Personal Finance


fotolia_top.gifBeginners who are not aware of current trade investments and who don’t have enough capital to invest may face a lot of setbacks. These factors, however, should not discourage an individual from investing. If you are too scared to take the risk, you lose a lot of opportunities.

Investing gives you the leeway to increase your income. If you just simply put your money in a savings account, a 2-5% interest will not do to secure your future. Since in this set-up you can easily pull out your savings account, it increases the likelihood of you spending the money in unnecessary expenditures. In a short span, your money is gone and that leaves you with nothing.

Lay down the cards. For beginners, the first thing to do when you plan to invest your money is to have a reality check. To start off, do you have a capital to invest on? It is not just capital but do you have a risk-capital?

Add up your assets and check which of these you are willing to bet and let go. This may be hard at first especially if all of which are valuable to you. But if you carefully choose which assets are of lesser value to you, this will make it easier for you to accept loss if your first investment fails. Since investing is also an expense, consider it a loss anyway but with a potential to grow.

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ist2_2794331_healthy_wealthy_and_wise.jpgWealth from the old English word “weal”, which means “well-being” or “welfare”. The term was originally an adjective to describe the possession of such qualities.

We have all heard the old saying ‘health is wealth’ this I think is perhaps only about half right. If we think wealth is the key to health, then you know you’ve found good wealth to afford the comforts of life, and your worries would take a backseat. Much the opposite would happen if your finances are out of control.

I believe that the ultimate success is defined as staying alive. And the more I think about this, the more I believe it. After all, what do money, power, and good looks matter if you’re dead? For starters, smarter people are likely to have more money.

The first step towards a secure financial position starts with budgeting. You must have a budget to gauge your future positioning. A budget is nothing but an overview on how much you earn, spend, and save. This can be short-term as in case of daily or weekly budgets. It helps you to have an idea about where your money is or will be. Budgeting also helps in achieving long-term goals. For instance, if you fancy owning a Lexus after five years, you should plan to save some bucks from your pay every month and budget accordingly. If you stick to this practice, your desires won’t fail you.

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c0036918.jpgI was involved in a discussion some time back and we were discussing this and all of us thought it was ridiculous that they don’t teach a personal finance class in high school, at least not when I was in school.

Is it any wonder that when kids go off to college they rack up so much debt? According to some statistics I read that the average undergraduate has credit card debt! My friend Shane has recently done a three post job on getting out of debt and each one worth reading.

The logic behind teaching children and teenagers about personal finance is pretty obvious. Just think of all of the finance clichés that you’ve heard: start investing as early as you can, the most important factor in investing is time, don’t get into credit card debt, etc. – all things that are best to learn sooner rather than later.

And because many basic aspects of personal finance currently aren’t taught in school and are left to be learned at home, this current system seems to nurture the fact that wealthy people tend to stay wealthy and poor people tend to stay poor. I don’t think it takes a giant leap of faith to see the possible correlation.

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credit-cards_69.jpgThe two leading credit card companies in the world today are the competitors Visa and MasterCard. They both operate along very similar lines. While Visa can claim to have almost a billion cards issued, MasterCard has over twenty five thousand banks issuing its cards and it is difficult to find any difference in the number of locations worldwide that accept the cards, which is now estimated at over twenty million.

In fact, as far as most consumers are concerned, there is no real difference between the two. They are both very widely accepted in over one hundred and fifty countries and it is very rare to find a location that will accept one but not the other.

However, neither Visa nor MasterCard actually issue any credit cards themselves. They are both simply methods of payment. They rely on banks in various countries to issue credit cards that utilise these payment methods. Therefore, the interest rates, rewards, annual fees, and all other charges are issued by your bank and when you pay your bill you are paying it to the bank or institution that issued your card and not Visa or MasterCard.

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finance-money.GIFAs a Financial Planner, I get emails from people who want investment advice. Much of this is not about comprehensive advice but rather; just single questions that are bothering people. This is very useful in my work because one can often spot interesting trends in the questions that people ask.

