Moneywise24 Personal Finance

I am encountering quite some articles recently about how to efficiently benchmark one’s own salary, and how to introduce the topic into a conversation. Many people seem to wish for more openness regarding this topic, yet in many western cultures it is still taboo.

Although there are many good reasons to exchange salary information (which I will surely discuss myself in another article), there are some strong points, why it sometimes serves well to keep the salary a secret.

Measurement from within

Question: how do you measure your own success?

There are different ways to measure your success. The first one is from within: you look at your expenses, at your income, net worth, and what you want to achieve. Based on this, you can make a fairly good estimation with whether you are happy with where you are, or where you want to go. This method purely focuses on your own needs and requirements, leaving everything else untouched, and you mainly focus on yourself, and your own desires. Read the rest of this entry →

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Honestly, it costs me quite some effort and perhaps a bit of courage to write this article; finally, after having seen the book quite some times in my local bookstore but having ignored it due to its simple title, I decided to buy Rich Dad, Poor Dad - if it would have been called “an empiric study about the financial development of… ” I would have bought it sooner, in the end I currently live in Germany. I have still not read the entire book, and read through the first two chapters only yesterday. But still, I can say that those first two chapters have pretty much enlighted me. It is a funny thing, because many of what is written I know in some form of the other, but my entire life I have failed living it.

The book Rich Dad, Poor Dad is a story told by Robert T. Kiyosaki, who grew up in Japan. During childhood, he grew up with two ‘dads’: his real dad, a highly educated man with a good job, but constantly struggling with his financials, and the rich dad of his friend Mike, which is much like his second dad. Mike’s dad is a successful entrepreneur, and the main difference is how the two dad look at money, and the goals they pursue in life.

In the first chapter of the book, Robert T. Kiyosaki writes about how people are told during childhood and adolescence to get good grades, perform well through high school and university, in order to get a good job and a good salary. Thus, young adults graduate from college or university, obtain good jobs, and work hard on their career. They get themselves credit cards, they buy a fancy car, and with the first salary raise perhaps a home on a mortgage. People get married, get children, and as life gets more expensive, they work harder and take on second jobs… I do not want to lose myself in Robert Kiyosaki’s words, but the bottom line is that most people live in an illusion; the illusion of having a secure job, building a secure retirement, and that working hard for a large and well-known company is going to make them rich on the long-term. However, in the end these people end up working solely in order to be able to pay their bills and their liabilities.

In order to lead a truly fulfilled life (and I do not mean rich, simply fulfilled), it is necessary to find ways to let money work for you, in stead of the other way around. This means, for example, investing in stocks in order to see them rise in value, and to obtain dividend pay outs. It means investing in other forms of businesses, hire people to let them do the work for you. It means identifying opportunities, entrepreneurial opportunities, and be in charge. The biggest problem, however, is that most people are so caught up in their thinking of “education / good grades / getting a good job”, that these opportunities pass by without them even noticing.

I let the first chapter reflect for a moment yesterday, and the more I thought about it, the more I identified opportunities in the past, which I had let pass by due to my focus on making a career. I still remember vividly, that when I was 19 or so, I got interested in international trade. I bought some books on international trade, and how to become a trade agent, and in a newspaper I saw some offers from manufacturers of cellphones looking for agents. The costs for starting up an agency were extremely low, and it was a time at which cellphones were just starting about to hit the market… but I was discouraged by my family and friends, and unfortunately I listened to their advice, to get a job. One year later the cellphone business started booming for real…

Throughout my entire life, I have been looking for better jobs, better salaries, promotions, and the like. And I believe this will be one of my top priorities for 2010:

I pledge to stop focusing on making a career and losing myself deeper in the treadmill until I cannot get out. In stead, I will be on the outlook for business opportunities, aiming at gaining financial independence. And I will do anything, that is necessary.

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You might ask yourself, how does traveling actually contribute to personal finance, and what can I learn learn from it? Actually a lot. A can speak from my own personal experiences; traveling has many benefits, which can be applied to your personal life, also personal finance. And I believe it’s a good thing, traveling broadens horizons, you get to know new people, new experiences, and generally get to see many different situations from different perspectives.

If you have traveled a lot already, especially outside of your own country or cultural circle, you probably know what I talking about. Applied to personal finance, I believe having traveled a lot offers major benefits. I want to discuss a few of them below, but of course you are more than welcome to post comments with additional ideas.

The Unknown

One of the major features of travel, in my opinion is being confronted with the unknown. In the most extreme case, you would not speak the language, the cultural differences are like worlds apart, and you feel fairly lost in this new surrounding. However, since you are in a foreign country, far away, you have no choice to deal with it. It can be quite overwhelming, and it is also why many travelers, who meet each other on distant trips, tend to stick together during their voyage; it is a way of trying to keep the known and the unknown balanced out.

Being confronted with such an unknown situation will surely lead to more flexibility and a more ‘risk taking’ mentality when you get back, at least it did with me. And the more often you throw yourself in such unknown situation, the more you get used to it. I can only tell from my own experience, it has definitely benefited me.

