I have to spend hours researching and writing my posts, and frankly it’s quite demotivating when it seems like it’s all for nothing.

The annual renewal for this web hosting is coming up. I don’t think I want to renew if no one is reading.

So please, if anyone is reading just leave an anonymous comment or something.

For example, you want to save enough money for your child’s education in 15 years time. How do you know how much to save?

I have written a simple future value calculator based on the future value formula:

FV = PV(1+i)ⁿ

Where:

FV = Future value of money
PV = Present value of money
i = Percentage of interest per period
n = Period (years or months)

Now, don’t get too worried about the math. Future value of money is the future value of the money you have today.

To calculate future value, we normally use an estimated annual inflation rate in the i column.

If you want to use this calculator to estimate compounded return of investment, you would put the expected annual returns in the i column.

There are quite a few methods for future value calculations, but I find this the simplest.

Future Value Calculator

Present value of money
Interest per period (%)
Period (years or months)
Future value

Warning: Using this calculator can cause stressful and sleepless nights. I bet you didn’t know you needed so much money!

If you wanted to estimate how much your child’s education will cost, you will put in a present value based on the current education cost.

Let’s say a local college degree will cost RM35000 per year. Multiply by three years and you will get RM105000.

Let’s put in a conservative inflation rate of 4.5%, and assume we have 15 years before your child finishes secondary school.

Using the calculator you will see that you need to accumulate RM203,204!

Spreadsheet FV Function

If you are using a spreadsheet program, you can use the FV function to achieve the same.

The Microsoft Excel Future Value Calculation formula is:

=FV(i, n, pmt, PV)

Where:

i = Percentage of interest per period
n = Period (years or months)
pmt = Fixed payment amount. Use zero for future value.
PV = Present value of money

Conclusion

I hope this can help you in your financial planning.

As I have mentioned, you can really get worried looking at the huge numbers.

Don’t worry too much. You should be fine if your savings and investments give you returns that beat the inflation rate.

Note: You are free to embed this calculator on your website as long as you retain a link back to this web page.

Just copy and paste the script below:
<br /> <table width=350 border=0 style="border-width: medium medium medium medium; border-spacing: 1px; border-style: solid solid solid solid; border-collapse: separate;"> <tr> <td width=60%>Present value of money</td> <td width=40%> <input id=pv width=20 maxlength=10 value=0.00 /></td> </tr> <tr> <td>Interest per period (%)</td> <td> <input id=i width=20 maxlength=3 value=0.00 /></td> </tr> <tr> <td>Period (years or months)</td> <td> <input id=n width=20 maxlength=3 value=0 /></td> </tr> <tr> <td><strong>Future value</strong></td> <td> <input id=fv width=20 readonly=true value=0.00 /></td> </tr> <tr> <td colspan=2 align=center> <input type=button value=Calculate onclick="document.getElementById('fv').value = Math.round (document.getElementById('pv').value * Math.pow( (1 + (document.getElementById('i').value/100.00)), document.getElementById('n').value ) * 100) / 100;" /> </p> <input type=button value=Reset onclick="document.getElementById('pv').value='0.00'; document.getElementById('i').value='0.00'; document.getElementById('n').value='0'; document.getElementById('fv').value='0.00'" /></td> </td> </tr> </table> <p><a href="http://www.frugalbeagle.com/archives/future-value-calculator.html">Future Value Calculator</a> by the <a href="http://www.frugalbeagle.com">Frugal Beagle</a>

Technorati Tags: Future Value, Calculator

In my previous post I pointed out to you how we must have financial goals before we even think about investment.

Today I’m going to show you how to set financial goals for your own life.

What Are Your Financial Goals?

Now, you may ask me what goals qualify as financial goals. The answer is: who do you want to be, and where do you want to be in the future?

Do you want to be someone who is financial independant, someone wealthy, sponsor of your children’s education, a philanthropist, someone who retires in Langkawi  island?

Then there are several major events in life that will cost a lot of money. Examples are wedding(s), buying property, buying cars, children education, and retirement.

All these should be part of your financial goals.

Setting financial goals is as simple as following the SMART acronym.

SMART

The SMART way to set financial goals (or any goals for that matter) is to define goals that are:

1. Specific
2. Measurable
3. Ambitious
4. Result Oriented
5. Time Bound

Specific

I wrote a bit about being specific in the previous post. To be specific means your financial goal is clear, unambiguous and targeted.

An example of a specific financial goal would be:

Have enough passive income to support me and my wife’s retirement.

Measurable

A measurable financial goal is one which you can measure in terms of amounts, quantities or quality standards.

Adjusting our previous example to become measurable would be:

Have RM8,000 monthly passive income to support me and my wife’s retirement.

This amount is just a number I picked out of the air, of course.

How will you know the exact amount to put in your goals? For example, how will you know how much retirement income you need when it is so many years ahead?

It’s difficult to estimate sometimes. You can use my future value calculator to assist your calculations.

