Why You’ll Never Get Rich By Just Saving Money

All the “get rich” advice in the world revolves around saving your money. The problem with such advice is that it often misses out the point that saving money will merely increase your chances of getting rich through other platforms, such as investing.

To build wealth, you must first think of ways to make your money grow. Read on to find out why having a golden egg is not as good as having a golden goose:

1. It doesn’t combat the rising inflation

Although the terms “saving” and "investing” are often used interchangeably, they do not actually mean the same thing.

Savings, by definition, involves the preservation of money from physical loss. Methods include stashing your hard-earned savings into a fixed deposit or under your grandfather’s pillow.

Investing, on the other hand, is taking some of your money and buying things that might increase in value, such as stocks, property, bonds, or unit trusts, with the aim of protecting your money from losing its value, and also making your money grow.

While saving money is a good habit, it does not necessarily protect you from market conditions such as economic downturns or soaring inflation rates, which might cause the value of your savings to diminish over time. Saving money merely creates opportunity while investing is the one way to capitalize on that opportunity to potentially create wealth.

Consider this: Malaysian annual inflation rate accelerated to 2.8% in October 2014 from 2.6% in September, driven by higher food, transport, and housing prices. What this means is, the RM1,000 you save today may be worth just half of its value in 15 years!

To beat inflation and maintain your current standard of living, you would need to make your money grow at a rate that is equal to or higher than the current inflation rates to rake in a sufficient amount for retirement.

Some ways to accomplish this is by putting money into investments like property, unit trusts, Real Estate Investment Trust (REITs), and private retirement schemes (PRS).

2. It’ll take longer to reach your goal

Most people have the same financial goals: to live a financially comfortable life, provide for their loved ones, and have a stable retirement income in their golden years. To achieve these, certain short-term and long-term financial goals must be achieved.

Living paycheque to paycheque does not help, and putting away money aimlessly will only get you so far. Investment can help you systematically plan for these goals, without putting away all your money into savings.

However, everyone has a different investor profile with diverse goals and needs. Safety of capital, income range, age, and holding power are some factors to consider when deciding on the type of investment to put your money in.

If you’re 55 and nearing retirement, and are hoping to stretch your retirement fund, you might want to play it safe and put more assets in lower-risk investments, such as unit trusts or savings bonds.

However, if you’re 25 and are saving for your first home, wedding, and also your retirement fund, you can afford to roll the dice a little bit more and put more of your money in higher-risk investments like stocks. Being young gives you a longer time horizon, which allows you to weather and ride out the market’s highs and lows.

At the end of the day, it is always worth having a good reason to start something. Writing down your financial goals will help set you in the right direction and help you stay on track.

3. It is a high risk

Not investing your money is riskier than when you do. By just saving your money, you are at risk of losing the value of your money due to inflation, and also losing the opportunity of growing that money.

It’s never wise to put all your eggs into the same basket, or worse, to put all your eggs in a basket under your bed. Putting all your funds in a low-interest savings account is akin to stashing your money under your mattress.

If you put RM5,000 in a fixed deposit account with a rate of 3.75%, you will earn RM938 in five years. However, if you put the same amount in a unit trust with an average rate of 5%, you stand to earn about RM1,381.41 at the end of the same period.

Investing allows you to diversify your funds to mitigate risks. Investors are always encouraged to spread out their investments among different asset classes such as stock, unit trusts, bonds, industries, and even geography. Asset allocations should be reviewed periodically as the investors go through different stages of life, and as the time horizon gets shorter.

The aim is to get maximum returns by investing in different areas that would each react differently to the same events. Although diversifying your investment portfolio does not guarantee against losses, it is an important component of reaching your long-term financial goals while minimizing risk.

What many people still do not know is that you do not need a substantial amount of capital to start investing. Nowadays, with just RM1,000, you can lay claim to hundreds of companies and residential apartments, commercial buildings, and shopping malls through ETFs and REITs.

4. It does not yield high returns

Saving money, even if you put your funds in a fixed deposit account, does not provide you with a high rate of return. Currently, the highest interest rate offered for a fixed deposit is  4.15%, just enough to protect your funds from rising inflation.

