Personal finance thread

[Kashafa]

As important and integral finance & investment are, it's a suprise there is no finance section here on SOL.

 

Financial literacy and education, and how you act on it, could be the most consequential step you take, even more determining than school. But it's a ignored topic. Money is hot, how to learn making(and keeping) it is decidedly not. Unless a finance/economics/business major, the average college student will graduate knowing jack squat about financial matters. Credit card debt and high premiums will consume him. He'll be chained to a paycheck, paying bills and staying in the rat race just the way Wall Street wants him to be. Earn and Spend. Borrow and Borrow again. He might be making a killing income-wise, but through basic financial ignorance, he'll squander it all.

 

A friend of mine saved up 8k through feer iyo laad......and proceeded to drop it all on a brand new Ford Mustang, a depreciating asset that will continually not only lose money, but also cost him more with repairs, insurance, and gas, not to mention those monthly car payments.

 

This guy, on the other hand, took 12K in gift money and turned into 1.65 mil within 4 years, while still in school. Nope, he's not genius, he just made some shrewd(and risky) investments which paid off.(He did lose all his money later on, but that's another story)

 

For us Somalis, living in today's global enviroment, a sound understanding of all things financial is a must, laga maarmaan. Both on the personal and national level. Somalia is in dire need of a heavy influx of funds to rebuild the destroyed national infrastructure. Islamic banking/finance, a burgeoning sector that we must develop as an alternative to Riba-based economy.

 

Untill we can get a Finance section up, this thread is where you can post any questions or add input on all money-related matters.

[Skipper]

Kashafa you did what the SOL admin failed to do. As you put it having a sound knowledge about finance is very much integral to the modern economics set up. Beating the system and becoming financially secured is not easy. I wanted to invest in the stock market a while back but some folks said its haram and i had to drop it even though i have still doubts about whether its haram or not. So what you say about that?

[Baashi]

^Buy low, sell high is what my old man used to say about business. He was on the money

 

Back to kashafa's point. Here is a question for you all. What do you make of folks who spend money they don't have on things they don't need?

[Pujah]

Originally posted by Baashi:

 

Back to kashafa's point. Here is a question for you all. What do you make of folks who spend money they don't have on things they don't need?

I call them clueless as they don’t know or care the real cost of what they’re buying. Anytime you put something on a credit card you can’t pay off at the end of the month you’re just setting yourself up.

[Baashi]

Clueless? No that's not it dhuubo.

[Pujah]

^Well what else would you call them since they can’t seem to differentiate between need and want?

[Baashi]

Undisciplined.

[Pujah]

This type of budgeting can help the undisciplined as it requires no real budgeting just a need to stop when the specified amount runs out.

Understand your committed expenses

As I looked back over the past 20 years of budgeting, I saw that there were a few years when my wife and I believed we were fairly on top of things, even with a much lower income than we have today. How did we manage?

 

The key was a drop in our fixed monthly expenses. It was a period when declining interest rates had lowered our adjustable-rate mortgage payment to about 15% of our household income. That left us with some extra money each month to set aside in a savings account for those irregular expenses.

 

We later moved to a bigger house with a much bigger mortgage payment, higher maintenance costs and utility bills, and obscene property taxes. The monthly mortgage payment was only 20% of our gross income, far lower than the 33% that most lenders will allow, but, suddenly, we were struggling again.

 

Even after refinancing our mortgage at a lower rate, we were still often running out of cash before the end of the month. I realized that other fixed expenses had crept upward over the years. As my children, Natalie, now 17, and Jackson, 14, have gotten older, they need things like music lessons and sports equipment that can add several hundred dollars a month to our basic expenses. They're also outgrowing clothes faster than we can buy them.

 

The slow but steady growth in our monthly spending commitments was putting a squeeze on our budget. I call these "committed" expenses rather than "fixed" or "non-discretionary" expenses, because things like music lessons are neither fixed in amount nor absolute necessities, but rather are commitments my wife and I have made to provide for our children.

 

The 60% Solution emerges

After analyzing our spending patterns over the past couple of years using our Microsoft Money data file, I determined that we needed to keep our committed expenses at or below 60% of our gross income to come out ahead at the end of the month.

 

Committed expenses:

 

Basic food and clothing needs.

 

Essential household expenses.

