Protect your home

In the first 11 months statistics show that fire in homes has increased considerably. There are many reasons but most common one is Electrical overload and carelessness. Now with festive season around, almost all houses have electrical decorations, christmas trees etc.

The fact to note when there is a fire in one apt, it can cause external & internal damage to apartments above and below.

HDB/ Private property management and even Banks who offer the loan, makes it compulsory for all to take basic fire insurance. This covers the external walls and common area.

However, if there is a fire upstairs and your ceiling is damaged, this will not be covered by the HDB. You have to bare the costs of repairing the ceiling or false ceiling. If you are going to sue your neighbor upstairs, you will have to sort it out legally, which can be very cumbersome.

An easy way to handle such situations is to have a home content plan. This plans will cover the renovations & home content and much more. These types of plans also cover public liability, example should there be fire in your place and causes damage to your neighbors home, the cost of repair, legal cahrges etc, will be borne by the insurer.

There are always add-ons to Home content insurance. You will be covered for theft, loss of valuables, personal accident, and home protection when you are traveling overseas.

Again, the home content insurance has a range of premiums from different insurers.

In this high paced lifestyle we live in, we cant take anything for granted. Its always best to transfer RISK to someone who can handle it better.

Moneysense Bookmarks

Pyramid of Needs for Wealth management

Pyramid is used to in different needs analysis. Food, behavior, money etc.
When analysing why people do what they do, Abraham Maslow, a humanistic psychologist, developed a simple tool to explain why people do things. This is called Maslow's theory. He and other researchers found that people were motivated to do things by their basic human needs. He put these needs into the shape of a triangle with the basic human needs - Physical, Safety and Social needs at the bottom and the higher human needs like Self esteem, self fulfillment at the top.

Working on the same principle, a good financial plans must address the basic needs first before the social and emotional need.
So doing it as a pyramid, its often represented as shown in this figure
Financial plans fail when the pyramid is not balanced as it should be. If priorities on the top of the pyramid are addressed before the base, it would end up in a out of balance and hence fail.
This is a simple but a very effective tool I use to analyse any financial planning. You can review yours too and send in your comments. Swarna

Lifestyle Planning

Lifestyle is an important part of our lives. Everyone has a different description of Lifestyle. The most important thing is what ever maybe the lifestyle needed, one has to plan financial to achieve it.

Planning has to be done to

• identify the need,


• the money needed for that lifestyle,


• the time available


• how to acheive it.

The first step is quite simple. Lifestyle to travel overseas every year, need a holiday home, a sports car, a luxiourious home by the beach, etc etc. It can also be a simple second home, a financial free retirement. So you need to know how much you need.

The very important factor in planning is the time you have and the method you acheive it. The earlier you plan the higher the amount. This chart shows a simpe computation of Time value of Money.

Once you decided to save, the the risk that you can take has to be decided. If you dont want risk, the returns will also be low. High risk, High returns.

The options are

• FD in a bank for abour 1%-2% interest rate

• Bonds or tresury bills- 2-4% returns


• Balanced funds with exposure to bo equity and bonds with about 5-9% returns


• Equitiues either as Shares, Unit trust or Managed accounts with a potential return of more than 9%

Time is crutial to any planning. The earlier you start the higher the returns you can reach. Also, the amount needed will be lower.

Income vs Expense

Time and again, we have to go to basic to manage the income vs expense matrix.

There has been a lot told and written on how to manage the balance and of course ultimately save for a better living standard. Pyramid of needs, NEEDS vs WANTS etc.

Yesterday I attended a workshop on Money sense conducted by a STAR trainer called Abu.
His success story is very interesting on how a GOAL in life is so important (www.abangabu.com)

I would like to share some interesting ways he uses to manage money.

He uses the Compass to explain it in a simple way. Like the compass helps a person lost in a jungle to move to civilisation, the financial compass can help spend wisely and hence mange money well.Now looking at the financial compass, E- stands for Essentials. Food, clothing, children's education, house rent/mortgage payments, medical expenses all go into this category. This can constitutes upto 60% of your income.

N- signifies Necessities. Education, insurance, medical cover, savings etc come under this category. Up to 40 % of your income should go into these expenses.

Both these categories should be High priority in any ones financial plan.

Now looking W- Waste, things that account for unplanned items like spending on taxi because of waking up late, eating out unnecessarily. You can look back at your spending patterns and identify what you can categories under this. At anytime, this portion of expenses shouldn't be more than 5% your income.

Last but not the least is S- STUPID, SILLY expenses. These expenses are those we do to satisfy our False Prestige or EGO. To show off that we are doing well when the fact is not so.

Talking about this section, a lot can be said about how the RICH present themselves. For example, Warren Buffet the richest man on Earth, says his success is Simplicity. He still lives in a house he bought with his first income, travels by economy class and doesn't buy things he doesn't need. There are a lot of such examples.

