I started this blog about five months ago. At that time I came up with a list of short and long term goals. Today, I will review my short term goals and see how I have performed.

Short-term Goals

1. Increase my part-time income to RM4,000 a month.

(Review: Achieved. My part-time income now is about RM4,000 a month. Though there were some hiccups and setbacks along the way, I am happy that I was able to accomplish this feat.)

2. Double up my part-time income by end 2008. Then resign from employment to concentrate on my part-time venture.

(Review: Yet to achieve. I was not able to boost my income as fast as I had expected. Sometimes things just don’t go the way I want them to be. This will remain a goal for 2009.)

3. Save RM60,000 in CD by Jan 31, 2009. Currently I have RM30,000 in CD. I need to add RM5,000 CD a month until Jan 31, 2009.
(Review: On going. As of Dec 2009, I have RM55,000. I will bank in another RM5,000 into my CD account next month. So, I am very much on track with this goal.)

4. Buy life and medical insurance.

(Review: Yet to buy: I have decided to buy a life insurance when I buy a property. Because that is when I will start to have financial commitments. As for medical insurance, my employer has already bought medical insurance for me. However, since I am thinking to resign from my job, I will have to buy a medical insurance for myself. I should look into this together with my life insurance.)

5. Use my CD to buy a residential property by Apr 2009.

(Review: On going. I should start researching on properties already. However, the general consensus is that the real estate market will soften next year, hence the prices should be lower. I should be flexible on the timing of buying the property so I could take advantage of the market conditions. I should also not limit myself to buying residential properties, but also consider commercial properties.)

All in all, I am satisfied with my performance in 2008. This is also the first time that I have actually set goals for myself. Amazing isn’t it how a little financial planning and goals setting can contribute to one’s life?

Yesterday, I went to two banks to inquire about mortgage. I wanted to find out how much loan I am eligible for so I could budget for a property early next year.

Both the banks, in their computations, used 70% of my gross salary as the maximum repayment I could afford with the condition that I put up 20% of the property value as down payment. Could the banks be serious? If my gross salary is $1,000 then the bank would be willing to loan an amount whereby my monthly repayment will equal $700. This is insane.

The statutory retirement contribution is 11%. Tax is about 13%. This leaves me with about 76% take home pay. If my mortgage repayment is 70%, I will only be left with 6% to survive and pay my bills. Could people really live on only 6% of their gross pay? I suppose you could if your paycheck is enormous. However, I doubt the poor and middle class could.

The banks are encouraging people to spend beyond their means. No wonder the credit crunch has such a huge impact on the economy. Because people were spending and living on credit. Once the money supply (or credit) is cutoff, people have nothing to spend with.

We should not overstretch ourselves when buying properties. Else, we would be slaves to the bankers.

“Focus on what is important. And do it well.” This is the advice I gave my sister when she told me of her many plans to increase the popularity of her e-commerce website.

Many businesses fail because they did not get their priorities right. The business owners did not put in enough efforts on areas that are critical to the survival and growth of the business, but instead focused on non-critical areas. As a result, valuable funds, time and efforts are wasted.

The Pareto Principle, also known as the 80-20 Rule, states that approximately 80% of the effects are caused by 20% of the causes. For example, “80% of the company’s sales come from 20% of the clients.”

Very often we read about corporations spinning off or selling a small division or business segment. One can view these corporations as ridding business segments that eat up 80% of their resources but generate only 20% of returns for them. Therefore, it’s better to sell off these businesses and focus on the core business that generates the bulk of the company’s income.

I will say it again, if one wants to be successful in business, “Focus on what is important. And do it well.”

Value Investing: From Graham to Buffett and Beyond, is written for students of value investing. The author, Bruce C. N. Greenwald is a Professor and reading this book gave me the feel as if I was attending one of his lectures.

The first part of this book is about the different theories and valuation methods. Only when one is able to fairly value a business will he be able to judge if the business or stocks are selling below its intrinsic value. If you are the type who falls asleep listening to your lecturer, chances are this book is as good as a sleeping pill to you.

The second part of the book analyzes the different approaches used by different value investors such as Warren Buffett, Mario Gabelli, Glenn Greenberg, Seth Klarman and a few others. We see how these investors put their knowledge into use and how they value businesses.

My conclusion, this book is more suitable for readers who love academic theories and formulas.

Have you ever dreamed of winning millions in the lottery and how you life would change? Chances are your life would probably be the same. Studies have shown that majority of the lottery winners squandered their winnings and in a few years they have gone back to where they were financially before their windfall.

I came across an article at MarketWatch explaining why people squander their windfall, whether it is lottery winnings or inheritance. In my opinion, this article did not answer the question, which is “Why do these people squander their windfall?”

The answer is simple. It is because these people were not ready to become millionaires. Rich people have different mindsets compared to the middle and lower income group. A person who does not have the millionaire mindset will not be able to manage the windfall and hence, he will squander away his money and end up where he was before. To keep his millions, he would have to change his mindset. He would have to think like millionaires.

Here is a simple analogy. Imagine a 1 liter bottle. This bottle can only keep up to 1 liter of water. Suddenly you receive a windfall of 5 liters of water. But your bottle can only keep 1 liter. The other 4 liters are spilled as you pour the water into the bottle. To keep more water, you need to change the bottle to a bigger bottle.

In this analogy, the bottle is your mindset and the water is your wealth. If you keep thinking you are worth $1 million then you would only be able to keep $100,000 even if you receive a windfall of $500,000. To keep the $500,000 you need to change your mindset. If you keep your mindset at $100,000, you will manage your money in such a way that you will only be left with $100,000 in the end.

Let me share my personal experience. For many years, I have been chasing wealth. I was greedy. I wanted to be wealthy as quickly as possible. I invested my money in get rich quick schemes and also gambled with all my wealth to the point I was borrowing money to gamble with. I gambled all my wealth away and was only a step away from being a bankrupt.

The problem was my mindset was a poor man’s mindset. Rich people do not gamble with all their wealth. Rich people do not leave their fate to others. I was not managing money like rich people. My mindset was “either zero wealth or double my wealth”.

After this period, I changed my mindset to, “$10,000 wealth”. I began clearing my debt and saved some money. Eventually I saved $10,000. Then, as if history repeats itself, I found that I was squandering money again. For months my wealth would not rise above $10,000. Because my mindset was at $10,000, I managed my money in such a way to achieve the $10,000 figure in my mind. I saw this problem and increased my mindset to “$20,000 wealth”. Immediately I saw a change in the way I manage my money.

Over time, I have gradually increased my mindset and my wealth has followed suit. I recommend you to read “Secrets of the Millionaire Mind“.