Your life isn’t really that bad

My trip to Kenya in 1998 made a huge impact on my life; Kenya is a very poor country, and myself being originally Dutch (I was 19 at that time) I realized for the first time in my life how good a life I am actually leading. I used to complain about the huge loan I had to take to study, and about the small room I was living in… but I had never truly realized that there are literally billions of people on this planet, who simply don’t have enough food to eat, and whose life conditions is beyond what I could have ever imagined. Sure, I had seen it on the television and in the news quite often, but it is nothing compared to going to such a country and seeing it all live. I became more of a relaxed person, and not so money focussed.

Different cultures, different mentalities

I find it fascinating, how different nations think differently. A great example is a Dutch/German comparison. I am originally Dutch, but currently living in Germany, and honestly the Germans are much more formal and closed than the Dutch. Usually, when I meet a German people and I tell them I am Dutch, they are always so amazed how open, relaxed, friendly and easy going the Dutch are, they really seem to like that, while on the other side they are complaining about their the closedness of their own people. Yet, these people don’t change, they are caught in routines of what they just said they did not like. A bit of a long trip might give you real in-depth insights of how other cultures think, act, and related to each other, and you could adopt something of that. But more importantly, traveling lets you related other cultures to your own, and you can look at your own habits a bit more objectively; it makes you a more free person in a sense.

Getting to know people

If you are an open minded person, you will surely make many contacts while traveling; either with other travelers or with some locals. This is a great way to expand your network, and who knows you have a business partner some day, or who knows what a network might be useful for.

Traveling is a great passion of mine, and I try to plan a trip as often as I can. I believe traveling greatly contributes to the quality of my life, my development, my way of seeing things, and definitely also my personal finances.

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Languages are said to increasingly gain importance in international business; not only are there still so many countries where English is not spoken as a second language by everyone, there are also many languages which are gaining importance.

My mother’s tongue is Dutch, and I speak an additional four foreign languages, two of which can be utilised in a business environment (English and German). I once worked for a company, which would actually pay an additional amount on top of the monthly salary for each usable foreign language. Up to then I had always seen language as a tool to make myself better understandable in a foreign country, but not as a tool to boast my career and increase my salary.

Today, the world has become even more internationalised, and foreign language is a hot topic. Apart from the fact that learning a foreign language is fun to learn and offers valuable insights in a nation’s culture, some foreign languages are increasingly gaining importance, if this is not already the case. Just consider the fact, that over a billion people on this planet speak Chinese, this is 1/6 of the entire world population. And additionally, many people in Asia speak Chinese as a second language, rather than English. How about Arabic? Hindi? Spanish?

The great benefit for your career and working environment in general is that you are making yourself more competitive by learning new foreign language. Additionally, you are demonstrating your employer, or potential employers and head hunters, that you want to keep learning a life long.

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I have a few questions for you: Do you know your monthly net wage? Do you know how much money you spent on groceries last week? If you consolidate all of your accounts, including checking accounts, credit cards, and investments, how did your assets and liabilities develop per month during the past 6 months?  

These may seem some tricky questions perhaps, but how can you maintain a grip on your finances if you are not able to see how your finances develop over time, or if you can’t match your budget with your actual expenses? Making your finances transparent and visible is perhaps one of the first essential steps in gaining financial control.

 Doing your very personal bookkeeping means making your finances transparent. Bookkeeping does not need to be as boring as many people imagine it to be. Actually, it can be great fun, since you are actually seeing how, for example, specific changes in purchasing behaviour have a direct impact on your financial strength. Generally, Bookkeeping requires nothing more than a piece of paper (or a pre-printed book of household accounts) and a pencil. You will require separate columns for the following information: 

• Date of the transaction
• Credit amount, or the amount you received
• Debit amount, or the amount you spent
• Transaction category (e.g. groceries, real estate, living, automotive. You can define your own categories as you see fit).
• Payee
• Description / further comments

Alternatively, you can use a programme such as Microsoft Excel. Microsoft Excel offers the benefit, that you are able to set filters easily and create statistics. For example, if you would like to gain an insight on how much money you spent on automotive last month, you can set the appropriate filters and Excel will calculate this information.

If you are looking for an all-round solution, which allows you not only to do your daily bookkeeping, but also assist you in evaluating the results, you may want to consider purchasing a product such as Microsoft Money or Quicken. These programmes are specifically designed for personal finance purposes. They allow you to create multiple accounts, categories, budgets, and to enter all your transactions. In the background the programme will evaluate the data, and the programme may supply you with all the information you need.  Additionally, such programmes often allow its users to do research on companies and shares, and to plan possible future scenarios.

 The benefit of using personal finance software is tremendous; if administered regularly and precisely, you will know exactly where your money is coming from and where it is going to. Once you have your finances visible, it will allow you to make changes to how you handle money and the success over time.

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