In general, most of us have some financial goals in our life, both short-term and long-term goals. Basically, the objectives are diverse depend on the preferences of each person. On the other hand, in the process of achieving those goals, we are confined by current household budget. In accordance with the basic principles of economic, even though our financial dreams may not be limited, but with a limited amount of earnings, we may not achieve all of our dreams, so that our task is to perform optimization of our priority at the moment.

As explained in previous article Basic Personal Finances – Initial Road to be Rich, determination of our goals have to be set based on the needs inspite of desire. Thus, when we determine our financial goals, there are some basic principles should be noticed. The principles consist of two major priorities – level of significance and level of urgency.

1. Goals setting based on the level of significance

Let’s divide our needs into three major groups, namely primary needs, secondary needs, and tertiary needs. In preparing personal finance management, we must start from the primary needs first.

Primary needs are:

• The needs of monthly basic necessity

It’s important for us to review again the types of our regular monthly household expenses, whether the money are spent for primary needs, or we used to spend money without any controlling on the level of significance. So that, just make a list of quite specific spending items from all of our current regular monthly household expenses, and temporarily remove all routine spending which is not a primary needs from the list. We shall move this kind of expenses to some lower priority list.

• Housing installment (for those who already had a house), or house ownership planning (for those who don’t have a home yet)

Ownership of one “standard house” is included in primary needs we must to achieve. Ideally, standard house is a medium-sized house with 2 or 3 bedrooms, but it could be only small flat in some countries where land price is very high. If currently we don’t have a house yet, we have to expect standard house price within 2 – 3 years to come. From the benchmark price, we can set household budget in term of amount of required deposit and repayment amount should be paid every month.

• Education needs of children, for those who already have children

In term of time to spend, needs of education consists regular monthly needs (children’s school tuition, tutor, etc.) and a one-time pay (registration fee of our child’s school, annual fees, etc.). Both of them are primary needs, but have different pattern of personal finance management.

Next, followed by a secondary needs:

• Car/motorcycle installment (if any), or the planning of car/motorcycle ownership (for those who don’t have them yet)

The cheapest reasonable transportation tool is motorcycle, followed by a car. If our income is quite limited, just start from motorcycle as a standard, don’t start from car.

• Home equipment needs, such as furniture, standard electronic equipment, etc

We can make a list of standard equipment such as home television, standard furniture, computers, and others, then sorting them from the most important ones to less important things.

• Entertainment needs

I include entertainment needs as secondary needs, not tertiary, because under current high level of life’s stress, everybody needs entertainment to maintain our mental balance. Specify one or two of our main hobby under reasonable budgets, and make monthly household budget for those hobbies.

• The need of emergency funds

I recommend for having special savings for emergency fund, because the future is uncertain. Once upon a time, we may need it.

• Other secondary needs based on our own preference

Let’s define needs based on necessity, not desire.

The later is a tertiary needs:

• Pension funds reserve

We can create some expectation of our retirement budget using retirement planning software or financial calculator.

• Other tertiary needs based on our own preference

Some of luxury things can be included in this list. It’s normal to dream about something which doesn’t significant but give us some enjoyable life.

2. Set goals based on the level of urgency

We can make a list of needs by making and filling the columns of urgency. Make some columns with title “Need by Time” from left to right respectively, starting from this month, next month, a half more years, one year longer, until the distance of our retirement age, then fill each column with our needs, starting from the most important (primary) to tertiary needs from up to bottom in the column. From this worksheet, we will get a comprehensive picture of all of our needs.

For example, let say somebody with 30 years old of age, has one child with 2 years of age, with current $ 3,000 monthly income. He has calculated his household expenses, and got $ 1,500 monthly primary needs, $ 700 repayment of home installment, and $ 200 installment of motorcycle. Let’s add another assumption, saving interest net rate is 3% per year, then he can sort the list as below:

1. Monthly primary needs $ 1500; remaining income = $ 1500 ($ 3000 – $ 1500)
2. Home Installment $ 700; remaining income $ 800
3. Motorcycle Installment $ 200; remaining $ 600 of income
4. Next year his child will enter pre-school, with $ 1,000 expected registration fee, so he must save as much as $ 82 a month from now; the remaining income will be $ 518
5. Monthly purchasing of home equipment is allocated $ 200 per month; remaining income $ 318
6. His hobbies are go to the cinema and soccer sport, and he allocates $ 100 per month for those hobbies; remaining income will be $ 218
7. $ 118 for other secondary needs; remaining income $ 100
8. At this time, he still not able to set aside the money for his retirement, then he allocates the remaining $ 100 as emergency savings fund. Two years to come, his emergency reserve fund will be $ 2,476

We can freely make this kind of budgeting simulation depend on our financial situation and preference. The point is, by organizing our spending based on priority needs as mentioned above, we will be habitual with self-control, can create personal finance management, and control our household expenses effectively. As a result, we will not be burdened by urgent needs that must be fulfilled when we don’t have even any money in our wallet / savings.