Ambitious

The sky is the limit when it comes to setting financial goals. Try to set goals that are challenging, but at the same time be realistic.

Set a balance between something that is out of our comfort zone, but not so difficult that it becomes demotivating.

Let’s make our sample goal a bit more challenging:

Have RM10,000 monthly passive income to support me and my wife’s retirement.

Result Oriented

Your financial goals should be meaningful and productive to your life and those around you.

Do not set goals that have little or no value.

Time Bound

A time-bound goal means you have to set a deadline for yourself.

This is important, because this will determine how you can plan to achieve those goals.

Having a time-bound financial goal can also help to overcome procrastination.

A final adjustment to our earlier example will be:

Have RM10,000 monthly passive income by the year 2030 to support me and my wife’s retirement.

Your deadline can also be adjusted to be more ambitious.

Milestones

The next thing I like to do after writing down my financial goals is to define milestones for each of those goals.

For example:

2015: RM2,000 monthly passive income

2020: RM4,000 monthly passive income

2025: RM7,000 monthly passive income

2030: RM10,000 monthly passive income

This has two advantages. First, it can help you to check your progress as time goes by. Second, a seemingly impossible task can be broken down into smaller achievable steps.

I like to break it down further into a 5-year plan, a plan for this year and then a quarterly plan.

If you can’t find a way to set milestones for your financial goal, then your goal might have to be revised to become measurable or time-bound.

Review and Adjust

Periodically take a look at your financial goals to see how you have progressed.

If you are on track, imagine how good you will feel! If you are falling behind, perhaps it’s time to make extra effort.

I leave it to your personal preference and creativity to measure your progress and motivate yourself.

Financial goals are not set in stone. There is nothing wrong with changing goals when your life situation changes.

Just make sure you are not changing the financial goal because you are giving up.

Doggy Bag

You have seen how easy it is to create or improve your financial goals the SMART way.

I have even shown you how you can break down your grand master plan into manageable milestones.

Now I leave you to work out your financial goals. It would be best to write them down somewhere instead of keeping it in your head.

Once you have your financial goals in place, THEN you can start to plan how you are going to achieve those goals.

That’s where financial planning and investments come into play.

Photo By: marmit

“Why do I save money? Why do I invest? It’s hard work!”

“Sometimes it is so hard that I just feel like giving up. Why do I have to ’suffer’ today and live without the things I want?”

“Why do I have to ’sacrifice’ so many things when others seem to be enjoying life?”

“Am I doing the right thing?”

Do you ever find yourself feeling the same way, or asking the same questions?

You’re not alone!

The simple answer is, we invest and save to achieve our financial goals!

Now let me ask you, what are your financial goals? Do you even have goals?

Financial Goals

Before you even spend a single cent in investments, you must determine what your financial goals are.

A financial goal or a target is simply this. Who and where are you going to be in the future?

Now, many people go on with life without really planning or setting financial goals. If you ask them what their financial goals are, you will probably get these answers:

1. I want to be a millionaire
2. I want to own a house and two cars
3. I want to retire by the age of 45
4. I want financial freedom
5. I want to send my children overseas for their education

What’s wrong with these goals? These are in fact noble and well-intentioned goals.

But these goals are not specific enough!

Being Specific

Imagine if you wanted to start a business, and needed investors to provide some start up capital. When they asked you for a business plan, you reply with:

1. The business will make millions
2. The business will expand to two outlets
3. You will get your money back with a lot of profits

Do you think anyone will invest? No, for the simple reason that you are not specific enough.

How many millions are you talking about? 1 million or 10 million? When will the business expand to two outlets? In 2 years or 20 years? How much profits are you talking about? And what’s the ROE?

Goals and Investment

So what has setting goals got to do with investment? Everything!

(I seem to be using the exclamation mark a lot today!)

You can only invest effectively and wisely once you know what your financial goals are.

Let me use another analogy. If you wanted to go to your neighbour’s house, you will probably walk. If you wanted to go to the city you would drive or take public transportation. If you wanted to go to Hawaii, you would have to fly there.

But if you didn’t know where you wanted to go, how would you know which form of transport to take? Will you choose the most popular, follow what the rich people are using or pick the one that is hot on the news and media?

Different investment vehicles have pros and cons, and which one you use will depend on your specific financial goals.

This is why there can never be one investment that suits everyone.

Taking Goals Seriously

Another aspect about the financial goals is how much priority you give to achieving your goals.

If we don’t take our goals seriously, then we will NEVER achieve them.

How many New Year’s resolutions are broken because there was very low commitment or lack of motivation?

To really achieve your financial goals, you have to first set goals that can motivate you. Make sure these goals are constantly on your mind. Every financial decision you make should reflect these goals.

Financial Planning

After you have set your financial goals, THEN you can start to plan HOW you are going to achieve that goal.

This is where financial planning comes into play.

I will talk more about setting goals in my next post, and more about financial planning in subsequent posts.

