Entries Tagged 'Investing' ↓
August 12th, 2008 — Budget, Diversification, Financial Security, Income Streams, Investing, Money, Personal Finance
The housing crisis has a lot of people taking a closer look at their finances and worrying about whether they too may be at risk for losing their home. There are a lot of great lessons that can be learned from this crisis, and they can be applied to all areas of your finances. Let’s take a look at some of these important lessons.
1. Don’t overspend.
It is vital to know and understand your own limits. We all know that overspending is not the smartest thing to do, but it’s so easy to get lured in. Many of the homeowners that are now homeless knew very well that they were overbuying their house, but they fell in love with it. Main point to learn: Emotion has no place in your finances. It doesn’t matter if it is the perfect house – or the perfect whatever. If you cannot afford it, you cannot afford it. It’s not a matter of life and death. In your retirement years, you’ll thank yourself.
2. Financial disasters can happen to anyone.
Everyone from the worst subprime customer to big sports stars have been affected by this housing crisis. When financial disasters occur, it doesn’t matter who you are. If you are not prepared, you will not be able to weather the storm. Never fall into the trap of thinking “it won’t happen to me.” The fact is, financial disaster is looming for each one of us, without proper planning and without the right management of our finances.
3. Having more than one stream of income is vital.
You may be set right now with your job, but what if you lost it tomorrow? What if you got sick? Relying on one stream of income is not smart, especially if you are dealing with a mortgage payment. You’ve got to be able to bounce back from a financial disaster. The best way to do that is to cut your reliance on your paycheck by creating more than one stream of income.
4. There is no safe investment.
Some of the most expensive houses in the best neighborhoods are now sitting empty. While there are good investments, there is never a sure bet in life. Always make contingency plans and never put all of your eggs into one basket. The only sure things in life are death and taxes, and it’s best to be prepared for the worst.
5. You can’t rely on anyone else to bail you out.
While big plans are in the works for bailouts, there is a lot of opposition and even if they pass, they will not be able to help everyone. You can only rely on yourself – not the government, not your family. By taking responsibility for your finances, you’ll be able to get through any financial problem with grace. Always have a backup plan and never rely too heavily on your income or on an investment. You never know when the bottom may drop out.
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August 6th, 2008 — Diversification, Financial Security, Income Streams, Investing, Long Term, Money, Personal Finance, Standard of Living, passive income, retirement
One of the hottest concepts right now is the premise of creating multiple streams of income. While everyone wouldn’t mind making a little extra cash, there are even more benefits that can be reaped from having more than one source of income. Let’s go over just a few of them.
1. Help save for retirement.
The average person needs to have more than $500k put aside for their retirement in order to live in comfort and without worries. Unless you have a job that pays incredibly well, this is going to be a pretty daunting task. You cannot rely on social security payments to secure your future. Whether you’re 25 or 55, it is never too early or to late to put aside money for your retirement. Unless the thought of working until you drop dead appeals to you, you’re going to have to find ways to supplement your current income.
Multiple income streams can be incredibly beneficial not only for retirement planning, but later in life. Smart investments will continue to reap rewards for many years to come and you’ll have that nice supplemental income that will make your life easier far past the retirement age. A good concept to try to is put all of your multiple income streams into a high interest account to make even more money for your future.
2. Layoffs and downsizings happen every day.
No matter how secure you think your job is, there are still chances that you could get laid off. There are very few guaranteed jobs in this world that provide lifelong security. If you are relying solely on the income for your job to pay your bills and make ends meet, you are literally one paycheck away from financial ruin.
It’s a stark reality that all of us face. However, if you have multiple streams of income coming in, you won’t have to worry so much. You’ll have a cushion that will tide you over if you do get laid off or lose your job. In some cases, lucrative streams may even replace the need for your job entirely.
3. Accidents happen.
Even if you have insurance – what would happen if you were injured today and no longer able to work. Could you pay your bills? This happens to thousands of people every year and they risk losing their homes, bankruptcy proceedings and worse. By having that extra cushion with several different streams of income, you are reducing your reliance and making sure that no matter what happens, you’ll be ready to face it.
If you don’t have health insurance, it’s even more vital to have steady streams of income coming in each month. You may be the picture of health right now, but what if you get hit by a bus on the way to work tomorrow? Unless you have thousands of dollars in savings, the answer isn’t pretty. Even if you do have a savings account do you really want to use it for that? What will happen when it runs out? The best kind of insurance you can have is a steady stream of extra income.
