5 Tips to Get Your Mortgage

Mortgage

Financial institutions may be more stringent and thorough in vetting your housing loan application; you still can get your application considered favorably. Here are the things you can do:

1.       Debt to Income Ratio: According to Wikipedia, a debt-to-income ratio (often abbreviated DTI) is the percentage of a consumer's monthly gross income that goes toward paying debts. The bank may still approve your loan even your debt ratio is above 30%, it is prudent to maintain it at 30% and below. It means for every $100 of your income only $30 or less should go to paying your debt (such as personal loan, car loan, and housing loan).

2.       CreditWorthiness: Are you paying your credit card bills in a timely fashion. If you don’t your credit rating will be impacted negatively. It implies that you are not able to manage your personal finance and honor your financial commitments. In Malaysia, you can get a copy of your report from the Central Credit Reference Information system once a year. It is a record of all your loans and payment pattern. When you default in payments, it is reflected in the data. A bad record will get your application rejected even if you meet other requirements  

3.       Save for a bigger down payment: One effective way to get a loan is to apply for a smaller amount. You need to save for a bigger initial payment. You borrow less, incur less interest, and get shorter loan tenure.

4.       A permanent job with a permanent address: It is an important factor that you are able to hold down a job and not moving about without a full-time career and a fixed place to live. It tells others that you may not have a regular income to service your loan.

5.       Budget: Have you factored in the amount you need to pay the bank every month and other debts you need to service? Your monthly budget should be within your income or else you are going to incur new debt. You will be in a danger zone when you need to borrow more to cover your monthly expenditures. Be wise and be comfortable living within your means to avoid a financial crisis.  

A housing loan is a good debt because landed properties appreciate in value over time. Wisely review your financial situation before you sign on the dotted line for a mortgage.

Source: 5 Tips to Get Your Mortgage

10 Tips to Avoid Financial Crisis

Caution is the keyword in personal finance. The world is full of temptation to lure you to spend and spend to get what you want in life. Can you discipline yourself to control your spending? Here are the vital points


1. Loan: The moment you are in debt you are in dangerous water. One wrong move you will enter into a crisis situation. The most important thing is to factor in the loan amount into your monthly budget. If your budget cannot accommodate the extra amount, do not go for the loan. 

2. Loan shark: If you must borrow, keep the loan sharks at arm’s length. They will charge you an exorbitant interest rate and they will resort to unethical means to recover the loan plus interest from you when you are unable to meet their repayment schedule

3. Terms and conditions: Shop around for a loan, go for one which has the best terms and conditions in your favor. 

4. Settle credit card bills promptly and fully every month: This is to avoid high-interest charges on the outstanding amount and late charges. When you opt for the minimum amount to pay you are building up debt to a point that is beyond your means to settle. It finally leads to bankruptcy. The other thing is to build a flawless credit record so that in the future when you do need a loan you can get better terms.

5. Emergency fund: It is prudent to keep three to six months of an emergency fund to meet the usual payments and expenses just in case you are out of work.

6. Spend wisely on needs but not wants: Curb the urge to buy what you want, learn to be happy with what you have. The less you spend the more money you will have for your retirement and the more likely for you to enjoy your financial freedom in your golden years.

7. Budget and follow the budget: The moment you spend more than what you have earned you are in debt. The worst thing is that getting into debt is easy but getting out of it is the most difficult thing to do. Spend less than your income is the only way to sleep soundly at night.

8. Avoid gambling: Don’t be greedy. There is no way to make money out of gambling or else gambling outlets will be out of business. 

9. Distinguish between good debt and bad debt: You can borrow to further your education or when it is a solid investment like the purchase of a property in a prime location. Don’t do it when there is no return on the amount borrowed.

10. 开源节流（kai yuan jie liu）: This is a Chinese proverb. It literary means to open up more income streams and reduce outflows. It sums up the golden rule of personal financial management.


