Everyone likes to win, everyone likes to be the best and to look their best, this is why many endeavour to "keep up with the Joneses". How often have you looked at an object that your friend has - a handbag, a dress or even a house and wished you had the same? For some, it happens almost every day. It's a real problem. This quest to keep up with and look better than our neighbours can be positive or negative. If it drives you to work harder and to focus on bettering yourself, it's a positive If it causes you to find a sugar-daddy or to go for other people's husbands then it is a negative. For the most part we don't know what our neighbours have had to go through to purchase the things that they have. We don't know how many sleepless nights they have had to suffer nor do we know how much debt they are in. The Cost of Keeping Up With The Joneses I believe it's better to spend the first years of your working life accumulating wealth rather than accumulating possessions that fall in value from day one. Invest in decent clothes for work but beyond that you might achieve more over the course of your life if you put all your money and effort towards developing an appreciating asset base. Small amounts of money quickly add up. This week you buy a lipstick on a whim, the next week a pair of shoes, the week after a dress. However, if you chose to save this money instead you could soon have enough to grow maize, rear animals for sale or invest in a machine to start a business. How Do You Fight The Urge To Keep Up With The Joneses? It can be a very hard urge to fight especially in a country where people know and refer to others by their car’s number plate. However, here's what you could do: 1) Think about what you are working towards instead. It might take you 18 months to save $1,500. You can either choose to save that $1,500 to invest in a machine that produces a monthly profit of, say, $300 per month; or you can spend it. If you spend it, you have nothing to look forward to. If you save the money you'll have the pleasure of being a business owner and you'll make the money back within 5 months once you get the machine. Not only that, if the machine lasts two years you'll make $7,200 that you would not have made otherwise. This is the trade-off between enjoying life now versus saving and enjoying life a lot more later. What do you prefer? 2) Find a way to derive enjoyment from something other than looking good and having all the nicest things. This is one of the best things to do because once you get to a stage where you derive fulfilment from a hobby that doesn't cost you anything, you're onto a money-saving, asset-building, envy-free future. 3) Stop caring about what other people think. I've once heard it said that if everyone threw their problems onto a pile you would quickly pick your own problems back up again. Next time you’re admiring something that someone else has remember this fact; if you saw their problems you’d be much less envious of their situation. "Keeping up with the Joneses was a full-time job with my mother and father. It was not until many years later when I lived alone that I realised how much cheaper it was to drag the Joneses down to my level." Quentin Crisp For inspirational quotes follow @Getting2Wealthy on twitter.
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Henry Ford once said that “Whether you think you can, or you think you can't – you're right.” I wholeheartedly believe in this philosophy. Today I wanted to talk about living independently in retirement. Will you be financially free by then? How often do you think about how you're going to live life in your 60s? Personally, I plan on semi-retiring a lot sooner than that. Here are alternative outcomes. Living Off Your Offspring Some will reach the age of 60 without a single saving or with a very insignificant amount. You will depend on your kids for money, for food and perhaps even need them to house you somehow. For many this will not be because life has been unkind to you, it will be the result of a series of bad choices such as having more children than you can afford to support. Be in no doubt that if you find yourself in this situation you will be a burden to your children. Could this be you? Oh, This Isn't My House? Some will reach retirement age and realise that the company they work for owns "their" house and "their" car. It is easy to forget these things when you are enjoying life but at this point you will be forced to either live off your children or invest any savings in a business. If you're lucky you'll find positions on boards that provide an income whilst you make up for lost time on the investment front. Living Off Rentals Some will reach the age of 60 with a tidy property portfolio. You will own the house you live in outright and you will have at least two rental properties. Your rental properties will produce enough money to cover all necessities, bills (including the internet) and wants such as holidays at the lake or abroad. When your children come to visit you, they will come with pride. Pride that they have forward thinking parents that had the wisdom to cover their own retirement. You will have no unnecessary worries and will be safe in the knowledge that you never have to go to bed hungry or cold. The Art of Visualisation Visualising is like fantasising. You visualise a specific event in the future in very specific and detailed terms and think about how much you will enjoy it. Scientists have confirmed that visualising can lead to the achievement of real results. In a well-known study on creative visualisation in sports, Russian scientists compared three groups of Olympic athletes: Group 1 received 100% physical training; Group 2 received 75% physical training with 25% mental training; Group 3 received 50% mental training with 50% physical training; Group 3 had the best performance results. This indicates