Money WhizDom: Plan from your first paycheck

Adhvith Dhuddu, CT Regular Columnist

Tuesday, October 30; 9:26 PM

Your five fingers correspond to five unique things that you can do with your money. You can save it, spend it, invest it, pay off your debt and give it to charity. Every transaction in your life will correspond to one or more of these five functions.

A frugal person will tend to save more and reckless individuals will spend most of their lives paying off debts. Of course, the ideal combination is to have huge investments and savings with no debt and little spending. You can achieve this easily by following a regimented routine beginning at a young age.

Everyone gets excited about a first paycheck, but few people have a plan outlining how to use the money. Inconsistent spending habits and occasional debits from the savings account will leave you in a financially unstable situation.

The aim of every financial plan should be to first get rid of debts and then to increase savings and investments. Most of us take on debt (college loans, credit card debt or car payments), but it is smart to pay off your debt early and you don't necessarily have to follow the monthly payment scheme. Following the monthly payment scheme is the least optimal option for you; it's what the credit card or mortgage company would prefer you do so that they can optimize their returns. It's simple, the longer your debt is outstanding, the more interest isaccrued and the more you end up paying. There is no harm in making more than the required monthly payment to accelerate clearing your debt.

As conservative as it may sound, having consistent spending habits with few outliers will help you in the long run. After clearing your debt, it's important to stack away some cash in savings before you venture into investing. If you love taking risks early on, buying stocks and exploring real estate options will help. Another good practice is to enroll in an automatic savings plan, or ASP. Most banks offer this service and after your approval will transfer a portion of your salary to a higher-yielding savings account on a bi-weekly or monthly basis.

A simple and efficient way to evaluate your financial stability is to treat yourself as a company. Every organization has a balance sheet, listing its assets and liabilities that it releases along with its income and cash flow statements when it reports quarterly earnings. Company assets (which increase the company's value) include land, cash, machinery, etc., and its liabilities (which drain on the company) are its obligations such as loans, outstanding payments, etc.

You can make a similar balance sheet to list your assets and liabilities. Your assets will include cash (checking, saving, money market accounts, etc.), investments, CDs, home value, etc., and your liabilities will cover credit card debt, house, car and tuition loans, etc.

Now, calculate your current ratio to see how financially stable you are. After summing up your assets and liabilities, your current ratio is equal to total assets divided by your total liabilities. If this resulting number is more than two and you plan to consistently pay off your debts, you are financially well balanced. If the resulting number is less than 1.5, you need to start spending less, clearing off more debt, and increasing your savings. Doing this on a quarterly or semiannual basis is a good practice.

Time and money are two things you need to manage well in life, and a university education teaches you how to manage your time well. Getting a head start on how to manage money well in the real world is always an advantage. So, don't get a job and continue to stay "just over broke (JOB)" throughout your life. Manage your money well from your first paycheck on and become a financially competent individual.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/10/30/money_whizdom__plan_for_your_financial_future_from_your_first_paycheck

Money WhizDom: Start now to taste success early

Adhvith Dhuddu, CT Regular Columnist

Tuesday, October 23; 9:55 PM

Bill Gates, Warren Buffet and Michael Dell have something besides an abundance of wealth in common. They identified and pursued their passion and, most importantly, started early in life. Whether it's investing, entrepreneurship or even a full-time job, excelling early will put you on a path to financial success and early retirement.

A university environment is an ideal place to start. Here you possess something very precious: time and freedom, which will soon become scarce when you enter the real world. In addition, you have access to unlimited resources and knowledge in the form of professors, research centers, a voluminous library, clubs, organizations, etc.

Here at Virginia Tech, there are innumerable opportunities to give your career an early boost. Remember that your undergraduate and graduate colleagues take the same classes, study the same textbooks, hear the same lectures and are exposed to the same knowledge. How you manage your free time in order to add more feathers to your hat is what will make you more marketable and appealing than your classmates.

Bond and Securities Investing by Students (BASIS) and Student-managed Endowment for Educational Development (SEED) are two top-quality organizations that budding investors, money managers and entrepreneurs should consider joining. Here you will meet some intelligent and highly motivated individuals striving to make money yield handsome returns for the university. Although admission to SEED or BASIS is highly competitive, getting a foot in the door is beneficial. SEED invests university funds primarily in securities and BASIS concentrates more on fixed income investments.

