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Sunday, July 14, 2013

Are You Saving For Tomorrow?

Saving for tomorrow, tomorrow

"It’s easy to imagine saving money next week, but how about right now? Generally, we want to spend it. Economist Shlomo Benartzi says this is one of the biggest obstacles to saving enough for retirement, and asks: How do we turn this behavioural challenge into a behavioural solution?"  Shlomo Benartzi
You may not have enough income to even think of saving because you're still struggling with the basic necessities of life ... that is the stark reality facing many people today so advice to save income may be beyond you for the moment*. Food stamps will help out ... temporarily, and you can only postpone healthcare until serious illness strikes.

A multi-pronged approach would be a better strategy, that is, increase income as well as save on spending, whether you use coupons, discounts, credit cards, etc. Remember with credit cards, you don't use your cash for 55 days or more.  Apart from the reward points, this allows your cash to earn interest for as long as it sits in your account (albeit at a low interest rate, which is currently the case the world over - so make sure you select one with the best rate for you).

If you use an offset account and deposit all your income into this account, it will lower your mortgage interest payable each month and help you to pay off your mortgage faster - the more (mortgage) you pay off the MORE (money) you have.   
 It's the reverse of loans - the compounding effect could turn that original (manageable) loan into a financial Frankenstein that spirals out of control very quickly, depending on your interest rate and if you are locked into that rate, etc. 
Note that when you have more income and money from savings, make sure you plough back an incremental percentage (eg. 4% initially rising to nearly 14% cf. video above) into your retirement account. The point being that even with a low savings rate you can get ahead eventually, and usually faster than imagined, so long as you take action.
This might seem like a contradiction to the statement above* but it is not because it is spare cash left after basics have been covered, which many people will be able to find if they forgo some or all of their discretionary spending at least initially (eg. a lottery ticket spend of $4000 pa. by Singaporeans, but as a whole they are very disciplined savers with deeper pockets so they are less likely to 'suffer' as much compared to many other countries).

This strategy works only if you have the discipline to pay off your card/s each and every month because the interest rate charged is usually very high.  You could try low-interest cards but weigh up the pros and cons first and see how they fit into your overall strategy.  Remember that when you switch cards the honeymoon period offered for a very low interest rate is very short, typically 6-12 months - to hook and reel you in - so a card with a slightly higher introduction rate, say 8%, but a permanently lower rate of 12% p.a. would be a better long term alternative than a card offering 5% then reverting to 20% p.a. after the honeymoon period is over).

Compare and contrast, shop around, read the fine print, check with a couple of advisors, then weigh it up for yourself, objectively. Take advice if you need to but make sure these people do not have a conflict of interest when they make recommendations.  Even now (check this weekend's headlines about failed schemes!), too many mums and dads are still suffering the devastating fallout of taking advice from "professional advisors" who have recommended them 'fail-safe' investment or savings schemes and have ended up losing ALL their life-savings. It's much harder to 'start again' if you are approaching retirement age!  If you are offered high returns, it usually indicates higher or high risks.  This is a cliche` but true: "If it seems too good to be true, it usually is!!"

And what about this? "A fool and his money are soon parted."  If you have already lost money in a venture, don't go and throw more money into it or something similar or listen (again) to advice that cost you to lose in the first place!  Talk about catching a falling knife!  It beggars belief the number of people who would throw 'good money after bad'.  If you have lost 1 million because of some scheme, don't be talked into throwing the rest of your 1.5 million after that too!

Read widely so you know who or what to avoid. Don't just go by 'trust' or 'gut-feeling' - do your own (thorough) due diligence and if you have some misgivings after researching, follow that too!  People might try to label you 'skeptical' or 'cynical' but if your due diligence tells you NOT to invest or follow the Herd, then follow your own findings.  Even if you are proved wrong, you are still ahead because you have not lost your CAPITAL!!  Better to be labelled 'skeptical' and rich than 'Mr. Agreeable' and broke or worse (worse? when you have {mounting} DEBTS)!!  It's not about being popular but about being savvy with your investing decisions.

This can be applied to any form of investment eg. if you are intending to purchase a property (which in most countries can be one's biggest asset-purchase), and if your  Building Inspector estimates that a roof required a "small paint job", check the photos thoroughly, get a second and third opinion, ring at least 3 roofers and get a quote - and if it is a huge deviation from what he has recommended, be it costs and/or action required, then re-evaluate your Sale-and-Purchase negotiations or stop! And dump that 'Building Inspector!!'.
Rinse and repeat for every defect listed in the report, and also look for these yourself during viewings with an Eagle Eye!  It could literally cost you tens of thousands if you accept advice blindly from 'tradesmen' or 'professionals' even if you found them in the 'Yellow Pages', especially if dealing within an unregulated industry. Be aware that in a Recession you will encounter more desperate people/ businesses.
TIP: Don't outsource Due Diligence, because the buck stops there - with YOU!

Remember Warren Buffett's Tip:

RULE #1: Never lose money.