However, with investments, you get to choose the rates you are comfortable with, depending on your risk appetite. With the power of compounding interest, starting early can make all the difference. The earlier you start, the more time your investment has to compound the returns.

Instead of spouting rhetoric like saving is a good habit or saving for a rainy day, what your parents should really have told you were: an RM1,000 investment today, at an average return rate of 10% a year, will magically transform into RM1,465 in five years – that’s more than a 46% return on investment!

There is no one investment strategy that can guarantee sure-fire success, but at least the likelihood of reaching your goal is much better compared to just saving your money. Each investment vehicle has its own characteristics and risks, and are subject to volatile market conditions. However, in the long term, such glitches are expected to smooth out into an overall upward trajectory and produce some substantial financial returns for the investor.

Source; https://www.imoney.my/articles/why-you-will-never-get-rich-by-saving-money

Which is Safer? Paypal Or A Credit Card

Paypal Visa MasterCard American Express

The year 2014 was when consumers came to fear the data breach for real. According to the Identity Theft Research Center, there were 761 breaches in 2014 affecting more than 83 million accounts. Big names like Sony, JP Morgan Chase, the US Postal Service, Target, Home Depot, and, most recently, Chic Fil A are some of the notables that proved that even companies with deep IT pockets are at risk.

If you fear for your money, you’re not alone. According to the ISACA IT Risk/Reward Barometer, 94% of consumers have read about or heard of data breaches and 61% say they have a take-charge attitude rather than waiting for something to happen.

 But what does “taking charge” mean? Each additional company that has your payment information puts you more at risk. If you enjoy the convenience of a PayPal account – using it makes it quicker to handle online purchases and other payments, such as charitable donations – are you increasing the chance that your information could be stolen?

 How safe is PayPal? Should you have a PayPal account or should you pay for all online purchases with a credit card and not add one more company to your list?

The PayPal Pros

According to PayPal, your data is safe. (But who wouldn’t say that?) PayPal states that your information is encrypted with the highest level commercially available. Its servers check your browser to make sure it employs the latest encryption technology and your data is stored on servers that aren’t directly connected to the Internet. 

Slava Gomzin, the author of "Hacking Point of Sale: Payment Application Secrets, Threats, and Solutions," supports their contention. “If you have a choice on the Web, always select PayPal,” Gomzin says.

PayPal even pays hackers if they find vulnerabilities in its systems. According to Dean Turner, director of security intelligence at PayPal, "If you care about the product [and] you care about your customers, you care about your customers' security – this is what you have to do."

What About credit cards?

Credit cards aren’t as straightforward. Cybersecurity advocates routinely blast the U.S. credit card industry for failing to phase in chip cards. Already used in European countries and many others, these cards offer an added layer of security not present in the United States. The lack of these technologies is a major reason the United States is such a big target for cyber thieves, according to Gomzin. (For more, read What You Need To Know About EMV Credit Cards.)

Nearly all credit cards are issued by banks – an industry more guarded and resistant to some of the cybersecurity practices that PayPal employs. According to the Financial Services Roundtable, the banking industry does not pay hackers to alert them to security flaws, for example. This year’s successful attack on JP Morgan Chase is proof that the banking industry is vulnerable despite their large teams of security experts.

PayPal, however, is the Holy Grail for hackers. Just because the company hasn’t been hacked doesn’t mean that it won’t be. Hackers are constantly trying to break into PayPal’s servers.

Protect Yourself

The best and brightest team of cybersecurity experts can only do so much. The rest is in the hands of the consumer. One study found that only 45% of consumers changed their password this year, and the most popular passwords are still “password” and “123456.” If your password is easy to remember, it’s probably easy to hack. It’s time to change it.

You have to check your bank and credit card statements as often as possible, don’t use the same password for everything, and don’t click on any link in an email, even if it looks legit. Instead, go to the company’s website yourself or call.

