Football and Personal Finance

Posted in Malaysia Investment, Malaysia Personal Finance, Malaysia Retirement, Malaysia Risk Management & Insurance |

Not just to ride on the craze of the on-going World Cup 2006 in Germany, but this is an article which I have really been wanting to share but just didn’t have enough motivation to write them down in words. It has also been analogically (if there’s a word like this) explained in my CFP class a few times and during some workshops I’ve attended on personal finance.

I have also added some of my own points to it. So, I guess this is a pretty much “bastardized” version.

Let’s study this football diagram below. To clarify, I am not into football commentating, so I might mixed up a few terms here and there, but hopefully that will not deter me from getting the message across to you.

1. From the left, first we have our “Net Worth“. This is exactly how much you are worth right here right now at this point of time. If you consider yourself worthless, then you can skip the rest of the section.

2. Then, we move on to the defenders or “Risk Management“. You enjoy your current standard of living eh? So, to ensure you or your dependents will not be affected by your sudden loss of “Net Worth” or simply put- money earning capability, or that your status being changed from an Asset to a Liability in the Family Balanced Sheet, you ensure that you are protected with the right tools, in this case it’s usually the insurance coverage you have. Enough or not, that’s a problem you have to figure out yourself.

3. Next, we come to the midfielders or the “Fixed Deposit and Money Markets“. Now, these players are in the “Wealth Accumulation” phase, that means you have money working for more money. However, the midfielders are not aggressive, and hence you don’t get much return from it. They are just there to ensure you get better interest rate than your conventional Milo-tin-saving-scheme. These few months back, the midfielders have underperformed inflation. Duh!

4. Next come our valuable strikers- The Equity Investments! Now, here’s where all the action is. This is the part of the team that makes the most lucrative return and where you can see double digit interest rate! However, let this be of a warning to you- The strikers are also very prone to injury due to their aggressiveness! So, you must not put all hopes in your strikers, don’t forget, a good personal finance strategy is teamwork of all eleven players!

Okie, that’s for the Defensive side. Now, we move forward to the next field to face our opponents! Now, we are the offensive team and the objective is to score the goal to Financial Freedom. What do we first encounter in the game?

1. Bad debts and Personal Loans! Yikes! The very word debt sends our hope to achieve financial security down the drain. Yup, we need to conquer debts and ensure our loans are in check before we should move on to the next stage. The trick is to keep your credit card at home and borrow logically from the banks/financiers. (read: licensed loan sharks).

2. Inflation. Well, there is really nothing you can do unless you don’t consume anything or in other words, inflation won’t affect you if you are dead. It’s as certain as death and tax. The only question is how much they are raising it this time. Well, to overcome inflation, you need to put money with rates higher than inflation.

3. Next, we move on to Economy Crisis. This is also something not the average Joe can manipulate to his own preferences. Stock market crash, unemployment, political unrest and regional change in economic climate will affect you, especially if you invest your money in the stock exchange. These sentiments power the bulls and bears of the market, and cause your investment to bloat in value or shrink into obscurity. The trick is to diversify your risk as much as possible to protect against such crisis.

4. Financial Freedom. This is where you can stop about worrying if you have enough money in the bank to pay for the bills or whether you should be able to enjoy your current lifestyle if you stop working today. The speed to financial freedom is the key. If you are going to take a lifetime, say up to 95 years old to become financially independent, what’s the point?

Alright, that’s that for now.

And to know how it feels like to score a goal, visit this site.

You might want to read these too...