," Joelle says.

3. Before you invest, make sure you have an emergency fund.

Warren Matutino, a 32-year-old government employee who lives in Iloilo City, says for him, having three to six months of untouchable funds is the first step in constructing any serious financial plan. "Without this financial cushion, any unexpected expense can derail your long-term plans," he says.

Mutual funds' net asset value per share has this year dropped more than 40 percent at one point. Having to withdraw at that kind of loss because of an emergency can take a lot of the wind out of investment sails.

4. Don't be too greedy. When we're talking about money for our children's education or for healthcare in our old age, for example, prudence is key. Never chase after returns and put money in an investment that is too good to be true. Know what you're getting into. If you don't understand something, ask for plain English explanation and if that doesn't work, just walk away from any investments being offered.

The recent $50-billion Ponzi scam on Wall Street perpetrated by former Nasdaq chair Bernard Madoff fooled people in banks like Banco Santander and HSBC, as well as charities. Be prudent and ask yourself first if you are falling for a scam or not.

5. Live within your means. Joelle says her mantra during these turbulent times is "distinguish between a need and a want." "Establishing a buying habit based on needs versus wants requires us to be brutally honest with ourselves. We must constantly evaluate what we see, hear and even what we think. Do we really need the latest iPhone? The 50-inch flatscreen?" she shares.

She adds that learning to say "no" is hard to do especially when we are bombarded left and right by clever marketing campaigns. But she warns that people need to prepare for a financial drought.

"This is still a work in progress, but I'm trying to curb my inclination to be an impulse buyer. I have become an obsessive list maker with a notebook in my bag listing all necessary purchases to keep me on track. I'm teaching my (5-year-old) kid to distinguish between a need and a want. He no longer goes on a "pointing spree" when in a toy store and is learning to read price labels to know if his wants fit the prescribed budget," he says.

6. Money is not everything. Family, community, health, emotional and spiritual well-being are more important than the lucre of money. While money is an important tool in keeping our families happy, we end up slaves to it when it becomes the main reason for most of the things that we do.

source: business.inquirer.net
image: crivz.com

5 Financial Rules to Get You Through Good Times and Bad

The current financial crisis on Wall Street has many Americans feeling uncertain about money and investing. Not everyone is panicking though. Here are five rules to keep you on solid financial ground no matter what the economy is like:

1. Beware of over-leveraging yourself

Know the difference between good debt and bad debt, and stay away from bad debt. Good debt provides puts money in your pocket; bad debt just increases your expenses. If a school loan allows you to get an advanced degree and increase your income at work, that’s good debt. If you use debt to purchase a cash-flowing piece of real estate, that’s good debt. If you buy that new HDTV on credit because you don’t have enough money in your bank account, that’s bad debt. (You couldn’t even sell that TV for the same price you paid for it.)

Realize that even good debt can get you into trouble if something in your situation changes and you are unable to make the necessary payments. What would happen if you had sudden unexpected expenses or a loss of income? It is a good idea to have 6-12 months worth of expenses in ready money to cover such emergencies and protect you from too much leverage.

2. Pay yourself first

Before you spend your paycheck, put away at least 10% for savings and/or investing. Put away another 10% to donate to a charitable cause. If you have bad debt you need to pay off, put another 10% aside to pay down your debt. Live on the remaining 70%.

3. Live within your means (so you can increase your means!)

Manage your expenses so that they are well below your income. Start by paying yourself first (see #2, above). Create and follow a budget if necessary. Think about what kind of lasting value your purchases will really provide. Look for less expensive ways to entertain and “treat" yourself for all your hard work.

Even if your ultimate goal is to increase your means and live a more financially extravagant lifestyle, you will only be able to afford such a lifestyle after you have saved enough money to invest in passive-income-generating assets. And saving that money for investing so that you can increase your means in the long term will only happen if you live within your means in the short term.

4. Be careful where you get your financial advice

Are the people who are giving you advice really trying to help you, or are they selling something? Financial advisors don’t make money from investing in stocks and mutual funds… they make money from selling them… to people like you.

A lot of people got burned in the housing crisis because they listened to people who were selling them something: real estate agents and mortgage brokers who said that house values would always go up.

Even if the advice giver means well – a friend or relative, perhaps – do they really know what they’re talking about? Are they experts? Have they personally tried and succeed at what they are recommending? What results have the really gotten?

5. Invest in your financial education

If you don’t understand good money management yourself then you’ll always be at the mercy of people who do… or worse, people who don’t.

If you’re investing you need to understand the investment… by getting some education before you start, and by starting small and learning as you go.

source: kimkiyosaki.blogspot.com

5 Financial Mistakes New Graduates Must Avoid

5 Financial Mistakes New Graduates Must Avoid
By M.P. Dumon


Read How Credit Cards Affect Your Rating

According to U.S. Census figures, more than two million students were enrolled in college in 2005, with hundreds of thousands of students anticipating their degrees. These young adults were largely confined in the relatively safe, secure and structured environment that is academia, but new life lessons are learned as students transition into the real world.

