A Perfect World

In a perfect world, everyone produce something.

Farmers grow plants, feed chickens, fishermen catch fish, builder made homes etc. So we can sit together at night and enjoy a complete dinner in our nice homes. It was easy to know who is suppose to do what, who produces what.

When there are too many fish caught, it has to be sold out of town. The fisherman doesn't have time to travel that far. So a delivery boy is helping the fisherman. The fisherman save time, hence catch more fishes and therefore its worth him paying the delivery boy. It is a value added chain, so service has become a part of perfect world too where everyone produce something, everyone produce some values.

It gets a bit complicated cause service is not as easy to quantify as materials. But its still ok.

A $1 fish may cost $2 in out of town because there are delivery cost incurred.

Soon more delivery services are needed. It is not easy to decide which of the 100 delivery boys is most reliable. So a manager came and organize a delivery company. The fisherman no longer need to worry about delivery, the delivery company will handle and be 'responsible' for the delivery part. If any single delivery boy does not perform, the company will immediately replace with a better one. Fish still reach destination on time. The fisherman doesn't need to worry a thing. What the management provided is a service on a service, there is still value provided.

Now the fish is $3 in out of town. The manager needs to eat too.

The fisherman's business grow much larger thanks to the great leveraging techniques. One day, the fisherman's primary school friend drop by and have a nice chat with the fisherman, asking the fisherman to let him handle the delivery part. Because he is more trust worthy, that they have known each other for so long etc. The fisherman agreed, perhaps due to the drinks or due to the flowery talks.

The primary school friend simply take orders for the fisherman and pass to the delivery company. Jobs still get done as usual but while doing that, he has raised the fish price to $5 in out of town. He gets $1 just for the deal he made. The fisherman gets $1 extra simply by letting his primary school friend take over the delivery part. The delivery company has nothing to loose.

Now it gets really tricky.

What did the primary school friend produces ?

What value has he added ?

What service has he provided ?

You can't say he has done nothing. He is instead smart, creating something from nothing. Is creativity really worth nothing ? He capitalize his relationship into a real asset.

The fisherman gets more value ( money ), the primary school friend earn something, the delivery company didn't loose anything. So theoretically speaking, the primary school friend has added value to the fisherman and himself. So it doesn't really break the law of perfect world.

The smart you may have already spotted the difference.

But at whose price ? Out of town folks used to pay $3 for a fish. $1 for the fisherman, $1 for the manager to make sure fish reach them on time and $1 for the delivery boy. Now the fish is $5! What is the other $2 for ? Well, that has nothing to do with any value received by the people in out of town. That was just a deal made between a primary school friend and the fisherman. The fisherman and the friend gets the whole $2!

Smart yes, add value to one or two persons yes, nothing wrong was done yes .... but whatever the primary school friend did, should NOT be included in the formula of 'PERFECT WORLD'.

In a perfect world, everyone produce something

FOR EVERYBODY.

Sounds familiar yet ? If not, may be you haven't read about zzzz's GST yet.

This article was suppose to be read in this sequence.

zzzz's GST - a MAGIC !

Secrect of the MAGIC revealed !

a Perfect World !

What can we do ?

Budgeting and Financial Management

Budget is one of the very first topics in Personal Finance.

Many may think budget is about control expenses but the true meaning of budget is to PLAN AHEAD. Although they may mean the same thing but actually it will leave a very different psychological effect.

At one hand, one is focusing on 'expenses'. Controlling implicitly mean NOT to over spend it. This creates an internal conflict of "I want it but I can't have it". Whenever a control fails, its due to lack of discipline. The resolution is to control it better which is enforcing discipline. Enforcing discipline on a person who naturally does not have discipline is the internal conflict mentioned earlier.

On the other hand, PLAN AHEAD would simply imply "I want it and I will get it". This is more target oriented and positive minded. Whenever a plan didn't materialize, one would have to plan better; as in "how else can I get what I want". This may further enhance one's creativity.

To control or to plan ahead,

its your choice of words.