The Bottom Line

Should you use PayPal or your credit card? Because many of the data breaches came from physically swiping the card, and because PayPal gets high marks for its security practices, experts advise using PayPal when possible. However, don’t link it to your checking account. Instead, link to a credit card so you get your credit card’s fraud protection in addition to PayPal’s

Source:http://www.investopedia.com/articles/personal-finance/011215/which-safer-paypal-or-credit-card.asp

62% of Americans can't cover unexpected expenses

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Car accidents, unexpected medical bills, an emergency plumber visit—there are all sorts of events that can interfere with even the best budget plans. 

But according to a study released Wednesday, more than 60 percent of Americans do not have enough rainy day funds set aside to deal with even minor calamities.

Just 38 percent of Americans said they could cover an unexpected emergency room visit or even a $500 car repair with cash on hand in a checking or savings account, according to Bankrate, which commissioned the study. About 26 percent would reduce spending on other things, and 28 percent said they would either borrow from family or friends or use credit cards.

"You hate to see so many people who are one relatively modest financial emergency away from a downward spiral," said Claes Bell, a Bankrate analyst who examined the survey results.

The Bankrate survey, which was conducted in December, did have a silver lining, however. Some 82 percent of the respondents said they keep a budget—though a majority said they do so in their heads or with pen and paper.

Bell speculated that budgeting could be an outgrowth of the financial crisis and the recession. "People are more interested in keeping a household budget and keeping their expenses under control," he said.

He's also hopeful that Americans could soon start putting more money away for emergencies. "As we see gas prices going down, unemployment falling and wages starting to rise, you may see people having the ability to build up savings," Bell said. 

If they do, it will indicate a shift in the direction of the personal savings rate, which has been declining since June and stood at 4.4 percent in November (the most recent month for which figures are available), according to Federal Reserve data.

Perhaps some additional New Year's resolutions are in order.

Source: http://www.cnbc.com/id/102317918#.

Credit card declined? – It could be one of these 8 reasons

Card Declined

Intro:

Our life revolves around money. These days it is simplified to carrying a debit or credit card. While it makes our life simpler, many a time it can be a bummer, especially when you are in a store in front of people and trying to make a payment and the swipe gets declined.

Story:

With our increasing dependence on credit and debit cards, we have grown used to not carrying cash around. We have also realised the importance of credit cards over cash. But, when you are out there throwing a dinner party to your friends and try to make a credit card payment and if the transaction gets declined, it can be an embarrassment.

There are many reasons why a credit card swipe can be declined. We have listed the top eight reasons for such a refusal of payment:

1. Credit Limit: Oh yes! This is the most common reason and all credit card users sure know this one. We have a fixed credit card limit (the maximum amount you can spend on your card preset by the issuer during the issuance), which if we cross or are very close to crossing could cause a decline of payment. Keep a track on your spending and keep in mind your credit limit to prevent such a situation.

2. Uncommon purchase: You have only used your credit cards to make bill payments online and suddenly you swipe to buy expensive jewelry of Rs 50,000, this transaction will be rejected even if you have enough credit limit. The reason why such a purchase can be declined is that your credit card company thinks that it is unusual for you to do such a purchase. Some transactions like buying gold; electronics and cash withdrawals will be declined if your credit is constantly used for smaller value swipes.

3. Invalid card: If you are using an add-on card that gets declined, it is possible that the primary cardholder has either reached the maximum account limit or has closed the account.

4. Change in terms and conditions: Do you have multiple credit cards from the same bank? If you default payment on one of those cards, it is possible that bank has blocked the other cards. In such an instance your swipe will be declined. Even if you have multiple cards from different lenders, banks randomly pull your Cibil credit score to take a relook at the creditworthiness. If the bank feels it has to lower your limit, it will give you a notice and do so.

5. Unknown location: If you live in India and if there is a credit card swipe in, let’s say Russia. This transaction will be declined because historically, all your swipes have been in India, the lender will assume it is a fraudulent transaction. So if you are travelling abroad, it is a wise step to call your credit card company and inform them about your scheduled trip.

6. Unusual currency: If you have always made bought in rupees and suddenly if you use your card to buy a ticket online in dollars that too with a heavy amount, this transaction is bound to be declined. Call your credit card company and give them a heads up before making such a purchase.

