Personal Finance


credit-cards_69.jpgYour first reaction when you hear discussion about Credit Cards and debt tells you that debt is bad and should be avoided. Well, credit cards or any type of debt are really just a financial tool, and when used properly, can be very beneficial.

For example, how many people could save up hundreds of thousands of dollars to buy a home with cash? It can be done, but it might take a few decades to reach that goal. Instead, by borrowing money you can use leverage to make the purchase now instead of waiting.

When you Apply for a Credit Card it is always advisable to search, compare and select for the right Credit card suitable to your needs. One of the most costly mistakes you can make with credit cards is getting into the habit of only paying the minimum amount due each month. While the minimum amount may be affordable; it will also cost you more money in the long run.It is easy to get into the habit of making only the minimum payments. They are low and it can free up cash flow for other areas of your finances. Unfortunately, paying the minimum can be very costly as demonstrated above. Even a very low balance can cost you more in interest and take over a decade to repay.

Compound this problem with multiple credit cards and higher balances and you can see why it can be so difficult to get out of debt.Credit cards do have their place in business just as they do in personal finance. They are a convenient way to make purchases and potentially receive cash back or other rewards. What you have to realize is that you should treat a Business Credit Cards just like you would a personal card. Only charge what you can afford to pay back, keep interest rates low, and make payments on time.

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credit_cards1.jpgCredit cards can be an excellent tool to help you manage your finances. But sometimes we make poor choices, or sometimes the events in life take us beyond our expectations and we are left to foot the bill. Perhaps you have had a few months of extra, unexpected expenses that you are now paying for. What can you do? Bank of America is known to help you manage your money successfully. If you see their terms and conditions they can assist you with you money management program.

Credit cards can be an excellent tool to help you manage your finances and buy the things you want or need. But when things go on a ride and your bills get out of hand, which happens to even the best of us, choosing a personal loan as a way to consolidate those bills will help you reduce your interest rates and set up a fixed amount of payment. Reduced interest rates will ultimately increase the amount of money you keep and a fixed amount due every month will help you plan your budget.

Gather together all of your credit card bills and add up the amount that you owe. Factor in the extra expenses you haven’t heard on your credit cards since you receive those bills. Add to that about ten or twenty per cent, which is the “whoops, I forgot about that” factor. Then, with that figure, start shopping around for a loan.

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fico_score.gifMost lenders use FICO (Fair Isaac Corporation, they developed the FICO, a measure of credit risk, that are the most used credit users in the world) credit scores to get an objective measure of your creditworthiness. By understanding the factors that affect your score, you’ll get an in depth understanding of how creditors view your credit application and how you can bump up your credit standing.

1. Payment history

The factor that has the biggest impact on your score is whether you have paid off the past credit accounts on time or not. It counts for approximately 35% of your score. It should be noted that the recent late payments or missed payments hurt your score more. It will be reflected on your report whether you are 30, 60, or 90 days or more late with a bill payment. A record of late or missed payments on several accounts will hamper your score more than late payments on a single account. So, pay off your bills on time, it will definitely have a positive impact on your overall score.

2. Amount owed

It counts for approximately 30% of your total FICO score. It shows how well you can manage your credit. However, it is not just the amount you owe already that influences your FICO score. Also taken into consideration is the amount of credit available to you. So, total up all the outstanding balances you have and compare it with the amount of credit that is available to you. If you are reaching or exceeding the available credit then it will negatively impact your score.

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einstein-compound-interest-rule-of-721.jpgYou may have heard the saying ‘If it sounds too good to be true, it probably isn’t true’. But how do you work out what could be too good to be true?

Start with the rate of return you have been offered. Most investments illustrate their rates of return using percentages. While that’s perfectly reasonable, research suggests that many people have trouble working out percentages, especially in their heads.

To determine how many years for your capital to double, you bring to mind the Rule of 72, which tells you to always divide the capital by the interest, and the result is in how many years it will be doubled. This is simpler than it seems. Before calculators or spreadsheets, investors used the trusty old ‘Rule of 72’.

How the Rule of 72 works

Suppose you were offered an investment with a return of 10% per year and you reinvested all your returns. How many years would it take to double the value of your original investment?

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gold-biscuit-bars-727186.jpg“All is not golde that glistereth.”

Shakespeare is the best-known user of the idea. The original Shakespeare editions of The Merchant of Venice, 1596, have the line as all that glisters is not gold. ‘Glister’ is now usually replaced by the more commonly used ‘glitter’, which has the same meaning:

If you want to advertise an investment-related website on a major Internet-based advertising network (that of Google, for example), it will cost substantially less to advertise a mutual fund or stock research website than it will for a site on investing in gold.

Does this tempt me to transform from a mutual fund site to a gold site? Not quite, but it does make one wonder how much sense gold makes as an investment and how exactly one should invest in it.

Does it make sense to look at gold as an investment? If you look at historical gold prices over the last 70-80 years, then it does make sense to think of gold as a good asset type in which to put some proportion of your savings. Apart from an anomalous period during the late nineties, Gold has yielded around 8-10 per cent a year over most of period since around 1920.

What is bad is doing what most seem to be doing in the name of investing for gold. We have this idea that gold is a good investment for bad times and then instead of buying gold, we buy jewelery. But there’s a problem. Jewelery is not gold, at least it’s not the kind of gold that can be considered an investment.

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23326550.jpgStick to the rules. Believe it or not this is the hardest rule. The trader will keep breaking this one time and time again. As I have mentioned many times, every time that I have strayed away from my trading plan I have always lost money.

Diversify. Don’t have all your eggs in one basket. Buy from a couple of areas, not just the one sector.

Buy shares that suit your trading style. If you are buying shares for long term, obviously this won’t suit you if you are a short-term trader. And vice versa, shares for short term won’t suit if you are a medium to long term trader.

