Rich Money Habits 101 Series - 8 Ways to Shift Your Money Habits and Be Rich

Hi, Friends,

I hope you're doing well in your journey to financial freedom.

As my token of appreciation for your subscription to Rich Money Habits, I have prepared an article series to help you get started in building better money habits so you can finally achieve your dream of financial freedom. 

The article series titled "Rich Money Habits 101 - 8 Ways to Shift Your Money Habits and Be Rich" is a compilation of the 8 secret money habits that have personally helped me get out of debt, build an emergency fund, and allowed me to start investing for me and my family's future.  

Rich Money Habits 101 Series - 8 Ways to Shift Your Money Habits and Be Rich

1. Introduction - You Can Be Rich
2. Rich Money Habit #1 - Pay Yourself First
3. Rich Money Habit #2 - Pay Off Your Bad Debt
4. Rich Money Habit #3 - Create Your Own Money
5. Rich Money Habit #4 - Protect Your Money
6. Rich Money Habit #5 - Grow Your Money 
7. Rich Money Habit #6 - Invest In Yourself
8. Rich Money Habit #7 - Invest In Your Relationships
9. Rich Money Habit #8 - Invest In Your Greatest Ally

The series will run for 8 weeks.  Each week, you'll receive an article discussing 1 of the 8 money habits.  This is both to help you better absorb the money habit as well as to prevent you from getting overwhelmed. Building rich money habits really does take time and it is in itself a process that you have to go through personally.

CLICK HERE to read the introduction and find out how You Too Can Be Rich!

If you find any of the articles helpful, feel free to share them to a friend or better yet, have themsubscribe to Rich Money Habits as well!  As always, any feedback you have is very much appreciated.  You can send them through our Contact Page.

Cheers to your financial success!

From akosiallan.com August 9, 2010

What makes a person rich..........financial freedom?

Many are trying to get away from the rat race to give them peace of mind, particularly on financial matters that almost always have a bearing on their earthly lives. But many more says also, that being rich deals not only on money matters but also about your relationship with others, your having more friends rather than enemies, your emotional maturity in dealing with family, neighbors, community and fellowmen.

So, beginning today, I want to share with you these series of write-ups how we can improve our finances to be able to escape the so called rat race and be earning passive income that is more than enough, with the end in view of sharing what you have to the less fortunate and disadvantage sector of society, as posted initially by my friend Allan Inocente of akosiallan.com  

