Do you handle money well?

A friend tried to introduce me to a woman. But, I learned that the woman wanted to control all of the money. I like to control money because I trust myself and feel I am reasonable at it as well. Also, I feel it is the man’s job to control the money, not the woman’s, but try explaining that to Chinese women who want to control everything!

If you marry a woman, you need to be on the same page about money. And if you run a business, you need to be sensible about handling money as well. Here are my pointers.

1. Don’t acquire debt.
Having debt is bad. Debt requires you to make monthly interest payments which can really zap your resources. Additionally, debt can become runaway debt which is very dangerous. Borrowing money for interest is forbidden in many religions and exactly for this reason as it can cause economic slavery. If you buy a building for your business, in that situation, you might need to borrow. But, try not to borrow a large percentage of the proceeds. Try to have a large portion of the equity to keep yourself stable.

2. Spend in moderation
Some people spend all of their money on nice cars, clothes, frivolities. I am not like this. have fun, travel, and maintain my health and comfort with acupuncture, massage and eating out, etc. However, I save money every month. I keep money in the bank, stocks, bonds, gold, etc. This is a great way to be stable in any economy. If business gets bad, I have money to fall back on for a very long time

3. Have liquid assets.
Every month, I save a little bit and add it to my nest egg. I keep a lot of money liquid instead of putting it all in a house because you never know when you need to take your money out. It makes more sense to buy a house after you have a few hundred thousand in liquid assets. But, others rarely manage their finances this way and they pay for it in the long run. If you lose your job, you still need to make house payments which is hard if you have no savings. So, have lots of liquid assets and be financially stable.
4. Diversify your savings
My recommendations for diversification includes buying: Stable stocks, gold, having cash, safe bonds, etc. Stocks should be in four or more industries, but I don’t think it is necessary to have stock in all fifteen industries othewise you’ll focus too much on the industry and not enough on which stocks actually make sense to buy.

5. Safe diversification vs. risky diversification
Stock “experts” always want investors to diversify a little too much. It is good to have money in different industries, but there are other points to consider. If you are in 20 different industries in stocks that are all volatile, during the next crash you will lose everything. Some people like buying indexes as it is “safer,” but if your entire index crashes by 80% in the next depression, how safe are you really despite what all your upper middle class educated friends might claim? They are not financial experts despite their PhD. If they were financial experts, they would not be upper middle class, they would be wealthy and hanging around the country club instead of talking to you!

I put my investments in Banking, Food & Beverages, and general Medical manufacturing like Johnson & Johnson. These are stable industries that we always need. I consider the auto industry, transportation, and airlines to be very risky. But, just because you invest in banks doesn’t make you safe. Some banks like Wells Fargo are stable and have a good growth rate while Citibank might fold in the next decade or two.

6. Know your stock metrics
If you invest in stocks, there are several metrics you need to understand to take the guesswork out of the stocks.

Growth: How fast has the industry grown in the last 30 years?

Stability: How stable is your industry in a recession?

Profit margin & return on investment tell you how efficient the management is compared to other companies in the same industry.
P/E ratio is the most important metric as that tells you how much income you get for each dollar invested.

P/B: However, P/B ratio tells you how much the assets of the company are worth compared to the price of the stock which is a good metric as an indication of future growth potential according to the experts.

Equity: I also look at equity ratios as I consider companies that are too high in debt to be risky.

Earnings Stability: Last, companies that have irratic earnings don’t see safe. I look for companies whose income is stable and grows slowly over time.

7. Bonds should be safe
If you are an expert in junk bonds, good for you. But, for the rest of us, we need to be able to bank on our money. Safe bonds might include bonds for nations that are not too high in debt like Chile or Peru. Companies like Disney, Coca Cola, Wells Fargo, etc., are very stable and offer high rates on long term bonds. Wherever you invest, check the credit rating of the company or country. Also, get a few different bonds from different sources just in case one goes belly up.

8. Invest in your business
I believe in investing little by little in my business. I do not make sudden investments. I invest in good writers and pay them by the piece. I invest in programming little by little. I also buy a new computer from time to time. Advertising is a constant expense. When you invest little by little, you can get a better sense of what the investment is getting you rather than betting your life on something that might never happen. if you want to start a huge BPO, instead of investing in a huge office, learn the business from the ground up. Start in your living room and work your way up slowly. That is financially stable. You can get wiped out and lose your life savings if you try to grow too fast!

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