## Friday, April 26, 2013

### Interest – Part 3 Rule of 72

A quick and easy way to calculate compound interest is using the rule of 72.

In finance, the rule of 72 is used to estimate how many periods the investment will be doubled, given the interest percentage per period.

The formula is very simple

If you can get a 12% interest or return on your investment per year, how many years will you double your money? If you invest Rp 10,000,000, when will it be Rp 20,000,000?

n = 72 / 12

n = 6

So it will take approximately 6 years to double your money or make your investment become Rp 20,000,000.

Let’s take another example. If you want to double your money in 3 years, what is the rate of return that you need?

3 = 72 / r

r = 24

So you will need an interest of 24%

What is the number if you want to know when your money is tripled? Use Rule of 114

What is the number if you want to know when your money is quadrupled? Use Rule of 144

Remember to use this rule as an ESTIMATE because it is not meant to be exact. It is good for rough calculation that you can use without a financial calculator or spreadsheet.

Learn and Grow!

Inge Santoso, B Com, CFP®

## Tuesday, April 23, 2013

### Interest – Part 2 Compound Interest

Compound interest is interest upon interest. That is, when an interest payment is added to the principal and then the whole thing (principal + interest) earns interest.

How does it work?

If you invest Rp 1,000,000 and the compound interest is 10% a year, then

Year 1 : Rp 1,000,000 + (Rp 1,000,000 x 10%) = Rp 1,100,000

Year 2 : Rp 1,100,000 + (Rp 1,100,000 x 10%) = Rp 1,210,000

Year 3 : Rp 1,210,000 + (Rp 1,210,000 x 10%) = Rp 1,331,000 and so on

Compound interest is what can make you rich when you invest. One of the most important elements in compound interest is time. The longer the time, the greater the impact.

That’s why the best time to invest is yesterday!   Since you cannot go back to yesterday, then the next best time is NOW!

Perhaps you have heard this story…

One day a father and his son went to play golf. Before they started the game, the father asked his son.

“Son, would you prefer getting a lump sum Rp 50,000,000 or getting Rp 1,000 on the first hole and doubling it for next hole until you reach the 18th hole?”

After thinking for a few seconds, his son said, “Rp 50,000,000, Dad.”

“That’s why you still need to learn, Son. I’ll show you why.”

“If you choose doubling that Rp 1,000, at the 18th hole, you will have Rp 131,072,000 and if you total all the money from hole 1 to 18, you will get a sum of Rp 262,143,000. You will get about 5 times more.”

What can we learn from this story?

1. It’s OK to start small. The most important thing is to start NOW.

2. When you have more money, save and invest more!

3. You may not be able to get an interest of 100% like in the story, but there are financial instruments that can get you better return than bank saving rate.

Learn and Grow!

Inge Santoso, B Com, CFP®

## Monday, April 22, 2013

### Interest - Part 1 Simple Interest

When we talk about investment or borrowing money, we need to understand interest.

For most of us, we had learned how to calculate interest when we were at school, but we might not put much attention to it because we were too young to understand its implication. We only learn the mathematical aspect of it without understanding how important it will be when we grow up and start saving, investing or borrowing.

Today we will learn about SIMPLE INTEREST. Interest is how much you pay for the use of money. If you borrow money, then you pay interest. If you lend or invest money, then you earn interest.

Example 1: If you invest Rp 1,000,000 and the interest rate is 12% a year. How much interest will you get in 3 year?

You will get an interest of = Rp 1,000,000 x 12% x 3 = Rp 360,000

The amount of money you will have after three years is

Rp 1,000,000+ Rp 360,000 = Rp 1,360,000.

Example 2: If you borrow Rp 5,000,000 and the interest rate is 10% a year. How much you will have to pay if you borrow for 3 years?

You will have to pay back = Rp 5,000,000 + ( Rp 5,000,000 x 10% x 3)

= Rp 5,000,000 + Rp 1,500,000

= Rp 6,500,000

Tomorrow, we will learn about COMPOUND INTEREST.

Learn and Grow

Inge Santoso, B Com, CFP®

## Monday, April 15, 2013

### Financial Lessons from Warren Buffett

Source: Best Finance Schools

## Wednesday, April 10, 2013

### Wishing Wishy-Washy Wishes

I wish…

• I have more money,
• I have a new car,
• I have a bigger house,
• I have the best smartphone,
• I win a lottery,
• I get a windfall from distance relatives,
• I get a pay raise at work,
• I can travel more,
• etc.

