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