The Path of Financial Success: Step # 8

Using the power of one
Saving together provides better benefits

Learn and share with like-minded individuals who want to succeed as much as you do. Let me give an example.

Ms. Mathilda is a 33-year-old domestic helper in the States. She was working there since 1994. During her first few years, she was not able to save a penny. She was still single then and felt that she owed it to herself to live it up somehow. After all, she handles all the stress that comes from her work and she figured she should enjoy while she still can.

She sends some money to her 80 year-old mother. But instead of saving what is left of her income, she spends it on clothes, and other unnecessary items. She spent all of her earnings because of this type of attitude. During 1997, she eventually got married and it dawned on her that she had to save in order to go home to her own country and have a good life with her husband while they raise a family.

Let's say she earns about HK$3270 monthly in Hongkong. If she saved HK$500 monthly, it would take her some time to save enough and operate a sizeable business that would provide her with additional income.

Instead of doing it all alone, she encouraged six of her friends that also work as domestic helpers to start saving with her so they could save more in a shorter span of time. They knew that by having more money saved, they could have more capital to start a business and a bigger chance of succeeding than any business that anyone of them could set up on their own. They intended to use their joint savings to venture into a business that one of them would directly manage.

Three years ago, each of them started saving HK$500 monthly. If we compute their total income now if they placed all their savings in time deposits and savings accounts, then we would see that they would have a sizable amount of cash and their savings would continue to grow to this day as they consistently save up.

Their story is a good example of how working together, and in this case, saving together, can provide better benefits than doing it alone.

"The Power of One can lead to changes for the benefit of the many. These changes come from the many but only if many of them can come together to form that which is invincible, the Power of One".

The Path of Financial Success: Step # 7

Invest and Diversify

Wow, It has been a while since my last post here. I am quite busy with life at the moment and I have another blog to manage. So, sorry for all of you who has been waiting for the 7th step to financial success here at Compound Savings Interest.

Diversifying means that you are spreading the risk in an investment. Because there is always some risk involved in every business and investment opportunity, it would be wise to spread your money so that you don't lose it all once the market begins to crumble. Prudence demands that, whenever possible, you should actually spread the risks. Remember there is no such thing as a perfect business and so many things can go wrong! So, make sure that the investments you make are properly matched with controlled risks.

Always remember this when you are evaluating business or investment opportunities. Investing is not simply looking for opportunities. Investing must always match a specific purpose! When you invest, you must know what you are doing. Your expectation of investment returns should be very clear as to the amount and time of income.

But investment is not only about the amount of income. You must also try to understand what an investment return, or yield is. A yield is the percentage return that an investment delivers based on the amount of principal you put in. It is usually calculated per year.

In every investment, you must evaluate it in terms of:

• Return/Yield - How much do I get from this investment? Is it enough for me? Does it beat inflation?
• Safety of Capital - How safe is this investment and how large is the risk of losing my capital? Is it worth it to have an investment of higher returns but with higher risk? Can I afford to lose my capital/
• Liquidity - How long will it have to be before I can take my money out if needed? Can I convert it to cash anytime I want?

Then ask yourself these next set of questions:

• Why am I interested in this investment? What is the specific goal that this investment will achieve?
• Will it bring me closer to my desired net worth and by how much closer?
• How much of my investible funds or present net work am I putting at risk with this type of investment?
• Do I have to decide now? Will this investment opportunity continue to be available tomorrow, next week, next month, next year?
• Is the financial return or income I stand to gain commensurate the risk I am taking with my money?
  

These are the questions you need to ask yourself in order to help you choose the proper investments and to know when to diversify. If you are about 50 years old. It would not be wise to put a majority of your money in stocks, but you should put it in bonds for safety. If you are young, you should put most of your money in stocks and less in bonds.

The percentage of your investment capital all depends on you. However, it is not wise to put 100% of your cash in stocks or 100% in bonds. It would be very wise to diversify. For example, you should place 70% of your money in stocks and 30% in bonds if you have a long way to go until retirement. This involves a much higher risk that putting 70% in bonds while 30% in stocks. But when you are still young, stocks normally beat the market and have higher gains on the long run.

What you diversify all depends on what your need is. Just don't take out your money every time there is a little twitch in the stock market since there would be an ugly tax on your capital. Just leave it be and trust in the power of compound interest!

Ok, I'm done with Step # 7. I hope you continue reading the articles here at Compound Savings Interest. Comment are very well appreciated!

Let's discuss scams

Why do people get victimized by scams? Very often, people fall victim to scams simple because they are not really clear on what they want. They tend to have this general idea of earning a little more money than the usual returns when investing.

Here are two basic rules that would teach you IF you should take out money to buy a product or to invest.

• The personal reason on why you want to invest.
• Is the company making the offer legitimate and credit worthy? Generally, scams offer very attractive and unbelievably high returns. Most likely, when you encounter an offer like this you would raise your eyebrows and ask "Is this too good to be true?". If this is your impression on a certain offer, then it would probably be 99% correct. IT IS TOO GOOD TO BE TRUE.
  

But what are the personal reasons I am babbling about?

1. What is my interest in joining this network?
2. Will I buy the product because I need it?
3. Will I buy it because it is only available in this network?
4. Will I buy it because I am getting a spectacular discount?
5. Does someone I know need it?

If you answered NO to all of the above or if it is clear that your interest is not to buy but rather to make extra income. Then here is another set of questions.

1. Will I earn extra income selling the products?
2. Is the product worth the time and effort I must exert to earn extra income?
3. Will I have the time and talent to spend for this product?

If you answered NO again, you should definitely walk away and save yourself some time and money.

It is very important to be clear and sure about your personal purpose in putting you money in a certain offer. You definitely should not put out money unless you are clear on what PERSONAL OBJECTIVES OR BENEFITS you stand to make out of the transaction. You have to be very clear about what you can expect to recieve and, more importantly, what you have to personally invest in terms on money, time and talent.

However, if your answers are YES and you want to earn extra income because the offer is very attractive, study the system a little bit further. Pursue the specific objective of finding out whether the offering is, in fact, based on sound business operations, whether or not it is legal and whether, in fact, the compacy and the agent making the offer are duly licensed.

Why be absolutely sure? Well, it is only to protect yourself from becoming a victim of unscrupulous individuals and companies. They set up businesses for the sole purpose of deceiving investors usually with a promise of high returns. Many people have fallen into the trap of investing their hard-earned money in pyramiding schemes disguised as legitimate multi-level networking marketing firms. Here are a couple of questions you need to ask before finally making the judgement call to invest you hard-earned money.

1. Is the product something that will benefit a person and is legitimately priced?
2. Is there a transaction? Is there a document or contract outlining details of the transaction that you can understand?
3. Is there an actual cash outlay? Do you have to pay a certain amount before you can be a party to the transaction?
4. Is the money being "pooled"? When the money goes into the business, is it kept in the business for the business?
5. Is a third party managing the pool of money?
6. Is there a reward or profit?

If you answered all of the above questions as yes, then the product in an investment product or a security. These fall under the jurisdiction of the Securities and Exchange Commission (SEC).

Do not be content with the Articles of Incorporation issued by the SEC, which most investment proponents present proof of their legitimacy. These are just like the birth certificate of a person and is not valid proof.

A legitimate company should also:

1. Register its investment products with the SEC.
2. Secure a specific license from the SEC to sell them.
3. Secure a specific license from the SEC for each of their agents to sell them.
   

Ask for a copy of their product registration as well as the company's license to sell them to the public. I will be listing down the scams here later on. Hope you continue reading Compound Savings Interest for more articles!