I wish…I wish…I wish…so many wishes, but unfortunately they will remain just wishes.

If you want to your wishes to come true, one of the first things you need to do is to change your wishes to goals. Some of you may have heard SMART goal setting that goals need to be Specific, Measurable, Attainable, Relevant and Timely.

Specific – What do you want? Why do you want it? How are you going to do it? You need to be very clear about what you really want. For example, instead of wishing you have more money, you can set a specific goal of saving 10% of your income or Rp 1M a month.

Measurable – You can quantify your goal and measure your progress. For example, if you want to have a saving of Rp 6,000,000 in a year, then you can measure your progress when you save Rp 500,000 a month.

Attainable – You need to believe that you can achieve this goal. You need to set a goal that is big but not impossible to achieve. For example, if your income is Rp 10M a month, saving Rp 1.5M a month or 15% of your income is attainable. If you say that you will save Rp 5M or half of your income, it will be very hard, especially if you have a family to support. If it is too difficult you are not going to do it, so set a goal that will excite and motivate you to achieve it.

Relevant – How is the goal relevant to your life or purpose? For example, if you say that you want to save Rp 1M a month for a child’s education fund for 10 years, but you do not have a child…then it’s irrelevant. The goal must be meaningful and rewarding for you.

Timely – You set a timeframe for the goal. For example I have Rp 20M of emergency fund by 31st December 2013.

Transform your wishes into goals and start taking action today!

If you do not mind sharing your goals with us, please share them in the comments! You will be more motivated when you make a public commitment!

Learn and Grow!

Inge Santoso, B Com, CFP®

## Tuesday, April 09, 2013

### Be Prepared for ‘YES’

When we have lived as frugally as possible, yet the income is still not enough to have a decent lifestyle, then we need to consider increasing our income. One of the ways to increase our income is to sell or to offer our services. Perhaps some of us join network marketing, real estate agency or insurance industry to supplement our income. Although the potential rewards from these industries are high, not many people can stand the work. Trust me…it is not as easy as they say in their business opportunity meetings!

When we are selling or offering our services, we are often met with many objections, rejections until we only expect people to say ‘no’. Sometimes we feel so afraid to make another phone call because we can’t stand to hear another ‘no’. If this happens to you, remember this:

No matter how good your product or service is, there are people who will not buy it; No matter how bad your product or service is, there are people who will buy it.

That’s why when we are moving from one rejection to another, from one objection to another; remember that those rejections and objections will only bring us closer to those people who will buy from us. The no's are stepping stones instead of obstacles in our way to success. Celebrate and learn from the no’s and always be prepared for someone to say ‘YES’!

Wish you all the best in increasing your income!

Learn and Grow

Inge Santoso, B Com, CFP®

## Monday, April 08, 2013

### Tips to Put Money into Savings Account

I know some people find it difficult to save money. It’s not because they do not have enough income, but because of their spending habit. When they have money, they just feel like spending them all.

There are many reasons why they do it. For some people, it is because of some traumatic events in the past, upbringing or due to friends’ influence. For some, it is because of their personality type. Certain type of personality such as Influence or Sanguine tends to seek pleasure and want to enjoy things now. They tend to be unorganized and won’t be bothered to track their expenses. (If you want to know more about how personality type can influence your finance, you can attend our seminar “Mastering Your Personality for Financial Freedom”)

1. Auto-debit – automatically transfer some money to a separate account straight after you receive your income or salary
2. Pension scheme provided by the company – some of the salary is automatically put into your retirement account and you can only access the account at certain age
3. At the end of the day, take one piece of third biggest denomination of money from your wallet and put it in a jar. At the end of the week or month, deposit that money into your savings account. For example, if there are a few 100K, 50K, 20K and 10K in your wallet, take one piece of 20K (third biggest denomination) and put it away. If you do this for a month, you may get around 500K that you can put in the savings account.
4. When you get some change after paying for something, put the change into a separate wallet and save them. Don’t forget the coins because they can add up. For example, when you pay for 36K lunch using 50K denomination, put away the 14K and save them.

