I really like the article below…remind me to always on guard…
In Sunday school I was taught the parable of the pharaoh of Egypt and his dream of seven fat cows being eaten by seven skinny cows. Deeply disturbed, the pharaoh sought the interpretation of his dream. A young slave boy interpreted the dream to mean Egypt would have seven years of plenty to be followed by seven years of famine. The message: Prepare for the lean years during the years of plenty. The pharaoh prepared Egypt for the lean years and led it into an era of prosperity.
My rich dad used the story of the three little pigs to make a similar point. As you know, one pig built his house out of straw, the other of sticks. Once the first two pigs finished their houses they began to party, taunting and laughing at the third pig who was taking longer, building his house of bricks. After the house of bricks was finished, a big bad wolf appeared and blew down the houses of straw and sticks. If not for the shelter of the house of bricks, the first two pigs would have been pork dinner.
In 2007 a big bad wolf known as the ‘subprime crisis’ blew down financial houses made of straw and sticks, houses known as Lehman Brothers, Bear Stearns, AIG, Merrill Lynch, Washington Mutual, Fannie Mae, and Countrywide — as well as the homes and businesses of people who built their lives on straw and sticks.
Lessons of the Pharaoh
Last month’s column was about reasons why people should prepare for the worst. This article is about how to prepare for the worst. Preparation begins with understanding the lessons of the pharaoh and the three little pigs: Prepare for the worst even when times are good.
For me, it was not easy to follow these lessons, especially during the boom years. It was tough preparing for bad times while my friends were enjoying the good times. It was tough not to climb the corporate ladder seeking higher pay and job security or chasing financial fads such as flipping real estate, day trading stocks, gambling on dotcom companies, investing in mutual funds, or using my home as an ATM to pay off my credit cards. Today, many of my fellow baby boomers who enjoyed the boom years are concerned about survival in the lean years.
In 1973, returning from the Vietnam War, I found my dad, in his fifties and in the prime of his life, unemployed. Although a highly educated, honest, hard-working man — and former superintendent of education for the state of Hawaii and Republican Party candidate for Lt. governor of the state – he was sitting at home, looking for work. My dad’s situation, combined with my experience of the war, was my wake-up call. I knew something was wrong, but I did not know what was wrong.
The stories of the pharaoh and the three little pigs danced in my head. I knew I had to prepare, but for what I did not know. I just knew I could not follow my dad’s advice, which was to fly for the airlines or go back to school and get my PhD. My instincts, sharpened by the war, knew his advice was not right for me. I decided to follow in my rich dad’s footsteps, not my poor dad’s.
One Path to Take
The following are some of the steps I took to prepare for the worst. I do not recommend my path; I will simply state why I did what I did and what benefits were gained.
1. I became an entrepreneur, not an employee. This was a tough choice. I did not have the skills, experience, or financial backing to support me through the lean years and my mistakes…and there were many lean years and mistakes. Many of the businesses I started failed.
Thirty-six years later, I own a number of businesses and employ hundreds of people all over the world. Some of the benefits: A) I make more money and pay less in taxes because I provide jobs, and that is what this economy needs — more jobs. When President Obama speaks about raising taxes on the rich, he speaks about high-income employees and small business owners, not entrepreneurs who build big businesses. As you know today, many big businesses are doing better as small businesses crumble. B) I can start new businesses as the economy changes and new opportunities appear. C) I can start businesses in different countries when new opportunities appear. D) I am not afraid of losing my job. E) My income goes up as my business grows.
The good news is that it is easier to be an entrepreneur today. The Web and new technology offer more opportunities to reach a world market at a lower price. Today a person can start a business at home and reach the world market.
2. I invest for cash flow, not capital gains. Most people invest for capital gains. These are the people who have lost a lot of money or are afraid of losing more money. When a person says, “My house has appreciated in value” or “The stock market is going up,” they are investing for capital gains. Investing for capital gains is like building a house of straw or sticks.
In 1973 I took a real estate course to learn how to invest for cash flow. Even though the real estate market crashed in 2007, my rental properties continue to produce cash flow. Even though banks are not lending money to many homeowners, the government continues to loan millions, via the FHA, to investors who provide housing. This means we receive tax breaks and use debt — other people’s money — to increase income.
The good news is, when prices crash, cash flow investments become more affordable. For example, stocks such as Johnson & Johnson, a company that pays a steady dividend (cash flow), become more affordable. If you want to start your real estate career, now is the time to invest for cash flow.