7. Technological reasons: These days, most of the new credit cards that are being issued come with an inbuilt chip. Now, to clear such a transaction, you need to key in a PIN number. Sometimes the merchant may be using a point of sales (PoS) machine that is outdated or if you have forgotten your PIN number or if your credit card is new and if you have not yet registered your PIN number, the transaction could be declined.

8. Wrong data: If you have entered a wrong billing address while buying a product online, or if you have entered a wrong credit verification value (CVV) or a wrong code for a 3D secure password, the transaction will be declined.

So, if you ever face a situation where your card transaction is declined, it is advisable to call your bank and check with them for the cause. In most cases, unless it’s a fraudulent issue, the problems will be resolved on the phone. Also, make sure you do not swipe the card again if it is declined. After three continuous declines, the bank may block it suspecting fraud. Keep your phone number updated with your credit card issuing bank, as the bank will alert you every time there is a swipe. Lastly, save the customer care number of your bank on your phone so that, when you are in a hurry to call them, you don’t run from pillar to post.

Should You Apply for a Credit Card in the new year?

Image via iStock.

New year, new credit card? Before you apply for a credit card to go along with a new year full of possibilities, read on to find out why you should or shouldn’t get a new credit card in the new year.

 I don’t have a credit card — why should I get one in the new year? 

Responsibly using a credit card is one of the easiest ways to build credit. A good credit score can help you obtain credit at reasonable rates, which will come in handy if you choose to purchase a home in the future since a 1% difference in interest rate could cost you thousands. Good credit also allows you to set up utilities without paying deposits, get a new cell phone contract or get a new job. Credit cards also come with the perks of potential rewards, protection benefits, a grace period between when you buy an item and when you have to pay it off, and low liability in case of fraud. Getting your first credit card means you will be able to take advantage of all of these perks and benefits.

 I have a credit card — why should I get a new one in the new year? 

If you have a credit card, chances are you’ve built credit already. This year, you might want to take advantage of that hard work by getting a credit card approved for those with good or excellent credit. The perks and benefits are often better, and they tend to offer the best rewards programs. You could plan ahead and get a credit card with an awesome signup bonus to use for your summer travel. Or you can apply for a rewards credit card that gives you high ongoing rewards for the things you spend on most, such as groceries, gas or dining out. Another reason you might want a new card is if your current card lacks EMV technology. Credit cards with EMV chips aren’t easily compromised, protecting you from having your card information skimmed. If you have a chipped card, use it the proper way to take full advantage of the chip — dip, don’t swipe. It’s easy: Enter your credit card into the terminal, follow the prompts, and remove the card when the receipt begins to print.

 Why shouldn’t I get a new credit card in the new year?

Of course, getting a new credit card has disadvantages, too. Each new credit card application triggers a hard inquiry, which pulls your credit score down a bit. If you’re firmly in the excellent credit score range, this isn’t a big deal. But if you’re between fair and good, or good and excellent, you won’t want to sacrifice any points to get a new credit card. If you’re spending habits aren’t the most responsible, a new credit card isn’t a good idea. It will give you access to more money and could lead you deeper into debt. So before you apply for a new card, make sure you’ve cleared your existing credit card debt and proved to yourself that you can responsibly handle plastic now.

 The takeaway: Before you apply for a new credit card, consider the pros and cons. Get a credit card if you want to build credit, obtain a better credit card than you have now, or need a card with an EMV chip. Don’t get one if your credit score can’t handle the hard inquiry or you don’t feel you have a good handle on your spending.