If budgeting is the beginning of personal finance, the other end would be Financial Management; as in fine tuning her very own portfolio.

At a personal finance level, financial management would typically focus on increasing cash flow and net worth. However, there are 1001 finance tools out there. So there is really no one single portfolio that suits all. Everyone will have his own skills and preferences.

The Right Truth behind Donation

From time to time we hear about how rich people donate their wealth away. Some donate whole of their wealth, some half and some donate just enough to optimize their tax planning.

Most people would think that the rich has too much, hence they want to give some away since they can't use it anyway. That ... would be 20th century mind set.

The fact is ... the rich who donates, is not only rich, but also smart rich. Whatever they have now, they can continuously have it at anytime. Hence it doesn't really matter if they give anything away tonight, they will have it again tomorrow morning.

That would be the ultimate power of passive income, or smart income.

Once you know how much you 'really' need, you 'find a way' to keep your needs fulfilled without doing anything much. Then whatever extra comes in is the one you can easily donate away without filling any pinch. Yet many will feel much appreciated because it means the whole world to them.

So in short, you can really see which rich man has smart income in him and which rich man is barely surviving with his active income, by seeing the way they donate.

Now, let me ask .... do you think USA rich men is smarter or China's rich men ?

There is NO such thing as Passive Income !?

21st century personal finance is moving away from saving and focus into the income arena. In short, the gurus are now educating public that saving is NOT good enough, hence sourcing for passive incomes on the another hand is a BETTER solution, than just saving alone.

While the concept is definitely true and correct but unfortunately as the hypes go bigger and bigger, the idea of passive income has been abused and more scams started to appear in the market, as if they were the gurus as well. Except the 'passive income' they refer to is barely promoting their own original same old products. The personal finance market has become so competitive that even some real gurus have no choice but to go beyond the line in their marketing effort - Robert Kiyosaki is no exception in spreading "Saving is bad".

Although passive income is very well defined here using income ratio 1:100 but is there really such thing as Passive income ? When I looked up dictionary, these words come up

PASSIVE : not participating, inactive, not reacting, inert or quiescent.

None of these words correctly describe a well implemented passive income. I use my best judgement to find a good location, a value property and a pay master tenant. I setup a profit take target and an exit strategy in my investments before I leave and let them auto pilot. All of these are very participating, actively applying my knowledge and experience, reacting appropriately when necessary etc.

The word "Passive" also gives people a psychology of No Need To Do Anything; As if an easy to get rich scheme with a better cover.

Hence this article wants to pursue all readers to stay away from the term Passive Income. Its negative, misleading and now abusive by the over-stress marketing effect. Instead, think of Smart Income !

There is no hard and fast rules for Smart Income. Any income can be earned the regular way or the Smart way !

An employee can use minimum of his time effectively to earn the highest salary or benefits. A self employ can easily leverage on Internet to earn income repeatedly. A business owner can employ a system to run his business. An investor can setup an autopilot mechanism.

So no matter which income quadrant you are in, it is possible for you to turn that income into a smart one. Its a matter of HOW you earn your income, NOT WHAT you do.

Are you pursuing smart income ?

Wiki : Usury

Usury (pronounced /ˈjuːʒəri/, comes from the Medieval Latin usuria, "interest" or "excessive interest", from the Latin usura "interest") originally meant the charging of interest onloans. This would have included charging a fee for the use of money, such as at a bureau de change. After countries legislated to limit the rate of interest on loans, usury came to mean the interest above the lawful rate. In common usage today, the word means the charging of unreasonable or relatively high rates of interest. As such, the term is largely derived from Abrahamic religious principles; Riba is the corresponding Islamic term.

I have posted many storiesabout how money turns evil ...

many people may says that capitalism is not good because the rich gets richer ... actually its not the capitalism, its just the way the money is defined.

Again ... its all about a large population of under educated public being abused by a small group of smarter people.

This problem has been known LONG ago and well documented almost in ALL kind of religions ...

Another version of Money Crisis theory

OMG, after I posted up how Money Turns Evil ( Part 1 Part 2Part 3 ) , more and more people mentioned it too.  Below video is another version of it - speaking in Chinese.

