Posts Tagged ‘Financial Planning’

Be your own Financial Planner

January 29th, 2009 Vijaianand

In my last post, we saw how Goal Setting works better than Resolutions. I also promised to show, how Goal Setting Techniques works better in achieveing your financial dream. Let’s start with a quick check on your stand with money and move on setting some new goals, draft realistic plans and try to reach them by taking some action to make this year a fruitful one. 

Self assess yourself by answering these 3 questions below and figure out where you are in regard to financial planning.  Say “YES” if you have an answer or NO if you don’t have an answer or don’t know anything about the question.

Do you any personal financial goal like buying a new car or home? 
Do you have a Budget in place to track all your income and expenses?
Do you have a Savings Plans to grow your money?

If you said “Yes” to all of these questions, you are really way ahead of many people. If you said “No” to all them, its better you start thinking about them, now as it’s the right time.

Set/Revisit your Goals
When comes to selecting and Setting goals, Try to set SMART goals. These are goals that are Specific, Measurable, Achievable, Relevant, and Trackable. For example, you may want to create an emergency fund in six months to have 3-6 months worth of your salary.


Allot a specific time. Sit down with a pen and paper or your computer. Start listing your goals, dividing them into three categories: short term, medium term, and long term.

• Short-term goals might include buying a new computer, or paying off credit card debt.

• Medium-term goals could be purchasing a car or going back to school.

• Long-term goals might be to buy a home, saving for your kids education or retire with enough money to live comfortably.

At the end, make sure you prioritize the list. Which ones are the most important to you? Which ones can wait? 


Define a Plan
People don’t plan to fail, they usually fail to plan. If you want to go to a place, you better know your directions, otherwise you are sure to get lost. It is as simple as that. Similarly, if you have set your goals, you better work on a clear and concise plan to reach them. Let’s define a plan by taking a simple goal.

The goal is to buy a home in 3 years with 20% down payment. That’s a SMART goal but to get you there you better draft a sound plan. In this case, you need to know things like:

Target Amount: Amount needed for the goal using today’s dollars. If your goal is to make a 20 percent down payment on a home valued at $100,000 today, you would need $20,000 for the down payment.

Target Dates: Enter the year or date when you want to reach your goal, say 2011.

Start out Amount: If you have $10,000 saved in a money market account, you may decide to allocate half of it to the down payment. In this case, you would write $5,000 under Current Assets.

Gap: Indicate the gap between the cost of each goal and the assets you have allocated, in our example $15,000.

Number of Years to Target Date: Enter the number of years between now and your target date, which is 3 years.

Amount to Be Saved Each Year: Divide the difference by the number of years to the target date. That amount you need to save each year to reach your goal is $5,000 a year.


Coming up with $5,000 for a year might be a tough deal. Try to split it monthly. You can then start a savings plan to save around $420 per month to get to $5,000 a year. The next and important step in the financial planning is executing the plan.


Ready, Set and Go: Take Action

“Wisdom is knowing what to do next; virtue is doing it,” said David Starr Jordan.

Making up goals and plans is just 20% of the challenge; executing them is 80%. In our example, you have the goal and plan to be ready to buy a house in 3 years with a 20% down payment.

How are you going to implement the plan if your financial situation is already tight? The first step is to analyze your current income and expenses to see where your money is going and what can you scale back. Start a simple budget to track your income and expenses, going after expenses which can be easily cut without affecting your lifestyle to achieve your monthly savings goal. Open a savings account or an add-on CD to put away a fixed amount every month. Or setup an automatic debit from your checking account to this savings account. This way you don’t have to do it manually.

Finally stick to the plan rain or shine and you are sure to reap its rewards. 

Posted in Education, Financial Literacy, Financial Planning, money really matters Tags: , , No Comments »
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You, Your Money and Current Financial Crisis – Part 2 – Q & A

October 16th, 2008 Vijaianand

In my Part-I, I talked about how we endup in the financial death crisis explaining the series of heart attacks we faced along the way. This blog is concentrate more on how does really affect the consumer in many stands. This content is initially published by LittleIndia Magazine contributed by me for Oct edition.

The financial crisis sweeping Wall Street and global banking and financial institutions has understandably raised alarms among consumers on the risks to their savings, retirement and brokerage accounts. Here are some pointers on navigating the financial minefields.

How does this crisis affect you?



Many individuals who close to retirement have all their eggs in retirement baskets comprising mutual funds and stocks, which have seen their values drained one-third of their capital. It is a big blow for them and many will suffer consequences for years to come as the withdrawals can’t meet their needs.