10 Things to Do Before You Retire

Time to Retire

Here's What to Do Now if Retirement Is on Your Horizon

1. Decide how you are going to spend your time. What are you going to do during the first six to 12 months in retirement, and what do you plan to do for the rest of your retired life?
2. Determine (realistically) how much money you will spend each month. Remember to include periodic expenditures such as gifts, vacations, taxes, an occasional new car, and emergencies.
3. Anticipate the cost of health care. You’ll have no employer to pay this for you; Medicare, Medigap, and private insurance are all up to you.
4. Buy long-term care insurance. Now.
5. Refinance your mortgage. Many people are shocked to discover that they either cannot borrow money after they retire, or they are forced to pay higher rates.
6. Boost your cash reserves. Make sure your rainy day fund is enough to cover at least six months’ worth of expenses.
7. Evaluate your sources of income. You have already figured out what you’ll spend on a monthly basis. Now figure out where that money will come from.
8. Revise your investment strategy. The way you’ve handled your investments over the past 30 years is not how you should handle them for the next 30. While preparing for retirement, you were focused on asset accumulation. When you’re in retirement, you need to focus on income and on keeping pace with the increasing cost of living. Assets must be flexible and liquid so you can meet the needs you did not anticipate. New words will enter your vocabulary: rollovers and lump sums.
9. Review your estate plan. Review your will and trust. Don’t have them? Get them. These documents can protect you and your assets while you are alive and benefit your spouse and children when you pass on.
10. Perhaps the most important thing of all. If you are not excited about retiring, then don’t. Many people quickly become bored after retiring. It’s OK -- even exciting -- to return to school or the workplace. Many do this, often in completely new fields.

15 Personal Finance Rules You Should Be Breaking

Personal financial rules to live by

Personal finance rules can serve as handy means for guiding your money behavior. But rules of thumb that don't fit your situation can be a waste of time — or worse, actually, worsen your finances. Here are 15 personal finance rules that, depending upon your circumstances, you should consider breaking.

1. Before Investing or Saving for Retirement, Be Debt-Free

Although this is a generally sound rule, there are a few justifications for breaking it.

First of all, personal finance isn't an all-or-nothing practice. Good financial planning involves balance and attentiveness to your unique situation. If your debt is low-interest, it might behoove you to pay it off more slowly in favor of saving money first (such as for retirement or major expenses). Remember: compound interest has immense value, so the more money you can invest earlier in life, the less money you'll have to invest overall. 

Also, if your company matches 401(k) retirement plan contributions, it almost always pays to save for retirement, even if you're concurrently juggling debt. Though it can be tempting to forego 401(k) contributions when your paycheck is lean, remember that you're leaving money on the table and jeopardizing your future financial security if you do. Plus, some retirement plan contributions are tax-deductible so you can use your tax refund towards your debt.

Lastly, if you wait until you're entirely out of debt, you may never start investing. For various reasons (none of which we recommend, of course), some people are practically never able to extricate themselves from the clutches of debt. Maybe your income is low and expenses too high, or perhaps you unexpectedly lost your job or had large, unexpected medical bills to contend with. If you're one of these people, then it's best to start setting aside a little money now and balance your cash outflows between debt payment and investing. I have a friend who is in her 60s with no savings whatsoever. Why? Because she always had a debt to contend with and spent a lifetime waiting until it was clear before saving money. Now, she's in trouble.

2. Pay off Your Mortgage Before Saving for Retirement

This builds on the above rule about eliminating debt before investing. I had some clients who were so intent on paying off their mortgage that they did it at the expense of everything else in their lives, including retirement savings and emergency funds. They thought if something went wrong and they needed money, they could borrow against their house (even in retirement). But when tough times hit, their house had declined in value and they couldn't borrow anywhere near the amount of money they needed.

3. Don't Borrow Money to Invest

Borrowing money to invest is known as leverage, and is generally considered risky — if your investment declines in value, you've still got a full debt-load and a disproportionately low asset to show for it.

However, if the item/investment is tax-deductible, and/or loan is low-interest (which might also be tax-deductible), such that the tax saved equals more than the interest paid on the loan, you can work this scenario to your benefit and use your refunds to pay off your debt more efficiently. 

4. Save 10% of Your Income

This is a somewhat arbitrary rule since 10% may or may not be enough for you to reach your savings goals. Focus on the amount of money you need saved in the end and work backward from there; you may need to break this rule if you've waited so long to start saving that 10% won't help you reach your goal, or if you need to save more money than 10% of your income will allow.

