Father Sez

From and to parents - parental advice to our children on personal financial management and life.
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Archive for November, 2008

What is the right value for a house? The Millionaire Mommy’s view

Wednesday, November 26th, 2008

In April 08, and in my view, before the sub prime issues really hit the fan, the Millionaire Mommy Next Door (one of my seriously favourite blogs, by the way) wrote a great post on this topic.  

The post was in response to one of her readers seeking MMND’s views on the indicators and trends to look out for in making a decision to buy a home. MMND listed three indicators: 

-         Price to Rent Ratio,

-         Would buying at that price make financial sense to a landlord and

-         An old rule of thumb of price against gross rent. 

She presented numbers and statistics and concluded that prices may be still elevated.

To those not familiar with MMND, perhaps the following extract from her about page might establish her credentials and also explain why I am such a big fan. 

Quote 

When we were 30, my husband and I decided we wanted to be parents. It was important to us that we didn’t repeat our parent’s mistakes. Since we had always wanted to parent through adoption, we didn’t have to be concerned about my ticking biological clock– we could wait for the right time.

Over the course of a couple years, I learned about personal finance and created a lifetime financial plan that would allow my husband and I to be free of our money worries by age 40. It worked.

We are now proud and happy stay-at-home parents to our wonderful, young daughter. Financially free, our family hasn’t set an alarm clock in years. Whether it be work, parenting or play, we wake with the sun, eager to spend each new day doing whatever we choose.

We consider ourselves closet millionaires. Our family lives a typical middle-class lifestyle with one fantastic exception– we only work when we want to. Financial freedom affords us free time. Contrary to popular belief, most millionaire households do not live the extravagant lifestyles that many assume. In fact, a millionaire or two may be living inconspicuously next door to you.                                                                 Unquote 

Some of you may remember that my wife and I had written about us selling an investment property we had, a house. This house had been rented out prior to the sale. So more out of curiosity, I compared MMND’s figures against “our case”. The house was sold in April 08, so the timing was perfect. I wrote about the sale here and here.

Based on statistics, MMND took the view that the price to rent ratio should be around 11.6.  In our case, the price at which the house was sold against the annual rent we were getting was an astronomical 32.5.  

Either, my wife and I had seriously undercharged the rental (which I doubt, as we checked the newspapers on rentals charged by other houses available in the neighbourhood) or equally seriously overpriced the house. However I remember that the property agent telling me that the buyer’s father in law’s first statement after he saw the house and knew the price was that it was cheap! 

I also remember my friend AK, telling me many years ago that rental yields on landed property in the metro areas of Malaysia should be in the region of 4% or a P/R ratio of 25. He is a property valuer so he should know what he was talking about.  

So there seems to be some anomaly in comparing prices in Malaysia and the US Metro areas. I don’t know if the high ratio is a Malaysian “thing” or an Asian “thing” or if there is a real mighty tsunami coming for the property sector in Malaysia. 

Whatever the case, we are happy that we have sold the house and when my children get into property investing (notice that I did not say “if”), I shall advise them to use MMND’s principles and search until they get the right fit.  

A great resource for part time jobs

Monday, November 24th, 2008

A part time job can be a real God send. With prices of daily necessities rising and income levels dropping, a part time or a second job is what that saves the day. Then there are the more industrious amongst the students who use their spare time to do some part time work to line their pockets and to reduce the financial burden on their parents.  

Finding a part time job wasn’t all that easy. You had to know who was hiring. Some businesses advertised in the local classified and others just placed some banners around their shops or offices.  

The Internet has changed this.  Now we can search for part time opportunities by browsing the web, where there are a number of part time jobs / opportunities advertised.  

And one such portal is www.parttime.com.my.  You can log on and browse a number of advertisements. Many are for sales promoters, others are cashiers and sales assistants for the bigger supermarkets, and yet others are for trainers and tutors. And as can be expected some are for direct selling opportunities.   

The moderator / owner? seems to accept that some bums might use this portal to advertise non existent jobs either for scams or for some other dubious purposes. He (she?) has sought his readers and users to advise should such cases be detected.  

For a retired person, student, housewife or househusband with time on his or her hands, www.PartTime.com.my is a great place to start looking for something to do for additional income. 

My eldest daughter who is waiting to do her Masters would find this site very useful.

I think the owner has done a great job in creating this portal to link those looking for part time jobs and others looking for part timers.  I don’t know how his business model works but he should be earning more than his fair share of blessings from many.

The results are in ……I am not a Net junkie.