When you are debt-free you are the happiest person in the world.

Source: 10 Tips to Avoid Financial Crisis

7 Effective Money Tips for Young Workers

       

Ac According to the latest survey of Financial Behaviors and Financial Habits of Young Workers by The Consumer Research and Resource Centre, 47% of the young adults were seriously in debt because their monthly debt payments were 30% or more of their gross income. 37% lived beyond their means and 15% were without savings. Most of them were lacking in financial knowledge. On a score of 1 to 6 (1 – strong financial knowledge and 6 having no financial knowledge), 43% scored 4 and above. That is why they felt that they had poor financial knowledge.

You can take the following steps to put your personal finance in order:

1.      Review your financial situation: Take stock of your financial situation. Find out your take-home income, outstanding debt from various sources (mortgage, car, personal, and student loan), and your present spending pattern. You need to think of and do several things at the same time: clear your debts as soon as possible, earn more, spend within your means, and cut unnecessary expenses.

2.      Getting out of debt: Your first priority is to get rid of outstanding debt especially those with high-interest rates such as credit card debts. It is to avoid incurring and paying more interest.  You are also trying to keep your debt manageable so that you can avoid getting into bankruptcy.

3.      Budget: At this point after you have budgeted for your basic needs in a thrifty way, you have to allocate a substantial amount of your income to reduce and eventually clear your debt.  Avoid impulse spending and forget about all your wants. Be disciplined to follow your budget and learn to appreciate what you have. The objective of your budget is to get rid of credit card debts and to avoid getting into arrears for all the other installment payments.  

4.      Emergency fund: It is mentioned in the survey that if they stopped working, the consumer had enough savings on an average for only 4 months. As soon as you are out of debt, you have to set aside an amount every month for a rainy day. It is also to develop a habit of savings. The creation of wealth starts from savings and nothing else.

5.      Credit cards: Can you handle credit cards? If you can’t, cancel all your cards and avoid making purchases on credit and get into debt and incur interest. Credit cards are for convenience only and you must make payment in full when it is due.  

6.      Earn more: Sustaining your positive working attitude, acquiring additional skills and working smart are positive ways to add value and justify more pay. Do your homework, approach your boss at the right time and ask for it. You can also take up a part-time job relating to your expertise. As a young and energetic person, you will spend more time making extra money and avoid spending money with too much leisure time.

7.      Financial education: Learn to be money savvy. Get books, go online, attend personal finance courses, or get free counseling from Credit Counseling and Debt Management Agency.  You will learn about needs and wants, income and expenses, budget and savings, interest and debt, insurance and mortgage, investment and retirement, wills and estate management, and more.

Get into good personal financial shape and enjoy financial freedom. 

Source: 7 Effective Money Tips for Young Workers

Getting Effective Personal Financial Education

An investment in knowledge always pays the best interest.

Benjamin Franklin

According to Wikipedia, financial literacy is the ability to understand finance. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions through their understanding of finances.

It implies that you have to get financial education by studying financial information, understand it, do it, and obtain valuable experience. You are likely to make financial mistakes along the way but you will be wiser.  

There are three stages in life to learn about relevant financial issues: 

At home:

Financial education starts at home for the kids.

Savings: It is the best time to educate your child about savings and how your money grows with compound interest.  It is also a good thing to talk about the simple rule of 72 (the time needed to double your money with a fixed annual interest rate. At 6% you will double your money in 12 years - 72/6) in relation to savings. Take the opportunity to talk about save-and-buy-later for a big-ticket item when he or she is about to buy an expensive item like a laptop or an electronic dictionary. To save and buy later is a concept on the effective use of money and avoid paying more on interest and getting into debt.        

In school:

In secondary school:

Education loan: When your child is about to enter college, polytechnic, or university, it is also a good time to talk about student loans.  Getting a loan to pursue tertiary education is not the best option. Think about it, before you get a job you are already in debt and there will be more debt to incur like car loans and mortgage. It is good to obtain a degree but there is no assurance that you will get a decent job of your choice or a job at all upon graduation.  