"It's a unique experience to manage large funds at such a young age. With students from different majors involved in the decision making process, you learn a lot because you have to incorporate diverse opinions while assessing different positions and trades. Investing as a team is poles apart from investing individually," said BASIS member and junior mechanical engineering major, Nandan Shah.

Shah also expressed how the team feels a sense of accomplishment when a certain investment goes through. It's one of those rare win-win situations where the school makes money and you learn a great deal in the process. SEED and BASIS are two elite groups from which many investment banks and asset management companies are known to hire regularly.

Recently, Tony Yang, a senior undergraduate industrial and systems engineering student, started the Private Entrepreneurs Society, where budding entrepreneurs meet weekly to discuss and evaluate potential business ideas, real estate ideas and investment opportunities.

"It's different here," said co-founder and class of 2007 alum, Josh Prior. "As we are not associated with the university, we can execute potential business ideas with making profits the primary goal."

"Everyone in the society got involved automatically because they know their work will be rewarded via the revenue sharing business model," Prior added. Although admission to this society is by invitation only, Yang expressed a desire to expand the society. He can be contacted at private.entrepreneurs@gmail.com.

Leadership Tech and ELITE are two more associations where you can hone your leadership, communication and people skills and learn how to be a high-performance individual. And you get to work with like-minded people to achieve your passion, which is a great feeling.

It's not vitally important for us to start making millions by the time we graduate, but what is essential is that we have sufficient practical knowledge in addition to the academic knowledge that all of us possess. So, one definite way to get ahead in this rat race is to start right and start early.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/10/23/money_whizdom__start_now_to_taste_success_early

Money WhizDom: Weak U.S. dollar impacts your impact

Adhvith Dhuddu, CT Regular Columnist

Wednesday, October 17; 12:00 AM

A vacation in Toronto, Paris, London or Rome will drain your wallet more than you can even imagine, and it's all thanks to a weak United States currency. A holiday across the Atlantic or north of the border in Canada is considerably more expensive compared to a few years ago.

The last few months have been harsh times for the U.S. dollar. The value of the dollar has been constantly declining, leaving it worth less than European, Canadian and other currencies. Unfortunately, the severity of the dollar's decline hasn't been fully realized. Politicians don't raise this issue during debates, and no conscious efforts are being made to stop or reverse this trend, which has been in existence for a few years now.

The suppressed purchasing power of the U.S. dollar is a troubling issue, and it undoubtedly affects you and me. Besides costlier European getaways, there are several other negative ramifications of a weak greenback.

Just five years ago, the dollar and Euro were equal in value, making your stay in Paris relatively reasonable. Five years ago, $100 was equivalent to £65, but now you'd get about £50 for your $100. Sadly, the same is true if you head up north to Canada, where $100 used to be worth close to $130 Canadian ; now they are equal in value. Similarly, many other foreign currencies have strengthened against the U.S. dollar.

Many U.S. businesses buy goods (both raw materials and final goods) from abroad, and because of the weak U.S. dollar, the cost of these goods has automatically gone up. As the dollar loses value, it can buy less and less from abroad for the same amount of money. Almost all businesses pass on this extra cost to the consumers; we end up paying more for these products and don't often even realize it. The same is true for various services that are outsourced and off shored to South Asian countries. As the local currency strengthens, U.S. businesses who earn their revenues here in U.S. dollars will have to charge consumers more to keep up with a weak U.S. currency.

A dollar is not worth a dollar; it's worth the amount of goods and services it can buy. So, if the same dollar buys fewer goods today compared to five years ago, its value has clearly decreased. The best (and the most universal) benchmark is measuring the strength of the dollar against gold. And even here, the dollar's weakness is clearly seen.

Many countries have their foreign exchange reserves in U.S. dollars, and because of the dollar's continued weakness, the value of these reserves is constantly decreasing. So when foreign governments realize this and start to get rid of U.S. dollars, the weakness of the currency will persist. Soon new foreign names will appear on the list of the world's wealthiest people, another consequence of the weak dollar. Bill Gates and Warren Buffet will be dethroned by successful industrialists from India and Mexico.

The weakening dollar is a result of poor fiscal and monetary policy, and people can hedge themselves against this in a few ways. Buying precious metals like gold, silver and uranium, or having a small percentage of your savings in another currency, will help ward off some of the dollar's weakness.

You could also buy a bearish dollar Exchange Traded Fund, which increases in value if the dollar weakens. An ETF is just like a stock that you can buy and sell, so owning this ETF will offset the decrease in the dollar's value.