that some types of mental training, such as consciously invoking specific subjective states, can have significant measurable effects on biological performance. Further to this, some celebrities have argued that they have achieved certain results in their life by visualising them first. These include Oprah, Will Smith and Jim Carrey. Visualising helps you to focus on a goal. If you can find just ten minutes a day to meditate and visualise the things you want to achieve you will increase your chances of achieving them. Most people don't think too far beyond the next couple of years (some not very far beyond the next few days). Those that do think far into the future are at an advantage. Of course you shouldn't live so far in the future that you can’t enjoy the present. That said, thinking about and planning for the future is enjoyable in itself – Just do it! "Ordinary people believe only in the possible. Extraordinary people visualize not what is possible or probable, but rather what is impossible. And by visualizing the impossible, they begin to see it as possible." Cherie Carter-Scott For inspirational quotes follow @Getting2Wealthy on twitter. Did you know that in experiments with lab rats, scientists found that when rats are running towards food, they run faster as they get closer to the food? Source: 'Brainfluence' by Roger Dooley. What does this mean for you? If you give yourself short-term goals and rewards, you will work towards them with more zeal and enthusiasm than longer term goals. For your goals to be meaningful you need to make sure they are SMART: · Specific · Measurable · Attainable · Relevant · Time-specific SPECIFIC "I will start writing a book" is not a specific goal. "I will start writing a book on saving and I will finish it within 6 months" is a specific goal. You can make it even more specific by stating how many words or chapters you will write per week, e.g. 2,000 words per week. What is your specific goal? MEASURABLE Measurability is all about being able to account for whether or not you have made progress. Continuing with the example of writing a book, if a month later you have only written 4,000 words then you can say you are running two weeks behind schedule. How are you going to measure your goal or goals? ATTAINABLE If you set a goal that is very hard to achieve you'll probably give up. For example, "I will go to the gym every day," is probably not an attainable goal if you work 5 days a week. "I will write 1,000 words every day," is also not attainable if you have a full-time job. It is very hard to write 1,000 good quality words in one evening after a hard day at work. Is your goal overambitious? Can you achieve it without feeling like you are suffering or giving up too much? RELEVANT In my opinion this is the least important criteria in the SMART schema. Relevance is about focus. A goal should fit within a bigger picture objective. For example, if your goal is to be a world class writer then having the goal to play 5 games of chess a week for a year may be Specific, Measurable, Attainable and Time-specific but it probably isn't relevant to being a writer. It might be relevant to your relaxation goals but it certainly isn't relevant to writing. Are your financial goals relevant? TIME-SPECIFIC A goal means nothing if it doesn't come with a deadline. Deadlines are crucial when it comes to achievement. Due to circumstances you might have to adjust your deadline but not having a deadline to begin with is pure folly. Are your personal financial goals SMART? Your financial goals do not have to directly involve “making money” right now. Just make sure you incorporate the SMART format. Financial goals can include: · Projects that may lead to money in the long run (e.g. learning a new skill). · Saving targets (e.g. making your own to take work so that you don't have to spend money buying lunch from restaurants). · Getting into the habit of writing shopping lists so that you don’t buy things you don’t need. · Budgeting. As you create your goals think through the following: · How do you waste money on a weekly basis? · What financial bad habits would you like to get rid of? · What things do you spend money on that you can do without? SMART goals in other areas of your life You can apply the SMART system to any goal system. I’ve found that when my goals are not smart I am less successful. For instance, I set out to lose 3kg in Jan-2013. Result? By Dec 2013 I had gained 5kg! The goal was not SMART. So, in Jan-14 I set some weekly targets and rewards and I have already lost 3kg! I love SMART goals. “Goals are dreams with deadlines." Diana Scharf For inspirational quotes follow @Getting2Wealthy on twitter. You would be forgiven for believing that buying shares is a get-rich-quick scheme. In recent years in Malawi shares have been heavily underpriced when they’re brought to market in an initial public offering (IPO); this means that there have been more people wanting to buy shares than there are shares available. What happens when demand is so high relative to supply? If a company wants to have 100,000 shares listed on the Malawi Stock Exchange they would offer them at a fixed price. If they receive demand for more shares than this the price will stay the same and the number of shares also stays the same so some people don't get any or get less than what they want. Note that if there is a "greenshoe option" in the share offering documentation then they can issue up to 20% more shares but they cannot change the price once orders are being received. Once the offering is closed the shares become available to buy and sell on the open market. Those people that didn't get as many shares as they wanted are free to buy from those that did. What's the result of this? An increase in share price. Basic economics dictates that when demand rises, prices rise. So after a share offering that has been underpriced