How Many Bank Accounts do You Need to Manage Your Personal Finance?

One of the aims of personal finance is to control your spending according to your budget. It is also part of your financial plan to save sufficiently.  An effective way to achieve your goals in these two areas is to maintain three separate bank accounts.

Account No.1

This is a receiving account. This is the account to deposit your regular monthly pays. Your income for your monthly budget is based on this take-home amount. If you do receive additional income not budgeted, it should go to your account No.2. It is always a wise move to save an extra amount earned and not spend it.

Account No.2

This is an important account. Your financial independence starts here. The amount that you have budgeted for savings should be taken out from account No. 1 and deposit here. This is the account to build an emergency fund, savings for big-ticket items, accumulate a fund for investment, children's education, and retirement. This is also the account to save enough down-payment for your car and dream home. Your financial goals should be a strong motivating force for you to deposit regularly the desired amount into this account.

Account No.3

This is an expense account. This is the account that you transfer an amount from account No.1 that you have budgeted for spending for the month. In this way, you will know in advance the amount you can spend in a month and you just have to keep your spending limit to that amount. This account is to cover your household expenditures, credit card bills, standing orders, utilities, children‘s pocket money, petrol, insurance, installment payments, and the like.

Debt settlement before Savings

When you are in debt, it is a wise move to settle your debt fully. The interest you earn for the amount saved will not be enough to cover the interest of your outstanding debt. When you are debt-free, you are stress-free and you can save even more.  

Do you think it is a good idea to maintain three accounts to manage your money?

  

Source: How Many Bank Accounts do You Need to Manage Your Personal Finance?

Can You Choose Wisely Between Savings and Debt Settlement?

You are in debt and you also want to save for a rainy day. What do you do? If your income is comfortable enough to cover savings and settling debt, it is good to do both at the same time -reduce your debt and build up your nest egg. What if your fund is limited and you have to make a choice? I would suggest you pay off your debt first. The reasons are not hard to find:

1.       Interest on debt outpaces interest on savings: it does not matter it is a personal loan from a bank or your credit card debt because financial institutions have to make a living by charging more interest on a loan and paying less on customers' savings. So, it is not prudent to save and build up more debt.

Interest on debts grows without rain.
-Yiddish Proverb

2.       Avoid getting into bankruptcy: As long as you are in debt and it does not matter how small the amount is when you do not do anything about it, the amount will snowball by accumulating interest on interest into an amount big enough for the bank to declare you a bankrupt. 

3.       Peace of mind: It is a good feeling to be free financially. Debt-free means stress-free and happy.

Homelife ceases to be free and beautiful as soon as it is founded on borrowing and debt. ~Henrik Ibsen

4.       Plus point for your creditworthiness: Clearing your outstanding sum, especially your credit card debt, as soon as possible is the way to improve your credit score.  It is also to demonstrate that you are a responsible person and you are creditworthy. It will be easier for you in the future to secure another loan.

5.       Save even more: As soon as your debt is fully settled, you can channel the same amount to your savings account and save even more.

Are you paying off your debt first?

Source: Can You Choose Wisely Between Savings and Debt Settlement?

7 More Effective Ways to Save Money

What are the children asking from Santa Claus this year? Here are the answers:

A job for their mom or dad. Money for the heating bill. Food or a place to live. Maybe gloves or boots.

Time is so bad that children don’t ask for things for themselves. It boils down to the fact that we really need to save for a rainy day. Here are more ways to save effectively:

1.      Habit: You must thank your parents for helping you cultivate the savings habit since young

. You were given a piggy bank and when you were older; your parent opened a savings account for you in one of the banks in town.  You have seen for yourself the money in the account has accumulated into a substantial amount because you have developed the habit to save regularly.

2.       Budget: As an adult, you are smart enough to incorporate an amount earmarked for savings in your monthly budget. You very well know that to save with what is left over for the month does not work. To budget for it is the most effective way to save. 

3.       Discipline: A budget is a wonderful tool to manage your personal finance. Are you following the budget? It takes a lot of self-restraint and personal discipline to follow your budget faithfully. The moment you go beyond the budget you are in debt.

4.       Financial goals: Your financial goals are a great incentive to save. You know what you want to do with your savings and you will determine not to touch the money. You may want to save for an essential big-ticket item, an emergency fund, a down payment for your car, or your dream house. Building wealth is another important goal. You know the starting point to build your wealth is from your savings. When you think of your money goals, you will not spend unnecessarily.  

5.       Avoid temptation: TV commercials are getting your attention. The billboard ads are seducing you to spend. Ads in the papers are irresistible. Your neighbor is driving a car which you wish were yours. Can you control your urge and avoid spending on what you want?

6.       Be fearful of debt

: Do not think that you are gainfully employed and you are qualified for a loan. You pay more when you purchase with a loan. Interest is a dangerous element that can snowball into an amount that is beyond your means. Before you know you are declared bankrupt. As a bankrupt can you stand tall among your friends and relatives?