y akosiallan emotional

---

What Makes You Rich Posted: 09 Aug 2010 05:47 AM PDT What makes a person rich?  How do you define who’s rich and who’s not? Is it about having money? If I give you a thousand dollars now, would you be considered rich? How about if I give you a million? How about a billion? At which point do you consider yourself rich? To answer this question, I’d like to borrow Tim Ferriss’ term “New Rich”. The “New Rich”, have 3 things in common: money, time, mobility. I like this definition because it doesn’t look at being rich as a one-dimensional goal that you have to get to. It is a combination of time, money and mobility that gives a new meaning to the phrase "financial freedom". Money Of course. This is obvious. The more money you have, the richer you become. At least financially. For many people, this is the only definition that they know of being rich. A lotto winner is rich. A doctor is rich. A lawyer is rich. They earn millions a year. They are what we call high-income earners. It’s no wonder then that a lot of well meaning parents encourage their children to go to school, get good grades, study medicine or become a lawyer. After graduation, they are supposed to get a good job, climb up the corporate ladder and become rich. There’s nothing wrong with that. Unfortunately, in most cases, the high-income earners also face a dilemma of having to live a high-expense lifestyle. They have to drive an expensive car. They have to live in a big house. In all fairness, this is needed in their profession. Who would want to consult a doctor who is driving a truck. It doesn’t fit the image we have of a successful doctor. Then there’s also the issue of income tax. The more income you earn, the more taxes you pay. In short being high-earner has its corresponding drawbacks. It is not enough to earn a high income. If all the income you earn is going out as an expense. Worse, it may be that your expenses is even greater than your income, and you end up going through debts. Your debts stresses you out. You become ill just thinking about it.  You become more irritable.  Your friends abandon you.  Your world comes crashing down. Time If I give you a billion dollars but you need to work 24 hours a day, everyday for the whole year, would you take it? I hope not, because you’d be working yourself out, get exhausted, and basically end up not having the time to enjoy your billion dollars. Having all the money in the world and not having the time to enjoy the fruits of your labor is not a very good idea. Unfortunately, a lot of people end up in this situation. As they get promoted in the corporate ladder, they gain more responsibilities. More responsibilities mean more time working in the office. More time away from your family. More sacrifices. Whenever you want to take a vacation, you’d have to ask for your boss’ approval. If you get lucky, your vacation is approved. Unfortunately, while you’re on vacation, your mobile phone rings and you would have to answer your boss’ questions. Sometimes, they even require you to bring your laptop on your vacation. Having time to be able to enjoy life and pursue projects that I would like is one of my personal goals.  My dream is to be able to take a vacation for at least a month, whenever and wherever I want and not worry about being disturbed by a call from my boss asking me to cut my vacation short.  I dream of being able to extend my vacation for a few more months whenever I want to and not worry about money or my business. Mobility Mobility is having the freedom to go anywhere you want to go, any time you want.  If you have a job, this is particularly hard to do.  For one, you can not just take a vacation any time you want.  You have to ask permission from your boss.  Second, you cannot just stop going to your job and go somewhere else.  At some point, you still have to go back to your job to make money to pay for your needs. There have been countless times when I didn’t want to get out of bed in the morning. But since I had to go to the office and work, I felt helpless.  I felt forced to go to work even if I was so tired.  There were times I even have to cut my vacation short just to work. It is especially harder if you are in debt and have to pay mortgage for your house.  If you are relying on your job for income, you are practically tied to it.  You can not resign.  Otherwise, you run the risk of not being able to pay for your debts and have your house foreclosed. Mobility means having the choice to go on tour for months, hopping from one country to another, and not having to worry about whatever you left behind.  You can enjoy your vacation with peace of mind. Journey To Financial Freedom I am not yet rich based on the above criteria, but I’d like to think I am on my way there.  I have managed to pay off my debts and saved for emergency fund and insurance.  With the extra income we generate each month, my wife and I have started to learn to invest our money.  As a result, our dreams are now becoming more real each day that passes by. Yes, I am still a long way to go but each step I make is a move forward to my dreams.  It is just a matter of time before I reach my goal. If you’re already financially free, congratulations! I’d like to treat you for lunch and learn from you. I’d like to find out how you did it so I can feature you here in Rich Money Habits blog and inspire our readers as well. If you’re like me, working your way to achieve financial freedom, I invite you to come join me in my journey and discover the rich money habits that will take us to our dreams!

Credit card lenders go on a rampage

By Liz Pulliam Weston

Credit card issuers have become a pack of dangerous dogs. Somebody needs to yank their collective leash.

Yet Congress has blown a chance to do just that.

The House recently passed a bill that would have moved up the implementation of the credit card reform act from Feb. 22, 2010, to Dec. 1, 2009. But Senate opponents blocked a similar bill, S. 1833.

Thank you, lawmakers. Now card issuers have way more time to maul consumers.

Lenders actually started jacking up rates, lowering credit limits and closing accounts well before Congress passed the Credit Card Accountability, Responsibility and Disclosure Act, or Credit CARD Act, in May. Soaring default rates and frozen credit markets led issuers to start pulling in their horns in early 2008, as I wrote in "The credit card party is officially over."

But that law's passage has touched off a frenzy of issuer retaliation. Angry at lawmakers, lenders decided to take it out on their customers, regardless of those customers' credit scores or payment histories.

Issuers seem oblivious to the fact that jacking up rates to 20% or even 30% is often a pointlessly counterproductive move, because savvy consumers with good credit can simply take their business elsewhere (check here for better offers), while others will be forced into default.