Like the saying goes " Empty Vessels make more noise" its always the not so financially savvy who spend on POMP & SHOW. This component of expenses shouldn't be more than 5% of the income.

So, using these NEWS categories, one can easily plan for financial freedom. So next time you go shopping take your COMPASS along.

Financial Psychology

Have you ever wondered why money seems to work so well in some people’s lives and so destructively in others? Why some people control money while others allow it to control them? Or why some of us can manage it so effortlessly to fulfill life’s plans and goals, while others never stop to question how they want it to serve them?

Questions like these are not typically explored. Why not? Its probably because the answers do not lie in cold financial facts. One must look at both the financial and psychological factors involved in money matters to make sense of why people do what they do with money.

Emotions, culture, religion and personality has the major play while talking about Financial psychology.

Culturally, many societies have a believe that Money is evil, and cause of evil. So this is ingrained in the mind since young. So as adults, there is an aversion to money.

Most religion preaches against Greed and somehow Money gets associated with Greed.

Personality. There are many money personalities and the blue print for each is different. This has to be evaluated and analysed.

You only attract what you want subconsciously. That is the reason why we find different people having different ways of handling money.

If you are keen to know more about your personal money blue print, do give me a buzz... Swarna

Financial Literacy

Many people have asked me " why is the markets behaving like this all of a sudden? Why is credit crisis in US affecting us in Asia, etc. etc...

This proves one one thing. Financial literacy is very low. We all know about earning, saving, spending etc. but how to make the best of what we earn is something one has to learn.

Today, I want to talk on some books that a good to start the learning process. You can see some favorite books under my Money books.

I am not going to review any book in particular but most books want to convey the message of good Money management and how to achieve it. Here are some points which are important aspects of Money management

• Make financial security a priority- For everything in life we need a Goal. Without a priority in place, its like driving in the dark. Its also important to have a budget to work on.

• Spend less than you earn- Isn't it logical to say spend less than you earn. However, most of us have problems doing it. Its not what you make, its what you spend makes the difference.
  

• Save and invest regularly.- Its important to save and do that regularly. Its important to have a habit of saving and investing instead of do it by chance

• Pay down debt - The credit crisis now is an example for debt management. Credit card is just for convenience and treat it like the ATM. you can draw out only your money when u go to an ATM, isn't it?

• Own a home- According to Federal Reserve in USA, home owners save 34% more than renter. I think in Singapore, thanks to our visionary leaders, 95% of Singaporeans are home owners. However, the key point to consider a home, is it should be within the budget and affordable. If not in times of despair, losing a house is a problem. This is the major problem in USA now.

Read some of these books listed below and send me your views. If there is any other book you like and would like to share with me do let me know.

Signing off with this quote-"Education is a progressive discovery of our ignorance"-Will Durant (1885-1981) U.S. author and historian

Year of the OX

Gong Xi Fa Chai to all who are looking forward to the Lunar New year tommorrow.

Today, the radio was full of quotes like, the last trading day of the rat year, last working day of the Rat year, traffic news ont he last working day of the lunar new year etc etc....

Rat year was almost like a Rat race. So many highlights. Bad news after another in the Financial markets. The good news was change of Presidency in US and a ray of hope for change.

Why is the world rejoicing so much about him being the President. Apart from the fact he is Afro-American, I think personally think its because we all want a change.

Somehow in the sub-conscious it is registered that the reason for the bad economy or the bad times is because of Bush. Is'nt it the same people who elected Bush twice.

Anyways, we all love change, whether it is a change in year, change in status, change in market, change in presidency. (We just celebrated the English New year and still as excited to celebrate another one)

Its the hope that keeps us all going. The hope that this year will be better than last one.

I too hope that the Year of OX will give me better business opportunities, better friends, better position, better revenues & better relationships and wish that all of you have a good year too.

I am now signing off the watch the last trading day of this Rat year, on NYSE. Swarna

Planning for the Golden Years

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In the present financial crisis, we are talking about liquidity, mortgage issues, bad debts etc. Let's talk about a huge problem not discussed much.

Retirement funds, Government pension funds.

World over, pension funds, managed by govt., and fund houses, are having serious problems. Some funds are also closed as the fund size it has shrunk that it is not worth to have a fund manager to manage it.

Normally, during recession, the people to be hit hard are the people planning to retire or those who thought they could retire but the money in the funds or stocks have plummeted so low that they can't think of retiring.

What is the Meaning of Retirement?

The Meaning of Retirement as per the Oxford Dictionary is "Stop working, Give up your regular work because of age.

These days, word retirement has become a luxury to most people. There are a few reasons but the most important reason is NO FINANCIAL PLANNING DONE FOR RETIREMENT WHEN YOUNG.

In Asia typically, children, family come before planning for retirement. At least some parents have the privilege of children who are supporting them in retirement. We can't take that for granted when we retire.

WE NEED TO PLAN TO BE FINANCIALLY INDEPENDENT WHEN WE ARE OLD.