Tags: Household budget, household expenses, Personal Finance Management

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Simple and interesting free simulation program to calculate how much internet marketers have to earn monthly additional income from blogging / internet marketing, to secure retirement age period.

personal finances

The program can be downloaded HERE.

Several assumptions are generated from US historical economic data :
- Life expectancy (http://www.cdc.gov/nchs/fastats/lifexpec.htm)
- Historical US inflation from 1914 – 2008 (http://www.inflationdata.com/inflation/inflation_rate/historicalinflation.aspx)
- Long Run stock market return (http://www.sscommonsense.org/page04.html)

personal finances

PRESS TO RUN PROGRAM !

Have a nice try !

Tags: free stuff, Personal Finance Management, retirement

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In general, there are two kinds of investment way, ie direct investment and portfolio investment. Direct investment is done by embed capital investment into real assets, such as opening of factories, infrastructure projects, setting up some financial companies, and others. At its core, there are at least four characteristics of this type of investment : a part of money capital was changed to fixed assets, usually done by a company entities, there are some management of human resources in a relatively large scale, and long term in nature. While portfolio investment is embeding of money to one country’s / region’s financial instrument, such as investment in bond market or stock investing.

In contrary to direct investment, in this type of investment investors change their money into marketable securities as one way of asset allocation and money management. The investment can be done by private or company entities, has flexibility in number of human resources employed to do it, shall be done both in short-term or long-term, and usually can be stopped immediately at the time as desired.

In accordance with title of the article, this time I will discuss at glance about the kind of familiar portfolio investment, which have their own unique character that is quite different one to another.

• The first is investing in bond market.

In general, bonds are a kind of debts issued by companies or governments. When making asset allocation by buying bonds, we lend money to the bonds publisher. As a return, publishers will give us interest on the money invested, and eventually return all the money we lend. A number of interest are paid regularly (every 3 months – 6 months – 1 year), so the bonds included in the fixed income investment group. Compared to other investment instruments, bond is relatively safe especially if you buy bonds issued by the government. But, because of low risk, potential profits of bonds does not so high. Generally, the level of profits in bonds is lower than other instruments.

• The second is stock investing.

When we buy shares of one company, we automatically becoming the owner of that company. Therefore, we are entitled to receive benefits that are allocated to company’s shareholders, which called dividend.

In addition to benefits such as dividend, we can also expect some profit (capital gain) of the increasing in purchased stock prices. However, this ocassion does not always happen, for example, the current world stock price index has quite extremely decreased and the shareholders have some huge potential losses. In stock market, the publisher company also does not have any obligation to distribute dividends on a regular basis, so we cannot asure ourselves to get benefit from dividend. Because the risk is higher, stock investing provide relatively high benefits compared with bonds. Stock is quite good tool of money management.

• In other way of investment, we can raise our money through mutual funds.

This investment instrument offers many advantages for us. In addition to flexible amount of initial capital required for the investment, we also need not spend much time to monitor our investment, because portfolio management is done entirely by investment fund managers of mutual funds company.

In mutual funds, our money and other investor’s money will be collected by mutual funds company, and the company will manage the allocation of our money into stocks, bonds, or other investment instruments. As a return, we must pay some fees to fund manager of mutual funds company for their service by managing our money. Based on the investment focus, there are several types of mutual funds, consisting of fixed income mutual funds (bonds, protected), not fixed income mutual funds (stocks, money market, the index), or a mixture of both types.

In addition to the three main instruments, there are also other instruments which have very high risk but also greater potential income, such as options market, commodity market, and foreign exchange (forex). While giving high profits, those typical investments have very high risk.

Beside investments in marketable securities, we can also make asset allocation by buying gold or property. The risk of both investment types are relatively low, but we still need to have adequate knowledge before doing such kind of investment. Investing in the form of gold is more liquid than investing in properties, but usually both investment types are made for long-term investment purposes .

With the development of information technology, nowadays people can do money management by online investment in these investments, in which the sellers, brokers, and investors do not need to meet each other but all transactions conducted through the websites.