 

Insurance premiums.

 

Charitable contributions.

 

All of our bills -- even such non-essentials as our satellite TV service.

 

ALL of our taxes.

 

I'm not saying that 60% is a magic number. It's a workable goal for my family, and it's a nice round number. But your number might well be a bit higher or lower. At any rate, it's a good place to start.

 

Then I divided up the remaining 40% into four chunks of 10% each, listed here in order of priority:

 

Retirement savings:

consisting entirely of my 401(k) contribution, which is subtracted automatically from my paycheck.

 

Long-term savings:

also automatically deducted from my pay to buy Microsoft stock at a discount as part of an unusual stock-purchase program. The relative lack of liquidity (i.e. the difficulty of turning these shares into cash) makes it harder to spend this money without some planning and a series of deliberate steps. In a real emergency, though, I could sell and have the cash wired into my bank account within three days, so this is also our emergency fund.

 

Short-term savings for irregular expenses:

which are direct-deposited from my paycheck into a credit union savings account. Money in this account can be easily transferred into our checking account, as needed, via the Web. Over the course of a year, I expect to use all of this money to pay for vacations, repairs, new appliances, holiday gifts and other irregular but more or less predictable expenses.

 

Fun money:

which we can spend on anything we like during the month, so long as the total doesn't exceed 10% of my income.

 

You may have noticed that only 70% of my paycheck is used for everyday expenses. Since we never see the other 30%, my wife and I generally don't miss it.

 

We don't really need to track our expenses, because our checking account balance is generally equal to the amount of money we can spend. That's the way a lot of people do it, but they don't first make provision for savings.

 

The key is keeping a lid on those committed expenses. You can categorize them if you want, but it isn't really necessary. In fact, you could make a budget with just three categories: committed expenses, fun money and irregular expenses, and that's just what I've done with the budget in Money 2005. (I can't really give up my anal-compulsive ways completely, so I've also created a set of subcategories to track the committed expenses, partly because that also allows me to export parts of my spending data to a tax program at the end of the year.)

 

Now, at this point you may be saying, "Well, la-dee-dah for you, but there's no way I can get my committed expenses down to 60% of my income."

 

How to get your spending down

For a lot of people, part of the difficulty in reducing committed expenses comes from the need to make big monthly credit card payments. If you're carrying a substantial amount of non-mortgage debt, I'd suggest using the 20% that would otherwise go to retirement and long-term saving to aggressively pay down your debt -- but only after you cut up those cards.

 

Every dollar in interest that you don't pay is just like getting a guaranteed, risk- and tax-free return on your money equal to the interest rate on the debt. When your debts are paid off -- and it won't take long using 20% of your gross income -- immediately redirect that money into savings.

 

Now, let's take the really hard case: Even excluding debt payments, reducing your committed expenses to 60% still seems like an impossible goal. If that describes your situation, the odds are good that you're facing one of the following problems:

 

You have a more expensive home than you can afford.

 

You've committed to car or boat payments that are larger than you can afford.

 

Your children are in a private school that you can't really afford.

 

There's just a big, ugly gap between your income and your lifestyle.

 

If it's one of the first three, you can undo the damage by slowly unwinding the commitments you've made and choosing something less appealing but ultimately more appropriate

 

If the problem is having champagne tastes on a beer budget, you'll need to take a long, hard look at where the money is going and why. Take the "Savvy Spending Quiz" on MSN Money to see if perhaps you're using money and things to fill a void in your life. Often, the steps needed to fill that void have little to do with money.

 

The real secret to building a budget that really works isn't tracking what you spend, any more than counting calories is the secret to losing weight. The key is creating a sustainable structure for your finances, one that balances spending and income and that leaves enough room to handle the unexpected.

Link

[ElPunto]

^Discipline? No that is not the word I would use. Discipline is needed to exercise regularly or do your homework every night. To spend money that you don't have - that is simply living in fantasy land.

 

I think to some extent - this is fostered by the culture. Everyone is in debt perpetually - one's parents, grandparents, relatives and neighbours etc. So why not you too?

 

Skipper - I would advise you not to talk to people who don't know anything about financial matters as to what is and isn't haraam. Investing in stocks is not haraam - investing in certain stocks is.