Higher education:

Debit cards: It is good for you to have a debit card to gain knowledge and valuable experience of using plastic cards. The card is tied to your saving accounts and each time when the card is used the amount is deducted accordingly from the account. There is no way to spend more than what you have in your savings account.     

As a young adult:

Needs and wants: Landing on your first job after graduation is a great achievement. Getting your first paycheck is a delightful thing and you are thinking of buying so many things. So it is time to learn about wants and needs, budget and living within your means. Needs are essential and wants are optional and you can go without.  A budget is a way to control spending so that it is less than what you have earned and there is still money left over every month to save for a rainy day.   

Good debt and bad debt: It is also important to learn about good debt and bad debt. Getting into debt to buy what you want is bad but getting a mortgage to buy your first house is OK because a house appreciates in value over time.  Getting a car loan is bad but how many of you can buy a car in cash? A car depreciates greatly in the first two years.  The outstanding loan may be more than the value of your car. 

Credit cards: You will also acquire your first credit card.  It is crucial to know the danger of bankruptcy relating to young people and credit cards. The wise use of credit cards is about applying the knowledge of wants and needs, following your budget faithfully, and paying the outstanding amount fully and promptly. The most important thing about credit card usage is for convenience and not to obtain credit and get into unmanageable debt. 

Creditworthiness: Smart use of your credit cards is an excellent way to establish your creditworthiness. The key is paying the amount in full when you receive the monthly statement from the card issuer. It tells the financial institution that you are a financially responsible person. You are in good financial standing to grant credit because you pay promptly. 

Net worth, assets and liabilities: Next you will learn more about your net worth, assets, and liabilities. Your net worth is what you own less what you owe.  Let’s look at an example and simplify the issue for education purposes. One of your valuable assets is your house. It is worth, say 200,000. Does it mean that you own an asset with a value of $200,000? No, because you have taken a mortgage and you still owe the bank say, $100,000 (which is a liability) and if you sell the property you only get 100,000 after paying the bank off. So your net worth for your house is only $100,000. 

Emergency fund: It is important to incorporate an amount for savings into your budget because if you are thinking of saving what is left, there will be nothing left.  One important thing about life is to save for major unexpected expenses such as car repairs, medical bills, and the like. That is why it is called an emergency fund. 

Car loan, mortgage, marriage, and family: It is also timely to plan for the down-payment for your first car and your home. Think also about the money you need to get married and start a family of your own.  

Insurance: The subject of insurance is vital for financial education. Learn to leverage insurance to reduce the impact of personal disability due to sickness and accident. You also need to cover perils such as fire, flood, and theft against damages done to your property.      

Tax: Tax is one thing you cannot ignore. Learn to take advantage of tax deductions to reduce your tax liability.   

Investment: How do you get money for investment? It is from your savings accumulated over time. You have to learn the different vehicles to invest such as stocks and shares, unit trusts, bonds, gold, and property.

   

Retirement and children’s education: You invest with a major purpose. It is for your retirement when you are no longer working and there is no regular income. It is also essential to grow your wealth to meet your children’s education needs. It is always prudent to start early to save and invest for your future because a smaller amount is needed to get started.    

Wills: The last thing to know is the creation of wills to distribute your wealth according to your wishes in a hassle-free way when you are no longer around.

Financial education is a lifelong learning process. The most important thing is to avoid gambling and get rich quick schemes. The ultimate aim of personal finance is financial freedom.

Source: Getting Effective Personal Financial Education

Why You Need to Do a Personal Cash Flow Forecast

In the 2012 Global Finance Who’s Who in Treasury & Cash Management Survey, it is stated that more than 60% of the organizations formally assess or monitor their cash flows daily to meet operating requirements. While you do not need to do it daily it is wise to do it once a month for the next three months to be on top of your personal finance. A cash flow forecast, as its name implies, is to estimate your future cash flow situation. The whole purpose is to manage early in case of a shortfall in the near future.

