Rise of the Financial Ruler

By Paul See (2017)

The cover of the book definitely attracts me to take it up for reading. Although many of the ideas shared are pretty general knowledge, but the way it is being presented, it is rather interesting.

Introduction Pointers
Shore up savings especially during peaceful times. There is the importance of emergency fund and safety net, the red portion of the Financial Ruler. One will never know when money will be needed urgently and hence, it would be more prudent to leave such funds untouched until the occurrences of critical situations such as loss of income.

Crisis often strike when least expected, and savings after a crisis had already occur too little, too late.

Develop the habit of looking out for opportunities.

Good Years : Year 1 Pointers
Different groups of people see different opportunities when they hear the same news. A person should start financial planning as early as possible because money will take time to grow. Expenses are no longer similar to that of the past, we must ensure that transport cost do not exceed 20% of our income.

Year 2 Pointers
Understand what we are buying into instead of following the crowd. When you understand the assets that are being brought into, you would possess the ability to manage and grow your wealth.

Year 3 Pointers
It is preferable to keep expenses to the limit of 55% when added together with all other serviceable debts. Without the discipline to stick to guidelines, the finances can spiral out of control.

In this modern age, if we keep saving in this modern age or held onto most of our cash, we are still bound to lose money because inflation would likely exceed the deposit rates financial institutions are paying out. We must stay open-minded and be constantly willing to improve our financial knowledge.

Year 4 Pointers
Assets are resources that put money into our pockets, while liabilities take money out of our pockets. Conventional assets such as property need not be true assets because the mortgage payments attached to it would sink us deeper in debt. Such mortgage payments should not consume more than 35% of our income in the Essential Net. It is also important to keep track of how much income is taken away from us through taxes.

Year 5 Pointers
10% of our income should be Edu-Fun net of the financial ruler, dedicated for the purpose as an investment into journey of self-improvement. Education is the best form of investment because you can control your own returns. The charity portion of the Edu-Fun Net covers the act of charity and giving back to our parents.

Year 6 Pointers
Be careful of frauds such as pyramid schemes.

Year 7 Pointers
It is a common misconception that being asset-rich meant that one was wealthy. Passive income is a better indicator of one’s wealth. Passive income allows people to pay for their monthly expenses. We need to consider whether we could maintain our current lifestyle in good and bad times. You can start by tracking your expenses daily.

Bad Years : Years 8 Pointers
Within most people’s lifetime, there will be a similar (example SARS) or even more severe epidemic. Biologically the flu viruses are getting stronger and developing greater resistance with time as they evolve every season. It would be wise to prepare for such a catastrophe and to ensure even if we lose our health or job during such crisis, we are still able to support ourselves and our family.

Be aware that another economic crisis is bound to happen again unexpectedly and recessions will always reoccur in cycle.

Years 9 Pointers
If we are employed and work for others, we will always be subjected to the fluctuations of the industry and the hiring policies of the firms we are working for. This brings us again to the importance of passive income streams and emergency funds.

Years 10 Pointers
Ever since the dawn of man and creation of money, frauds and bubbles have impacted many individuals’ lives and livelihoods. Despite rising global literacy rates over the past decades, frauds and bubbles have impacted many individuals’ lives and livelihoods.

Years 11 Pointers
People will become more restless as they lost their jobs. Tough times usually strike quickly and the economic climate deteriorates rapidly as it is fuelled by fear. Furthermore, each one of us is certain to fall sick someday. If we fall critically ill, we would hope to receive the best medical care and attention. A severe medical condition without sufficient insurance coverage might lead to the financial collapse of a person and his family.

Years 12 Pointers
It is difficult to follow the guideline of the Financial Ruler in bad times. While it may seem absurd to continue diverting money into the Edu-Fun Net even during a recession, we must never forget that we still need to spend some effort to treat our loved ones to the simple joys in life. Do not work hard for money, make money work hard for you.

Years 13 Pointers
When finances are well-planned, it offers us flexibility and peace of mind. When we save 10% of our annual income for retirement per year, in 10 years’ time, we would have saved the equivalent amount of 1 year’s worth of income. This is assuming that our annual income remains unchanged over the decade. This is the power of giving sufficient time for our pot money to grow.

Years 14 Pointers
We would blame everyone else first before ourselves when we fall victim to financial misfortune. Rather than always blaming others for our own mistakes which we could have prevented, we should think of how we could better adapt to this modern environment where monetary and budgetary issues surface daily in our lives.

Too smart for our own good

Ingenious Investment Strategies, Illusions of Safety, and Market Crashes (2018)
By Bruce I.Jacobs

The author believes that people’s attitudes about risk, liquidity and leverage are often delusional and naive because financial professionals sell them “free-lunch” strategies that promote flawed thinking about efficient markets and rational investors.

