Wednesday, August 26, 2009

Financial Strategy

Yesterday I had a chance to think deeply about my financial situation and the strategy I plan to implement in the coming years. I guess I wanted to re-assess my plan after getting all the new input coming to me. Sometimes ego or jealousy or envy destroys ones previously laid out plans. For the moment, after mind mapping my thoughts and doing a strengths and weaknesses analysis, I conclude that my actions are still valid and practical. Of course I don’t get the big house or the nice car like my brother and friends but I guess it’s the prudent course. Applying all these tools help me think better and clarify my thoughts aside from my usual reflections.

My financial strategy is summarized in the following bullet points:

* Short to Medium term
1. Keep the townhouse to maintain low maintenance and living expenses
2. Save money to pay for kid’s college tuition
3. Invest in the stock market, CDs, etc,
4. Keep the Saturn but sell it after getting the 8K tax rebate
--a. Saturn needs to be replaced to a car with auto transmission as less risk to kids and to lower maintenance expenses
5. Travel to nearby states to increase learning for family but at low expense

* Long Term
1. Buy a much larger house after kids graduate from college
2. Purchase a new car, possible a hybrid for good value and mileage
3. Write a series of books to earn additional income
4. Sell or rent out the townhouse

This is the plan that I intend to follow for the coming years possible in a 2-5 year time frame with some periods of reassessment. It’s a good way to plan your expenses away from the emotional or impulse or feelings that often dictate these decisions. I guess ‘keeping up with the Jones’ is the equivalent to the Singapore ‘kiasu’ or to the Philippine ‘ingit’. So it’s the same everywhere.

I guess the next important task is to define an investment strategy. With the modest sum earned from the sale of the flat, where should one invest? Should it be the stock market, gold or real estate? In the past, most wise people would counsel regular investment in Exchange Traded Funds (ETF). If you know the stock market well, following Warren Buffet’s value investing is a good way. But with the recent turmoil, these advices entail more risk than never before. Real estate investing I have already done and I don’t think there is any other way to proceed again in this area. Now what about precious metals? A lot of television ads seem to make this option interesting.

So the possible alternatives looks like stock market investing via ETFs (safe way) or value investing with some research needed for stock picking. Researching on precious metals may also be a good option in case one decides to go this route. But one needs to be very careful; following Buffets dictum to avoid investing in areas where one has no knowledge about. One should avoid losing ones meager savings. Sometimes the stress of trying to earn additional money to pay for future expenses like tuition or retirement brings people to do risky things. Several weeks ago I spoke to a man who owned the pack mail franchise in a nearby mall. He said he was fully exposed in the stock market and still waiting to gain back his money. I am in the same boat with regards to my modest stock investment and will have to wait a long time before its previous values return.

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