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Sat, 9th May, 2009 - Posted by Fareen - 41 Comment

The secret to having money

Posted by Fareen

“Should I buy a new car…how about a house?” few friends had asked me this questions recently. With the ‘bargains’ appearing in the market now, it is worth considering. Why not? Buying at a lower price is a good practice. Are all cheap things good buys?

Why do some people become rich and stay rich? Granted, some are born with silver spoon, but there are others who rose from rags to riches. In the realm of personal finance, there must be a way on how to make money and conserve money like them.

We heard it all before, we have enough for our needs, not our wants. Before we do make that purchase decision maybe its worth considering what goes on before that. A prequel of questions if you may.

1. How much money do we really have?

Do we know what we have? Studies show that on the majority, assets tend to be overestimated. Liabilities understated. Do we know what we really have in our hand? Can we commit to what we want and not take it from previous commitments?

2. What if something happens and our lifestyle changes?

Where do we get our money from? Do we work? Are parents paying for our education? What if they are not there anymore, can our decision withstand their absence? Nobody wants the rug being pulled underneath their feet.

3. What is the real cost of what we have bought?

What does it take to really use what we had bought? if its a car, insurance, repairs and fuel should be added to the cost. For houses, the move-in cost, setting up costs, legals fees are among the things that add up before we can live or rent a house out. There should not be any hidden expenses to surprise us.

4. How much money should you have for your future and retirement?

Its no good to have the numbers in your head. Unless you are walking supercomputer (or an actuary) its good to put it down on a spreadsheet. Model the figures for the long term not few months of years. I have mine for 50 years. If 50 years is too long (most will be senile by then) - try 20 years. It does not have to be right the first time. I always refine it as I go along. Do calculate things like how much cash you have (free cash flow) and reserve to cover debt payments (debt service cover ratio) if you do have debts. It does not have to be totally right, whatever the future is, its good to think about the issue before it occurs. Its just good practice.

I had this best tip from my friend in university. I asked him how his family had done well, starting from humble beginnings. What was their secret ? “2 things” he said, “When people spend you save, when people save you spend“.

Collection of Articles (Carnivals) on personal finance:

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