[Skipper]

Back to kashafa's point. Here is a question for you all. What do you make of folks who spend money they don't have on things they don't need?

 

Bashi is your quesion a riddle? How can someone spend money they dont have? The maths does not add up

 

The point abti are you sure about that?

[Baashi]

Qallanjo posted good info there.

 

No Skipper. Far from it. Riddle ku lahaa

 

Skipper and ThePoint well have you guys ever heard credit. Well isn't that how debt gets generated in the first place?

 

Skipper, for instance, eyes that PS3 Sony gadget and he figures this holiday -- with all the nice price breaks -- is the best time to buy the damn thing. He doesn't have the cash though so he slides his American Express and wala he takes home the price he's been eying all these months.

 

Now Skipper didn't have the money to begin with. He could live without PS3 too, right? Now tell me guys did he or didn't he spend money he didn't have on a gadget he didn't need.

 

Another good example would be the iPhone or the new iPod.

 

PS: Akhyaarta maxaa dhacay oo aad screenka u hor taagan tihiin yoomul ciidka?

[WILDCAT]

I never knew Baashi was an Ali beysteen (Indian).

[The Zack]

^^ Thats me. I just bought XBOX LIVE using my Huntington Credit Card. Hey this life is so short enjoy your part and pay off your debt.

[Dhubad.]

Originally posted by Kashafa:

A friend of mine saved up 8k through feer iyo laad......and proceeded to drop it all on a brand new Ford Mustang, a depreciating asset that will continually not only lose money, but also cost him more with repairs, insurance, and gas, not to mention those monthly car payments.

Kashafa, your friend missed the principle of becoming rich. I read this Book called The Richest Man in Babylon - it gives you financial advice based on stories collected from ancient Babylon(Once used to be the richest city in the world at that time)

 

The book sheds light on there principles that can make you rich.

 

1. Spend less than you earn.

 

2. Seek advice from people/resources you know and trust.

 

3. Make your money work for you. Basically invest the amount you generated from spending less.

 

If these principles are followed surely one will be rich in no time or at least will live a life without debt.

[LayZie G.]

Good read, poster.

 

lol@Wild Cat, indeed cali beystaan inta taagan waaye.

 

The point made a good point, dad oo finance and investing shaqo kulaheen aa lecture arimahaas ka bixiyo, the nerve eh?

 

I want to save money but I want to do it in a halaal way sheeko sheeko waaye.

 

Hadaad haram iyo halaal niyada kaaga jurto, then you are not serious about investing..

 

We live in a world that as soon as calagta kusoo gasho the sooner ay kaa baxdo.

 

The key is to balance it out.

 

Look into setting up an RRSP account, look into ING direct saving plan.

 

For instance, opening up ING direct saving account is easy.

 

A 123 step over the website sign up or calling their toll free#, instantly, you will have the account setup, from there you deposit a blank cheque, in which they will create a link between them and your regular branch (chequing account) from there on, you can add $50, $100, $200 into the investment account monthly with a starting of a 3.85 rate or so as an example and your money is earning for you without you doing anything. But on the other hand, you have a saving or a regular chequing account with your regular bank, in which they may charge you $5 - $10 a month just to have that open with them, and in turn, your money just sits there without doing anything.

 

The somali people's greatest investment comes in a form of ayuuto, but even in ayuuto, they still spend their money irresponsibly

 

Individuals who are in ayuuto have to setup a plan, in which after the 6-10month period of their money being kept in rotation end, where to go from there? Maxaa lacagta lagu sameynaa, now that ay kuu aruurte without koritaan?

 

Is it going into an RRSP account or is it just simply going to be put to buying that car you wanted or those overseas business venture you were looking into setting up ?

 

You have to have a plan of action and you need to be prepared to execute it.

 

Yes vehicle is a great investment, but so is real estate.

 

How about investing in some stocks, very few shares bought could do wonders, but you have to be able to take the risk, not just think about it.

 

So, the next time you have a quite a few hundred or thousands and thousands of dollars saved up, think before you act on that "it" item you were looking into getting.

 

Lastly, I want to end it by saying, for those that make a decent living yearly, why not set "a figure" to save yearly.(just on the side?)

 

Whether it is $5,000 or $10,00 or those that cant afford to put that much away, how about few hundred of dollars or even a thousand dollars? Think safe, spend responsibly