I hope these practical tips can help you put more money into your savings account. Start today! Put into practice and see you much you have saved by the end of the month.

If you have other tips to share, please do so in the comments.

Learn and Grow

Inge Santoso, B Com, CFP®

## Wednesday, April 03, 2013

### Envelopes for Financial Management

Envelopes made by Anna and Anis. Thank you.

Instead of bringing your wallet full of credit card when you go shopping and you end up spending more than your budget, you can bring something like the picture above. It is made of 6 envelopes bounded together.

At the beginning of the week, you can allocate money for:

1. Grocery shopping
2. Transport (petrol, tickets)
3. Dining out
4. Bill payment due that week (utilities, school fee, etc.)
5. Fun or entertainment (movie, book, magazine)
6. Emergency fund

Put the budgeted money into each envelope.

Whenever you buy something or pay something, use the money from the appropriate envelope and put the receipt into that envelope. Basically you exchange the money with receipt.

When there is no more money inside the envelope, it is a sign to stop shopping. Remember…no cheating! Do not move money from one envelope to another.

At the end of the week,

• You can use the receipts to record your expenses for the week
• Any money left in the envelope, you can either save them (recommended) or you can use it for the following week

It is a simple and practical way to manage your finance.

Learn and Grow!

Inge Santoso, B Com, CFP®

## Monday, April 01, 2013

### Demystifying Get Rich Quickly Tip No 1 – Marry Someone Rich

I often heard that one of the ways to get rich quickly is to marry someone rich. I saw this story posted on Facebook and I would like to share it here. I don’t think this is a real story, but we can always learn from it.

### A reply from CEO of J.P. Morgan to a pretty girl seeking a rich husband

A young and pretty lady posted this on a popular forum:

Title: What should I do to marry a rich guy?
I'm going to be honest of what I'm going to say here. I'm 25 this year. I'm very pretty, have style and good taste. I wish to marry a guy with \$500k annual salary or above.
You might say that I'm greedy, but an annual salary of \$1M is considered only as middle class in New York. My requirement is not high. Is there anyone in this forum who has an income of \$500k annual salary? Are you all married?

I wanted to ask: what should I do to marry rich person like you?
Among those I've dated, the richest is \$250k annual income, and it seems that this is my upper limit. If  someone is going to move into high cost residential area on the west of  New York City Garden(?), \$250k annual income is not enough.

I want to ask a few questions:
1) Where do most rich bachelors hang out? (Please list down the names and addresses of bars, restaurant, gym)
2) Which age group should I target?
3)  Why most wives of the riches are only average-looking? I've met a few  girls who don't have looks and are not interesting, but they are able to  marry rich guys.
4) How do you decide who can be your wife, and who can only be your girlfriend? (my target now is to get married)
Ms. Pretty

A philosophical reply from CEO of J.P. Morgan:

Dear Ms. Pretty,
I  have read your post with great interest. Guess there are lots of girls  out there who have similar questions like yours. Please allow me to  analyze your situation as a professional investor.

My annual income is more than \$500k, which meets your requirement, so I hope everyone believes that I'm not wasting time here. From the standpoint of a business person, it is a bad decision to marry you. The answer is very simple, so let me explain.

Put  the details aside, what you're trying to do is exchanging "beauty" with "money" : Person A provides beauty, and Person B pays for it, fair  and square. However, there's a deadly problem here, your beauty  will fade, but my money will not be gone without any good reason. The  fact is, my income might increase from year to year, but you can't be  prettier year after year. Hence from the viewpoint of economics,  I am an appreciating asset, and you are a depreciating asset. It's not  just normal depreciation, but exponential depreciation. If that is your only asset, your value will be much worse 10 years later.

By the terms we use in Wall Street, every trading has a position, dating with you is also a "trading position". If  the trade value dropped we will sell it and it is not a good idea to  keep it for long term - same goes with the marriage that you wanted. It  might be cruel to say this, but in order to make a wiser decision any  assets with great depreciation value will be sold or "leased".

Anyone  with over \$500k annual income is not a fool; we would only date you,  but will not marry you. I would advice that you forget looking for any  clues to marry a rich guy. And by the way, you could make yourself to  become a rich person with \$500k annual income.This has better chance  than finding a rich fool.