Friday, November 21st, 2008

About a month ago, I wrote about my little Internet experiment. I wanted to stay away from the Internet for a week and check out the effects. 

It has been said that habits form slowly and seamlessly. A cigarette once in a while becomes a cigarette more often and before we know it, we become a cigarette junkie. The simile used by Dr. Covey, I think, was the building of thick mighty ropes strong enough to hold ships still, by the use of small fine threads over and over again. 

Many of us use the Internet at work, home and play. Maybe even without us realising it, we might be Net addicted. It might show by we becoming uneasy when we do not have access.  I should know, I used to feel that I was one of them.  

So the week without any access to the Net was an important test case.  And I am happy to report that the week went well, and life went on just fine and dandy without accessing the Net at all. 

As expected, my reader box is overflowing. I am still reading the blog posts of late October, and the debates on the US Presidential elections are still going on. (It does feel a little strange to read about predictions etc., where the outcome is now known). 

I feel that this experiment was a very useful thing to do. I am clear of all withdrawal symptoms and am sure that I’ll get by another week or two if I chose to.  

Bloggers and readers of blogs must be prolific users of the Net. The same can be said for the younger generation who are so attuned to computers and the Net that they might not be able to imagine life without or before the Net. It may do us some good to once in a while take a step back and say that we are going to live our lives without the Net for a week or so.    

Next week, I am attending a 4 day course and am travelling for a couple of days after that. As at now, my plan is not to take the laptop along and just stay away from the online world.  

After all I do have an offline world that I should be focussing on.   

Yet another reason why it pays to be financially literate

Wednesday, November 19th, 2008

dy/dx Ben was the nick name given to a good friend Ben from my campus days. Ben was an Arts or Economics student, I think. (He is now a proud holder of a Masters Degree in Law). I still remember vividly Ben telling us about some exam he had sat for, where his brains just fried, emitted smoke and froze when he saw questions like x + 3x – 4 x = ?  

I think that was when I first realised that not all of us are wired the same way. Having attended Science stream in school, questions like these would have been no problem for me or any of my classmates.  

Apparently it was not the same for those of us from non numerate backgrounds.  

This fact struck home again a few weeks ago. 

I saw an advertisement in the local papers about a 3 hour seminar designed to teach us the secrets of tremendously reducing the interest we pay on our mortgages and at the same time shortening the time.  

The first thing that came to my mind was that these guys will probably tell us to pay over and above the minimum payment which would reduce the interest and the period of the loan.  Still my curiosity got the better of me and I signed up. The amount to be paid was very small and I thought the coffee break and the cookies that went with it would cover the cost anyway. 

There were almost 50 of us that day, all eager to find out about this secret. As expected the presenter showed some fancy charts, and finally came to the point that additional payments would reduce the interest and the period. He then struck some uncertainty in us by saying that since most of us would not have read the loan agreements in detail, just making the payment was not enough. And his company offered the service (for a small fee) of analysing the loan agreement and to ensure that the additional payments were properly allocated by the Bank. 

Then came the invitation for people to sign up, and many of the attendees did. 

I wondered as to why we could not read the loan agreements ourselves and settle this. Why should we need to pay for these services?  

The answer is that not all of us are wired the same way. 

Some would have figured this MR trick all by themselves. Others would need some prodding, and then they would be able to figure it out. And yet others would remain baffled despite the prodding and would need someone to sort it for them. 

I think this is yet another reason for us to be financially literate. And those of us from non financial educational backgrounds should for our own good, make a strong effort to get ourselves a little educated financially.    

The MLM industry is going to boom

Monday, November 17th, 2008

With so many companies announcing cutbacks and many others freezing new hires it is no wonder that the unemployment statistics are so grim. So many of the laid off workers as well as new entrants to the job market will be looking at other avenues for making a living.  

And a common choice would be MLM. And why not? The advantages of MLM are many: 

-         a low cost of entry,

-         no hassles about keeping and maintaining workers,

-         no need for special premises,

-         no need to carry much inventory,

-         remuneration being closely related to the effort we put in,

-         training provided,

-         tremendous opportunity for growth,

-         being our own boss etc. 

Of course the basic rules of business must still prevail. The product or service being sold has to be useful and meet some clear need and be reasonably priced.  Still this industry seems to have acquired such a reputation that many just slam the door in your face or slam down the phone if you mention MLM.  Some may even be ashamed to admit that they are in MLM. 

I don’t think we should be. And I think MLM is an option that we should not simply write off. If it involves a product or service that we use ourselves and are happy with the price and results, then there is absolutely no reason why we should not recommend it to our friends and family. This is the foundation of MLM.  