Over the last few months, I have noticed that an increasing number of people are worried about whether they are ‘managing’ their investments properly. Clearly, the idea is afoot that investments need to be managed. And the genesis of this idea is also clear from some of the email. Sometimes, people ask specifically whether the X investment management plan from Y Bank is better than the A plan from B Financial Services Company. Mind you, most of these are not what are normally called Portfolio Management Schemes. Instead, this is plain old fund sales; dressed up in a brand to look like customized investment management.

Earlier, someone from a fund distribution outfit would contact you, ask a few questions and sell you a bunch of funds, good or bad. Now, his actual actions will be the same but he’ll claim that your fund investments are being managed as part of his bank’s plan, which he claims better than the other bank’s plan.

Now, this branding does not do investors any real harm because it’s just a routine sales stunt of the kind that infests practically every product or service nowadays. However, I get the clear feeling that the kind of sales pitch that is given with these plans is leaving many investors with a certain anxiety. To sell funds dressed up as management plans, investors are told that managing investing is a very complicated activity that requires continuous management. Most investors swallow this line and then start worrying about whether they are managing their investments correctly.

In reality, investment management is an activity that can be as simple as you want it to be.

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backpain.jpgThe pain of investors is enormous. People have lost a lot of money and not only are the losses continuing, but it’s clear to me that they are going to continue. What is worse is that the boom and the hype around it evolved in such a way that the worst pain is faced by those who are least prepared for it.

The worst real losses are those of investors who got attracted to the stock markets around the time when the markets were booming. Typically, these people have made a series of bad choices. Instead of investing steadily, they have put in large chunks of money at one go. Their mutual fund investments are in untested new funds and their stock investments are in rumor-of-the-day type of stocks that were being pushed by brokers. The more recklessly adventurous have already lost large chunks of their investments to repeated margin calls from brokers and lenders.

Of course, the question that everyone is asking is when will the markets turn upwards and resume what we’ve come to believe is their normal course. After all, as the logic goes, there is nothing wrong with fundamentals. Firstly, the fundamentals corporate’ financial future are somewhat less rosy than the general hype would have us believe. The rising cost of money and distortions produced by the huge liquidity glut are a serious issue.

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17939-cc2117c6994259f21bb665c527c66bf8.jpgLet’s talk about rats. Rats are mammals, they are intelligent, and have a remarkable behavioral and biological resemblance to humans. These are the reasons that they are often used not just for biological but psychological experiments as well.

Here’s an amazing experiment that I once read about. A group of rats were divided into two groups. Both groups were conditioned to expect food at a certain spot in the complex of cages where they lived. Apparently, rats learn this sort of a thing very easily. At set times of the day the rats would turn up at this feeding station and find food waiting for them. However, immediately after eating, the rats were subjected to electric shocks through the floor of their cages. The shocks were strong enough to be very unpleasant but not lethal.

But the two groups were treated differently. While one group was given an electric shock after every meal, the other one was given the shocks after only half of the times. However, for the second group, the actual instances when they would be subjected to the shocks were chosen randomly. After some of their meals they would get the shocks and after some they wouldn’t and they had no cues to help them figure out what would happen on any given instance. The effect of this pattern on the behaviour of the two groups was interesting. The group that got the electric shocks every time quickly adjusted to what was happening and basically got on with life. They would show up for food, eat it, brace themselves for the shock and happily continue with their ratly routine after getting the shock.

The other group did far worse. They just couldn’t get used to the randomness of their ordeal. Many of them started avoiding food and would eat only when they were on the verge of starvation. All of them became significantly weaker. Get this clearly: the group that got fewer electric shocks fared far worse than the ones who were given electric shocks every single time. It was the sheer meaningless unpredictability of their lives that did them in.

