Friday, February 16, 2007

personal finance tips

Feb 4 2007, 05:23 AM

Just want to share my experience in personal finance management as I believe I've made some mistakes that should be avoided and some good choices that might be useful.

1. Don't rush to buy a car. One of my first mistakes was to think owning a car costs only the monthly downpayment. It isn't. Petrol, toll, road tax, insurance, maintenance, oil change, accidents, tire change, stolen headlights and a hefty interest rate soon wised me up. I decided to downgrade to a smaller car, which is more affordable and still able to provide a roof over the family on the road. It costs me only 1/3 of what I used to own and whatever extra I had, I put it in the bank. Mistake:Bought a bigger that needed 2nd hand car with minimum downpayment and high interest rates over a 7 year period. Regretted it the most, especially when I decided enough was enough and sold it for a smaller car. Next time I buy a car, it would be an affordable new car with at least a 30% downpayment., and when the interest rates are more favourable. I will not fall into the 0 downpayment gimmicks. The interests they charged for your loans is just not worth it.

2. Don't simply buy insurance. When I started working, a lot of people approached me about insurance. Although I passed on all of them, I couldn't turn away a classmate of mine which was selling life insurance. Trusting him more because I know him, I took the policy after hearing what he said. I didn't ask so many question because I didn't want him to have the impression that I don't trust him. 1 year later, I never hear from him anymore and I received a letter from the insurance company that informed me my agent has been changed to someone else. My ex-classmate has resigned and I never seen him since. Scrutinising the policy after that, I realise it was not what I had expected and I feel cheated in a way. Luckily I only commited RM250 and not more as I felt I could've gotten a better deal like my other colleagues who pushed their agents for the best deals. Mistake:Buying insurance from so-so friends to give them face and trusting their every word because of 'friendship'. If I can afford another, I'll shop around for a better deal like I would if I was buying a car stereo, and not submit myself to anymore 'friend friend give face lah' sales gimmick.

3. Don't apply for credit card so soonWhen I started working at 17 after SPM, my then supervisor told me he had 7 credit cards. He was not boasting but showing me his mistakes to warn me of the danger of credit cards. He first had 1 card and applied the rest to cover each card as he failed to settle his debts over a 2 year period. Needless to say, he was heavily in debt by the time he got rid of all his cards and applying a loan to settle everything at a lower interest rate. Because of that lesson, I worked for 10 years without ever applying for a credit card. Although I'm qualified for a credit card since I was 19, I never applied for one, and refused the free ones as well. I've seen a few of my friends in debt with the card companies, and vowed never fall into that trap. That's why after 10 years of working and having a healthy savings account, did I dare accept a free card, trusting that I wouldn't abused it. So far just only 2 months since I got it, all are petrol purchases. I even tore off the pin they gave me so I wouldn't have a chance to withdraw money with my card.

4. Don't buy furniture with monthly payments.My parents has this mentality that buying electrical appliances and furniture with a minimum downpayment and monthly installment is a good way to save money. I learned my lesson when I let them buy a home stereo system from Courts Mammoth. Other than the interest which I had to pay, there was also late charges when I didn't pay on time, collectors charges when I needed the money for something else and skipped payment, and the worse of all, knowingly paying for something that is already spoiled after the warranty period and is not worth repairing. It is really frustrating to go to Courts to pay for something I can't even use anymore and futhermore obsolete. Mistake:Buying items for house with monthly payments when I can afford to pay full, and charged interest etc, for it. Worse was I had the stereo to pay, the refrigerator, and the furniture. I told myself never to buy household things with monthly payment schemes and to pay full after saving up for it when making a purchase.

5. Don't save till you starveI had the habit of taking out my savings to buy things I craved for but not needed like new fancy gadgets and expensive clothings. I did this for the 1st 2 years of work and finally realised that my savings was still less than RM1k. With that realisation I started saving aggressively and even to a point starving myself when I miscalculated my budget for 3 days. I figured I could lived off bread and even traded in my season pass to cash to buy bread and roti kosong until my next paycheck. It was not a smart thing to do and costs me more when I got sick due to gastric. I vowed never to go hungry again as long as I have the means to feed myself. My savings are now based on psychological benchmarks I set for myself. Every RM1K I saved was my new minimum, and withdrawals must not go below the thousand, eg. RM3075 means I can only remove max of RM75 and not below RM3000. Mistake: Starving or risking health is not a means of saving. With all your money saved, who is going to spend it if you are not healthy at the end of the day.That's all I can come up with now, it's late.

6. Don't try to keep up with technology, or rush into getting the bestTechnology is ever changing and everyday we get better gadgets. If we observe the pricing trend of technology (esp electronics), the price will usually slash itself by after a cool-down period. Technology gadgets are what I'll call "anti-inflation", the price goes down with time. Most often, the state of the art gadgets are priced with ridicolously expensive tags. If you wait a while, it'll be much cheaper than it is. So target what you want, wait until it falls within the affordable range that you can have. It may save you a lot!