Know your risk tolerance. A speculative share has a different risk profile to an out-of-favor blue chip. Therefore allocate your capital according to the risk profile of the trade and your own personal risk tolerance. This is a personal decision that only you can make.

Don’t rush in. All investor’s particularly new ones should take their time and learn about the market before they start trading. A good way is to “dummy trade” first so as so as to learn the basics first. The market will still be there waiting for you for when you are ready to trade.

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nestegg1.jpgIn simple economics, there is little distinction between savings and investments. One saves by reducing present consumption, while he invests in the hope of increasing future consumption.

Therefore, a fisherman who spares a fish for the next catch reduces his present consumption in the hope of increasing it in the future.

Most of the people probably have savings accounts with ATMs to access their hard-earned cash and be able to store away any extra cash in a place a little safer than a mattress. A few of you may even have some stocks or bonds.

Let me explain why while a savings account in the bank may seem like a safer place than the mattress to store your money, in the long-term it is a losing proposition! If you open a savings account at the bank, they will pay you interest on your savings. So you think that your savings are guaranteed to grow and that makes you feel extremely good! But wait until you see what inflation will do to your investment in the long-term!

The bank may pay you 5 percent interest a year on your money, if inflation is at 4 percent though; your investment is only growing at a mere 1 percent annually.

Saving and investing are often used interchangeably, but they are quite different! Saving is storing money safely, such as in a bank or money market account, for short-term needs such as upcoming expenses or emergencies.

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andresr050700039.jpgEveryone has a unique situation, and there are no concrete financial numbers that define success, but there are some rules of thumb that can help you gauge your progress. While following these rules won’t guarantee success, they will put you on the right track.

Keep in mind, these rules represent guidelines, not gospel. Life doesn’t always stay inside the lines, and what may work for some may not work for you. Nevertheless, these are worth aiming at if you’re ready for some target practice and want to build a serious financial cushion.

How much Debt should I have?

Ideally, no debt would be the best answer, but you have to realize that for some assets it is almost required you borrow money, such as buying a house. If you have taken more debt than you can handle, don’t be discouraged. It doesn’t matter how much money you make. If you can’t live within your means, you become a slave to your creditors. Most experts agree that your total monthly debt payments shouldn’t exceed one third of your gross monthly income.

How Much Worth House Can I Buy?

So how much should you spend on a house? The traditional way to calculate that is to add up all your income and make sure that your housing expenses — mortgage payment, homeowners insurance and property taxes — don’t exceed a certain amount of that total. The traditional limit, still used by many lenders, is 28% to 32% of gross monthly income. For example, if you and your spouse together earn $100,000 per year, you shouldn’t spend more than $250,000 on a home.

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warren-buffet-791235.jpg There was a one hour interview on CNBC with Warren Buffet, the third richest man in the world who has donated $37 billion to charity. (The richest now is Carlos Slim and Bill Gates is the second richest.) Here are some very interesting aspects of his life:

1. He bought his first share of stock at age 11 and he now regrets that he started too late!
2. He bought a small farm at age 14 with savings from delivering newspapers.
3. He still lives in the same, small 3-bedroom house in midtown Omaha that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall around it nor a fence.
4. He drives his own car everywhere and does not have a driver or security people around him.
5. He never travels by private jet, although he owns the world’s largest private jet company.
6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. He has given his CEO’s only two rules. Rule number 1: Do not lose any of your shareholder’s money. Rule number 2: Do not forget rule number 1.
7. He does not socialize with the high society crowd. His pastime after he gets home is to make himself some popcorn and watch television.
8. Bill Gates, the world’s richest man, met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet (other than money!). So, he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.
9. Warren Buffet does not carry a cell phone, nor has a computer on his desk.

His advice to younger people:

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Stay away from credit cards, Invest in yourself. He is prepared, however, and does so regularly, to outline general principles of sound investment. These have a consistent theme and can be summed up like this.

A. Money doesn’t create man, but it is the man who created money.
B. Live your life as simple as you are.
C. Don’t do what others say. Just listen to them, but do what makes you feel good.
D. Don’t go on brand name. Wear those things in which you feel comfortable.
E. Don’t waste your money on unnecessary things. Spend on those who really are in need.
F. After all, it’s your life. Why give others the chance to rule your life.
G Never invest in a business you cannot understand.
H Always invest for the long term.
I Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway.
J If you’re doing something you love, you’re more likely to put your all into it, and that generally equates to making money.
K Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.
L In the short run, the market is a voting machine but in the long run it is a weighing machine.’

lending1.jpg“If there’s anything I can do, just let me know.”

Admit it. You’ve said that at least once to someone going through a rough time–we all have. Matter of fact, it’s much more than a well-worn, well-meaning phrase that we instinctively say before hanging up the phone, anxious to our friendship duty. Do we ever question if we’re doing the routine rounds or do we feel a pull in our heart?

Let’s face it–how many of us, while in the midst of a crisis, can really get it together to tell exactly what we need? Unless of course it is an injection of a dose of money. So that brings us to the million dollar question–How do you deal with friends who need Financial help?

This could be a delicate situation that can perhaps degenerate itself into a difficult situation, as compared to your own financial status at that moment. If you’d like to help a friend who’s in a financial mess, just keep in the back of your mind that “Money really is power.” And it’s your responsibility to be sensitive to that.

Should you lend money to your friends? Shakespeare said, “Lend money to a friend and you lose both, money and friend.” My dad educated me a bit on this; his advice was that if at all you must help a friend financially, never lend more than you can afford to lose. That’s also my advice for people who are out to make a killing in the stock market–never invest more than you can afford to lose. And that’s what they call the “risk capital.” How much risk capital do you have after all your savings for the rainy day?

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