From this point on, this article could be about almost anything. But since investments are my brief, I’ll just talk about how legions of investors are abandoning equity and rushing towards debt.

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im_spending_too_much_money.gifDo you ever wonder where your spending money goes or how you can spend so much on practically nothing in so little time? In the old days people brought their paychecks to the bank, deposited most of the money and pocketed the rest in cash. The cash was supposed to last until the next check. If it didn’t, it was an obvious cue that too much money was being spent.

Fast-forward to these days when paychecks are deposited electronically and we stuff our pockets with debit and credit cards. Beaten-up dollar bills and heavy coins never dirty our hands. It’s so much nicer than the old days. Unfortunately, it makes it too easy to bust the budget.

Without that dwindling pile of cash it’s harder to recognize how much is being spent. Sure, you can log on and look at your bank account every day, but most people probably don’t. When they finally see their balance they think, “no way!” More than likely it’s not the mortgage that’s killing them; it’s the daily money drain. If that scenario fits your life, the seven-day money challenge may help you get on track.

Use this challenge to give yourself a wake-up call to those who don’t realize how much they’re spending. I ask some of my clients to guess to the best of their ability how much cash they’ll need for a week’s worth of spending. It’s just the day-to-day stuff like gas, groceries, going out for meals. The usual outcome is they’re out of money by Wednesday.”

Learn your weaknesses. “I was trying to go from Monday to Monday, I carried a little notebook and would write it down if I stopped for coffee or went to the drugstore. Wednesday night I went to buy gas and I didn’t have enough cash. I had to resort to my credit card to get me through the rest of the week. I was shocked and a little disappointed.” Thats what some of them say.

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process4.jpgThere is inflation every year. You cannot stop an increasing in living expenses as prices of consumer goods increasing all the time. Saving money becomes an extremely difficult task to do. Here are some solutions for saving a little so that you can still meet your needs and still find ways to trim off a little for the future.

Budget – Get one and stick with it! And set aside at least a small portion for savings while you’re at it; savings for your future, your retirement, your education, your vacation, whatever. Head to your local office supply store for planning workbooks or budget sheets to use. Or head to your favorite search engine and type in, “budget planning” for hundreds of sites with articles, free downloads, tips, ebooks and other resources to help with your budget setup and follow up.

Plan Ahead – Make sure to plan for emergencies and the unexpected, like an appliance break down or garage door malfunction. Even if you can only set aside $100 or so each monthly, place it in an account and earmark it for this “Miscellaneous” fund. Then when things go wrong, and they will – nothing is perfect – you’ll be better prepared.

Monthly Items – Work out a monthly payment for items that you don’t pay monthly and set this up in your regular monthly budget. For example, for items like annual home owner or renter insurance, quarterly water bills and life insurance payments and annual trash bills, take the amounts and determine what they would be monthly. Then list the items on your budget log and pull these amounts aside, saving them in your account for those purposes. This way, when the bills hit, you won’t be caught off guard and have to scrounge for the payments.

What works well, instead of handling multiple savings accounts for each company owed, is to use index cards and one savings account. Create one index card for each bill. Then simply log the amount you’re setting aside on the card and deposit it into your savings account. Keep the index cards with your savings passbook to remind you what the balance covers. The total of all your index cards should equal the balance in your savings account. Make sure to create an index card for your regular funds that you are saving each month in step one above and a card for your Miscellaneous fund in step two above.

growth_of_shares.gifBoth short term and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.

Compounding: Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.

Dividends: Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company’s overall business strategy and success than volatile price fluctuations based on market emotions.

Reduction Of The Impact Of Price Fluctuations: In the long term investment the persons is less affected by short term volatility. The market tends to address all factors that keep changing in the short term. So a person involved in long term investment or trading will not be affected as much by short term instability due to factors such as liquidity, fancy of a particular sector or stock which may make the price of a stock over or undervalued. In the long term, good stocks which may have been affected due to some other factors (in the short term) will give better than average returns.

Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.

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