It's important to learn about these vital issues at a young age. Knowing how to navigate the seas of a complicated financial ocean early will greatly help in honing money management skills. For further reading, the books, "Hot Commodities," by Jim Rogers and "Cash Proof," by Peter Schiff, explore this issue in more detail.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/10/17/money_whizdom__weak_u_s__dollar_impacts_your_impact

Money WhizDom: Living and prospering in a globalized world (CT Column 7)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, October 10th, 2007

It's common knowledge that we live in a globalized, connected and flattened world compared to few a years ago.

Business can be sourced and sold in more places; people travel and interact more frequently, and the planet has become more balanced economically, socially and geopolitically.

Locally, the positive effects of globalization can be seen with the number of international students who want to pursue a degree at Virginia Tech, and other American universities has increased tremendously in the last decade. More of our professors and researchers are collaborating with scholars around the world (in India, China, Switzerland, France and Germany) rather than restricting themselves to just the United States. Exchange programs and international tie-ups for projects and other assignments are also constantly on the rise.

In addition to reflecting the victory of free markets and democracy, the fall of the Berlin Wall in 1989 also brought down trade and knowledge barriers. Although the U.S. leads in research and knowledge creation, other countries are catching up, and soon innovation in all fields will occur not only in U.S., but also in third world countries. Staying street smart in this flat world will keep you ahead of the curve in the Internet age.

The triumph of democracy, free trade and open borders can be seen everywhere (in innovation, education, research institutes, corporations, social movements) and more of this should be encouraged (this does not mean other forms of government and market systems are inferior).
We as students should take advantage of this fast transforming world to explore education, career and business opportunities abroad. This will widen our knowledge horizon, inflate our social comfort zone, and reduce our business costs. Not all of this could be done easily a few years ago.

Although globalization has been beneficial to a vast majority, its discontents have adversely affected some sections of the population. One major group that could have reaped the benefits of globalization, but have been plagued with corruption and injustice, are resource-rich countries.

The best examples include African countries (Nigeria, Congo, and Sierra Leone) and South American countries such as Venezuela and the Middle East. If the oil, diamond, coal and commodity money consistently generated in these countries were used intelligently, there would be less conflict and more peace in this world. More people want a piece of the pie ­— and the ones who control it don't want to let go — leading to corruption, injustice and low social and economic standards.

Also, the direct impact of globalization can be felt everyday with higher gas prices, smaller increases in wages, tougher competition from abroad, fewer subsidies for businesses, lower purchasing power of the dollar, etc. Many of these impacts are irreversible and to live more prudently in this flattened and transforming world, one has to recognize these changes and then act on them accordingly.

Tremendous credit has to be given to the recent wireless, digital, virtual and mobile revolutions which have propelled globalization and accelerated the flattening of the world.
A world devoid of these innovations would leave us handicapped in many ways. Faster communication lines under the sea and increasing number of satellites in space also helped speed up the transformation.

To stay informed and up to date on the new world mechanics I suggest everyone, irrespective of their major, read "The World is Flat," by Thomas Friedman and "Making Globalization Work," by Joseph Stiglitz. In addition to gaining knowledge of the flat world, you can plan and position yourself to explore opportunities around the world and not just stick to one country.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/10/10/money_whizdom__living_and_prospering_in_a_globalized_world

Money WhizDom: From engineer to entrepreneur (CT Column 6)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Tuesday, October 2nd, 2007

Being your own boss is a great feeling. Entrepreneurs thrive on the freedom, and many times that freedom is the stimulus to go solo.

Although owning your own business and choosing the entrepreneurial path early is a great responsibility, the perks involved are irreplaceable. You not only decide when and how you work but you also get to choose whom you work with and how much you get paid.

Despite being a tech-heavy institute, our reputed business school churns out top-quality financial analysts, accountants and economists. Many students from the Pamplin College of Business, as well as the engineering school, will go on to become entrepreneurs.

Like investing, exploring entrepreneurship early is always advantageous. And for all of us in Blacksburg, the job is made easier by the Virginia Tech Corporate Research Center (VTCRC). This exceptional resource is truly an entrepreneur's dream and a one-stop-shop for all your start-up needs.

The VTCRC helps individuals with technology, service and product ideas to solidify their fragile concepts and calibrate them to suit business needs. Many times ideas look good on paper, but to transform a product or service into a business that is financially sound and organizationally well-structured with good growth creation techniques, an expert's touch is often needed.