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August 5th, 2008 — Budget, Debt, Goal, Investing, Money, Personal Finance, bad debt, credit cards, good debt
Credit card debt is a global problem that has led many to the poorhouse. However, with smart management, credit card debt can actually be a good thing. Let’s look at how to have smart credit card debt that will help your finances instead of hurt it. The premise may be a little odd to some people, but there is a way that you can use your credit cards to improve your credit rating and start investing in your future.
First, it is important to realize that credit cards are not free money – this is a problem that affects many when they get their cards for the first time. They run out and run up the balance until they are completely maxed out. The secondary problem with this is that many of these same people will make only the minimum payments on those cards. Suddenly, they are in way over their heads and it could take decades to pay off that debt, depending on how much it is.
Now, let’s take a look at how to use credit cards in the smart way:
1. Never max out your card.
Set a limit for yourself and don’t use the card limit as a guide. You should never have a credit card balance that is greater than three months of your current salary. Less is definitely more when it comes to credit cards. Strive to have a balance of less than $100 on most of your cards. Put aside a special card for emergencies and keep a bare minimum of debt on that card to keep it open.
2. Make monthly payments higher than the minimum amount.
This is an easy way to eat away at your debt and keep your credit rating high. Making regular payments is the best way to achieve a good credit rating, but making higher payments will also help. You should also putting a charge cap on your cards, and try to never spend more than you will be paying for the payment each month.
So many of us use our credit cards for frivolous items that will only lessen in value. If you took that same amount of money and used it to invest, you would actually start seeing a return. Suddenly, your credit cards are working for you and you’ve created a secondary income stream that can reduce your reliance on your paycheck. However, you should start small with your investments and make sure that the risks are as low as possible to avoid having this plan backfire.
4. Take advantage of low interest rates.
Look for credit cards that have a very low introductory rate and then a permanent rate that is fixed and low. These cards are much more beneficial. You need to also make sure that you make those monthly payments on time, since many cards do have an interest penalty if you are late. The lower the interest rate is, the lower your total amount of debt will be.
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July 31st, 2008 — Debt, Diversification, Financial Security, Income Streams, Investing, Leverage, Money, Mortgage, Personal Finance, Real Estate, good debt
Not all of us have had the luxury of spending the last 20 years to secure our financial future. Most of the time, through no fault of our own, putting aside money for retirement takes a back seat to handling emergencies or schooling for our kids, or simply the daily expenses of life. If you’re looking down the barrel of 65 and you don’t have anything put aside yet for your retirement, don’t worry. It’s never too late to start planning for your retirement. It may take a little extra work, but you can secure your financial future.
Let’s look at one of the best ways to ensure that you’re going to have a steady income coming in after you’ve retired. Millionaires across the world have used this technique for centuries to produce multiple streams of income. When you are no longer reliant on your 401K, or even your social security check, you’ve got a lot more freedom and a lot less worry.
This technique is called debt leveraging. Simply put, you got into a little debt in order to create a new stream of income. One of the easiest ways to illustrate this is through the purchase of a new second property. Let’s say that you find a great deal on a house that is in pretty decent shape. It’s in a good neighborhood and it’s close to good schools. You don’t have the money to buy it outright, but you don’t want to let this chance pass you by.
You can go to the bank to get a mortgage on that property and then start renting it out. Make sure that the monthly rent exceeds your monthly mortgage payment. Now, you’ve got a new stream of income coming in and you’re really not working for it. If you clear an extra $1500 a month, that’s an extra $18,000 a year on top of what you’re already making – and that’s just for one property.
Now, multiply that by a few properties and you’re making enough to really start planning for your retirement. However the key of good debt leverage is to make sure that you are not too heavily invested in one area. You’re going to want to change things up a bit to make sure that if something goes wrong you won’t take a big financial hint.
In addition to that rental property, you could put some of the profits you’re making or even get a new debt loan to put money into a high interest bearing account. Now, you’ve got a second stream of income coming in that will shore up your financial defenses. You can just keep perpetuating this until you are making enough every year to easily put aside quite a bit of money for your retirement. The best part is, this money will continue coming in, even after you’ve left your regular job. The key to a happy and fruitful retirement is having multiple streams of income that keep paying off, even when you’re not working.