7.      Think of financial independence: I cannot imagine a situation that I have to ask for money from my friends and relative.  Financial independence is the greatest incentive to save. You live the life you want with what you have and you are happy because you don’t have to ask for financial assistance or depend on anyone.  A happy life is about peace of mind.

It is never too early to encourage long-term savings. ~Ron Lewis

Source: 7 More Effective Ways to Save Money

Why You Should Keep Your Credit Cards

Are you thinking of canceling your credit cards for good? Before you do, consider the following:

1. Creditworthiness: The way you use your credit cards can be proof of your creditworthiness. When you pay promptly every month for the full amount that you have incurred, it is an indication that you are a responsible person who can be trusted to grant credit. The history of your credit card transactions will be a good reference when you apply for a car loan. You will be considered favorably and most likely your loan application will be approved without the need to get a guarantor. 

The most important thing for a young man is to establish credit - a reputation and character. ~John D. Rockefeller

2. Convenient: It is more convenient to use a credit card rather than cash because it is not safe to carry a large sum of money in your pocket. Moreover, every purchase by credit card is documented and you can dispute the transaction if you think it is not in order.

3. Great rewards: Recently, I have got a Timex watch from the bank. I have just redeemed the points accumulated over a period of time for every dollar charged to my card. When you pay cash you cannot get a free watch or any other valuable items.

4. Track your expenses: You can’t ask for a bill every time you buy something. However, there is always a slip when you charge it to your card. Your   spending on your cards is an effective way to track and control your expenses 

5. Online transactions: You can’t get things done without a credit card. The other day I have just discovered that I have to pay by credit card online in order to process my son’s application for a student pass in Singapore. Not only that, but you also can’t do online purchases without a credit card.   

6. For needs only: There is one catch here to keep your credit cards.

You have to be self-disciplined to spend on your needs only. For every dollar that you have charged, it is to be backed up by the same amount of cash in your bank and ready to pay at the end of the month. The other thing is to keep only two cards, One Visa and one MasterCard. When a transaction for one card is out of order, you still can use the other one. 

Self-respect is the root of discipline:  The sense of dignity grows with the ability to say no to oneself.  ~Abraham Joshua Heschel

7. No incentive when you pay by cash

: You can’t pay less when you pay by cash. Credit card issuers offer savings in the form of rebates when you shop at certain grocery outlets and petrol stations.

The most important thing is not to incur credit card debt by getting what you want. Take advantage of your credit cards and use them wisely.

Self-discipline begins with the mastery of your thoughts. If you don't control what you think, you can't control what you do. Simply, self-discipline enables you to think first and act afterward. ~ Napoleon Hill 

Source:  Why You Should Keep Your Credit Card

Personal Money Management – 10 Wealth-Building Tips

Money may or may not buy you happiness, but managing your personal finance is a vital part of your long-term goals. Here are the top 10 tips:

1. Financial goals: How much money do you want to accumulate in the next five years? Set a realistic target. At the end of each year, you can compute your net worth to check how close you are to your objectives.

2. Savings

: The amount you want to save every month is related to your financial goals. You set aside a specific amount before spending your money.

3. Investment

: The money that you have saved in the bank to earn interest is not even sufficient to offset the inflation rate. You need to invest wisely to reap a reasonable higher return to beat inflation and sustain growth.

4. Spending: An important rule is to live within your means. Buy what you need and not what you want because your wants have no limit but there is a limit to what you can afford.

5. Debt management: The best thing in life is to buy with cash except for the purchase of a house and a car. Don't ever try to accumulate credit card debts. It will ruin your creditworthiness.

6. Insurance

for wealth protection: Having adequate insurance coverage to protect your wealth is part and parcel of financial planning. It is also prudent to have enough medical insurance to cover illnesses, accidents, and disabilities.

7. Will: Draw up a will is a hassle-free way to transfer your wealth to your loved ones when you’re no longer around.

8. Charity: It is a gesture of kindness to help the needy. The amount is not important. What matters is the sincerity from the bottom of your heart to give.

9. Educational fund and retirement fund

: Life is going to be miserable with an insufficient fund for old age. Set aside an amount for the golden years. Financial independence is an important goal in life. Allocating a sum for children’s education is another major consideration of your financial goal. A good education for children is one of the best forms of investment.

10. Take advantage of tax relief: In Malaysia, you can reduce your tax liability in several ways, some of them are listed here:

• Save for your children's education with Skim Pendidikan Nasional (up toRM3,000 in tax relief)
• Purchase life insurance( tax relief of up to RM6000 inclusive of your contribution to Employee Provident Fund)
• Purchase of sports equipment( tax relief of up to RM300)
• Purchase of reading material excluding newspapers( tax relief of up to RM1000)
• Take up medical or education policies (tax relief of up to RM3000)

Here are some wise words from George Horace Lorimer, “It’s good to have money and the things money can buy, but it’s good to check once in a while and make sure you haven’t lost the things that money can’t buy.”