Banks no longer even pretend

The one silver lining is that the public is finally seeing how devious and untrustworthy credit card lenders truly are. When issuers limited themselves to beating up on folks with bad credit, it was too easy for the rest of us to dismiss their foul tactics as business as usual. Now that the schoolyard bullies are going after everyone, the need for putting restraints on the industry is ever more obvious.

Although virtually every issuer has participated in the madness, a few have managed to distinguish themselves and deserve to be called out. For example:

    * After promising to stop raising interest rates in advance of the Credit CARD Act's implementation, Bank of America announced it would start slapping annual fees on accounts -- a direct contradiction of its Oct. 5 pledge to stop "re-pricing" customer accounts.

    * Citibank has been raising rates, then promising to rebate a portion of the interest paid to customers who charge a certain amount every month. In other words, the lender will give customers a small kickback as long as they keep digging a bigger debt hole for themselves.

    * HSBC apparently lowered at least one customer's credit limit simply because he lives in California. (I know some people are mindlessly biased against Californians, but this is ridiculous.)

We've heard a lot of bloviating about how lenders are just trying to protect their business models now

Principles the crisis hasn’t changed

By Dr. Johnny Noet Ravalo
INQUIRER.net

The headlines are blaring, sound clips are plenty and online coverage seems never ending. Amidst all the financial difficulties, someone asked me what new lessons should be learned. I did not have to pause very long. I still think that the main lessons are no different from those that we have tried to share in this column on various occasions even though this crisis is unprecedented in many respects. For me, six lessons particularly stand out.

1. We simply do not have the ability to perfectly foresee the future. Lehman was after all an AA-rated credit so who would have imagined what would become of such a venerable Wall Street name. This human limitation is the best reason why we should be saving. We should save because it is the only way we can transfer purchasing power from when we have a surplus to when we may suddenly need more of it. In other words, saving during normal times helps us manage the difficult times. When difficult times kick in, our financial plans often shift to prioritizing liquidity over profitability. Unless we have a fool-proof way of either marrying into or inheriting liquidity just at the right time, we simply cannot maximize liquidity when we have no saving to speak of in the first place.

2. Change is the one constant in financial markets. With change, perceptions and fortunes can very well change as well. What may be heralded today may suddenly be frowned upon when market conditions change. Mortgage-Backed Securities (MBS) and Collateral Debt Obligations (CDO) were positioned as financial engineering responses to the needs in the housing market. They provided the means for more individuals to obtain their own home via mortgage while allowing financial institutions to re-package the exposures. Yet as market rates reversed, what were once labelled as “innovations” had evolved into the “sub-prime” saga.

3. Financial value is a relative concept. A trader, for example, would have a different mindset from an investor. This matters because ultimately the portfolio of a trader should be different from the portfolio of an investor. There is always that natural urge for any investor to get a bit more but without realizing it, some of us cross over and mimic a trading position and get consumed in the day-to-day changes in market values. This will be a problem because traders build their portfolios based on different investment objectives and look forward to “re-balancing” the portfolio to generate returns. Most retail investors would not have the “information infrastructure” to monitor the markets ticker-by-ticker and adjust their portfolios accordingly. Instead, it may be more prudent to give up on higher risk instruments for those that can provide a reasonable gain over longer periods, with due consideration to our shifting liquidity needs and the changing fortunes of the credit quality of the instrument issuer.

4. Financial markets provide a value-added service but they do not have to be “equal” to all to get this job done. This is perhaps the hardest lesson of all and it does not mean that financial markets are inherently unfair. What it simply says is that the financial market cannot accommodate everything that each of us want because trade-offs are necessary. For example, we cannot generate the highest return without taking more systemic risks. And no matter how we work on it, a pool worth P5,000 is much less flexible than a pool worth P500,000. This is not being unfair. Rather, it is a testament to our differences; differences that make markets work so that differentiated products are offered for different needs.