In the 1980s, investors bought “portfiolio insurance” to secure stock gains in the decade’s bull market. But this “free-lunch” investment strategy backfired in the 1987 crash. In the 1990s, hedge fund Long Term Capital Management (LTCM) promised high profits using the latest arbitrage models. But market crisis in Asia and Russia toppled its trades and LTCM itself. The 2008 financial crisis exposed the debt instruments’ failings. If the price of home falls below the value of your outstanding mortgage debt on that property, the rational thing to do is to default and walk away from both.

Dynamics within each of these events – the portfolio insurance problem, the LTCM collapse and the 2008 financial crisis – created a “positive feedback loop” which provided favorable results at first but they made the eventual negative consequences worse. In all 3 cases, the fantasy of a low-risk strategy caused market participants to increase their exposure and leverage their bets. But the final act common to all was one of cascading asset prices and fire sales due to forced unwinding.

Many of a times, the theories assume market are efficient and investors are rational. The modelers tend to neglect the fact that, as their money-making strategies become more widespread, they themselves make up a significant part of the market. Free-lunch financial strategies won’t dupe savvy investors, but many market participants may be much too clever for their own good.

Understanding Islamic Finance

By Muhammad Ayub (2007)

This book seem to have a very much indepth topic about islamic finance. However, if you are not that keen in this topic, it may a little challenging to read through.

Islamic finance operates within the framework of Shari’ah law and its objectives. Shari’ah law compliance includes inspection, internal controls, and in finance, the best solutions for the client’s problems. It also calls for religious observance and inspiration.

Islamic teachings prohibit interest, to provide justice and equal treatment for everyone. It prohibits excessive risk, charging commercial interest and gambling. Sellers can earn returns or profits, only if they show they have added value or taken a business risk.

The Shari’ah system forbids certain practices, particularly taking “prohibited gains” (Riba) and gambling or games of chance (Qimar). Riba is the proceeds of an investment or other cash return that someone earns without taking any liability for lending out capital. Riba covers gains – aside from repayment of principal-from loans, debts and sales. It sees all such prohibited gains as unjust an unethical because they favor the rich over the poor and thus harm society.

Islamic banking avoids venture capital financing in forbidden activities such as businesses related to gambling, pork, alcohol and interest-rate based dealings.

The Index Card

Why Personal Finance Doesn’t Have to be complicated
By Helaine Olen and Harold Pollack (2016)

The authors set out 10 clear rules that would fit on an index card for personal financial planning.

10 rules for personal financial planning
1. First, save 10-20% of your income.
You can’t begin to save until you educate yourself about where and how you are spending your money. For 3 months, keep track of everything you spend money on, no matter how small.

2. Pay off your credit cards each month.
3. Max out your 401k or other tax-advantaged retirement account.
4. Don’t buy individual stocks. They are too risky.

5. Invest in index funds with low expenses.

6. Make sure your financial adviser adheres to fiduciary standards.

7. Buy a home, but not until you are ready.

8. Buy insurance to protect you, your family and your finances.

Choose a “level term” life insurance policy – the cost stays stable throughout the entire term. This protects you from sudden increases in expenses.

9. Support Social Security and similar programs that make up the “social safety net”

10. Always follow the other nine rules.

Your business is a leaky bucket

Learn how to avoid losing milions in revenue and profit annually (2017)
By Howard M.Shore

Every business is a like a “leaky bucket” that regularly loses revenue and profits. These leaks result from problems with “people, strategy and execution”.

Any firm’s success depends on quality employees, smart strategy and sound execution.

Larger, more complex companies have more leaks than smaller companies. Having leaks does not mean your firm is a “bad company”. Even award winning companies leave “significant money on the table”.

Increasing revenue (making your bucket bigger)is easier than just plugging your profit leaks. According to the author, there are 15 most common leaks. To close these leaks, you can set up a better operating system and organize a fix-the-leaks action plan.

Top 15 Most Common Bucket Leaks

1. Poor Leadership
   A business leader’s most important job is to find,hire and retain people whose work is better than the company’s competitors. Leaders at every level should understand their main job is to “coach, mentor and motivate” employees to be as productive as they can.
   
   
2. Hiring and keeping “B and C Players”
   A-level employees meet their objectives and exemplify their company’s core values. B-and C-level employees under perform. Even as you try to control salary expenses – the biggest cost factor at most companies – strive to recruit and retain only the best staff.
   
   
3. Lack of “financial transparency”
   When you understand the firm’s financial statement, you can properly prioritize your actions and goals. Without that knowledge, you never know where your business stand.
   
   
4. “Vacant Positions”
   Many companies have employees whose skills don’t match their jobs. They don’t invest in filling the most critical jobs with the best people and they leave some vital positions unfilled.
   