Famous Successful Business man talk about Finance Crisis using his own theories.

The way he talks may be a bit bore but he actually suggested how to solve today's crisis !!

by having a modern day barter system !! One of the post I drafted but haven't posted up yet.

Money As Debt Video

I have told a long story how Money Turns Evil in the past.  ( Part 1 Part 2 Part 3 )  The last part was actually more like a basic tutorial to forex trading as a matter of fact.

Anyway, I read from Meshio blog about an interesting video - Money As Debt.  The story line may have some similarity to my story but this video is 10 times better !!

A 47-minute animated short by Paul Grignon (via BB) explaining how the monetary system used to be, and how the existing mo

netary system works

 

Have FUN watching !!

Currency Turns Evil - part 3

Money was created to ease up buy sell transactions, you no longer have to take in 100 chickens just because you want to sell your diamond ring.

Since each country has its own system and seldom cross borders in the past, each of their money is different in unit called currency.

Then, country needs to do business with another country. They have to sychronize the value of their currency, they use gold for that purpose.

Slowly some smart 'finance' guy realizes that the 'impression of Gold' is as good as the real gold to increase value of their currency.  ( actually the impression is much better and easier to acquire than the real gold )

If the value of currency is just like the value of any traded goods - govern by supply and demand, why don't we trade the currency like the way we buy sell stocks ?

F O R E X is borned !

Before I proceed further, let me set the record straight that Forex is one of the most liquidated market which has Total Freedom.  Something I always pursue all finance institutions to go for.  So there are many good things about Forex.  However, there is one aspect that is evil, very evil indeed - and that is the part I am going to talk about here - its room for an unlimited speculative nature.

To Buy or Not To Buy ? JUST SAY IT  ...

So in Forex you buy sell currency like you buy sell anything.  And the item for sale is in the form of currency pair like this GBP/USD  (buying Pound with USD).  Says someone is selling 10 units at USD1.5125 each and you buy all 10 units.  Then the next seller is selling 5 units at USD 1.5200 and you buy all 5 units too, then the next seller is selling 1 unit at USD 1.5205.  So GBP value has just rised from USD 1.5125 to USD 1.5205 because you have bought the 15 units of GBP/USD.

correction :  You said you want to buy those 15 units but you actually don't.

like wise, the seller who said selling you the currency ... guess what ?  He doesn't have any Pound Steering neither !  He just said he want to sell you !

There is no real money involved !  What happened is the seller and the buyer have committed into a contract for the above transaction.  The contract stated a future date for the actual buy sell transaction.  So before the contracted date, you can resell what you have bought but haven't paid yet.

Remember just now you said you want to buy 15 units of 'goods' ?  If you sell them out at your purchased price before the contract expiry date, you will earn and lose Nothing - Zero !  But throughout the process, you have increased the value of GBP at that particular time.

Buy A Million with A Dollar

Another unique thing in Forex is what forex guys normally called it 'leverage'.  Basically you can say you want to buy 3 million of GBP with only USD 1,000 capital.  

Since there is no real currency involved and it is all about what the seller and buyer said, the real profit and lost is the difference of the movement.  For example, changes from USD 1.52 to USD 1.53 is only 1 cent difference.  So you don't have to have USD 1.52 to buy anything.  As long as you have 1 cent, you can say you want to buy the thing but as soon as you make a lost of 1 cent, the system automatically sell your contract out and deduct your 1 cent.

Lastly ...

Sorry if this write up is a bit boring.  This is a topic that cannot easily get agreement and I am trying my very best to express this in my laymen view ...

So by now you can see how you can use a minimum capital to speculate the value of a country's currency at ease - just say it !

Says you are an USA international trader.  You are buying 10,000 phone booths from England.

England quoted you GBP 1,000 each.

Currency Exchange at that time is 1 GBP = 1.50 USD

So your total payment is USD 15 millions

If you know forex very well, you can speculate sell GBP at lower price or buy USD at higher price until 1 GBP = 1.40 USD

If you managed to do that, you have just saved USD 1 million !!  