Doggy Bag

Today I’m going to introduce a new feature called the doggy bag. Doggy bags are used at restaurants when we can’t eat and digest all the food at once. We take the food home in a ‘doggy bag’.

In today’s post, I will leave you with something to take away.

Think about your financial goals. If you have not seriously put some thought into it, spend some time really thinking or discussing with your spouse.

If you already have financial goals, think about the last time you actually took the goals seriously.

Technorati Tags: Financial Goals, Saving, Investing

Photo By: Svilen Mushkatov

I realized that my financial knowledge is not wide enough. I may know (or I think I know) about interest rates or minimizing debt, but I realize that there is so much more to learn.

From what I have read so far, one of the best investments we can make is investing in our minds. Investing in our financial education will help us make better financial decisions and filter out the scams.

If we are starting out in the world of investment and wealth building, we should ‘invest’ our time and money in financial education before we invest a single ringgit.

It really pays to know what you are doing. If you know what you are doing, investment becomes less risky. You can then maximize returns.

In the course of my reading frenzy, I have discovered that I have made some mistakes in my investments.

All that time wasted (although I didn’t lose money). But my returns could have been better.

It is with this frame of mind that I wish to share some of the wonderful resources that I have found. In the next few weeks I will begin a new series called Personal Finance Education.

I hope to share some important investment concepts that I’ve read about. I will also do some book reviews. Finally I will let you know some frugal ways to increase your personal finance knowledge.

Originally I had a link pointing to the KPDNHEP website, but that page has been taken down.

The KPDNHEP rounding mechanism table:

Anything with a 1, 2, 6 or 7 sen will be rounded down to the nearest 5 sen while those with a 3, 4, 8, or 9 sen will be rounded up to the nearest 5 sen.

Hopefully this is all the information you need regarding the 1 sen coin.

Some observations one year after this exercise: 1 sen coin is no longer accepted by any stores. I even had 5 sen coins rejected!

Perhaps soon we will have to round up to the nearest 10 sen!

At that time I was deciding between a Dell laptop, a Dell desktop or a Mac Mini.

In the end, I went ahead to purchase an Apple iMac.

I can hear you blink in disbelief and ask me how a Frugal Beagle could splurge for a RM5000 computer.

After all, couldn’t a Windows PC do the same things for half the price? Am I going against the frugal lifestyle?

Actually I put a lot of research and thought into this, and here are the reasons why I bought the iMac:

1. Value for money. Cheapest does not mean the best value. Google “Mac total cost of ownership” to see what I mean. I am hoping for this computer to last me at least 5 years and beyond.
2. The Wow factor. I have to admit that the iMac is a very nice computer to use. Every detail is well designed and I was really impressed. In addition, there’s a sense of coolness associated with the Apple brand.
3. A good deal. There was an offer to max out the RAM.
4. Resale value. Macs actually have a better resale value than other computers. This will come in useful if I change my mind later.

I’ve been using the iMac for a few months now and I have to say that I don’t regret buying it at all. The user experience has been pleasant, it does everything I want without a fuss.

Time will tell if this was a good investment or if I was just paying Apple tax.

I wouldn’t recommend Apple computer for every frugal beagle though.

Don’t get it if it means you have to borrow to buy it, or if you are the type of person who always changes computers to keep up with the latest technology.

You may also want to consider getting a pre-owned Mac.

There’s this scene in the last episode of Lost Season 4 where there is a chopper carrying the Oceanic 6 from the island to a freighter waiting for them. The chopper is leaking fuel from a bullet hole and the pilot says that they have to get rid of all excess weight on board. In the end Sawyer sacrifices himself and jumps off the chopper.

I remember this scene as I am writing this post because of the life-or-death implications of extra weight causing the chopper to use up more fuel.

While we may not face such life-or-death decisions (reduce weight or crash), some of us do keep a lot of unnecessary weight in our cars.

Having excess weight in our cars means we have to use more energy to move and stop, which means more petrol usage.

Some of the ways you can remove excess weight from your car:

1. Get rid of junk. Is your car filled with half empty water bottles, newspapers, books or canisters of engine oil? Added bonus: Your car looks more organized and you get rid of
2. Carry what you need. You don’t need to store half your music collection in the car, or store a bunch of keys and coins.
3. Plan to buy the heaviest items last while doing errands so you are not driving around with a heavy load.
4. Trim the pounds if you are overweight.
5. Lose extra accessories that you are not using, like roof mounted racks.

Some people even go to the extent of removing their spare tyres, but this is NOT recommended (unless you have someone on-call 24 hours)!

I admit that this seems like a nominal way to save petrol costs, but each sen helps!

Save Petrol: Drive Like a Taxi Driver

Wishing all readers a happy Chinese New Year. May the year of the Ox bring great stability and bullish fortune to your family and friends.

Photo Credits: Mario Alberto Magallanes Trejo

Site outages and unavailability will be a thing of the past as I’ve moved to a more reliable web host.

Look out for more tips and articles soon!