5. Market dynamics have a way of containing excesses. Unfortunately, the realignment is never painless because it may mean getting a bump, a bruise or a bleeding cut every now and then. This is not a critique of the financial market but more of a blunt reminder that there needs to be a certain amount of balance in what we do in these markets, both for our individual portfolios and our collective behaviour as stakeholders. It is important that we identify what we want out of our investments, make sure that our investment objectives are consistent with our own capacities and have the discipline to stay within our means. This is often not easy and this is where we really need the objective eye of financial advisers and brokers.

6. Finally, information is supreme in financial markets. It is important that we know what’s going on in the market because it is our saving that is at stake. The difference between an informed investor and a panicky investor is often the absence of quality information. Deal with financial institutions that make a clear effort to communicate with you and take the time to keep the lines open. This is not an excuse to abdicate on making financial decisions. That part still rests with us because it is the action item that comes from gathering the relevant information.

These are the lessons that I always keep in mind. I don’t mean to suggest that it is an exhaustive list and I do not also represent them to be a recipe for financial success. For me at least, it helps in maintaining a perspective and all day-to-day financial choices are anchored on that broad view.

Top tips on how to handle money in 2009

MANILA, Philippines--The year 2008 has been a challenging year. Oil soared high triggering an increase in prices of commodities from rice and sugar to canned goods and bread.

But it also slumped, resulting in rollback of prices at the gas pump and in transportation fares.

Inflation reached double-digit levels but recorded its lowest low as well. It was this year that the world felt the effects of a global financial crisis.

Thousands of workers in many countries have lost their jobs and homes as corporations and financial institutions buckled under the financial crisis.

Filipinos are not exempted. Crisis is in the air and many are taking stock and preparing for what may lie ahead. That includes managing finances better.

Some finance-savvy people share below how they are handling their finances in the midst of a global financial crunch:

Question: What have you done this year to manage your finances better?

Heinz Bulos, editor in chief, Money Sense magazine: My wife and I are Quicken types and it's easy to track where our money goes since we normally use credit cards and checks for transactions. But it's the cash withdrawn from the automated teller machine that's always difficult to account for. It's fine if we can't trace a few hundred pesos but when it's thousands of pesos "missing," something's not right. So we decided to centralize everything using a simple petty cash system--each of us can only replenish our cash every week once expenses are accounted for with proper receipts.

Karen Galarpe, blogger--Open for Business at www.inquirer.net, freelance editor and speaker on financial issues: I took a long hard look at my spending and have cut down wherever I can. For instance, I now patronize a salon that doesn't charge as much as the salon I used to go to, but still gives quality service. I also looked for a new school for my son that charges a more reasonable tuition fee yet still gives quality education. I patronize more Filipino products rather than imported ones which, more often than not, cost more. In short, I have become more conscious about getting more value for my money without resorting to deprivation. I have also continued my habit of writing down my expenses and checking if I'm living within my means.

Judith Go, Citigold wealth management director, Citibank Philippines: Crisis or no crisis, people need to review their finances every so often to look for areas where one can improve. It could be that the year before, you were setting aside 10 percent of your income, and this year, you will target a higher saving rate. Personally, I realigned my investment portfolio and went for a moderate-aggressive strategy. I know that the markets will recover and I want to take advantage of the tremendous upside when that happens.

Alijeffty Gonzales, registered financial planner, www.acgadvisors.net: 2008 will stand out as the year when classic principles of investments like diversification were turned upside down; the commonly accepted principle of bonds being inversely correlated to stocks does not seem to hold anymore as both dropped at the same time.

As this may affect the liquidity of my portfolio (I don't want to be forced to a selling position when prices are low), the first thing I did was to establish a cash position that is twice as large as I normally would require. This came from the cost-cutting of nonessential expenses and identifying new areas for generating income.

Question: What steps are you taking or will take to weather the financial crisis?

Heinz Bulos: I'm all for a little belt-tightening and some sacrifice, but cost-cutting goes only so far (plus it's not a lot of fun). So we're focusing on increasing the income side. It's not enough to diversify our income sources, working with different companies on ongoing projects. We realize it's very important to own the source of income itself, and that means focusing on our own business. We found a profitable market niche that works for us and we have lined up numerous projects in the coming year. We believe there are opportunities even in a financial crisis.