3. I invest for inflation. In 1971 President Nixon took the world off the gold standard, which means the world’s central banks can print as much money as they want. I was in Vietnam in 1972 and saw what happens when people do not trust paper money. Rather than try to live below my means and save money, I invest in gold, silver, and oil — commodities that go up in price as the government prints more money.
When investing for inflation, I am not investing for cash flow. In this case, I am investing to protect my wealth from the predatory practices of the Federal Reserve Bank, the U.S. Treasury, and the ultra rich manipulating the world economy.
China does not trust the U.S. dollar. Today China is using U.S. dollars to buy commodities such as oil, copper, gold, and silver. The good news is silver is still inexpensive. In 2007 gold was approximately 50 times more expensive than silver. In 2009 the gap is 70 times — which means silver is a bargain.
Silver is used in the electronics industry and is consumed daily; stock piles of silver are dwindling. On top of that, for the first time in modern history, there is more gold in the world than silver. In other words, silver is more valuable than gold. The good news is, at less than $20 an ounce, almost anyone can afford to start preparing for the worst and building their own house of silver.
In conclusion: My mom and dad lived through the last depression. They knew lean years. The baby boom generation is about to have their fat cows eaten by skinny cows. The good news is, if you can thrive when times are bad, these are the best of times.
http://finance.yahoo.com/expert/article/richricher/192575
Why it’s not always cost efficient to use personal loan to clear credit card debt
THE subject matter has become a common scenario among credit card debtors. Taking a personal loan to settle credit card sales method has also been adopted by banks in pushing their personal loan product. But is that wise? Key question – is the total sum paid to settle the personal loan actually less than the sum which would otherwise be paid to settle the credit card debts?
For that, a few factors need to considered. Firstly, the tenor; while credit cards have an indefinite tenor with a minimum of 5% of outstanding balance to be paid, a personal loan offers a range of between 1-7 years for repayment. This sounds better. Secondly, and more importantly, what is the actual annual interest rate of the personal loan (which differs from the nominal fixed rate quoted for personal loan) as compared to the annual interest rate of the credit card, which is about 18%?
The nominal fixed interest rate that are usually quoted for personal loans (which ranges from 7.5% to 12%) is not an apple to apple comparison to the 18% annual interest rate charged for credit card debts. So, you’re dead wrong if you assume that a 12% nominal fixed interest rate for personal loan is better than a 18% per annum credit card interest rate.
To get a better understanding of the two types of interest rates, let’s look at their difference. Nominal fixed interest rate is similar to a hire purchase interest rate, whereby a fixed rate is charged against principal, and levied over the period of the payment. There is no consideration given towards the reducing principal balance as the repayments take place. Whereas, the credit card annual interest rate is a reducing balance interest charge, therefore interest is charged monthly on the reduced principal balance. This is similar to a housing loan interest calculation.
Let us now look at some examples of interest calculations whereby we derive the similar annual interest rate for the personal loan so that we can compare apple to apple with the credit card annual interest rate. The following assumptions have been adopted:
* Personal loan sum: RM10,000
* Repayment period: 3 years on 36 equal monthly instalments
* Nominal fixed interest rates (NFIR): 8%, 9%, 10%, 11% and 12%
For the different NFIRs, I have come up with a schedule (Table 1) to show the monthly and annual interest rates for the personal loan.What Table 1 shows is that for a given NFIR, there is a substantially higher annual interest rate. The 18% annual interest rate for credit cards sits between the 10% and 11% NFIRs. With some banks now reducing the credit card annual interest rates to 16%, the equivalent for personal loan sits between the 8% and 9% NFIR.
Let us now try different tenors for the loan repayment compared to the fixed 3 years and see the difference in the annual interest rates as per Table 2.
Therefore, annual interest rates are lower with longer tenors, but do bear in mind that longer tenors will entail bigger absolute sum being payable.
Another issue that is equally important but which is usually disregarded by borrowers is the fact that the personal loan is not paid net, but comes after deducting the cost of processing and handling fees. The fee usually comprises a fixed and a percentage rate. Going back again to our RM10,000 personal loan, let us assume that we only get paid RM9,650 after deducting RM350 for fees, how does this affect the annual interest rate? Refer to Table 3.
You will note that the annual interest rate has increased about 2.6% with the introduction of loan processing fees.
