27-02-2011, 06:36 AM
I've actually been doing what he recommends for the last 6 years, since mid-2005. I use a spreadsheet to track all investments, cash flows and also my "Balance Sheet" net worth at the end of every month. What makes me happy is that there is a "profit" every month on average and my family's "equity" has been slowly but steadily rising. Cash flows are also always positive due to "Pay Myself First" philosophy. I hope to be able to keep this up for as long as I am gainfully employed!
Feb 27, 2011
small change
How to find your way out of a financial maze
By Goh Eng Yeow, Senior Correspondent
In school, a student will spend years studying subjects such as physics, history and geography.
But the knowledge he gains from such studies will not equip him to cope with the financial challenges that he may face when he finally embarks on his working career.
Yet, financial literacy is one of the most important skills that every adult should have.
Over the years, I have encountered numerous professionals - teachers, doctors and lawyers - who were brilliant in their respective fields but who knew next to nothing about managing their own finances.
The consequences of such financial ignorance can sometimes be very painful. I know of a few couples who divorced because of the messy state of their finances - like buying an expensive condominium unit that they could not afford, or maxing out their credit card limits to live a lavish lifestyle beyond their means.
Still, there is no need to despair. Even though schools hardly offer personal financial management as part of the curriculum, this does not mean you cannot pick up these skills on your own.
Bookshops are crammed with 'how to' investment books that aim to give readers the basic know-how on investing.
Walk into any bank and you may find yourself assailed by financial advisers offering you tips on how you can grow your nest egg.
They may also tell you to rebalance your investment portfolio in order to optimise your returns, review your insurance policies to receive better coverage, and switch to mortgage packages that charge lower interest.
While these are admirable objectives, good financial planning gets under way only if you develop a systematic way to track your finances.
For me, the key is to draw up a spreadsheet that sums up my personal net worth at a glance.
What works best is still the format adopted by listed companies in reporting their financial numbers to investors - and which can easily be adapted by an investor to track his finances.
As a financial writer, I find it amazing that companies - even global entities with billions of dollars in revenue - have been able to condense their complex operations into a few pages of financial information that investors can understand at a glance.
To construct a picture of your financial health, let's start with the personal balance sheet.
First, list all your assets at their current market value. These should include your biggest fixed assets such as your apartment and your car, if you own one.
You should also do an inventory of all your financial assets - cash savings, fixed deposits, Central Provident Fund savings, unit trusts and stock investments at their current market value - and other assets such as club memberships, jewellery and even coin or stamp collections that can be easily sold if you ever need the money.
Next, list all your borrowings. These should include your home mortgage, car loan and any outstanding credit card debt.
Deducting the amount of debt from the assets will give you an indication of your net worth. It will give you a snapshot of your financial wealth at the point of the exercise.
To complete the picture on your financial health, however, you should also do a profit and loss statement to capture your various sources of income and major expenditures.
In most cases, the biggest source of income will come from your wages. But some of us may enjoy other sources of income such as bank interest and dividends from unit trusts and stocks, or rental income from letting out an apartment. Adding up the various sources of income will give you a picture of how much money you make in a year.
For expenses, you should include monthly cash outflows like your mortgage instalments and car loan payments, children's school fees and money spent on necessities like food and clothing.
To give yourself a better picture of your recurring expenses, you should add up one-off expenses like the money spent on house renovations or an overseas vacation as separate items.
Deducting the expenditures from the income will give you the 'net income' for the year. This is the sum you can set aside for investments or emergency purposes.
Doing such an exercise on a regular basis will go a long way towards ensuring that you are financially prudent in your investment decisions. Will you, for instance, consider buying a condo unit that costs $1 million if you know that your net annual income is only $50,000?
And if you find that you are consistently spending more than what you earn, surely it is time to adopt a more frugal lifestyle.
There is one other feature from listed companies' reporting procedures that I find useful, and that is the five-year track record of the accounts given in their annual reports.
You can easily do up a personal five-year track record by filing away the notes on your personal net worth and taking them out for a review when you repeat the same exercise one year later.
Over time, such reviews will give you a handle on your investment profile and spending habits.