People who are saving up for their kids college education also have sustained major losses, but many of them still have time on their side as market conditions improve. Families who put their money in savings accounts and CD’s, are weighted by the dismally low interesting earnings on these accounts.

Products and services from distressed companies will also likely suffer and employees in these companies are at risk of losing their jobs. Cumulatively, this economic meltdown is likely to have a huge impact and it will likely stay for long time to come.

What you can do to avoid losing your money?

There is no silver bullet solution. But there are a number of things you can do to secure your savings. If you are already invested in the financial market directly as a stock investor or indirectly through your mutual fund portfolios, just stay put and don’t do anything. This turmoil will eventually end and your portfolio might emerge better in few years. If you cash out now, you might take a bit hit. You can’t withdraw your funds from your retirement and 529 accounts anyways, although you can alter the distribution of your portfolio. For that you should seed advice from your financial advisor or fund counselor. Don’t follow the herd. You need someone to analyze your particular portfolio. If you have more than $100,000 in a one or more accounts in one bank, try to split it up and put it in different banks or financial institution.

You are only covered by FDIC (Federal Deposit Insurance Corporation, an independent federal agency) insurance or NCUA (National Credit Union Administration, another federal agency) insurance as one person for all your accounts in one bank. If you have a joint account, you are covered up to $200,000 in that particular bank or credit union. Many people lost their money during the IndyMac bank failure as they had more than $100,000 in that bank. Don’t make that mistake.

With the recent legislation changes, $100,000 amount for each individual has been increased to $250,000 till Dec 2009. Don’t know whether it will be made permanent.

What bank to open an account?

No one really knows which bank is safe or at risk at this time. Even the CEO’s of the financial institutions are unsure. But you don’t have to worry about the institution. Whether it’s a local bank or a national brand bank or a credit union, so long as it is FDIC or NCUA insured, you are covered up to $100,000 in that bank in the past. Right now, you are covered $250,000 till Dec 2009 according to the new bill passed 2 weeks ago.

What is the guarantee for my funds in bank and brokerage accounts from the government?

Let’s split these questions. Your bank or financial bank accounts, like savings, checking and CD’s are covered under FDIC or NCUA. Even your money market account is covered under these insurances only up to $100,000 per person. It is a common misconception that each account is covered for $100,000. In fact, the total amount in all your accounts in a single bank is covered up to $100,000. The $100,000 is been increased to $250,000 recently to help tackle the situation and losing consumer confidence. It is only till Dec 2009 and may be made as permanent measure. Also President announced Oct 15, 2008, there will be a full insurance coverage for money in non-interest bearning accounts for business accounts. No formal announcements about it yet.

Retirement accounts like IRA or Roth IRA in banks or credit unions are covered separately. After recent legislative changes, insurance coverage on certain retirement accounts, such as IRAs and Keoghs, is extended for up to $250,000 in both banks and credit unions covered by FDIC and NCUA. No Change made in his policy.

Next let’s get to your regular investments in a brokerage account or 401k. What happens if your brokerage firm fails? Hold onto your stocks and bonds; they are most likely safe. SIPC, the Securities Investor Protection Corporation, a nonprofit, membership corporation, funded by its member securities broker-dealers, seeks to restore funds to investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms.

Of course, there is no insurance against market losses. However, as long as your securities are registered in your name, or are in the process of being registered, you own them, no matter what happens to the brokerage. You just need your statements to prove ownership of the securities to receive your refund. The SIPC covers customer up to a maximum of $500,000, including a maximum of $100,000 on claims for cash.

Conclusion

We are under a deep economic downturn. Eventually, however, the clouds will dissipate. We are already started seeing some signs, like slowing down in the decline in home sales, which is an indication that housing market could pick up. It is important because when the housing market stabilizes the economic conditions will improve. Be hopeful, be patient. That may be hard to do, but there is little else you can do but sit back and watch the market roller caster play out.

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You, Your Money and Current Financial Crisis

October 10th, 2008 Vijaianand

Economical/financial stature is one of the key factors to judge the strength of a country. Similarly one’s personal finance strength is determined by their sound money management practices, investments and their bank balance. Both are related and directly connected in many aspects. If the economy is not doing well having problems and went to a comma state, individual financial portfolio and finances are going to struggle to meet it goals. If the core fundamentals are at stake, it really shacks up the underlying trust of an individual towards the government. That is the current situation for many of us.