   
5. “Excessive Turnover”
   To avoid turnover, implement a high-level job interviewing and hiring process. To sign up the new staff member you want, make sure the right people do the interviewing. Low or no turnover is also a problem. Either kind of turnover issue – too much or too little – can suggest “organizational complacency, weakness ,or low standards”
   
   
6. “Action without purpose”
   Meaningless churning is no better than no action. Every company needs an important purpose to motivate its employees. Although every company wants to make money, it shouldn’t be its purpose. Southwest Airlines define budget airline’s purpose as enabling “people who can catch the bus to fly”. His employees support this message with enthusiasm. In an air travel industry marked by airline bankruptcies, Southwest had been profitable every year.
   
   You can establish a similar elevated purpose for your firm by providing quality products like Apple or great service like the Ritz-Carlton hotels.
   
   
7. “Failing to Differentiate Properly”
   Making your products or services unique is an almost impossible goal. Instead, offer only truly unusual products or services, and focus on being able to solve customers’ problems in some “special way”.
   
   
8. “Focusing on tactics instead of strategy”
   Too many companies bog down in tactics but they aren’t strategic. To develop the right strategy, continually investigate 6 topics :
   – how to increase sales volume,
   – what you must do to justify charging more for your goods and services
   – how to be quicker, but still better, work in a smarter way.
   – how to manage with reduced resources.
   – Set aside time to think strategically.
   – can work in a smarter way?
   
   Corporate CEOs should huddle with their top advisers to plan strategy once a week for at least 2 hours and once every quarter for an entire day.
   
   
9. “Chasing Revenue Everywhere and Anywhere”
   Be discerning about the customers you pursuit. Focus on right customers and right revenues to avoid profit leaks.
   
   
10. “Ineffectively Communicating your Goals and Expectations”
    Lousy communication creates big bucket holes. To fix your communications, apply the SMART philosophy, which means being :
    Specific , Measurable, Attainable, Realistically High, Time- Based
    
    
11. “Emphasizing the wrong priorities and not aligning the team”
    Poor prioritization is the primary reason many companies never attain maximum performance and profits.
    
    
12. “Being allergic to saying no”
    You can’t succeed without proper time management.
    
    
13. “Monitoring the wrong numbers”
    Pay attention to your firm’s income statement and balance to follow the most crucial metrics.
    
    
14. “Holding ineffective meetings or lack of meetings”
    Purposeful, well-executed meetings enable you to monitor progress on multiple fronts.
    
    
    
15. “Failing to create a culture of accountability”
    Nothing gets accomplished without accountability. It is a “system component” that evokes both “culture” and “process”. Having a thorough action plan ensures accountability.

Executive Finance and Strategy

How to Understand and Use Financial Information to set Strategic Goals (2014) By Ralph Tiffin

Financial strategy is a critical part of running any business. It is important for non finance managers, board members and executives to understand how this strategy improves their overall operations.

All business strategies depend on cash flow. Understanding financial statements, concepts and conventions is a necessity if we are to know where we are and how we got there and as a base for projecting where we might be. A sound strategy has a quantitative aspect.

A company can manage its strategy with an operational approach or a structural approach. An “operational financial strategy” uses models and measures to plan and report data such as profits, efficiencies and cost reductions. A “structural financial strategy” focus on efficiently financing the business. A mission statement helps to explain a company’s core purpose which helps to communicate these strategies.

Return on investment

Any business must focus on its return on investment (ROI) or return on capital employed (ROCE). ROI is profit over capital employed. These indicators show the company’s success in meeting goals that produce shareholder value, increase free cash flow over time to pay dividends and build earning and share price. Producing shareholder value is not a strategy. It is the result of executing a strategy.

Reports on cash flow indicate a business’s ability to generate future net cash, as well as its borrowing and spending pattern. Companies with high gearing or leverage ratios – in excess of 40-50% should consider themselves bank-owned, not shareholder-owned. For many business, developing a budget can also create an adequate strategic plan.

In the US, regulators rely on 10-K statements to summarize a firm’s activities. While in the UK, the summary document includes earnings before interest, taxes, depreciation, amortization and rental expenses (EBITAR), operating profits before tax, non recurring income and net profit, losses, earnings per share (EPS) and ordinary dividend per share.

What your school never taught you about money

By Dennis Ng (2011)

Successful people found their purpose in life so they make decisions quickly. They have a burning desire (passion) in what they have chosen to do (purpose). The average person likes to DIY, the rich like to leverage on others.

Car loan interest rates are about double that of housing loans. Use rule of 70 to calculate the impact of inflation. Example if inflation rate is 3.5% , using Rule of 70, it takes about 70 divided by 3.5 or 20 years for $1.00 to become $0.50.