Regardless the type of investment that we will do for asset allocation and money management, whether in bond market, stock investing, mutual funds, or in the form of gold and property, should we learn enough about the characteristics and risks of each investment type from other people who have experienced in this field.

Tags: asset allocation, money management

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It’s commonly accepted that during anybody’s life, there is a time when they started to think about their financial goals, and most of people thought that money is important thing in their lives. Perhaps many people say that having money is not the main purpose of their lives, but for sure we can’t deny that money has significant role in the process to achieve other important goals in our lives.

For example, may be our main purpose is to get happiness by helping each other, having a harmonious family, having many friends, and the other noble purposes. We can do those things in our daily life, either with or without money. But just try to imagine, how you can do it in convenience way if you are still heavily burdened to fulfill daily basic necessity, hardly thinking about how to pay your child’s school, or other urgent needs. On the other side, situation will be different if today you’ve been able to regularly allocate some sufficient amount of money to cover your daily lives, make saving for your future lives, or even if you have passive income which can cover all of your needs. I think your life will be seems easier and comfortable to do other important things, don’t you ?

As different person has different perception about word rich, I try to categorize the people into three types in accordance with their concern to financial freedom ;

First, people who already known what’s their own financial purposes, have enough knowledge to implement personal finance management in their life, and do implement their knowledge in daily life. This kind of people is used to become successful in their financial and social life.

Second, people who don’t care enough about financial freedom. For them, financial freedom is just another slogan, and doesn’t so important as well. They tend to entertain their today’s life with almost of their earnings. This kind of people are usually stuck in their lifestyle and as a consequence they must work hard just to pay their current lifestyle.

Third, people who care with the goals of their financial future, have the desire to achieve the goals, but don’t know how to get started. I present this post for these people.

Well, for those of you who are starting to define your financial goals, below are some tips which might be useful for you:

1. Start your step by making goals that suit to your needs, not your desires

Set goals depend on desire will lead you to unrealistic goals, which have no accurate measurement tools, and make you becoming mad in the process to achieve those goals. One simple example is the goal of your saving amount for your pension stage of life. You can freely set any amount as you want, but if you define it based on estimated monthly expenditure at the time of your pension ages, the goal will be more realistic for you.

2.Set some main priorities quantitatively, starting from the most important and urgent things

Suppose you are a 30 years of age male, with $ 4000 monthly income, have been married, and has one 2 years old child, then you can sort your goals as follows:
- Routine monthly expenditure = $ 2,000
- House and car loan repayments = $ 1,000 monthly
- Next year your child shall enter a pre-school, with an estimated $ 1,000 registration fee
- Set aside an emergency fund, with $ 10,000 savings target in next two years
- Plan your family vacation each year, with $ 1,000 budget
- Estimated monthly expenditure of your pension life time, let say $ 10,000 per month

3. Personal Finance Budgeting: Count the needs of your monthly budget based on those goals, and then compare it with your current monthly income

Refer to the example mentioned above:
- Routine expenditures + loan repayments = $ 3,000
- Using financial calculator or Microsoft Excel, you can calculate the money you need to save starting from this month for having $ 1000 registration fee of your child’s school funding by next year (assuming net return of investment is 7% p.a), which is $ 80.23
- For $ 10,000 savings amount in next two more years, you have to set aside $ 387.13 per month starting from now on
- For family holidays, $ 80.23 per month
- For $ 10,000 estimated monthly expenditure at starting point of your pension age (next 30 years), you must have $ 1,714,286 savings 30 years later. To produce this amount, you must start to save $ 1,397 a month from now on

By adding all monthly expenditure, the amount of your monthly budget will be $ 4,944.59, which is $ 944.59 exceeds $ 4,000 monthly earnings.

4. Based on the results,

since your current monthly income doesn’t sufficient to accommodate such budget, you will have something to do, for example to temporarily eliminate your pension fund’s goal, while looking for solutions to increase your earnings by $ 1,000 (to $ 5,000) in the near future.

You can perform different simulation and make your own goals based on your preferences. Hopefully, by setting financial goals since the beginning, you will be able to well organize your personal finances and give you a motivation to search additional revenue in line with your goals.

I have to emphasize once little more, when you set your goals, please set the goals that you thought realistic enough to achieve based on the needs. By doing that, you will not get any stress in the process of achieving those goals, and personal finances will become an interesting game in your life.

Have a nice try !

