INVESTING 101

You asked and we are responding. Our ‘Money’ issue last October discussed the basics of money management – budgeting and saving. This time around, we’re building upon that by focusing on how to make your money grow.

The world of investing may seem confusing, and sometimes it’s hard to know where to begin. We’ll help you break it all down, first by showing you how to calculate your net worth and then taking you step-by-step, through the different ways you can invest your money.

As with all financial plans, we’ll talk about insurance. Planning for your future also means planning for a rainy day. You’ve worked hard for your money, now learn how to make it work for you on your path to becoming money savvy.

CALCULATING YOUR NET WORTH

Knowing your own net worth is like getting a snapshot of your current financial standing and fiscal health. Once you know your net worth, this becomes a good way of tracking your financial progress.

Calculating your net worth is easy – it’s all your assets minus your liabilities or debts. In simpler terms, what you own minus what you owe. How do you do this?

Take a look at the worksheet on the opposite page. In one column, list everything you have that has a monetary value, that is, you can sell it and get cash in return. We’ve listed some examples for you.

With the exception of cash, use your best estimate of what each item is worth today. Don’t write down what you paid for it or what you think it should be worth. Be realistic. For property, use the current valuation.

In the next column, list everything that you owe, that is, your liabilities.

Now do the math. Assets minus Liabilities = Net Worth.

Hopefully, the result is a positive number. If not, it’s time to take a long, hard look at how you can reduce your debts, increase your assets and work towards a positive net worth. If you’re already in the black, that’s your starting point. From here on, you want to see that number grow year to year.

There’s no absolute benchmark when it comes to evaluating your net worth. Efren LI Cruz, a Registered Financial Planner in the Philippines and best-selling author of Pwede Na! The Complete Pinoy Guide to Personal Finance says, it’s not really what you have, but how you manage what you have.

That being said, it’s useful to keep a few things in mind. Angeline Tan, a certified Financial Planner with Great Eastern Financial Advisers tells her clients they should have enough cash in an emergency fund that’s worth at least six times their monthly expenses. If you don’t have your rainy day account established, then work first to build this fund up before considering investing.

Cruz adds that your net investment assets (the value of your investments minus any loans) should make up at least half your net worth. He explains that in any household there are two sources of income – one comes from your employment or business, and the other comes from income you generate with your assets. “If only one of them is working,” Cruz says, “then it’s like you have a two-cylinder engine with only one cylinder firing.”

To start making your money grow, get a copy of our October issue to learn different types of investment products and the action plan to start investing wisely.

In the Reader's Digest Asia October 2011 issue, you will learn:

ABOUT INVESTMENT PRODUCTS
Stocks
Bonds
Unit Trusts
ETFS
Foreign Currency Deposits

ACTION PLAN FOR INVESTING
When should I start to invest?
How much do I need to start?
What should I invest in?
I'm new to investing, how do I go about it?
Where can I learn about investing? How do I research what to invest in?
What common mistakes should I avoid?
Why should I invest? After what happened in the markets the last couple of years, it all seems so risky.

UNDERSTANDING INSURANCE
Determine your scenarios
Term Insurance
Whole-life insurance
Endowment plans
Investment-linked plans
How much do I need?

Related articles:
12 Money Saving Tips
Success Secrets for Budding Entrepreneurs
Tips for Finding the Best Airfare Deals Online

Join the October coin hunting contest and you could WIN a Skagen watch of your choice!