Here is a simple cash flow forecast statement. For simplicity, it is assumed that you are not using credit cards. You are now at the end of October 2012 and you have prepared for a three-month forecast for the next three months:

Cash Flow Forecast

November 2012

Cash Inflows

Where are your sources of income in the form of cash? It can be your salary, income from part-time work, and dividends from stocks and shares. In this example, your take-home pay is your only cash inflow which is $6000.     

  

Cash Outflows

It is a good budget because there is no overspending and there is also an amount of $600 set aside for savings.    Other expenses vary from month to month and they include such items as eating out, gifts, clothing, minor car repairs, and donations.

Net Cash Flow

In the month of November income equals Expenses, so it is zero balance.   

Balance B/F

It is assumed that in the current month, your actual income ties with total cash outlay so there is no surplus fund to bring forward to November 2012, so the balance brought forward is zero.

Balance C/F                 

There is no money to bring forward to the month of December.   

     

December 2012

There is a special item in December. You are going for a Christmas holiday and you have budgeted for an amount of   $2000. Your cash flow forecast clearly shows that you are short of exactly 2000 in the month of December. You will have to decide now if you are going ahead with your holiday you will need additional funding.

January 2013

There is another shortfall of $1500 in January 2013 because your car insurance is due in January. If you have set aside $125 per month every month you would have ready cash of $1500 by January 2012. Since it is not done, you will have to look for additional cash of $1500.    

 Now

The forecast tells you that you need an additional fund of $3500 to meet expected expenses in the next three months. For those who have included savings as an expense item in their monthly budget, there is no problem; all you need to do is to draw from your savings.  Without saving you can either draw from your emergency fund or liquidate part of your investment. When you do not have other sources of ready cash you will need to borrow or apply for a personal loan now and get into debt. You do what you need to do now and avoid getting into a panic situation later.

7 Goals of Personal Finance

Personal Finance

Personal financial planning involves more than just living within your means. You have to start early to save for many purposes in life. There are goals such as buying a car, a house, maximizing your investment to accumulate a fund for children’s education, and retirement. You also need to avoid or reduce the risks of losses to your wealth and earning power. Lastly, you need to make an arrangement to distribute your wealth in an orderly fashion before you are no longer around. Here are the seven goals in personal finances:


1. Eliminate high-interest debts: The first all-important goal is to get rid of all debts. Don’t think that you still can save while having high-interest debts such as credit card debts. The amount of interest earned which is way below 4% for your FD compounded annually just cannot keep pace with 18% interest charged on your cards compounded monthly Just remember that compound interest is a double-edged sword. At this juncture spend only on basic necessities until your outstanding debt is fully settled.

2. Budget: A budget is to allocate your spending within the limit of your income. A meaningful budget is one that includes savings, household expenses, and other monthly commitments such as insurance, installment payments. Follow the budget faithfully to avoid impulsive and unplanned spending

3. Income: The goal in this area is to increase your take-home pay from your normal employment. The other area to look into is to create passive income streams. One common source of passive income is to collect rent from a property. The ultimate goal is to work less and earn more.

4. Expenses: One way to track your expenses is to look closely at your monthly credit card statements. Identify expenses that you can go without or reduce. Take advantage of tax relief and rebates to reduce your tax liability. Be able to distinguish between good debts (such as a loan to buy a house) and bad debts (use your credit cards to buy what you want and pay only the minimum amount).