5. Go to University to Get a Good Job

Unless you're tracking for a career that specifically requires a university degree, you could save the six-figure expenditure of university education in favor of something more practical and less expensive, such as trade schools or alternative forms of education. Not all good jobs are borne of university education. I didn't go to university (but I am indeed educated), and in some ways, it saved my life.

6. Don't Use credit cards

Using credit cards responsibly can be beneficial if you're collecting frequent flyer miles or other credit card rewards that allow you to get extra value from charging expenses. The trick is to pay the entire balance off as soon as you receive your statement; that way you don't accrue interest and you thus avoid the credit card debt trap. 

7. Get the Biggest Mortgage the Bank Will Give You

What the bank will lend you and how much mortgage you can afford can be two very different things. The bank only takes your income and existing debts (and sometimes assets) into account when calculating the mortgage you can qualify for. What about your cash flow, expenditures, and the additional costs of homeownership, like maintenance, property tax, etc?

Depending on the area you live, real estate might be easily affordable or prohibitively expensive. Don't let the bank lure you into a mortgage larger than you can truly afford, because ultimately they win if you can't make payments.

8. Tax Refunds Are Good

Tax refunds mean the government is holding onto your money (and earning interest on it) during the course of the year! I had a client who loved to get tax refunds so much that she deliberately overpaid her taxes each year through payroll just so she could get a refund, which she inevitably squandered since she saw it as "found money."

Consider selecting fewer exemptions on your tax forms at work. You won't get a fat tax refund in the end, but you'll have more money in your pocket now, and will be less likely to splurge than you would with the "found money" of a refund.

9. Build Credit by Carrying a Balance With Your Credit Card

This rule is just plain wrong. You build a good credit rating by using — and paying off — your credit card. You don't need to carry a balance.

10. You Have to Spend Money to Make Money

Unless you have the disposable cash to spend, this rule reeks of high-risk business offers, gambling, and mail-order scams. Although sometimes a prudent investment (in a business or financial vehicle) can reap rewards, don't use this phrase as a rule of thumb for your personal finances.

11. A Budget Keeps Your Spending on Track

I wish it did, but unless you're unnaturally disciplined, it often doesn't. Budgets are more often than not made of abstract categories with arbitrary amounts of money that don't account for things like irregular expenses, quarterly payments, and other elements.

More important than a budget (and an essential first step to creating a workable budget) is keeping track of your expenses so you actually know what you spend. The longer you keep track of your expenses, the better you can understand and control your spending. 

12. Choose Index Funds for Passive Investing

Although index funds carry lower management fees than mutual funds, this is for a reason: They are not actively managed. Although active management doesn't guarantee higher returns, it can help with asset allocation, re-balancing, and other investment activities you may not wish to undertake yourself.

When choosing investments, instead first focus on asset allocation (which is the biggest factor affecting your returns — not investment picking as you might suspect), then choose a basket of diversified investments that satisfy your asset allocation plan. 

13. You Need to Have a lot of Money to Invest

How do you think people who have a lot of money got it (if they weren't born into it)? They saved — and invested! Don't belittle your own finances by thinking you don't deserve to invest or don't deserve the help of a financial planner because you don't have money. You have to start somewhere, and you can start investing with as little as $25/month.

14. Your Emergency Fund Should Be Six Months' Expenses

While this is an apt rule of thumb, depending on your situation it might not be suitable. Evaluate your expenses and what would need to be paid if you found yourself in an emergency situation; you may find you need more or less, depending on various factors, such as the quality of your insurance, level of regular cash outlays, and so forth.

15. Leasing a Car Is Bad Value

The general school of thought is that leasing a car costs more (after all is said and done) than buying one outright. Depending on your situation, however, this might not be true. For example, if you can deduct the car as a business expense, leasing could reduce your income and increase your cash flow more effectively than deducting the capital costs of buying a car. Also, if your business is new and cash flow is tight, leasing might get you into a necessary set of wheels for a lower monthly expenditure than buying.

Have you ever broken a personal finance rule in a way that served you well? Please share in the comments!

Source:http://www.wisebread.com/15-personal-finance-rules-you-should-be-breaking