The Best Personal Finance Summaries – 3 February 2019
We understand that your life is already busy enough. Even if you wanted to better improve your finances, you don't have the time to go search and read everything.
That's the original reason why we created this newsletter – so we can save you hours a week.
But we've taken this one step further.
We now have a whole video series of book summaries for you to learn the foundations of personal finance.
And now you can absorb all the most important facts within 15minutes.
Make sure you check it out!
[VIDEO] Book Summary: Money Master the Game
Tony Robbines interviews the top 50 investors in the US and asks them what the normal person should do. We think the answer will surprise you…
Would you Rather
We're planning to hold a giveaway in the near future and we want to know what you prefer.
Would you rather get RM10 guaranteed or the chance to win RM500?
Money in Daily Life
Emphasis on saving money. All the options in this list MUST either be cash or can be quickly converted/sold into cash without losing much value. In investing-speak, we call this ‘liquid’.
|Mutual funds, unit trusts, and Robo-advisory platforms||Those without withdrawal fees or locking period.||Amanah Saham Bumiputera (ASB), Wahed Invest, StashAway, and Tabung Haji.|
|High-interest savings account||They don’t lock up your money and could give high interest if you did not end up withdrawing from it.||Saver accounts by various banks.|
|Fixed deposit||Similar to the high-interest savings account, it could penalise you for withdrawing before the contract ends.||FDs by various banks.|
|Gold||Gold can both be a type of savings or investment. One could use Ar-Rahnu or pawnshop to secure a loan with gold.||–|
|Foreign currencies||Exchange your extra money into ‘valuable’ currencies.||US Dollar, Euro, Japanese Yen, and British Pounds.|
The key to living a rich life is taking control of your money.
You don’t have to have a six-figure income or own a business to build wealth. All you need to do is have smart money-saving habits and plan for your financial future.
Finance Planning 101: Basic Things to Sort Out
Financial planning, in short, is about having the right systems in place to build wealth. First, you need to sort the following things out:
#1 – Money Mistakes
Understand what not to do with your money:
|Debating minutia||Don’t focus on minor and insignificant financial details without acting.|
|Relying on willpower||You should instead focus on investing your money.|
|Waiting||Don’t procrastinate and start investing early.|
#2 – Automation
Set up an automated personal finance system for your bills, payments, and savings. Eliminate the tedious manual tasks and focus on the things that truly matter. To start automating your finance, first, use a conscious spending plan and plan how to use your money. Inspect and review the major areas of your spending:
- Fixed costs: 50 to 60%.
- Investments: 10%.
- Savings: 5 to 10%.
- Guilt-free spending: 20 to 35%.
#3 – Hidden Income
To maximise your hidden income, try to negotiate to cut down your fixed monthly costs:
- Car insurance: Analyse your current plan, check your coverage options, compare between different providers, and negotiate your rate.
- Cell phone: Understand your monthly usage and compare the plans provided.
- Bank and credit card fees: Negotiate and secure a waiver for overdraft fee or even a lowered interest percentage point.
#4 – Investing
Investing is the best way to build wealth, and there is a winning formula to be a successful investor. For investing, start as early as possible. If possible, invest every month and always go with index funds.
Before having a regular investing account, it is, however, recommended to max out retirement accounts first because they give you the most significant tax advantages.
#5 – Eliminating Debt
If you have a negative net worth, eliminating debt should be your priority. Follow these 5 steps to get out of your debt:
- Figure out how much debt you have.
- Determine what needs to be paid off first (based on interest rates).
- Negotiate a lower APR (annual percentage rate).
- Figure out where the money to pay your debt will come from.
- Start making a dent in your debts.
#6 – Earn More Money
Despite all the listed ways above, the best way to enhance your financial standing is by earning more money. There is a limit to how much you can save, but there is no limit to how much you can make. Try to get a raise, do side hustles, or even start a new business.
Financial Planning Advisors: Pros and Cons
Financial planning can be overwhelming. It’s not uncommon to seek help from a financial advisor. Before you proceed, consider the pros and cons below:
|You don’t have to learn all this stuff yourself.||Costs associated with hiring an advisor.|
|Can get your money in the best accounts to save on taxes.||Possible conflict of interest. Some advisors double as brokers.|
|Save time by having an advisor manage a portfolio for you.||Tough to find the right financial advisor for you.|
|Create a personal wealth plan for your specific situation.||–|
|Can add an extra barrier to your money, preventing you from making a rash decision.||–|
Want To Have Your Money Accelerate Your Goals?