When I talk to a 40 year old about retirement, most of the time the only answer I get is, that's not a priority now. I need to provide for my family, plan for my child's education, buy a home, car etc.

When I talk to a 50 year old, then they saw, RETIRE? I think I can't afford it. I need to work.

When one is 60 years old, it's too late to talk about planning to save for retirement. You only have to learn how to live with what you have. Because, at that age, I guess staying employed or getting a job is not going to be easy. There could also be health issues.

And the life span has increase over the years and its no surprise if one lives up to 90 year now.

When we talk about retirement planning there are 3 factors. TIME, AMOUNT NEEDED & and METHOD.

• TIME: The best time to start planning is when you are in your 40s. Earlier the better. So that the amount you set aside is small but will grow over a period of time.
• AMOUNT: How much do I need to retire?

As a thumb rule, typically, you need to plan for at least 60% of your current expenses. So arrive at the amount you need for your basic needs, find the future value as what you get for $1 now, may cost you $1.5 in 10 years time and finally, the number of years you need the money. Each of us has different needs. So the final number varies.

• METHOD:

TOP up your CPF: You can top your CPF to get tax benefit and also set aside extra money for retirement. However, remember to put the money in the Special account so that you don't use it up for house, education etc.

SRS: Supplementary Retirement Scheme is a good way to set aside money and get tax exemptions too. The amount that you can set aside depends on your Annual income.

Regular savings. You can set aside a regular amount as savings.

Rental Income: You could invest in rental generating properties which generate income for you on a monthly basis.

The challenge is how to grow the money to match the amount you want at retirement. This depends on the Risk appetite.

OPTION 1: Investment Linked Investment plans

Typically, these plans are taken when one is young and the units are accumulated and when the person is reaching retirement the plan can either be terminated or partially cashed out

Pro	Con
The insurance costs are less when young and hence there are more units purchased. Dollar cost averaging also helps the accumulation of units.	The mortality cost increase with age and also the policy charges can be expensive as the age increase. If the market is low during redemption, then retirement plan has to be deferred till the market picks up. NON GUARENTEED RETURNS

OPTION 2: Regular Savings Plan

Typically, these plans work on dollar average concept so that you accumulate more units when the price of the unit is low and eventually you can redeem it when the person is reaching retirement age. It can be either be terminated or partially cashed out

Pro	Con
Long term dollar cost averaging can give good returns on investment.	If the market is low during redemption, then retirement plan has to be deferred till the market picks up. NON GAURENTEED RETURNS

OPTION 3: Annuities

Typically, these plans can be started at age 40 by either investing lump sum or by regular investment. This money is let to grow with the company and at a pre-determined age say 55 or 60 yrs old, the company will give out monthly payout of the money accumulated.

Pro	Con
GUARANTEED PAYOUTS.	As the risk in such products is low, the returns of such products are low.

So which option is better?

Let's look at why the pension funds have failed. Almost all Pension funds are exposed to Equities. So they are cyclical. Some years they are up and some years they are down. Also, the returns are not guaranteed. So if you are lucky to retire when there is a bull run, then you get good returns on your pension fund. But if you are not, then you have to wait for the markets to recover. Can you predict how the market is going to be when you retire?

This is my view. Any suggestions or comments.....

Outlook for 2009

Hi all, Hope you had a good holiday and are back to work fully recharged.

Someone mentioned that there was huge hoarding in Mumbai near the Exchange, " Thank God, 2008 is over".

Well, 2008 was a year of surprises. Century old institutions collapsed. Almost everyday there were fresh news of financial turmoil.

Cycle of Life. Everything in life follows a cycle. I am going to concentrate on the cycles related to Money.

There are three major cycles-Economic cycle, Stock market cycle, and real estate cycle that affect our life financially. Commodities pricing, inflation, interest rates have effect on the economic cycle predominantly.

Economic cycle is now in recession. So this year we are going to see negative growth. In layman terms is it means, factory shut downs, pay cuts, job loss and unemployment, and increase in robbery, theft etc. This year can be traumatic for many.

The stock market started to crash from July 2007. At that time, economy was doing very well. Companies were still showing profits, good bonuses etc. From July 2007, the stock market has lost almost 60%.

The real estate cycle in Singapore, is still relatively high although the peak was sometime in May 2008 for private property and Oct 2008 for HDB. I think most Asian countries had the same pattern. Europe and US have different timings.

Now while comparing the 3 cycles and its relationships, The stock market cycle is always ahead of the economic cycle, and the real estate cycle lags the economic cycle.

So if you are looking for investment opportunities, its never possible to time the market, however, the stock market is comedown a lot since july 2007. So 2009 should be a good year to get in. Now, the question of the recovery package not being effective, interest rate cuts and inflation will only show up as volatility in the stock market. So it could be a roller coaster ride but for the long term it should generate positve returns.

Do post your comments or views so that it will benefit all.

Have a wonderful day..... Swarna

Disclaimer: This is not any recommendation. Any investment done has to be done based on Risk Profile