Now, let us go back to our main question – if I have a credit card debt that carries an annual interest rate of 18%, do I take a lower NFIR rate personal loan to settle it? The answer is ONLY if the personal loan offers a NFIR of lower than 8.53% (recomputed to 2 decimals based on assumptions in Table 3)
Having said that, for anyone considering converting credit card debts, the better option would be to do a transfer balance, whereby another bank undertakes to settle the credit card balance on your behalf and sets up a reducing balance loan account, albeit certain conditions of course.
Be an informed borrower; ask your banker for annualised interest rates or effective interest rates of any loan product. If the banker uses bombastic words, try making reference to hire purchase and home loans, whereby you understand how these interest mechanisms work.
> Raymond Roy Tiruchelvam is former senior manager, economics and investment analysis, from an oil and gas company.
http://biz.thestar.com.my/news/story.asp?file=/2009/10/3/business/4731618&sec=business
i like laura rowley advice ..down to earth and got values…
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With doomsday financial scenarios screaming from the headlines and television, there’s no question that kids will pick up on the anxiety in the air. Talking to them about what’s happening in both the economy and the family budget is crucial — because the less we say, the bigger they might imagine the monster in the closet to be. But what’s the best broach to this loaded topic?
Needs vs. Wants
First, be conscious of the way you talk about money, and cut out the “poortalk,” advises David Myers, professor at Michigan’s Hope College and author of “The Pursuit of Happiness.”
“‘I need that’ can become ‘I want that.’ ‘I am underpaid’ can become ‘I spend more than I make,’” Myers writes. “And the most familiar middle-class lament, ‘We can’t afford it,’ can become, truthfully, ‘We choose to spend our money on other things.’ For usually, we could afford it — the snowmobile, the CD player, the Disney World vacation — if we made it our top priority; we just have other priorities on which we choose to spend our limited incomes. The choice is ours. ‘I can’t afford it’ denies our choices, reducing us to self-pitying victims.”
I’ve always tried to frame finances in terms of choices for my kids. For instance, my daughter came home from a play date once and asked when we would be getting an “extreme makeover” on our house, since compared to her friend’s palatial digs we lived in a shack.
The Landscape Has Changed
I told her we were lucky not to have the disabling injuries, serious health problems, and other woes of the families on the “Extreme Makeover” TV show. Secondly, we could have a bigger home, but then Mom and Dad would have to get different jobs, leave early in the morning, and work late into the evening in New York City. (I work mostly from my home office.) And that would mean I couldn’t drive them to school or have a snack with them when they arrive home, and we wouldn’t be able to have dinner together as a family very often. Fortunately, she agreed that the tradeoff — more time with us — makes it worth having the smaller home. (Of course, she’s not a teenager yet.)
This philosophy is ideal for tough economic times. Rather than scare kids — “We can’t buy anything because Dad lost his job and we have no money!” — we can tell them that the economic environment has changed, and that we need to make different choices about our family budget for a while.
When we hide financial realities, and pretend life is seamless and effortless, we do both ourselves and our kids a disservice. “By keeping crises private, you prolong and intensify the pain and fear you’re feeling,” says Stephen Pollan, a New York consultant and author of “Lifelines for Money Misfortunes.” “You have control here; you can ask for raise, get a new job, cut down on spending. Money is actually one of the only serious problems that is totally within your control.”
Switching Focus
Enlist your kids’ help: Ask them to be creative and think of half a dozen low-cost ways to have fun as a family, or ways to earn more, whether it’s selling stuff on eBay, raking lawns, or babysitting. Asking kids to pitch in empowers them, because you’re acknowledging that they’re capable of making a difference.
Also put economic issues in global perspective. Lately, I’ve been doing that by renting foreign films from Netflix for family movie night. Movies like “Children of Heaven” — in which a poor Iranian boy accidentally loses his sister’s shoes, and they have to share his sneakers in a relay fashion — help my kids appreciate the wealth they enjoy. Or check out “God Grew Tired of Us,” a documentary about three Sudanese refugees who make their way to the U.S., and are astounded by luxuries like electricity, running water, and supermarkets (and genuinely puzzled by the relationship between Santa Claus and Christmas).
Perhaps the most important factor (and the one that requires the most discipline) is to be optimistic for kids, and focus on the good amid the tribulations. In “Learned Optimism: How to Change Your Mind and Your Life,” University of Pennsylvania psychologist Martin Seligman explains that optimists view setbacks in their lives as temporary rather than permanent; specific instead of universal; hopeful rather than hopeless; and external instead of internal.