Perhaps therein is the problem. Many of the participants are not truly convinced of the product and seek to push it only for the lucrative returns that we get in the form of all those commissions. The low entry barriers also allow for many uninspired participants to get in, try to push the product, fail, and move on to some other MLM company or outside the industry.  

And MLM companies too have had their share of black sheep.  

It’s not surprising that some people have such strong views against the MLM industry and their participants.  

Here is one such view, well written and very well discussed.

Despite all the bad press, I still feel that MLM is an option that is worth considering. As with any other investment or business, we have to do our research and seek appropriate advice if necessary.  

And if you are happy with the company, its product or service, the results that the product or service produces and the price you paid for the product or service, you have a basis for a business.  

Our children – just when should we let go?

Friday, November 14th, 2008

I got this picture from a great article on helicopter parents and the feeling of “kidsickness”. Though my elder two girls are certainly not kids anymore, I loved the article and this picture.

My wife and I have 5 children. 4 girls and a boy.

The first two are girls 22 and 21, and have completed their university degrees, whilst the younger three are still in school. 

Lately I have been wondering quite a bit of just where and when parental handholding stop and the children should be allowed to make their own footprints in the sands of their lives.  My wife and I have brought up our kids with the best of what we could afford. Naturally this has been far better than what my wife and I personally went through.

Though the two elder girls are adults now, we just can’t help seeing them as the little girls they were not that long ago. So there is a fair amount of interference in their lives from me. 

I did a little inventory of the plus points the girls had.     

-         The girls have finished their tertiary education without any study loans hanging over their heads. 

-         They already have an emergency fund built up. 

-         They do not have to support us or their younger siblings for the time being. 

-         They have already been given some basic knowledge of the need for their own personal financial planning, as well as goal setting. 

-         They are sensible, stable and responsible girls, and have a healthy fear of God. 

With all these, I think they have a great head start over very many of their peers all over the world.  

So shouldn’t my wife and I just let go and let the girls set out in their lives? Stop dictating what the girls should do? And stop worrying that without our constant guidance (interference???) they’ll be making mistakes.  

Thinking back of my own situation, my parents stopped quite early because that was all they could do or afford. I have no idea how my parents felt when they could not give their children many of the stuff other kids were getting from their parents. I got a lot better than my brothers and sister because my elder brother took over the task of looking after me.  

The time of the year when the girls and I sit and discuss their goals for the next year is approaching. Though they have already started to withhold some of their goals from me; I still look forward to this time of the year. 

I have made up my mind that it is time for me to let go. Time for me to be just there if they need me. Time for them to make their own plans and start living their lives. Time for them to learn that sooner or later they’ll have to do this anyway, and that they might as well start now.   

After all, my parents and eldest brother did let go of me. Though I made my fair share of mistakes in life, (perhaps even more than my fair share), my life turned out not too bad.  

I suppose, today, as I make this decision, will be counted as a landmark in my life.  Maybe there might be a small feeling of emptiness. At least, by the grace of God, I still have my 3 younger kids’ lives to interfere in.   

The Fathersez family goes wireless….finally

Wednesday, November 12th, 2008

I am one who can be considered technologically challenged. I am almost always behind in adopting technology. You can rest assured that the cell phones, computers, cameras, TV etc., that we use in our home (those that I buy or am responsible for buying) would be the ones that the would be about 2 or 3 generations old.  

This habit is not a reflection of my frugal nature, rather a reflection of my strong belief in “not fixing something that ain’t broke”. 

We have had internet access in our home for quite some time. We used wires and it was okay when all we had was the home desktop and my laptop. 

The numbers grew when my wife got herself a laptop. And on weekends with the two elder girls and their laptops the total came to 5 machines. Our internet modem had 4 outlets so we could use 4 machines at any one time. Our computer table arrangements further restricted that to 3. 

You can imagine the wires running all over the place. The power cables as well as the internet cables. Just see the mess!   

cables-resized.jpg

From the angle of wanting to get the clutter better organised, I consulted a friend about going wireless. And last week we finally got that done.  

The Fathersez family is now wireless! 

The desktop is still connected by cable. Only the laptops are on wireless. The mess is a lot better controlled now. (I did have to shell out some money for a wireless modem). 

picture-002-esized.jpg

Isn’t this a lot better? I think it is. 

The challenge now is to make sure none of the younger three kids take any of the computers upstairs to their rooms and play all night!  