The VTCRC also assists in essential aspects like financial planning and helps locate potential venture capitalists who might want to invest in your business. Various legal issues, like favorable ways to incorporate a business for your product or technology, local and international patent issues and partnering with international corporations are also addressed by the VTCRC.

It's widely known that close to 80 percent of all business start-ups fail within the first five years. The primary reason for this is lack of consistent cash flow from revenues. Cash flow, or revenue stream, is the most important aspect of a business (at least in the initial phase) and the number one reason start-ups fail.

A common misconception is that you need to be extremely smart and ambitious to start your own business. It does not require financial or business acumen to become an entrepreneur.

The first and only step is to identify a hole in the system and see how that can be filled. Think of all the successful businesses around you. Those businesses are successful because the founders identified some sort of vacuum and provided a product or service to fill that space. Ordinary people can do extraordinary things just by using common sense.

Once you identify that gap or opportunity, it is of paramount importance to put your ideas on paper. This helps you keep a record and helps you realize that just thinking of an idea does not solve the problem; many intricate issues must be handled. It's a fun process, and you will learn a lot along the way.

Looking to outside sources is also a great way to prepare yourself for the trials and issues of starting your own company. Some great books that every budding entrepreneur should read before starting a business are, "Harvard Business Review on Entrepreneurship," Robert Kiyosaki's series, "The Magic of Thinking Big" and "The High Performance Entrepreneur."

If you think you posses an ingenious idea, don't be afraid to put it into practice! The best ideas can never be stolen, and if you are waiting for the perfect time to start your venture, it might never come. So, think big, start small and act now.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/10/02/money_whizdom__changing_from_engineer_to_entrepreneur

Money WhizDom: Recession might be in sight (CT Column 5)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 26th, 2007

If you think small towns like Blacksburg are sheltered from decisions taken by financial powerhouses in New York and Washington, D.C., you may be caught off guard. Although we are minnows in a gigantic economic sea, we are affected in many ways by the macro moves in the financial system.

Here are some critical issues currently facing the U.S. economy and what they mean for us in Blacksburg.

There was much hullabaloo last week when the Federal Reserve cut interest rates by 0.5 percent (from 5.25 to 4.75 percent). The stock markets replied with a 3 to 4percent rally worldwide, and the dollar weakened. Let's see how this affects you and me.

By cutting rates, the Federal Reserve made borrowing for banks easier. The primary sources of money for banks are the Federal Reserve and depositors like us. The Federal Reserve controls the printing presses and decides how much money is in the system via 12 official Federal Reserve Banks. As banks rely more on the Federal Reserve, changes in the rate at which banks can borrow from the Feds affect how much they pay depositors for their money.

By cutting the interest rates, credit is cheaper for the banks, and they would prefer borrowing money from the Federal Reserve rather than us. So we can expect banks to be stingier with the savings rate they offer us. You can also expect the interest rate offered for money market accounts and certificate of deposits to decrease.

Many students have loans to pay off or plan to pay off after graduation. All student loans with variable-interest rates will likely see a reduction as they are pegged to the prime lending rate. If your student loan does in fact have a variable rate, you can take advantage of the current depressed variable interest rate and either switch to a fixed interest rate or plan to pay off more with the current low rates. I also suspect that this rate will continue to decline gradually as more rate cuts are expected from the Federal Reserve, so you could wait for a lower rate.

For the first time in four years, non-farm payrolls fell by 4,000 for the month of August. Non-farm payrolls measure the total number of jobs added or lost monthly in the U.S. economy (except farm and government employees).

These are also the first signs that the U.S. economy is heading for a recession. Hence, finding a job after graduation will be challenging, and the percentage of graduates with full-time job offers might decline considerably.

Manufacturing jobs have always been reflective of the economic strength of a country and are considered to be the backbone of an economy. With wages also rising constantly, this decline will continue with dire consequences for the U.S. economy.

Crude oil has been setting record highs in trading sessions across the globe. Although the Organization of the Petroleum Exporting Countries (OPEC) recently voted to increase supply and are vigorously pumping at full capacity, crude prices seem to have no where to go but up.

Other pivotal factors like our grim fiscal deficit numbers, weakening dollar and massive trade deficits could act as a synergy to send the economy into a recession for the first time in six years. The GDP numbers for the next few quarters will decide whether or not this will happen.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/26/money_whizdom__recession_might_be_in_sight