The Optimistic Approach
For instance, imagine two families whose primary breadwinner loses his or her job. Here’s the difference in the way they perceive their situation:
• Optimists: “This rough patch will end and the bills will get paid; we’ll tighten our belts for a little while.” (temporary) Pessimists: “We’re going broke!” (permanent)
• Optimists: “We have the skills, experience, and contacts to find another job; meanwhile, we’re healthy, the kids are working hard in school, and our extended family is supportive.” (specific) Pessimists: “This is wrecking our lives.” (universal)
• Optimists: “Companies are cutting jobs across the board.” (external) Pessimists: “They thought I wasn’t good enough to keep.” (internal)
Ideally, an optimistic approach will teach kids that while we can’t control everything that happens to us, we can control our attitude about what happens to us. As Viktor Frankl wrote in “Man’s Search for Meaning“: “Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.”
When kids see their parents struggle honestly with challenges, overcome them or learn to accept them and live with them (rather than go into denial or flee from them), they will be better prepared to cope with their own inevitable challenges. Life pitches us plenty of curveballs. Kids who see their family come together, swing for the fence, and keep swinging even when they strike out will grow up more willing to take risks, make mistakes, learn, and grow. That strikes me as a pretty good way to pursue happiness.
It is annnouced by the education ministry that the government has reduced the interest from 3% to 1% effective 1st June. Good one for students and please use the money wisely.
http://www.utusan.com.my/utusan/info.asp?y=2008&dt=0813&pub=Utusan_Malaysia&sec=Terkini&pg=bt_13.htm
Filed under: Personal Finance
i like this article as keeps reminding me to be frugal 
12 new ‘needs’ that drain your cash
Your mind-set about needs versus wants may determine whether you thrive or flounder. Here’s a closer look at some of the entitlements that people think they must have.
By Bankrate.com
True essentials never really change — food, water, shelter and clothing.
However, modern life has created a host of “necessities” that many people swear they could not live without, including a daily latte, premium cable TV, a weekly manicure, a new leased automobile and cell phones for the entire family.
In reality, there’s a more accurate word for those pricey add-ons: entitlements.
- Slide show: The new ‘necessities’
If you want to significantly cut spending, it’s important to take a closer look at what you consider to be needs.
“Basically, what we need has nothing to do with Starbucks coffee,” says money coach and psychotherapist Olivia Mellan, the author of “Overcoming Overspending.”
“A lot of us in wealthy, overspending America are either born or raised with a tremendous sense of entitlement. We say to ourselves, ‘I work hard’ or ‘I work at a job I hate — at least I should be able to have a Starbucks coffee every day or eat out for lunch.’ But, of course, those are not needs, they’re wants. They’re pleasures.”
‘Ugly attitudes of entitlement’
Mary Hunt, the author of “Debt-Proof Living” and a recovering overspender, fell into the entitlement trap to the tune of $100,000 in obligations before she realized that so-called necessities were burying her in debt.
Today, Hunt avoids malls, shares a car with her husband and spends much of her time helping groups wake up and smell the Folgers.
“When financial ignorance and availability of credit meet ugly attitudes of entitlement, that is a recipe for a horrible disaster,” she says. “I know; I’ve been there. That’s why I tell people the road’s out up ahead — turn around!”
Jeff Yeager, who has long lived the frugal lifestyle he espouses in “The Ultimate Cheapskate’s Road Map to True Riches,” says the irony is that the more we consume, the more we are consumed.
“When you simplify, you almost always save money, but the really great thing is it makes us happier,” he says.
Watch the slide show
Take a look at the costly culprits draining your bank account. See what you’re paying for that daily latte or bottle of water. Click here for the 12 new ‘necessities.’
“We take ’stuff’ as being such a positive in our lives, but I’m not convinced that it is. It’s certainly costing us more money. Not only does it not make us any happier, it arguably makes us less happy. It makes the quality of our life decrease.”
Dialing back the entitlements not only saves you money, it can start a domino effect. For instance, doing your own lawn care and dog walking can eliminate the “need” for an expensive health club.
Meanwhile, commuting by bike or public transit can eliminate the “need” for a second car.
Click here for the 12 new “necessities” you might find you could downsize or even live without. Average prices quoted are courtesy of Costhelper.com except where noted.
This article was reported and written by Jay McDonald for Bankrate.com.
Published July 29, 2008