There are a silver lining to this financial mess going on around us….for me anyway

Monday, November 10th, 2008

Amongst the mantras of successful stock market investing is to buy when there is blood in the streets or when everyone else is fearful.  

I have gone through a number of such periods in Malaysian stock market history. The famous October 1987 crash, the 1993 steep drop, the 1998 Asian Crisis, the 2001 dot-com crash (which affected us too) and now what seems to the grand daddy of them all, the worldwide financial crisis. 

Though I have a finance background, I never quite learnt to take advantage of these splendid opportunities. I was more influenced by the “end of the world is nigh” theory and did nothing. Then I bought during the times when everyone was buying and as usual, in the words of my wordsmith friend, Jeya, got a royal kanda up my “you know what” when the market inevitably crashed.  

I read a nice post by Newly Corporate on 5 ways this economic downturn could help us. One of the 5 mentioned was the opportunity to learn from a full business cycle. Truly experiencing the flow and the ebb of business and learning from this. 

One of my avowed goals in imparting some personal financial management knowledge to my children is that they should start early and that careful investment in stocks, shares and unit trusts are a great way to accumulate wealth. And included in the list of lessons is the method that I used, i.e. dollar cost averaging and the recommended ways to choose good stocks and unit trusts.  

Another intended lesson is on buying during times such as now, when there is such an aversion of stocks that the good get hammered together with the bad and the ugly.  

And what better time to talk about this to my elder two girls than now? 

I clearly remember that I had no interest in saving or investing whilst I was their age. It was only after the two girls were born that I started. As we are not really a business minded family, I strongly suspect that my two girls may choose the path I followed and start on their own savings and investments only after the need becomes essential.     

I have not succeeded in getting them to regularly read pf blogs. They tell me that they have no time whilst they spend hours chatting with their friends. I have to walk carefully here and create some interest, not turn them off.  

Maybe I should form a joint account with them and work together on selecting stocks. I am not sure if the girls would like investing with imaginary money( as has been suggested), though it may work on my younger children.

Buying my daughter a car…her first

Friday, November 7th, 2008

My brother bought me my ever first car. I had completed my studies and was then working in an audit firm. The car was a used Mazda Capella and it cost a princely RM3,800 (about USD 1,100 at current exchange rates).

I have no idea from whom my brother bought the car or what rules he applied when he bought it.  

I do remember that those days, I was not very confident of driving. The road to my office had some slight hills where cars would be lined up in the traffic jams. I had my fears about being able to balance the clutch whilst uphill or downhill so I used to get to work so early that I was about the only one on the road.  

I also remember that my brother (who did not even have a driving license then) never made a big deal about this “gift”. He just presented me with the car. 

And this yellow Mazda Capella was the first car anyone in my family ever owned. Since then I have bought 4 other used cars. Three have been sold and the fourth is now being used at our goat farm by Zai.  I have been relatively lucky in the used car purchases. I am quite a dunggu when it comes to cars and by sheer luck have escaped relatively unscathed.  

 

A 1970 Mazda Capella. The first car ever owned by anyone in my family, although ours did not look anywhere as perky and shiny as this car looks.

Picture Credit: www.dbmathews.com/mazda.shtml  

Now that my two elder girls are moving in together and the eldest girl’s place of work is too far to walk and is not served by public transport (other than taxis), my wife and I decided to buy her a car. 

We decided it would be a used one and small (to save on petrol and make it easy for parking). We also decided that it would be one with an automatic gear shift. (Malaysia still produces manual shift cars!) Then we enlisted the help of one of my wife’s cousins, Zali, who is an auto mechanic. 

Zali checked out the used car dealers he knew and found one that fit our specifications. He checked out the car and pronounced it well maintained. The mileage was about 86,000 kms for the 10 years old car. 

 kancil21.jpg

A Perodua Kancil - my daughter’s first ever car

Picture Credit: Google 

So we have signed up and paid for the car. It’ll take a couple of days for the transfer to my daughter’s name as well as the required mandatory check by the Authorities to confirm that it is road worthy. 

When the car is collected, Zali will be showing my daughter, Aliaa or Along as we call her, some basic car maintenance tips such as water and oil checks and keeping the tires properly inflated etc.  Along will also maintain a car log book just like we do. She’ll be logging the time, destination, start mileage and end mileage readings each time she uses the car. Whenever she refills petrol, the amount will also be entered into the log book. 

I have also emailed Aliaa the URL of a driving school that does a one day class called SmartWoman Driving Course. She’ll check it up and should sign up for it sometime in December. 