Karen Galarpe: I look for ways to increase my income without wearing myself down. I look for and work on projects that would be worth my while.

In other words, I don't just jump on any opportunity, but study wisely the pros and cons.

I have also continued being diligent in saving, and have taken steps to diversify my investments. I hope to increase my savings rate this 2009.

Judith Go: Where I used to think twice about spending for wants, now I think thrice, even four times, until I convince myself not to go ahead.

This is something I will keep doing even when the crisis is fully contained and we start to see a turnaround. I'm fortunate that this is something my kids have picked up as well--they are quite responsible when it comes to spending their allowance--and I hope that they'll continue to be this way as they grow into adulthood.

The gift of saving

By Dr. Johnny Noet Ravalo
INQUIRER.net

It’s the end of the year and by now all the gifts have been opened. That also means that our billing statements will soon be in the mail as well. No matter. It’s the season of sharing and we are just as happy to go through the shopping and the wrapping to remind family and friends that they matter.

As I look at my nephews, nieces and godchildren comparing their respective “loot for the season”, I realize that I grew up in a very different, much more measured environment. I turn philosophical (it comes with the season . . .) and ask myself: what gift did I receive from my parents that had a lasting impact on me?

The answer is as corny as it is discerning: my parents invested into my future by saving.

My father’s mantra was “simple living” and he found every opportunity to recite it as if it was a pledge (he still does today). I thought it was just an excuse so we did not have to eat out or take family vacations (if we couldn’t reach a place by car, don’t count on seeing it). Dad was a disciplinarian and it was not a wise move to get the ire of an ex-military man either by being short ten centavos or “agreeing” to receive those green candies in lieu of the right amount of change.

But he also took on two teaching loads in a graduate school, carrying out this responsibility at night after his day job and giving up his Saturdays. Yes, he loved both the teaching part and the mind games of the case studies (I found my business subjects in college quite easy in part because I read cases at a young age). But I could not understand why someone who lives in Quezon City and works full-time in Makati will bother to teach in a school along Taft Avenue. It was simply “out of his way” which for dad was a major infraction on “simple living”. Eventually though, I understood the payoff: for as long as he was teaching and taking the administrative load, my grade school (and then my high school) tuition was discounted significantly.

The biggest hurdle to saving though is that it remains an abstract asset until it is actually deployed. I knew about the tuition discount as a young boy but it wasn’t something I could see or hold. Back then, saving felt more like “foregoing present-day opportunities” rather than an investment for the future.

I don’t think I understood, really understood, why my parents were so “measured” until I was accepted to graduate school abroad. Despite the school acceptance, we still had to show the embassy a bank balance. After that, the trip itself and having to start a new life in an alien environment required a sizeable treasure by itself. I was fortunate to have received an academic scholarship which settled my tuition but I became a working student by circumstance. Trying to match a $3.75-an-hour minimum wage with an $800-a-month rent in Brookline meant that I had to focus more on “working” than on the “student” part of the equation. This was no longer someone else’s saving but something I had to generate and then manage on my own.

What is the point of all these?

I am very sure that I am better off today because of the invaluable opportunity of studying in Boston at a top-ranked institution. Professionally, the academic training gave me a different perspective, if not a broader toolkit to work with. At the personal level, one does not forget the challenges of living alone in a foreign environment without the comforts of family and, more importantly, the consequences of not having savings that you can tap when you need them when the need arises.

All these gains were possible only because my parents had the uncanny ability to maintain the discipline of saving. I’m sure they heard my siblings and I whenever we grumbled at yet another facet of “simple living” but I am very thankful that they either didn’t hear very well or simply chose to lend a deaf ear.

I concede that saving is harder today simply because it is harder to manage today’s environment. Income streams are not as permanent and the cost of living depends a lot on volatile external factors.