Not to mention, many are going through lot of stress and frustration with what’s been happenings for the past year and half or so in the financial market in US and the ripple effect all over the world. It is been a really wild roller coaster ride with big dips and steep ups. Recently for the few weeks its has been real deep dips with stock market revisiting the history by touching new lows every day.









Banks are failing to handle this tough situation as they didn’t forecast this worse case scenorio, companies crashing down to their knees begging for help from the government to bail them out, healthy financial institution looking like hawks to take over run down ones, unemployment percentile reaching way high since it Sep 11, 2001, new home sales fell low after 19 years and list go endless.

Start of the Turmoil


It’s not the situation; it’s the reaction to the situation – Robert Conklin


That’s an apt statement suits very well to the current financial situation. You can’t simply say that subprime mortgage crisis caused it all. It all started when the government pushed the homeownership as sweet deal and encouraged banks to lend money to get more people in their own homes. It is a good thing but ended up with bad effects. For starters to explain in simple terms, subprime mortgage crisis is the crisis created by faltered lending practices by banks approving mortgage loans for people without proper income and who can’t really afford to pay those loans. They got in using adjustable rate which started to go up after their intial period raising their payments they can’t afford. So they just default on their homes. It caused home foreclosures when the home price hit the ground triggering the chain effect of banks losing their money.


It is the reaction created by the subprime crisis that churned this financial mess. Actually the reaction to the poison started to show is colors from late last year. Countrywide, the biggest mortgage lender, sold itself to Bank of America to avoid insolvency. This spring, Bear Stearns, the most prestigious of the investment banks even with billion dollar asset, failed, and the government arranged a forced merger with JPMorgan Chase.

In summer, California’s IndyMac leader in subprime lending went bankrupt taking all the consumer’s savings with it. In September of this year, to avert a collapse of Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Mortgage Corporation), who are the low interest mortgages lenders operated by shareholders and financially supported by US government. Government pitched in with 300 billions bail out offer seizing the control of both of the organization by putting them in a conservatorship that made Uncle Sam the explicit guarantor of mortgages they owned or insured.


In later part September; another missile was shot adding to the chaos. Lehman Brothers Holdings, biggest investment bank declared bankruptcy followed by his fellow investment bank Merrill Lynch selling itself to Bank of America to avoid being next to toppled. Immediately, AIG (American International Group) 4th largest insurance provider was in trouble by insuring the repayment of billions of dollars in debt had drained its capital and seeking help from the government. Government rushed and took over 75% stack in the company by lending around 70-80 billions dollars. A week ago another two independent investment banks, Goldman Sachs and Morgan Stanley, found their own survival cast by changing their face as a consumer bank according to the new laws passed by government.


What is Federal Government doing about it?

With all the happenings, US Government is trying out all the tools like lowering interest rate, flooding the economy with gazillions of dollars to keep the financial community afloat, rescuing Fannie Mae and Freddie Mac from its toolbox to bring back the economy instilling investor confidence in financial institutions. Last week, WAMU one of the biggest banks failed and FDIC moved all bank deposit accounts to JP Morgan chase. Wachovia, which was the 4 biggest banks in US, is getting sold either to Citigroup or Wells Fargo as their fight over wachovia gets sorted out. This is a big blow ever to come across the financial market, WAMU and Wachovia being one of the biggest banks to go under in US History. Last week, after a failure attempt US Government heads and congress leaders worked hard with federal agency to create a bill to take hundreds of billions of dollars in “bad assets” off the balance sheets of financial institutions, for a price. The price is estimated to be around $700 billion which will come out from tax payer pocket. It passed the House and President signed to become a bill. This was considered as a nuclear bomb which is meant to kill the virus. But time today, thats not enough. Since the bail out, Dow index fell more than 1000 points pointing out it is not sufficient to impress or convince the investors its all over.


Some say the US is in phase of the recession and some say we are in stagflation or deflation. Whatever it may, to tell you to long story short, it’s a pile of mess and it is going to take lot of effort to get all the clean it up before we see a clean air to breath. Because of this mess, there comes concerns and confusion among investors and regular consumers.


What are consumers worried about?


This crisis seems to have created a fear factor worse than market crash during September 11. It is not anymore about the stock market whether it will start to show some resilience, when it will come back. It is actually a different fear that comes out of losing trust over the banks and financial institution. There were questions like to whether my money will be safe in bank, do I need to take my money are few of them which started to disturbing many ordinary individuals. I am planning to cover that in my next post. What is your thoughts and are you going through the same kinda of fear factor?

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