RULE #2: Never forget rule #1

Many people would have broken rule number one, inadvertently, in 2008, 2009 and again in the last few weeks. Don't be blind-sided by the 'return' - remember the RISK factor has to be considered first!

At this point it might be apt to add:

RULE #3: Never repeat a mistake:

Mistakes teach a lesson, if you don't 'get it' then you are doomed to repeating your mistake until such time that you do learn from it. Don't wait until you have lost every penny before you learn that lesson!

Warren Buffett: About doing the same things and getting the same results...

Last but not least: To make mistakes is human, but to profit from them is Divine.
Elbert Hubbard, The American Bible (Turn Adversity into your (best) Teacher!)

Stay safe and keep calm. Keep your ammunition dry and flex your financial muscles when the time is ripe. 'Be greedy when others are fearful...' Warren Buffett.

More Warren Buffett Quotes on Investment and Success
Using your Card to Fund your living Expenses

'Help Your$elf' Series - Part 1
'Help Your$elf' Series - Part 2

Stay sharp, stay fit - EAT FOODS and live a Lifestyle that will help you and your Financial Muscles to do so. In the Jungle, concrete or otherwise, those who don't, get EATEN First!

Thursday, July 11, 2013

Commentary: On Savvy Use of Credit Cards to Pay for Your Living

Self-Help Empowering Series: Part 1

This article by Greg Haney deserves attention.  Below are my commentaries regarding his article: Article: How to Pay for Life (Expenses) With Your Credit Card Reward Points 

"I have three simple steps for using credit cards. 
Step one: Use credit cards for every purchase possible. 
Step two: Always pay off balances in full each month. 
Step three: Profit!"  

The plan here is to maximise your reward points, incur no cost or fee AND get more bang for your buck! Eg. some auto-memberships allow you to earn 0.08c per litre which you can redeem when you pay for your fuel, using a card that also credits your purchase towards your Frequent Flyer Account. When you've collected sufficient flyer points use these to fly for free or redeem for other items. 

One of the key points to note is that the cards themselves are free or has a cost that is more than offset by the benefits. And that you pay off the whole amount each month ie. you avoid paying the (usually hefty) interest charges. If you are using several cards you need to manage these well so that you don't incur the interest charges or affect your credit score adversely, accidentally by eg. forgetting the due dates for payment.

Use your card/s all the time, even for the tiniest purchases, and you will be surprised at how fast you can accumulate reward / fly points. Just in time for the deeply discounted airfares on offer at the moment ~ note the airlines' deep discounts since the markets jittered ~ for that exotic, sun-baked holiday where your dollar will stretch so much further, and allow you to indulge in fine accommodation, sumptuous food, fun sight-seeing and shopping expeditions ... all for a fraction of the price at home!

If you get the opportunity to pay for a large purchase with your credit card/s such as a deposit for a home or investment property (which usually you are not allowed to), rejoice!  You've just snagged a free, (probably international) airfare with your points, assuming you have at least one card that offers frequent flyer points.
Don't just buy something to get the points, get the points for buying something you already needed and would have purchased regardless of the points. And if that happened to be on sale, voila - you've just scored twice: made savings AND gained rewards!
Always ask if you can pay with your credit cards but make sure they don't charge you extra (can be anything up to 4% - airlines are notorious for charging much more than that, just for the privilege of using your card!). If a merchant insists on adding a 'surcharge' on top of the price, shop around and buy elsewhere.

If you apply this consistently re cashbacks and discounts (and not squander what you saved), over time you will get ahead faster financially than someone who did not have the discipline or the wisdom to do so. It's the cumulative effect, day in, day out (establishing a strong habit, and cultivating a wealthy mindset and attitude), and the (financial) compounding effect over a period of time that will lead to this snowball effect of seeing little, saved pennies turn into gold nuggets.

Note, it is the consistency of your actions that is important, because you won't see the impact if you only practised this ad hoc. The author had to plot a spreadsheet in order to keep track of what cards conferred which benefits, but you could start small, then progress to a full-blown spreadsheet as you get better and more confident at this. Even if you have to use a spreadsheet, remember there is no gain, without pain, in other words, be prepared to make some sacrifices ... initially. The rewards are worth it.

Note the apps that were recommended:

"mobile app Wallaby Card ... to store all my credit cards and uses my smartphone’s GPS location to determine which store I’m in and tell me which of my credit cards will yield the largest reward."

"web purchases - use LastPass, which stores a password-protected virtual copy of my credit cards, allowing me to pick the best reward payment with just a click, and without actually having the card on hand." you could be the next one to visit New Zealand soon for some adrenalin-filled, bungy jumping, white-water rafting or kayaking pursuits ... albeit in freezing waters!

Last but not least I leave you with a video of Warren Buffett's quotes to inspire you amidst the market turbulence of the last few weeks. Enjoy this video and if you're stock-market investing, stay safe and keep calm.

SMARTER Investing

Jim Rogers: 4200% Return Investment Still Possible,
His Investment Strategies...


What you don't know can keep you poor in retirement.

Information is the key to changing your circumstance if you are not in a good place.

Jim Roger's Investment Strategies: Where is he investing??

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