But perhaps saving is harder because we have lost our way with this virtue. Saving is not preventing expenses to be incurred but striking instead a hard balance between income and expenses. With a few hugs from my family, we are off to our favourite eating place. It’s an added expense but it does not necessarily make us poor savers. It runs counter to my parents “simple living” rules but I think we can still be effective at saving even if we indulge ourselves every now. In fact my father likes to eat out nowadays, I suppose because he doesn’t pay the bill anymore. The point is that his “simple living” rules are actually not absolute but very much relative.

This is the nature of saving. There must be some rules but do not have to be the same for everyone to make it work. To make the discipline work, we have to be comfortable with it. And the ultimate gauge of whether we are effective in our saving is the ability to transfer purchasing power through time when and where it is most needed.

This is the gift of saving that I have been so blessed to have received. I live a different life because someone saved for me when I didn’t have the capacity to do so and instilled in me the discipline for it when I did have such a capacity.

Savings program for ‘kasam-bahays’

By Dr. Johnny Noet Ravalo
INQUIRER.net

Al was already borrowing money on January 6, so early into the year. When he started working at P7,500 a month over a decade ago, he did not save despite having his living expenses fully covered. Today, he makes double that - not counting non-monetary benefits - and he still has no savings.

Grace sends money to her relatives every so often. Although something is better than nothing, the amount she remits really pales in comparison to what she earns. Grace doesn’t spend for her living expenses but she pours much of her income on cellphone loads.

Al and Grace are “kasam-bahays”. We could debate whether their problem is that they cannot save (capacity), do not want to save (willingness) or do not know how to save (awareness). That debate though would be for another time.

For now, what is on my mind is their saving habit: should employers take a pro-active role in developing the saving habits of their kasam-bahays?

If there is something I know quite well, it is that financial planning is not an inborn talent but more of an acquired discipline. Saving is difficult because it constantly tests our resolve and challenges our ability to react to changing market conditions.

The reality is that very few of our kasam-bahays have a saving plan. Many of them manage their day-to-day cash without thinking longer-term. The challenge then is to show them the longer-term benefits of saving without severely constricting their present-day liquidity.

How then do we move forward?

I think it boils down to our our kasam-bahays wanting to save, not just in words but in deed. This is first a mindset issue because there may be a perception that the saving plan is just an ingenious way to avoid paying our our kasam-bahays their due in income. If it gets to this point, then everything else becomes counter-productive and the working relationship is contaminated by mistrust.

Knowing that cash is important to our our kasam-bahays, deducting part of their existing income will not be a good way to start. This saving will just be felt as a loss in day-to-day liquidity without any perceivable gains.

Perhaps employers may consider advancing the saving and treating this as part of their our kasam-bahays benefits. For example, instead of giving a straight increase in pay, the full-year equivalent of the increase can be invested as a time deposit and periodically rolled over within the year. The beneficial owner of the time deposit is still our our kasam-bahays and they get to see their money grow within the year without any direct loss in day-to-day liquidity.

For our our kasam-bahays who have young children, one variant of this would be something like a trust fund. The fund grows over time for the benefit of our our kasam-bahays without any risk that the money will be depleted as day-to-day expense. As the child gets good grades, give cash gifts to further boost the outstanding balance.

Hopefully, our our kasam-bahays will be encouraged to save part of their income once they see the benefits of their saving plan. Employers can match every peso they save up to some pre-determined limit.

As a community of stakeholders, banking associations may wish to get together and offer special programs for new savings from our kasam-bahays or even other targeted constituencies such as families of OFWs. Certainly, tie ups with government agencies may eventually be needed to formalize these programs. Whatever these arrangements may be, we all benefit from broadening the saving base, increasing our saving rate from its present levels and providing more for our respective futures.

We need to bring saving to the level of those around us. We can talk about financial literacy or great saving schemes but unless we can execute these into actual mobilized saving, I doubt if there is anyone out there that would consider great talk as a success indicator. We need to help ourselves and those around us, just as everybody else helps us in one way or another.

I don’t think we have to look very far. After all, everything starts at home.