Personal Finance Tips

Wikipedia defines 'Personal Finance" as follows:

"Personal finance is the financial management which an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events."

Seeing this definition may make you realize that you have overlooked making such a plan on too many occasions if, indeed, you didn't. And so you decide to ensure that things will not be the same again.

What it means in real terms
To budget, save and spend are actions taken with regard to "monetary resources".

The monetary resources can include the salary you get paid, insurance claims, retirement benefits, investment proceeds, loans, profits generated, and so on.

If you do not budget and or save, the money may get exhausted very fast. And if there is no longer any inward flow of money, then life can become hard. This can only mean one thing: "Everyone needs to budget and save a portion of whatever he or she earns."

The little that you save now will save the day for you in the future.

Financial Risks
These include the unstable value of money, the value of your investment in shares, and so on.

If you have extra money, buy real property. If you invest in shares, look for the stable ones with assured returns.

Future Life Events
These refers to events when you are no longer young, when you are no longer working (or you decide to retire young) or occasions of sickness.

Luck
Some people depend on luck. They get addicted to some form of gambling. And when they win something, they conclude that they are lucky and may get luckier in the future. They long for the day when they strike a jackpot.

But depending on "LUCK" can be classified as a risk - risky behavior - because you are not sure whether you get a return or not. You may be lucky every now and then. It is often said that in most cases the winnings will not come up to the amount spent.

Save what little you can
Whatever amount you earn, save a little of every amount received. It has been said that the amount you receive (salary, investment proceeds, etc) is not as important as the amount you save. It does not matter how much you save. Robert Kiyosaki followed this principle and became rich.

So save whatever you can. And invest your hard-earned money in something which can help you make ends meet in the future. We may not end up very rich but that little money will make life more comfortable.

Stories About Cigarettes and Smoking

When I was in Lower Secondary, at least two fellow students tried to entice me into smoking. A rich man's son used to bring cigars to school. At one time, he distributed cigars among the boys. He gave one to me. I was a great fan of western movies. Imagining some western stars, I sucked on the unlit cigar. I got sick and told myself I would never smoke. The following year, another student who was a close friend used to offer me a Benson & Hedges cigarette from time to time. I tried to smoke once or twice. I could not stand the smell left on my fingers. So I learned to dislike, even hate, smoking. I get sick every time someone sitting next to me smokes

And so, I had never spent any money on cigarettes. It did not mean I had a lot of money, though.

There is a reason why I start with my own encounter with cigarettes or smoking. I wish to share my personal experience about a person, a man, who was a good smoker, finishing at least one pack of cigarettes per day.

That person and I worked at the same place. Let's call him John. One day, John approached me and asked how he could save some money. I told John that I would have to ask him how he spent his salary. And so I started going through a list I kept in my mind. Coming to smoking, I asked him how many packs he could finish in a day. There were twenty sticks in a pack. Suddenly, he became angry and raising his voice, he said, "I don't like anyone to tell me whether I can smoke or not."

Realising that there was no point in continuing, I apologised to him and asked for his forgiveness. After that he went away. I made up my mind never to disturb John. I never mentioned it to anyone. John continued to smoke. About a year later, I left. Years later, I noticed that John had stopped smoking. Perhaps, he came to know that what I said made sense.

Cigarettes will burn holes in one's pocket
Smoking can cause many health problems. It is said that cigarette smoke causes about a thousand diseases. But smokers being smokers, many of them will never admit the danger.

Actually I want to say something about how cigarettes can burn holes in one's pocket. A pack of cigarettes may not cost much. But smoking non-stop - chain smokers are in a worse situation - can result in a lot of money being spent on non-essential things. Let's say, a pack of cigarettes cost $7.00. If a smoker can smoke two packs a day, that will amount to ($7.00 x 2 x 30) $420.00 permonth. But he will not feel that he had spent that much money on cigarettes. In a year that will amount to $5,040.00. If he continues smoking for the next 25 years, he will have spent some $126,000.00 on cigarettes ALONE.

That $126,000.00 will earn good interest if kept in a bank. There will be money for the family for some emergency in future.

Saving on food may not be advisable. But not getting into the habit of smoking or stopping to smoke will release money for use for some other purpose that is more important.

Of course, smoking is only one example. Excessive drinking could be another one. There are other areas where you or anyone can save money for rainy days.

SAVE LITTLE BY LITTLE

I believe there are a lot of activities at night around my house. Upon opening the doors in the morning, I see little ants that have made mince meat out of some unfortunate flying insects. Sometimes, small mounds of clay have suddenly risen from under the ground. I don't like these little hills because they spell trouble for anything made of wood or that can be chewed. These are the dreaded termites.

But we can learn from these termites. But not from the ants, I think. The ants may eat when food is available. Perhaps they go hungry when there is no food. They may even die.

The termites are different.Termites divide themselves into teams. There are teams of thousands responsible for construction. They work throughout the night to create more space for new addition to the population. Little by little, they build the nest upwards. And if you are not careful, they may even make their way into your house.

I read somewhere that there are gardeners among these termites, planting food for the community's sustenance. And of course, there are others like the soldiers, nurses and those responsible for looking after the queen.

You may wonder why this story about termites. Well, these termites never stop build their nest little by little. Soon, there will be a mound, then a little hill. They continue to invest their energy into building a larger nest for the well-being of the whole community.

Managing personal finance is like the termites constructing their nest bit by bit each passing day. If you are employed, the income is fixed unless you have side income. That means budgeting is necessary.

It means that you will need to save a little from your hard-earned money. Start small. Then increase the amount as you earn more. You may have the intention to start saving for a purpose such as payment for the deposit of a car or something else. But remember, a car is a liability.

Instead of this, you may want to invest that money in shares under a scheme where the return is guaranteed. Investing in risky shares is not a good option.

Alternatively, when the amount is big enough, you may want to put that money in a fixed deposit account with better interest rate.

Remember that money put in savings should not be touched. It has been said that this money can be withdrawn only with the purpose of investing to make it grow.

So, start saving little by little.