Tags: financial freedom, Personal Finance Budgeting, Personal Finance Management

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If somebody ask you, “whether you have a strong obsession for rich quick ?”, I believe that some of you will say YES ! People who say NO just those who are recognized as rich by society, already felt rich, don’t have any personal finances planning in their life’s profession, or the person who doesn’t so sure about the question itself. Couldn’t be denied that any person who have started thinking about money, in nature have a desire to become wealthy themselves. Second and third very natural questions are, how to become rich and how long the time will be needed to become rich?

Well, for the one who said YES to the first question mentioned above, I just want to emphasize here that there’s no instant and easy way to get rich very quick, through natural ways to pursuit it. Yes, several persons got lucky by getting $ 10,000,000 grand prize amount and directly come into the rich. Other persons tried to do some criminal actions such as robbery, corruption, which has huge risk to bring them into the jail. But that’s different issue I think, because mostly people will think how to get rich with their natural efforts and try to live their life in comfortable way instead of doing such extreme actions.

For my own, I classify myself as a person who doesn’t so sure about the question itself. In my view, no one will be able to become rich quick through natural way, except they was born from old rich family. Each person should strive to become rich, times and efforts also required during the struggle. For that reason, I more interested in second and third questions of personal finances, namely how to become rich and how long our expectation to achieve it.

Robert T. Kiyosaki in some parts of his financial advice of famous book The Cashflow quadrant suggests people to move from employee and self-employed quadrant to investor and businessman quadrant in order to achieve financial freedom more quickly. To some extent, I agree with the opinion, but the fact is mostly people don’t have the same perception one to another about the meaning of the word “rich”. One quite extreme figured example, there are people who have felt rich when they have enough $ 10 thousands money in their savings, but there are also those who don’t feel rich still even though have time deposits of $ 10 millions. Other aspect is different people have different interests, and this interest is guiding people to enter the most possible quadrant for themselves. For example, people who used to (and enjoy) a hard day-to-day activities, will be more inclined to be a self-employed or employee than to be a businessman who usually do more lobbying and controlling activities. So that I think everyone can become rich and achieve their financial freedom regardless of the quadrant where he is.

As a soul of basic personal finances, there are some steps that I would like to recommend as a financial advice to become rich;

• First step and the basic of all, just find the meaning of word “rich” for our own, and set the time target how long time we need to reach it!

Everything must be described quantitatively, at least compared to the needs of our lives with a certain lifestyle. For example, the meaning of rich for me is to have monthly income (active income plus passive income) equal to twice of my monthly needs, having liquid assets in the form of savings, security deposit, or marketable securities that guarantee the monthly needs for two years, and I determine the target within 5 years to achieve it. In addition, I may also have another target for certain amount of savings to secure my pension stage period, and I expect to achieve that amount at my pension year-age. The goals will be widely vary depending on our personal preferences.

• Second step, regardless of the quadrant where we are, just ask ourselves whether our current routine income enables us to achieve our goals ?

If the answer is NO, this means we must try to make it into YES. There are various ways to do it, ranging from thinking about some additional revenues, to find a job with a larger income, or move to other quadrant either directly or gradually. The important thing is, make sure we have the revenue that allows us to reach the target.

• Third step, which should be done simultaneously with the second step,

is to create monthly personal finance budgeting, well quantitatively describe our monthly income and monthly expenses, with a target amount of money that we can save each month. This step will lead us to be focused on the main goal, and allows us to make the short-term targets (says the annual target) as an “anchor target” without losing our focus to achieve our main goal.

• The most important fourth step,

is to periodically review the first step towards the third : our main long term target, efforts made during the process towards achieving the target, and monthly personal finance management. This will help us to be very focused in the efforts to develop our routine revenue, analyze achievement of “anchor target”, and allows us to revise / make adjustments of the final target in accordance with development of our monthly income, changing or addition of preference, and the time remaining to reach the final target. This adjustment will be very important because above of all, we must have quite realistic target to achieve in the end. Don’t let ourselves to be stressful because of having a not realistic goals !

Those four steps mentioned above is a basic foundation of personal finances, to make our life financially well arranged, and finally become one tool to achieve our life’s ultimate target, ie happiness with enjoyable daily life.

Shortly noted that high-discipline and sufficient efforts are required to consistently run the four mentioned steps. If the steps are done correctly, I hope that this financial advice can assist all of us to become rich, one word that we dream about.

“The rich-talented persons always asking how to make more money out of time and money they had; on contrary the persons who always ask about some places to spend their money, will be stuck in a circle of hard work to pay their lifestyle”

Tags: financial advice, Personal Finance Budgeting, Personal Finance Management

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