It takes discipline for any investor to repeat the same exercise year after year.
But I find that there is nothing like the hard numbers staring me in the face to keep my feet planted firmly on solid financial ground.
engyeow@sph.com.sg
Feb 27, 2011
small change
How to find your way out of a financial maze
By Goh Eng Yeow, Senior Correspondent
In school, a student will spend years studying subjects such as physics, history and geography.
But the knowledge he gains from such studies will not equip him to cope with the financial challenges that he may face when he finally embarks on his working career.
Yet, financial literacy is one of the most important skills that every adult should have.
Over the years, I have encountered numerous professionals - teachers, doctors and lawyers - who were brilliant in their respective fields but who knew next to nothing about managing their own finances.
The consequences of such financial ignorance can sometimes be very painful. I know of a few couples who divorced because of the messy state of their finances - like buying an expensive condominium unit that they could not afford, or maxing out their credit card limits to live a lavish lifestyle beyond their means.
Still, there is no need to despair. Even though schools hardly offer personal financial management as part of the curriculum, this does not mean you cannot pick up these skills on your own.
Bookshops are crammed with 'how to' investment books that aim to give readers the basic know-how on investing.
Walk into any bank and you may find yourself assailed by financial advisers offering you tips on how you can grow your nest egg.
They may also tell you to rebalance your investment portfolio in order to optimise your returns, review your insurance policies to receive better coverage, and switch to mortgage packages that charge lower interest.
While these are admirable objectives, good financial planning gets under way only if you develop a systematic way to track your finances.
For me, the key is to draw up a spreadsheet that sums up my personal net worth at a glance.
What works best is still the format adopted by listed companies in reporting their financial numbers to investors - and which can easily be adapted by an investor to track his finances.
As a financial writer, I find it amazing that companies - even global entities with billions of dollars in revenue - have been able to condense their complex operations into a few pages of financial information that investors can understand at a glance.
To construct a picture of your financial health, let's start with the personal balance sheet.
First, list all your assets at their current market value. These should include your biggest fixed assets such as your apartment and your car, if you own one.
You should also do an inventory of all your financial assets - cash savings, fixed deposits, Central Provident Fund savings, unit trusts and stock investments at their current market value - and other assets such as club memberships, jewellery and even coin or stamp collections that can be easily sold if you ever need the money.
Next, list all your borrowings. These should include your home mortgage, car loan and any outstanding credit card debt.
Deducting the amount of debt from the assets will give you an indication of your net worth. It will give you a snapshot of your financial wealth at the point of the exercise.
To complete the picture on your financial health, however, you should also do a profit and loss statement to capture your various sources of income and major expenditures.
In most cases, the biggest source of income will come from your wages. But some of us may enjoy other sources of income such as bank interest and dividends from unit trusts and stocks, or rental income from letting out an apartment. Adding up the various sources of income will give you a picture of how much money you make in a year.
For expenses, you should include monthly cash outflows like your mortgage instalments and car loan payments, children's school fees and money spent on necessities like food and clothing.
To give yourself a better picture of your recurring expenses, you should add up one-off expenses like the money spent on house renovations or an overseas vacation as separate items.
Deducting the expenditures from the income will give you the 'net income' for the year. This is the sum you can set aside for investments or emergency purposes.
Doing such an exercise on a regular basis will go a long way towards ensuring that you are financially prudent in your investment decisions. Will you, for instance, consider buying a condo unit that costs $1 million if you know that your net annual income is only $50,000?
And if you find that you are consistently spending more than what you earn, surely it is time to adopt a more frugal lifestyle.
There is one other feature from listed companies' reporting procedures that I find useful, and that is the five-year track record of the accounts given in their annual reports.
You can easily do up a personal five-year track record by filing away the notes on your personal net worth and taking them out for a review when you repeat the same exercise one year later.
Over time, such reviews will give you a handle on your investment profile and spending habits.
It takes discipline for any investor to repeat the same exercise year after year.
But I find that there is nothing like the hard numbers staring me in the face to keep my feet planted firmly on solid financial ground.
engyeow@sph.com.sg