The rich and successful also always set themselves on a path of continuous learning. This cultivated practice, as Anthony Robbins has coined it, is known as continuous and never-ending improvement. (CANI).

If you spend all that you earn you would still be penniless regardless of the amount that you earn. But if you are to save at least 10% of your income, you would have saved about one year of your income in 10 years’ time.

7 strategies to fatten your purse

1. Save at least 10% of your income.
2. Control your expenses
3. Learn how to grow your money
4. Protect your capital from losses
5. Buy a house instead of renting one.
6. Transfer risk through insurance
7. Increase your earning capacity

The era of getting a stable job and the promise of job security is over. Self employment will help you control your own destiny.

In a stock market crash, even blue-chips companies would collapse. This goes to show that no companies or stocks can be immune to the ill impacts of a stock market crash.

What is the outlook for Singapore’s housing loan interest rate?
You should pay attention to the 3 month Singapore Inter-bank Offered rate (SIBOR) to better understand the trend in local interest rate, as banks generally use this rate as a benchmark for setting interest rates.

SIBOR is determined by 2 main factors, being the US Federal Reserve’s interest rate as well as Singapore’s financial market liquidity. SIBOR is the average interest rate, SOR (Swap Offer Rate) basically factors in SIBOR and the swap cost from US dollars into Singapore dollars. AS such, SOR is more volatile than SIBOR.

Home buyers typically try to minimize their home loan amount by paying as much with their available cash or CPF. Investors, however typically try to maximise the loan amount.

One common mistake made by home buyers is that they overcommit when buying a house. In which case, they tend to over-borrow and end up struggling to pay the loan installments each month.Do not spend more than 35% of your monthly income towards debt repayment.

In Singapore, there are specific rules and regulations that a REIT has to abide. Firstly 90% of its net income must be distributed to the shareholders in the form of dividends.

If higher interest rate, this would add burden to the home loan installments. With higher interest expenses, companies’ profits would fall, and with profits falling, share prices are likely to fall too. As a result of this series of events, global stock markets are quite likely to crash.

Personally, the number one investment question that i always ask is “What if I am wrong, will i be financially okay?” Next, I would do a simple upside/downside analysis and only invest when the upside is at least double the downside.

Money Rules : The Simple Path to Lifelong Security

By Jean Chatzky (2012)

1. Your job is your most important investment.
2. Your education is your second- most important investment.
3. An hour of your time is worth ______________.
   Remove the last 3 zeros from your annual salary and divide the remaining number in half. That is your per hour rate.
   1. Live below your means.

      5. Financial plans don’t fail people. People fail to plan.

      6. Your home is a piggy bank, not a cash cow.

      7. Aim for progress, not perfection.

      8. Doing nothing can be very expensive.

      9. Rebalance every 6 months.

      10. Banking online makes you smarter and safer.

Total Money Makeover

A Proven plan for financial fitness (2009)

By Dave Ramsey

The author supports the debt snowball method, where debtors pay off the lowest balance debt first before paying off for the highest interest rate debt. Small victories give the debtors motivation.

He has certain myths and truths in his book.

Myth : Debt is a tool and should be used to create prosperity.

Truth : Debt adds considerable risk, most often doesn’t bring prosperity, and isn’t used by wealthy people nearly as much as we are led to believe.

Myth : If I loan money to friends or relatives, I am helping them.

Truth : If I loan money to a friend or relative, the relationship will be strained or destroyed. The only relationship that would be enhanced is the kind resulting from one party being the master and the other party being a servant.

Myth : Car payments are a way of life, you’ll always have one.

Truth : Staying away from car payments by driving reliable used cars is what the average millionaire does; that is how he or she becomes a millionaire.

 

 

 

Buckets of Money

Buckets of Money: How to Retire in Comfort and Safety (2004)
By Raymond J.Lucia

Most of what the author say is in American context. In 2012, he was accused by Securities and Exchange Commission for spreading misleading information.

Regardless of this, he has an interesting idea of putting your retirement planning in a few buckets of money. Or what to do when you are going to retire.

 

You have 3 buckets. In bucket number 1 you put your money for the next 5-7 years (for very safe and secure investments or those generating income – REITS) . Bucket number 2 is for the next 5-7 year period after that (can take some risk) . And finally, bucket number 3 is for the money you will not need for 10-14 years (can take more risk).

He has a few interesting Lucia’s Law that he talks about.

1. The government isn’t going to take care of you.
2. Don’t count on your employer to take care of you, either.
3. It’s not what you make.. but what you keep that counts.
4. If you don’t invest in stocks, you won’t be financially prepared for retirement.
5. Too much trading can be hazardous to your wealth.
6. Trying to pick the best mutual fund is an exercise in futility.