Source: Personal Money Management - 10 Wealth-building Tips

Do You Know Your Net Worth?

Do you know your net worth?
To put it in simple terms it means what you own (assets) less what you owe (liabilities). Let's take a look at the following example:


ASSETS

Cash

Current account 6,000.00
Savings account 500.00
Fixed deposit 15,000.00

Total Cash 21,500.00

Personal Assets

House 100,000.00
Car 40,000.00

Total Personal Assets 140,000.00

Investment

Shares 25,000.00
Unit Trusts 15,000.00

Total Investment 40,000.00


TOTAL ASSETS 201,500.00 


LIABILITIES

Housing loan balance 50,000.00
Car loan balance 15,000.00


TOTAL LIABILITIES 65,000.00 



*NET WORTH 136,500.00

*(201,500.00-65,000.00)


It would be a good idea to check your net worth at the end of every year.
Celebrate when your net worth is better than the previous year. You are richer!

Source: Net Worth

Tell a Graduate to Start Saving Now

College graduates should start savings habits early.

Roughly 1.6 million college students will graduate with bachelor’s degrees this spring as the class of 2014. As commencement season continues, chances are pretty good that you or someone you know will have attended at least one graduation ceremony.

College graduations usually feature well-known speakers charged with imparting wisdom to young graduates. “reach for the stars” and “never stop working for your dreams,” are typical pieces of advice doled out to young people entering the “real world” for the first time.

If you know a new graduate, do them a favour: Steal five minutes of their time to disclose some real wisdom – in other words, the commencement speech they really need to hear. Be sure to touch on three big points:

1. Start saving for retirement immediately. Not next year or in five years – now. If you’re lucky enough to graduate with a job offer in hand, begin by signing up to participate in your first employer-sponsored retirement plan. New graduates probably don’t enter their careers already thinking of retirement

. Saving now for an event taking place in 40 plus years is a tough sell, but there are two important details new graduates should understand:

• People who start saving sooner rather than later set themselves up for financial success. Even a 20-something has likely had a fleeting thought about retirement, even if only to assume it will happen someday. Tell them they have an advantage in the planning game with the benefits of compounding interest – the ability of an investment’s earnings to themselves earn a return – on their side. In fact, a 22-year-old that starts investing $2,000 per year and only invests until age 36 will have over $300,000 more in their nest egg than someone who begins investing the same amount at age 36 until age 65 thanks to the power of compounding.
• Saving can be really easy if they automate the process now. A new graduate can get away with starting small – even 1 percent of his or her salary can make a difference– and increasing their contributions over time. Those little amounts do add up and before they know it, he or she will be contributing 10 to 15 percent of their salaries – or maybe even the maximum allowed by the Internal Revenue Service.

2. Invest aggressively. With 40 plus years until retirement, it’s okay for new graduates to be aggressive with their investment choices. Of course, as new investors, they should take care to remain well-diversified and make choices based on their tolerance for risk and personal goals, but selecting a riskier portfolio of mutual funds can be a good way to make more money as a young investor.

Generally, riskier investments, such as equities, have more ups and downs than funds that come with reduced risk (i.e. bonds). But they also have a greater chance of earning higher returns. People close to retirement should limit their exposure to volatility because they may not have enough time to wait for losses to rebound, but a new college graduate has no such worry.

3. Save as much as you can and pay yourself first. Bad things happen to everyone. Whether faced with an illness that takes one away from a job for a few months, or one loses a job, new graduates may one day find themselves without a steady income with which to pay the monthly bills. Their savings account could be the difference between sinking and staying afloat. That’s where “pay yourself first” comes in – while they’re young and healthy, tell them to make it a priority to save for retirement and sock away emergency funds to deal with situations such as these.

Advise your new graduate to think of their savings account as a cushion. It will figuratively “cushion” financial falls they may experience later in life. So before they eat out, buy concert tickets, get a new outfit, they should pay themselves.

This means regularly contributing to a savings account separate from their retirement plan. Like their 401(k) contributions, advise them to make it automatic and have their human resources department automatically deposit money from their paycheck into a savings account. When they get a raise or earn bonuses, earmark some of those funds for their savings and retirement accounts. Trust me, they’ll thank themselves later.

New graduates are dealing with a flurry of emotions – elation at finally being done with their undergraduate degree, excitement at starting their first job, and fear of the unknown, to name a few. When it comes to their finances, they’ve got two choices: Take charge and create a solid foundation for a financial future now, or put it off and potentially leave themselves open to struggling later. With these pieces of advice, you can help them make the right decision.

Source: Tell a Graduate to Start Saving Now