And your seller has just lost an equivalent amount !! 

This is actually happening every day !  A lot of 3rd world international wholesale businesses do not use forex in their finance management, their business profit range at 5-15%.  And their business contracts are usually renewable in 3 and 6 months and mostly in 1 to 2 years.  Everytime when the currency exchange flutuate more than 15-20%, they will lost all their profit ... no matter how smart they sell, no matter how much they mark up the selling price, no matter how much cost saving they did .... a cunning business counterpart can easily overturn all their effort just by Saying It !!

Guess what ?  There is no such thing as MYR pair in Forex trading.  MYR is so small that one single investor like George Soro can brankup a whole country simply by trading currency.

So the next time you are trading currency ... you are most probably NOT trading to bring up the value of your own country's value.  Instead you are most probably just helping USA and Britain ...

You can earn a lot in Forex no doubt ... but beware at what cost.

Part 1 Part 2 Part 3

Currency Turns Evil - part 2

At first money is invented to facilitate buy-sell transactions which is the best invention of all time.  Then value of money is tighted to gold as a standard (what I called Big Bang in Finance World).  

Then some greedy person use war to conquer and take over other people's gold ( click here to see old post about this )

But very soon "WAR" becomes a very costly way to acquire gold to print more money.

( but its not costly to launch war against petroleum - another story)

But very soon some smart people figure out that they don't have to follow the standard of gold-money-value.  Afterall, that is just a standard set for more stupid people to follow.  In reality, like everything else, the value of an item is driven by Supply and Demand.

So USA quickly set ONE standard - use US Dollar in inter-country transactions.

Whenever USA take over a country, they set USD as the standard global currency before they leave.  When USA lends money to a country, they set USD as standard there.  Whenever you want to buy and sell with USA, you HAVE to use USD.  These are all fine ... because afterall, its their right to request so.

The sad thing is everyone else followed blindly.

Says country A and B deal with USA using USD which are perfectly fine.  However, because the banking systems in A and B were greatly influenced by USA, all the transactions are FIX (hard coded) to USD.  

Hence when A and B are doing businesses, they use USD as standard even though it is NOT their home currencies.

Imagine you are sending money from zzzz to China, you cann't use MYR ( or RM ) and you cannot use CNY ( or RMB ), you will have to buy USD using your MYR in order to send the money over.

So whoever you are, wherever you are, if you are transacting globally, you will have to BUY USD.  As mentioned before, when demand rise, value rise.

The increase of this Demand alone allows USA to continously print more money almost forever without the need of gold at all.  Because there is no sign of over hauling our global banking system at all.

Some people are still wondering if World War 3 will occur one day.  What they didn't know is WW3 is way over and USA has conquered world economy many years ago simply by implementing one global standard in currency.

The only smarter people who were able to protect their own territory is Britain.  And some better light shed among all these is the creation of Euro - where the smaller players group together 'trying' to break away with the permanent damage cause by this currency standard WW3 domination.

Up until here, its still history, although recent history.  We cann't blame USA for playing this trick because who wouldn't want to print more money, especially when all I need to do is just to ask the other party to use my standard ?  My standard is better than no standard isn't it ?  

Most of the 3rd world countries were in deep shit that time.  Imagine we didn't even have enough food to eat, how could we be smart enough to say NO to a non-intrusive USD standard ?

The next part is the last part.  Like before we didn't eat enough food, today we don't really get fed enough neither spiritually.  Which is also the part when currency really turns evil .... stay tune ...

Part 1 Part 2 Part 3

Currency turns evil - part 1

I shared before money is tighted to gold in an old post.  That was the good side of money, here comes the later part ...

... soon earth is seperated politically into countries.  Some countries grows stronger, 2 particular ones are E and U.  They used their strength to conquer other lands and take possess of the gold there.  More gold means they can print more money.  

