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^®

Info Seminar 27 April 2013

Financial Lessons from Warren Buffett

Source: Best Finance Schools

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^®

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^®

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”)

These are some tips to help you put money into savings

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^®

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.

If you use similar methods, please share in the comments.

Learn and Grow!

Inge Santoso, B Com, CFP^®

Info Seminar

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.
Hope this reply helps.
signed,
J.P. Morgan CEO

I agree that it is easier and better to make yourself rich by learning and practicing good money management rather than finding a rich fool to marry.

What can you learn from this story? Please share in the comments.

Learn and Grow!

Inge Santoso, B Com, CFP^®

Don’t Rely on Numbers to Determine Your Happiness

I just read an article at BBC “Why Money Can’t Buy You Happiness”

BBC points to a study by Christopher Hsee of the Chicago School of Business:

[P]articipants were offered the option of working at a 6-minute task for a gallon of vanilla ice cream reward, or a 7-minute task for a gallon of pistachio ice cream. Under normal conditions, less than 30% of people chose the 7-minute task, mainly because they liked pistachio ice cream more than vanilla. For happiness scholars, this isn't hard to interpret –those who preferred pistachio ice cream had enough motivation to choose the longer task. But the experiment had a vital extra comparison. Another group of participants were offered the same choice, but with an intervening points system: the choice was between working for 6 minutes to earn 60 points, or 7 minutes to earn 100 points. With 50-99 points, participants were told they could receive a gallon of vanilla ice cream. For 100 points they could receive a gallon of pistachio ice cream. Although the actions and the effects are the same, introducing the points system dramatically affected the choices people made. Now, the majority chose the longer task and earn the 100 points, which they could spend on the pistachio reward—even though the same proportion (about 70%) still said they preferred vanilla.

The participants in the study were focusing on getting the most points although it does not maximize their happiness.

How often do we make the same mistake?

• We want the highest number of salary possible although it comes from the job that we hate
• We want the latest and most expensive gadget although using it frustrates us
• We eat at an expensive restaurant, order the most exquisite cuisine that we do not like at all

We often think that the higher the number, the happier we become…well, it does not work that way. So what should we do?

So next time you are buying a lottery ticket because of the amount it is paying out, or choosing wine by looking at the price, or comparing jobs by looking at the salaries, you might do well to remember to think hard about how much the bet, wine, or job will really promote your happiness, rather than simply relying on the numbers to do the comparison. Money doesn't buy you happiness, and part of the reason for that might be that money itself distracts us from what we really enjoy.

If you have the money, use it wisely to promote your happiness.

More often, the things that make us happy do not involve money all all, like:

• spending time with your friends at home,
• listening to your music collection, watching DVDs, reading books
• enjoying the quietness and solitude at home
• watching endless waves breaking at the beach (I really miss Cottesloe beach, WA)

Choose your own happiness! Do not let the numbers dictate you!

Learn and Grow!

Inge Santoso, B Com, CFP^®

Fun Activities for Long Weekend – Treasure Hunt

Do you still have a piggy bank? I do. I have a money jar to put all the coins that I get during the day. 100, 200 or 500 rupiah coins are coming our way almost everyday, and many of us think that they are just small money and we put or even throw them all over the place.

Have you ever counted how much money in form of coins that you have in your house and car right now? Have you every tried going on a treasure hunt in your house and car and just collect all the coins and put them in a jar? You should try it sometime. I knew someone who did it and she was really surprise to find more than Rp 100,000 in form of coins all over her house and cars.

Tomorrow is long weekend. If you have children, instead of going to the mall and spend money, why don’t you go on a treasure hunt around the house with your children? It’s free and fun – moreover you may be surprised with the amount of money you find. 

Wishing you a happy long weekend!

Learn and Grow!

Inge Santoso, B Com, CFP^®

Positive Thinking Can Ruin Your Financial Life

We often hear that positive thinking is essential for our happiness. In finance however, positive thinking can also lead us to financial disaster. When does this occur?

Some examples:

1. Instead of starting to prepare for your children's education fund, you tell yourself to have faith that when the time comes, you will have enough money to pay for it without ruining other financial needs.

2. Instead of starting to prepare your retirement fund, you rely on your employer to prepare it for you. You think positively that they will keep you forever and provide for you.

3. Instead of starting to learn how to invest your money well, you just think positively that the market is just going to go up and up, doubling your money every few years.

In finance and perhaps even in general life, it is better to have realistic thinking than positive thinking. Realistic thinking does not mean negative thinking either. Realistic thinking is understanding that conditions and situations will change all the time. The market may go up or go down. You may change job or even get fired. Your business may hit rough patches. There are inherent uncertainties in life.

What can we do? Be prepared!

• Make sure that you have enough emergency fund
• Make sure that you have enough insurance to cover for death, sickness or any other eventualities
• Make sure you prepare funds for your children's education need as early as possible
• Make sure you start saving and investing for your retirement fund
• Make sure you learn new skills to keep you relevant in your company
• Make sure to maintain and expand your network

Be realistic to changes in life.

Keep learning! Keep growing!

Inge Santoso, B Com, CFP^®