Grow Your Wealth
Index funds are like cheating. And the Vanguard Index Funds are the best around.
What Is a Vanguard Index Fund?
A Vanguard Index Fund is comprised of hundreds of stocks and/or bonds. As an index fund, it invests in most of the funds in a specific index (S&P 500, Dow Jones, Nasdaq, etc.). You own a little bit of everything instead of owning shares in a single company. Also, it has lower taxes as it does not perform frequent transactions.
How do the index funds work?
Vanguard Index Fund tends to purchase shares to represent the overall market. For instance, if a particular company (let’s say, Amazon) represents 10% of the entire stock market – the Vanguard fund will match it by investing 10% in as well.
Our Take on Vanguard Index Funds
In short, Vanguard Index Funds are excellent choices. They have the lowest fees. However, the only downside is – you have to deposit a minimum of $3000.
The Cost and How to Buy Vanguard Index Fund Shares
The expense ratio is a percentage that the fund charges you annually based on your total investment. For Vanguard Index Funds, the expense ratio is in the range of 0.04 to 0.15%, depending on which market you have decided to invest in (simple index funds have a lower rate, while precious metals markets are at the higher spectrum). Also, Vanguard charges $20 annual service fee, which is waive-able if you have at least $10000 in the account.
The Best Vanguard Index Funds
Below is the recommended list of index funds available at Vanguard:
- Vanguard Total Stock Market Index Fund (VTSMX). VTSMX covers small to large-cap and value stocks.
- Vanguard Total International Stock Index (VTIAX). VTIAX handles investment in international stock markets, which have a low correlation with US stock performance.
- Vanguard Total Bond Market Index Fund (VBMFX). VBMFX invests 30% in corporate bonds and 70% in US government bonds.
- Vanguard Total International Bond Index Fund (VTABX). For VTABX, it allows investors to invest in non-US government-grade bonds.
The Lazy Portfolio of Vanguard Index Funds
A lazy portfolio means you could invest with minimal effort. For instance, you could choose a:
- Two-fund portfolio. Invest 60% in stocks and 40% in bonds.
- Three-fund portfolio. Divide your investments between stocks, international stocks, and bonds. It can be 60% in stock investment between US-based stocks and global stocks, with the remaining 40% in bonds.
- Four-fund portfolio. Divide your finances into four parts: US stocks, small-cap US stocks, international stocks, and bonds.
In general, weigh more heavily towards stocks when you’re younger. Shift the weight towards bonds as you get close to retirement.
Other Options for Index Funds
Many companies are as excellent as Vanguard. As a rule of thumb, consider the following:
- Does this company offer the type of funds I want or need?
- What are the annual fees?
- Is there other service or trading fees?
- Do I prefer to keep my accounts consolidated at a single bank?
- How much is the minimum investment required for each fund?
- Do I need to have an account minimum to maintain a brokerage account with individual companies?
As global economies appear to be slowing down, what should you do to protect your investments?
You can’t time the economy
Some investors cash out their investments because they think they could time the economy and buy at the bottom. However, you can’t time the market, you also can’t time the economy. It is difficult to predict the economy, let alone, as an individual investor! The economy does not always correlate to the markets’ performance.
Divesting to cash hurts you in the long term
Remember, cash is not a haven for when you are worried about being invested in the markets. Use cash to pay for monthly expenditures only. Holding too much money in hand could cost you to lose out on market opportunities. Also, cash inflates and loses value over time!
Your risk exposure is what you should be paying attention to
Instead of cashing out, think about your risk tolerance and adjust your investments accordingly. To navigate through the ups and downs of the market, consistency is the key. By modifying your risk levels, you could ensure that your potential downside is always managed.
Divesting for cash is not how you manage potential unemployment
Set up an emergency fund long before an economic slowdown. Don’t let being unprepared for life’s inevitable curveballs be an excuse to cash out your investments and jeopardise your long-term financial goals.
How to be prepared for a changing economy
In a nutshell, you should stick to your investment plan and manage your risk ahead of time. Allocate enough cash to fund potential emergencies and safeguard your investments.
A way for females to get free insurance
We were talking to our super humble financial advisor friend one day and she started talking about some insurance product for females that provides coverage for all these female related illnesses. But more importantly, the contract also states that all the premiums will be returned at the end of the contract.
Seriously something for all females to consider!