However in reality you cann't simply conquer other people's land and take away the gold for no reason.  For example, U claims that country I is violating human's right and therefore U is acting as world police to take over country I in order to instill 'fair' human right policies there.  With that as official reason, U can slowly take over the golds they found behind the curtains.  However, it is still Not Easy to move the gold from I to U because the world is watching.  So instead of taking the gold out from I into U, U hide the gold in I but declare that U has more gold and start printing more money in U currency without devaluation.

So does U really "OWN" the gold to justify the extra currency they printed ?  Yes if they still own the land in I.  But when stories like U's gold in I has been stolen etc. would have cause U currency to drop.  When U finally leave I, U would have claimed that they have already 'transfer' the gold back to the land of U, but ofcourse I would claim that the gold is still in the land of I because I wanted to print more currency too.  As you may guess, the same gold has been used twice to justify printing more money.  While no one actually have seen the actual 'gold' ....  

Hence the value of money is NO Longer tighted to real existence of gold but the impression of having gold ...

.... this is only the history because the world No longer welcome war and would not accept the excuse of world police ... part 2 will show how U become even smarter to print more money without gold at all ...

Part 1 Part 2 Part 3

Finance Big Bang Theory

I have this Big Bang theory about Finance ...

At First, there Was Nothing,

Then there is Everything !

Long long time ago, we exchange goods for a living.  Sometimes I asked for 4 chickens to exchange my 1 bag of rice, but some other times, my friend is only willing to give 3 chickens.  So as times go, more and more people do not like this constant changing of 'price' and they want standardization.  So 'Money' is born.

We look down and there are some stones on the ground.  First we 'define' the chicken as 10 stones, since my bag of rice is 4 chickens then my bag of price is worth 40 stones.  So we started collecting stones instead of keeping too many cows and sheeps at home to represent our wealth.

It was all fine within our own family and friends because we trust each other.  Then some stranger came and just pick up stones from the ground to buy my rice.  Soon I ran out of rice and he has all the rice, so basically he took over my rice business and started to control pricing in my town.

So we need some special way to identify our special stones.  I started marking all the stones that I used to buy and sell things.  The chicken guy did the same.  Soon all sort of marking stones are in the market and guess what ?  A stranger came in and arbituary do some marking on the stone and took over the chicken business.

Then we learn that we have to 'standardize' the marking on the stones and it is too big a task for us because we are already full time producing rice and chicken.  The stranger volunteer, "Since I am able to twist all the systems you guy come up with, apparently I am a smarter guy in this area.  So if you let me come up with a special marking stones for you and everybody use that stones, there will be no problem !"  He ended with a strong .. " Trust me !".

So the first 'modern day money' is born. It is a piece of metal with hard to replicate marking represending the value of the stones we used before - the stranger called it coin.  So all of us including the rice and chicken producers keep our stones in the stranger's house.  For each stone we deposit there, the stranger gives us 100 coins.  Since then our buy and sell activities are better managed.

In case you haven't figured out yet,

the stone is called Gold today

and the stranger's house is called Bank

Our Stones

The Stranger's House

Comparison of currencies against MYR 2008 Trends

The plotted data was from Jan1 to Oct9 this year. This shows the value of other currencies as compared to MYR. The data has been index to Jan1 values so that it's easier to compare the different currencies to each other. (For example KRW has dropped from 1.0 to 0.7; this means if you had bought RM1000 worth of KRW in Jan1, today, it's worth only RM700).

The value of EUR increased for much of 2008, and then started dropping. By Oct1, it's value was below that at the start of the year (y-axis == 1.0).

GBP spends much of the year below 1.0, moving up and down. The current value is about 7.5% lower than at the start of the year. You can see it's pretty low. Lower than any other time in the year (except 1 month ago).

USD tracked GBP for much of the year, until it began to diverge about 2 months ago and started going up. It's now at the highest point this year.

JPY is increasing higher than even USD. If you'd bought RM1000 of JPY on Jan1, it'll be worth RM1175 today. KRW is dropping like a stone. May be its a good time to go holiday in Seoul? 

extracted from Lowyat Forum

data obtained from Bank Negara