Expenses

This category looks at stuff that we spend money on!

Follow up posting: Calculating Your Net Worth – part 2.

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After my recent article on Calculating your Net Worth, I found that Consumerism Commentary is also addressing this issue in their posting How to Calculate Your Net Worth on Consumerism Commentary.

The one thing Flexo points out that I didn’t is:

Since the purpose of the calculation isn’t to compare yourself with others, it doesn’t matter what you choose to include as long as you’re consistent each month, and the numbers are meaningful to you.

It is this consistency over months and years that will help you to track your progress as I have done since 1997. Obviously, life changes, houses, cars, families, etc. all change too. So it’s likely that you will have to make adjustments as you go along. That is only realistic, but the changes should err on the conservative side of both assets (discount realistically) and liabilities (overestimate realistically).

 

For example, you purchase a new car and decide to list that as an asset AND a liability (for the loan). It may hurt you to know that since you drove that car home, its value has declined noticeably. You should value it at a price that is conservative, not new. You will need to value it consistently as depreciating over your years of ownership.

Another example would be: you buy a parking place as we did, obviously your assets increase, and so do your liabilities (with the increased mortgage); you may feel that you know what your house is now worth. Take a conservative guess, and deduct 10% of the value for good luck. Then look at the liabilities: your outstanding loan – you may not have a monthly or even a quarterly figure, so take a reasonable average then add a bit for safety. You don’t want any surprises on the downside! This kind of double calculation is more prone to errors, so do the math consistently and carefully!

I always try to be consistent in my valuations over the years, but as things change, I do update the valuations from time to time. Sometimes, though, I like to create imaginary spreadsheets so I plug numbers into my spreadsheet for fun to see what it could look like! But I try to control myself: that part is just a fantasy!

Go on! Smile as you pay your credit card bill this month!

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If the last story weren’t enough to make you smile, then perhaps this one should do the trick! Most of us are getting high rates of interest on our credit cards! I recently noted that my credit card rate was 19.50% per year! That’s extortionate! So I paid off the entire amount, in protest!

I thought it was time to start looking and when I got word of Smile’s credit cards. The gold card and classic cards are currently offering attractive rates (until June 1st). Perhaps that’s why they were voted so well… Well, we’ll see.

The cards both offered attractive rates, no credit card annual fees, cashback on spending, and upto 46 days interest free periods!

Whoopee! I’m smiling already…

Except. The smile suddenly changes to a frown.

*What credit card doesn’t give us free annual fees? Why on earth would I sign up for a card that does? Why should I pay to spend money? I’ve never understood that one!

*The interest rates are getting jacked up from June 1st (like ten days away!), to, in my case 18.9%p.a. on the classic card, and 14.9% on the gold card (since I don’t have a smile current or checking account).

Yep, Bank of England is really increasing their rates, too! But I don’t remember it being a 2% jump, do you?

*and every card has interest free periods while the statement settles and is mailed out! Don’t they?

So, hey… I’m still smiling because they won the Guardian Consumer Finance Awards from 2002 ~ 2005! But what happened in 2006? And this year? If the rates aren’t that fantastic, what else seems to be the reason for Smile’s popularity as a banking service: and that’s the secret – their service. It seems that they do put customer service above everything else. They cut call automation, they personalize communication, and they train their staff extensively.

So, if you put a smile on your staff’s faces, then putting one on your customers’ shouldn’t be so hard. But those rates are quite high! I know, I’ll get a card from Smile, get nice service, too; and still pay off my credit cards in full!

Then I’ll be really smiling, as I cash my cashback points, have no annual fee, and don’t pay any interest!

This smiling post is brought to you by Smile.

What Would You Do If You Lost Your Job?

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Bargaineering recently asked: What Would You Do If You Lost Your Job? from Blueprint for Financial Prosperity

Indeed ’tis a knotty problem for most people. But for me, it’s not so difficult. You see, I have my own business, so if I lost my own job, then I’d have to fire myself. At one point, though, I was considering not hiring myself: I was costing too much for the company.

To explain, our business is a small language school in Taipei. We’ve been around for about 7 years in several guises, but since September 2006 we have experienced a sudden slowdown in our business, due to larger numbers of students exiting the program at the older age levels. Naturally, this wasn’t unexpected, but there was weakness in several other segments that didn’t make up for the exit of so many students.

Result: an unhappy proposition as our expenses remained static, but our income dropped by about 10~15% y-on-y (enough to wipe out our profit margin!). Since then, we’ve acted to minimize our cost structure as much as possible by cutting out everything that wasn’t ESSENTIAL to the operation of the business. Out went food subsidies which was cut to 0%, then we cut out non-essential refunds, and so on; but, eventually, though we had to re-organize our staffing structure. Three staff members were either terminated, asked to reconsider their job with us, or reassigned duties. In fact, we had expected two of them to take their job more seriously or take on a new set of duties than they had, but they chose to quit instead.

At one point, though, I was considering firing myself, because my contribution to the business couldn’t be financially rewarded. I thought this would be a good way to offset the expenses, but I was persuaded out of it, as I was a revenue generator for the school.

Throughout the whole period, it was quite unsettling, but I’m glad that we went through it. I don’t know longer term if our business will survive, but we have learner or relearned the importance of financial goals, as well as professional and business goals. Before that, we weren’t as focused on managing our financial assets as we were on the teaching side of things. Now looking back, all of the partners are aware of how much money we frittered away on non-essentials. Kinds of makes us a little queasy.

But then valuable lessons never come cheap.