5. Savings: Take advantage of regular savings and start saving early and allow compound interest to work wonders for you. The money you have saved is to earmark for down payments for a car and a house. Part of the savings is also used to invest and create a fund for your children’s higher education and for your own retirement

6. Protection: It is to safeguard your wealth such as your house from fire and other damages. Buy adequate property insurance coverage so that the risks are passed on to your insurers. You also need insurance coverage to reimburse you for accidental and medical expenses and disability to carry on gainful employment

7. Estate planning: The aim of estate planning is to arrange in advance the transfer of your wealth to those you have in mind in a hassle-free way


Personal financial management is a long-term activity. Things cannot happen overnight especially savings and investment. Be disciplined to monitor your personal finances on a regular basis. Make changes to suit changing conditions as you move along in life. The most important thing in life is to avoid gambling and not incur unnecessary debt. These will lead to bankruptcy eventually.

Source: 7 Goals of Personal Finance

7 Advantages of a Debit Card

Debit Card

According to a news item in the paper, more and more Malaysian are using debit cards and debit card spending has increased by 50% year-on-year. A debit card offers many benefits:

1.      Better Control of personal finance: A debit card allows you to spend only on what you have. You can use your debit card to spend according to your budget.  However, a credit card, without using it wisely, can lead to bankruptcy.

2.      Safer: You don’t have to carry a lot of cash when you go shopping, you avoid getting robbed.

3.      Simple life: With a debit card shopping is hassle-free. There is no need for a buyer and a seller to count cash and avoid errors.

4.      Shop online: When you have a debit card, you can shop online. It is just like a credit card. 

5.      Avoid running out of cash: There is no need to look for a bank or an ATM when you are short of cash, just use your debit card.

6.      Supporting documents for your spending: It is easy to monitor your spending because there is a slip for each and every transaction.

7.      Worldwide acceptance: Like a credit card, it is accepted internationally and you can withdraw local currency from ATM when you are overseas. 

You need to monitor your spending and avoid getting into an embarrassing situation when a transaction cannot go through because there are insufficient funds in your bank account.

Source: 7 Advantages of a Debit Card.

12 Easy Ways to Reduce Your Expenses

The output of agricultural products is affected by weird weather and it is costing more just to get the basic items such as wheat, rice, and chili. There is, all the more, a need to trim your household expenses.  Look closely into your spending pattern and adjust your lifestyle to shield the impact of the rising cost of living.   

1. Insurance premiums: Find out if you are over-insured. Avoid paying too much for personal accident coverage because you have many friends who are insurance agents and you just want to oblige them.

2. Children: Are your children working now? If so, let them pay for their own personal expenses. You love your children but they have to be financially independent. 

3. Technology: Do take advantage of the Internet. Use email instead of telephone or cell phone.  Pay your recurring bills online. Make online purchases as far as possible. You save time and save on transport and related costs. You can also read or download books on the Net instead of buying the actual books.

4. Avoid debt: One effective way is to stop getting what you want on credit. Without credit, there is no debt and hefty interest charges.

5. Medical expenses: Apart from getting adequate insurance coverage, the best assurance to avoid medical expenses is to keep fit and be healthy. You don’t have to enroll for a gym membership, Jogging, cycling or brisk walking is even better. Instead of staying indoor, you exercise and at the same time, you breathe in the fresh air.

6. Telecommunication package: Are you able to get your Internet access provider to bundle with free local and outstation calls? You save on calls among fixed-line subscribers while you surf the Net. In Malaysia, Telekom Malaysia Berhad is able to provide packages for Internet access through Streamyx with free calls among fixed lines.

7. Food: Eating at home more often is the surest way to trim food costs. Drink water instead of sugary drinks. Moreover, home- cook food and water are good for your health.

8. Entertainment: You can cancel your subscription to satellite or cable TV. The free channels are more than enough to kill your leisure time. You can even watch movies on the Net.

9. Utilities: The key is to control the wastage of water and electricity. Whenever possible use the fan instead of the air-conditioner.

10. Car maintenance: Can you live with just one vehicle?  You will save a substantial amount on vehicle maintenance. Always inflate tires for optimum performance. I check tire pressure once a week for a better and smoother ride.