it is not uncommon to see the price shoot up. I heard of one woman in Malawi borrowing money to buy shares in an IPO and then selling them within a week with enough profit to buy a car AND repay the lender! By the same token, however, once the initial buying and selling frenzy is over the share price settles down to an equilibrium price. Once the share price reaches this level it can stay there for a prolonged period of time because, for the most part, the share dealing market in Malawi turns over very low volumes. If you bought when the market was high you may have to hold onto a loss position for a long time. Secondly, shares may come down in price because a large shareholder decides to sell. For instance when the Malawian economy is doing badly large international shareholders cut their losses by selling their entire portfolio. What should you do if you're in a loss-making same position? 1. If you don't need the money immediately and believe that the company will recover, hold onto the position until the shares move up in price. The Malawi Stock Exchange can email daily or weekly updates to you so you can keep up to date with pricing. 2. If you think the company is definitely on its way to financial ruin, cut your losses and sell. It's better to recover some of your money than to lose all of it. When you’ve been holding a loss-making stock for a while the temptation to sell the moment you see a slight recovery in price is very high but try to be as rational as possible: I bought Apple Inc. shares at $78 in 2006; in late 2008 / early 2009 the share took a beating and was treading well below previous highs of $200. I decided that I would sell my position as soon as the stock price hit $280 and that’s what I did feeling very proud that I had more than trebled my money since 2006 – I have lived to regret the decision ever since: the share price continued its upward streak for years and traded as high as 700 in late 2012! "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever." Warren Buffet For inspirational quotes follow @Getting2Wealthy on twitter. A “share” is a unit of ownership in a company. The Malawian Stock Exchange is different to many international stock exchanges in that it’s still not automated to the extent that it could be. It involves a lot of manual inputs and transactions are still very personal, one-on-one. When a company lists on the Malawi Stock Exchange (MSEX) they offer the market a fixed number of shares at a given price. People who want to buy the shares and hence be part-owners in the company submit their firm interest by stating how many shares they want to buy and provide a cheque to that value. Example: If Mandasi Okoma Ltd decided to list 100, 000 shares at a value MWK500 each it would mean the company is valued at MWK50,000,000 (100,000 x MWK500). If you wanted a 0.1% ownership in the company you would buy 100 shares. Those 100 shares would cost you MWK50,000 (100,000 shares x 0.1% x MWK500). You are now one of the owners of the company. So, how do you make money? There are two ways. Dividend Income Firstly, periodically the company shares some of its profits with its shareholders via the payment of a dividend. When you work, you earn a salary; when you lend, you earn interest; as a landlord you get rental income and when you buy shares, you earn a dividend. This then becomes an (additional) source of income for you. Some retired people in the developed world with large, well-diversified portfolios live primarily off dividends with no need for another source of income. Wouldn’t that be nice? Capital Growth Secondly, you get capital growth. What does this mean? If the company you have invested in does well, that is, it grows its customer base and starts to earn more revenue then it becomes more valuable. In the above example the company starts off with a value of MWK500 per share. If the value increases over a period of time to say, MWK600 per share, then your MWK50,000 investment becomes worth MWK60,000. You make a profit of MWK10,000. You can “realize” that profit by selling your shares. What are some of the issues you might encounter in dealing shares? 1. You don't get allocated as many shares as you want. If there are more people wanting to buy shares than the number of shares available then you might not get any shares at all or you'll get allocated less than what you tendered for. The company selling 100,000 shares may get payments equivalent to 200,000 shares. We say the share offering is “oversubscribed” to define this situation of excess demand. In that case, the company’s investment bankers might give everyone half of what they asked for. However, that’s not usually how it works. If the share offering is "oversubscribed" those that want a small amount will normally get all they ask for and big tickets will get cut by a large amount. Why does this make sense? Large shareholders carry a lot of power: they have more influence on corporate policy and if they decide to sell their holding all in one go, they would cause the share price to fall by a large amount. No company wants this; they would rather have many small shareholders than a few large ones. 2. Share prices can go down as well as up. This is probably the biggest problem you'll face. When you buy shares and become a part owner in a company you can lose all your money. If something goes wrong lenders, such as banks, are paid back first and if there's nothing left to pay the shareholders then so be it. We'll discuss this in more detail next week. "Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1." Warren Buffett For inspirational quotes follow @Getting2Wealthy on twitter. |
For 2 years until early 2014 I wrote a weekly personal finance and business column for Malawi's leading media house, The Times Group. The target is middle-class, working African women.
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