Unlike the time when my brother gave me my first car, my daughter’s car is coming with some strings attached. There are some rules, some do’s and don’ts. We have talked about these rules and my daughter has given her agreement.  

My wife and I are sure that she’ll handle this car, her first major physical asset responsibly. And Insya’Allah, the car will not turn out a lemon.

Unexpected words of inspiration – they always help

Wednesday, November 5th, 2008

I am one of those who love receiving emails which contain words of inspiration. In fact I even save them and now I have a considerable collection. These unexpected words of inspiration never fail to lift up my spirits. 

I don’t believe in chain mails though, you know, the ones that require the reader to forward the mail to another 5 or 10 or 20 people. Whatever dire consequences the mail may me with for not forwarding, I still just hit the delete key.   

So it should be no surprise that I love Brian Kim’s MIT of the day, a daily email which is short, to the point and has a great inspirational message. I have forgotten how I stumbled upon this blog, but I love it.  

Some of my friends are also advocates of forwarding emails that contain such inspirational messages. Some may be in the form of a power point slide, others are just words. I received one last week from a dear friend which I particularly enjoyed. As I think it may be of use to my readers, it is reproduced below. It was headed “Butterfly”. Hope you enjoy it as much as I did. Enjoy! 

Quote: 

A man was walking in the park one day when he came upon a cocoon with a small opening. He sat and watched the butterfly for several hours as it struggled to force its body through the little hole. Then it seemed to stop making any progress. It looked like it had gotten as far as it could, so the man decided to help the butterfly. He used his pocketknife and snipped the remaining bit of the cocoon. The butterfly then emerged easily, but something was strange. The butterfly had a swollen body and shriveled wings.

The man continued to watch the butterfly because he expected at any moment the wings would enlarge and expand to be able to support the body, which would contract in time. Neither happened. In fact, the butterfly spent the rest of its life crawling around with a swollen body and deformed wings.

It was never able to fly.

What the man in his kindness and haste did not understand was that the restricting cocoon and the struggle required for the butterfly to emerge was natural. It was nature’s way of forcing fluid from its body into its wings so that it would be ready for flight once it achieved its freedom.

Sometimes struggles are exactly what we need in our lives. If we were allowed to go through life without any obstacles, we would be crippled. We would not be as strong as what we could have been. And we could never fly.

History has shown us that the most celebrated winners usually encountered heartbreaking obstacles before they triumphed. They won because they refused to become discouraged by their defeats.

My good friend, Lou Holtz, football coach of the University of South Carolina, once told me, “Show me someone who has done something worthwhile, and I’ll show you someone who has overcome adversity.” Beethoven composed his greatest works after becoming deaf. George Washington was snowed in through a treacherous winter at Valley Forge . Abraham Lincoln was raised in poverty. Albert Einstein was called a slow learner, retarded and uneducable.

If Christopher Columbus had turned back, no one could have blamed him, considering the constant adversity he endured. As an elementary student, actor James Earl Jones (a.k.a. Darth Vader) stuttered so badly he communicated with friends and teachers using written notes.

Itzhak Perlman, the incomparable concert violinist, was born to parents who survived a Nazi concentration camp and has been paralyzed from the waist down since the age of four.Chester Carlson, a young inventor, took his idea to 20 big corporations in the 1940s.

After seven years of rejections, he was able to persuade Haloid, a small company in Rochester , N.Y. , to purchase the rights to his electrostatic paper- copying process. Haloid has since become Xerox Corporation. Thomas Edison tried over 2,000 experiments before he was able to get his light bulb to work. Upon being asked how he felt about failing so many times, he replied, “I never failed once. I invented the light bulb. It just happened to be a 2,000-step process.”

Franklin Delano Roosevelt, elected President of the United States for four terms, had been stricken with polio at the age of 39.

Persistence paid off for General Douglas MacArthur. After applying for admission to West Point twice, he applied a third time and was accepted. The rest is history.

In 1927 the head instructor of the John Murray Anderson Drama School , instructed student Lucille Ball, to “Try any other profession. Any other.”

Buddy Holly was fired from the Decca record label in 1956 by Paul Cohen, Nashville “Artists and Repertoire Man. ” Cohen called Holly “the biggest no-talent I ever worked with.”

Academy Award-winning writer, producer and director Woody Allen failed motion picture production at New York University (NYU) and City College of New York. He also flunked English at NYU.

Helen Keller, the famous blind author and speaker, said: “Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, vision cleared, ambition inspired and success achieved. Silver is purified in fire and so are we. It is in the most trying times that our real character is shaped and revealed.”  

Unquote

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