How graduates approach financial planning in the first few years after college can set the tone for their financial habits down the road. By adhering to a strategy and plan, recent college graduates can avoid mistakes in how they deal with their personal finances.

Real World Lesson No.1: Plan To Save

Recent graduates celebrate their recent conquest of college term papers, exams and theses. Undoubtedly, a large chunk of these newly minted grads take whatever jobs they can find. Some are disciplined enough to pursue the right field for them. However, recent grads too often find the traditional workplace routine unfulfilling or unchallenging. Unreasonable spending habits often take over as an escape from the daily grind, and entire paychecks are spent on regular expenses (such as rent and utilities), purchases (such as an automobile and furniture) and luxury items (such as travel and an oversized television).

Although you should enjoy your newfound freedom, you should also strive to save a nice portion of your paychecks. The recurring cash flow can be placed in a combination of stock, bond and money market investments. Once you are no longer living in the comfort of your parents' home, it is prudent to plan for contingencies such as automobile accidents, personal injury, lay-offs and other unforeseen expenses.

Real World Lesson No.2: Money Spent Is Money Lost

Having been broke for four years or so while in college, recent graduates naturally equate a steady paycheck with newfound wealth. No longer subject to the disagreeable taste of dorm food and late-night snacking on hot noodles, young adults easily form a new habit of transforming their recurring income into regular dining at upscale restaurants, bars and clubs.

In the real world, assets either appreciate or depreciate. The purchase of a car is the purchase of a depreciating asset; it diminishes in value as soon as it leaves the lot. The same is true for furniture, clothing and expansive television screens. Flying to Cabo San Lucas over spring break is an expense - it is cash leaving your wallet, never to return. The same is true of costly apartments, fine dining and weekend barhopping.

Several factors can help create real financial security:

• The performance of assets that appreciate over time, such as blue-chip stocks, dividend-yielding bonds and homes.
• Investing in yourself as a professional to improve your prospects for growth and increased income. By investing money each month to improve your performance in your chosen field, you can expect to earn more promotions and higher pay over the long run than your complacent counterparts. These personal investments can take the form of training, online classes, industry certifications, books and seminars.

In a dynamic and competitive marketplace, paychecks provide only the illusion of security; it's how you use your paychecks that determines your financial well-being.

Real World Lesson No.3: Control Debt Before It Controls You

Depreciating assets and reckless spending often lead to only one thing: debt. Debt devours your cash flow and negates your assets, skewing your personal net worth toward the negative side. Set time lines for eliminating your various debts, including school, car, credit card and home loans. Pay off the debts with the highest interest rates first - that's just common sense.

There is good debt; you can use other people's money to buy appreciating assets, essentially using other people's money to make money for yourself. That's how the private equity people do it. But the rule of thumb is to discipline yourself in executing your plan of attack. Kill the debt beast, whatever its form, by a certain deadline.

If a paycheck only provides the illusion of security, then debt should provide real fear of the negative things that can happen to a recent grad if unforeseen contingencies occur.

Real World Lesson No.4: Become a Good Credit Risk

Paychecks are a limited income and are vulnerable to being reduced or cut off altogether. In Lesson No.3, we point out that if poor habits and consumption behaviors are not kept in check, debt can be financially disastrous. However, large transactions do exist that necessitate the use of debt - the wheels of the economy would grind to a halt if consumers had to bring in sacks of cash in order to pay the full value of a car or home up front. That's where credit comes in.

Manageable debt, as a means of establishing a good credit history and acquiring appreciating assets, helps recent grads become financially credible to lenders when it is time to take out an auto loan or mortgage. Additionally, there may be some extenuating circumstances that require a recent grad to take out an emergency loan. Manageable debt means that payments and the principal balance are easily affordable and that there is a target time line for eventual pay-off. It is not an excuse to throw money at the craps table in Vegas. That's an even nastier rabbit hole.

Real World Lesson No.5: Face Facts - Get Life Insurance

As you get older, you will begin to realize certain inevitable facts of life: old age, marriage, kids, grandchildren and, yes, even death. So get life insurance.

These events will happen; either you plan for them and care for those closest to you, or you don't plan for them. In the latter case, lack of foresight and planning can lead to financial distress for your family members. Death is stressful and expensive for survivors. Life insurance can help alleviate much of the stress at a critical time.

Parting Thoughts

Personal finance is a critical area for your mental and emotional well-being. As a student, IQ, grades, standardized test scores, popularity ratings and tolerance for alcohol are the benchmarks against which your teachers and peers judged your success.

But once you graduate, personal finance should become one of your dominant priorities. Unfortunately, the educational system - while providing interesting theories and insights on the universe - provides little in the way of real-world preparation for students in the areas of personal finance, workplace challenges or life's other adversities. A strong personal balance sheet and income statement will go a long way in helping you to overcome these challenges and maybe even find new and exciting opportunities to increase your net worth.


source :denverpost.com
images :business.nmsu.edu
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