11. Shopping: Go shopping with a list and stick to the list. Do it once a week and use coupons for further savings. Buy apparel for durability and comfort and not shop for expensive brands. Do it during sales.  Get a house brand for everyday items to reduce your household expenses.  

12. Avoid bad habits: Can you kick the habits of smoking, drinking, and gambling? Just think of the amount you can save and the benefits of better health to go along with it.

Reducing expenses is to save even more for rainy days. However, it is equally important to open up more income streams. There is a Chinese saying-开源节流. It means you open up more sources and reduce outflow.      

Source: 12 Easy Ways to Reduce Your Expenses

10 Essential Things About Money

Money is a scarce resource; you need to manage it wisely to enjoy financial freedom. These are the ten things to look into to achieve financial independence:  

1.       What’s your financial position now: Are you the true owner of your wealth such as your home and your cars? Or is it the bank? Do a computation of your net worth to see if the bottom line is positive (you are the true owner of your wealth- you own more than you owe) or negative( you are deeply in debt and the banks own your house and motor vehicles). This is the starting point to take the next step – to set meaningful financial goals

2.       Set goals: The first thing you do is to design a budget. The aim is to settle the debt (if you are in debt) as soon as possible and to ensure that at the end of every month there is a surplus fund available for savings and investment. Budgeting is a balancing act. When you allocate too much in one area, say food and household expenses, you may end up not having money left for entertainment. When you try to save more, you may not have sufficient funds for essential items.

 Reduce debt: The most important objective of personal finance is to clear your debts as quickly as possible. If left unattended, interest on interest will snowball the outstanding amount to such a huge sum that you are unable to handle.

3.       

4.       Reduce expenses: At the same time, take a good look at your expenses and see which area you can trim further.  Develop good habits of sticking to your budget and avoid spending on impulse especially on material things that you want but not essential. Be smart in using credit cards.  The key is to avoid credit and debt but to take advantage of credit cards to pay less on purchases made. Settle your credit card bills promptly and fully every month to establish your creditworthiness. Live within your means to avoid debt and incurring interest. Reduce your income taxes by taking advantage of applicable deductions.

5.       Save: The surplus fund that you have saved serve two important areas apart from retirement and children’s education. The first one is the setup of an emergency fund to last three to six month’s living expenses. In case you are out of work, you are still able to maintain your living standard until you find a new job. The other thing is to save and buy big-ticket items that you have in mind like a new TV to replace the set which breaks down frequently. Save and buy is better than buy now and incur debt and interest.

6.       Build wealth: There is a quick and simple way to find out how quickly your money will grow. This is the simple rule of 72. It tells you when your money will double at a given interest rate. At 10 % it will take 7.2 years and at 6% it will take you 12 years. Just divide 72 by the interest rate. Think and consider other vehicles of investment, according to your risk-tolerant, to grow your money. Find out more about bond funds, mutual funds, stocks and shares, and  real estate investment

7.       Fund for retirement: It is easier to set aside money sooner to save and invest for retirement because a smaller amount is needed rather than later.

8.       Fund for children’s higher education: It is also necessary to save early and allow compound interest to accumulate a fund for your children’s tertiary education.

9.       Insurance protection: Life is full of uncertainties. It is a good move to take up a life policy to cushion the blow in the unfortunate event that you are no longer around to look after your spouse and children. The proceeds from the policy allow your family to carry on living without financial difficulties. You also need to consider Insurance protection against disability due to serious accidents and health insurance to cover critical illnesses. It is also necessary to protect your dwelling and its contents again such perils as fire and flood.

10.   Estate planning: Over the years you will have accumulated more  wealth, it is never too early  to draw up a will to allow your estate to be distributed to your loved ones  according to your wish in a hassle-free way,

While you take care of money matters, don’t forget to look after your health, invest in further education, and appreciate what you have in life. Have fun and be happy.

Source: 10 Essential Things About Money