Personal Money Tips

When we talk about leaving a legacy, most people think about leaving an inheritance like property, money, stocks or even a business for the next generation. That is good intention and if you have the means to do it, then do it. Others think that leaving too much for their children is not good and give most of their money away.

What I would like to talk about is not something tangible like properties and so forth. I think that it is good to leave something for my children, when I have children for the simple reason that they don’t have to have it so tough. Things are getting expensive if you live in the city and will become more so in the future. Yet income trends shows that it has not grown as fast as inflation. If you can leave something behind for your children, they would have a better start, although that is not guaranteed.

When I talk about leaving a financial legacy, my thoughts are the financial values you are going to pass on to your children. It does not matter if you leave them with millions, but if they don’t have the right values, those millions will be gone in no time. In fact the Chinese people have a saying that prosperity does not remain in a family for more that 3 generations. It story goes like this. The first generation is poor, lack opportunity where they were living, probably immigrated from China or elsewhere. They saw the opportunity the new land presents, works hard, is frugal, saves and lays a financial foundation. This foundation is most likely a small family business, some money and/or small piece of land. The second generation saw their parents work hard. They caught the values of their parent, are thrifty, builds on this first foundation to take it to the next level. Perhaps they have a better education, come back from getting a college degree, modernize the business and they become wealthy in the process. The third knows nothing of the first generation work. They only see the wealth the second generation got. The nice house, nice cars and pretty good lifestyle. This third generation enjoys the fruit of the labor of the first 2 generation. They don’t know the hardship of their grandparents to build the business because they did not see. Laziness sets in and they only know how to consume rather than to preserve and grow the wealth further. By the time the fourth generation comes along, a large portion of assets are consumed or wasted. Fifth generation comes along, they are back to square one. All the wealth and experience down the drain.

If you have children, you know how fast children catch on to something. In a funny sense, they mimic what the adults do. The way they talk, the way they relate to one another and they spend money. This should come as no surprise. Children catches the money values of the parents. If you eat at expensive restaurants most of the time, they become used to eating at expense restaurants. They will do the same when they grow up. If you change cars every year or two, they would most likely do the same. If you are in a mountain of consumer debt, most likely they would be too. And even if you don’t carry a debt to live the lifestyle you currently live, you have trained your children to live at a certain level, they will live at a similar lifestyle even if they had to be in debt to do so.. Because that’s how we have been living all these years. I know there are exceptions. There is always the exception to the rule. But that’s how it is.

So, what financial legacy are you leaving your children in? Are you leaving a financial legacy that can last more than 3 generation? It depends on you. If you even needed a strong reason to make-over your financial life, this would be a good one.

Most people have a hard time keeping track of their expenses. The reason I think is because it is just to troublesome to keep track. Although I consider myself a rather discipline person when it comes to money and finances, I hated it when it came to keeping track of daily expenditure. How much fun can it be to mark down every single item that you spend your money on? On top of that, I had to total up the figures at the end of the month and counting a few dollars here and there for lunch, snacks, parking other miscellaneous items just wasn’t my cup of tea. Then I separate them into categories so that I can have a picture of how much and where I spent my money.

But if you don’t keep track of such expenses, your “leakage” can be quite high. By “leakage” I mean money that you have spent, but didn’t know where you spent it. Most financial planner and or financial advisor estimate that these type of leakage can be as high as 15 to 25 % of your total budget. I don’t have statistics to back up what I mentioned here but to estimate your own leakage, do this. Total up the expenses that you do know (expenses that can be tracked like loans, phone bills, bigger purchases), then add the addition in your savings or checking account. Take your income and minus the above, the figure you get is the leakage.

Example:

Total Expenses you know of = 2,500

Bank Balance (previous month) = 20,000

Current Bank Balance = 22,000

Income = 5,000

Your leakage = 5,000 - (2,500 + 2,000) = 500

Percentage wise, you leakage is 10% of your income.

After I’ve gotten my first pda several years ago, I now keep track using a expense tracking software. I’ll update my expenses 2 to 3 times a day whenever I have some free time like waiting for someone or even stuck at the traffic lights. There are many type of such software and most will synchronize with your computer. The one I’ve been using for many years now is called ExpensePlus from WalletWare . Once I synchronize with my computer at home, it even generates spreadsheets in Excel. Both for personal expenses and business expenses.

Since using a pda plus expense tracking software, I find it so easy. Sub totals of different categories of expenses are generated and I find doing my business expenditure is so much simpler. Like I said, there are many types of software available. I don’t have an interest in the company that produces ExpensePlus. By the way, I just use their demo software which is free and it limits you to do 2 expense reports. Which is good enough for me.

I’d like to hear from the readers, what methods you use that has worked for you. In case you don’t have a pda, what do you use to simplify this rather tedious process of tracking expenses.

I wrote in March 2007 about Casey Serin facing foreclosure. Casey at age 24 and calls himself a real estate wannabe, went to several real estate seminar and got himself into a ton a debt. You can read more on his site or my earlier post.

Yesterday, I wrote about building an online asset and the funny thing is, someone offered to buy Casey’s blog, which has been up for about 10 months, for $100,000. How’s that for telling people of your mistakes and making a sizeable sum of cash from it, if he choose to do so.

I’m not advocating you do something crazy financially just to have something to write in a blog, but it shows the principle of asset creation. In anything you do, try not to end up in a position of self employment. Think of creating an asset. An asset does not have to be online. Essentially an asset gives you positive cashflow, while you are building it and then when your cashflow builds to a certain size, people would offer money for it.

Examples of assets you can create includes book and music royalties, a business, an idea, a franchise, and multiple other possibilities. A professional practice like a law firm and a clinic are also assets and can be sold. The thing about creating a valuable asset is to plan for it in the beginning so that you can maximize its value. It could mean documenting certain procedures, keeping track of customers and knowing the lifetime value of the customers in your book. An online asset is just one of it.

Update

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