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July 29th, 2008 — Cash Flow, Income Streams, Investing, Money, Personal Finance
One of the main problems facing Americans today is a lack of cash flow. As the economy gets worse and gas prices go up, it is getting harder to make ends meet. If you are completely reliant on your paycheck each month, the last few days or weeks of the month may be getting pretty tough. The best solution to solve this problem is to increase your cash flow. This will require a little bit of effort, but it can be very helpful. Here are some tips on how to increase your monthly cash flow.
1. Clean out your house.
Have a bunch of stuff sitting around your home that you don’t need anymore? Join the world’s biggest yard sale on Ebay and start getting rid of it. You’d be surprised at how much money you can make just getting rid of all of your old stuff. You never know when someone may want that old lamp, or even your old pair of shoes. Many people have found that turning to Ebay is a great solution, especially when they need extra cash in a hurry.
2. Start a side business.
Have a hobby that you’re really good at it? Turn it into a small side business. For example, if you are an excellent cook, think about opening a small catering business on weekends. Got a knack for making candles? Sell them in your local area. If you can do anything, chances are you could be doing it for money. Hit up your local flea or farmers markets and see how well you can do. The online world is also full of opportunities for small businesses. From selling ebooks to making your Ebay career shine with drop ship products, there are many different avenues that you can explore to increase your cash flow.
3. Consider making investments.
One of the best ways to get more cash coming in every month is by making strategic investments. Start small by depositing money into a high interest bearing savings account. If you don’t have money on hand to make an investment, considering leveraging some debt to help you start earning more money. This can pay off, especially if you make the right investments.
4. Consolidate your debts.
If you are striking out on all of these tips, you can free up a lot of cash each month by consolidating your debts. If you have a lot of credit cards, it is much easier to make one payment per month and a lot cheaper as well. Try getting a debt consolidation loan or if all else fails, transfer your high balance cards to one single card with a better rate. You can save quite a bit each month and that money can be used for investments or just to pay the bills.
Each one of these tips has the potential to increase your cash flow if you take them seriously. Everyone has a talent for making money, they just need to take the time to make it work.
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July 8th, 2008 — Debt, Financial Security, Income Streams, Investing, Leverage, Money, Personal Finance, bad debt, good debt
Let’s face it, debt has managed to earn itself a pretty bad name in most circles, but in many cases, this stigma is undeserved. Debt, when used properly, can help you secure your financial future. While no one is arguing that improperly used debt is a bad thing, good debt is possible. Commonly, good debt is synonymous with leveraged debt. This refers to the process of using debt in order to create multiple streams of income. You have to spend money to make money and unless you happen to have a bunch just lying around, you’re going to need to go into debt at first in order to secure your future.
There are many benefits that can come from leveraging your debt in order to create multiple streams of income. By going into a little amount of debt, you can take advantage of opportunities that would otherwise not be available to you. Only the independently wealthy have the capability of writing big checks for investments. But they all had to get their start somewhere. No one starts off with everything, you have to work to get it. How many stories have you heard of immigrants with a few cents in their pocket that turned it into an empire? Somewhere along the way they had to go into debt to get the capital they needed to make all of that money.
You can use this same proven formula in your own personal finance. You don’t have to be a financial genius and you don’t have to be wealthy to start making money right now. One of the best ways to illustrate this point is investing in the stock market. Let’s say that you have the opportunity to purchase shares in one of the hottest new companies. You’ve got a little saved away, but it will only purchase you a handful of shares. However, if you were to take out a loan, you could easily buy numerous shares. When these returns start to come in, you’ll have a much larger return, simply because you were able to invest more.
This is one of the main benefits of using debt leverage to secure multiple streams of income. You wouldn’t normally have the opportunity to make large investments that will have larger returns. While you can certainly play it safe, it simply makes more sense to take that small risk for the larger return. If you manage your finances correctly, this won’t be a big sacrifice to you. We’re not saying run out and get into debt over your head in hopes of becoming a millionaire.
You need to manage your debt effectively if you want it to work for you. That means starting off with one stream of income and then when that starts to return, leveraging a little more for the next opportunity. Soon, you’ll have numerous forms of income coming in that will more than cancel the debt you got into to start the whole process.
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July 7th, 2008 — Budget, Debt, Investing, Leverage, Personal Finance
If you want to start making money, you’ve got to stop looking at your finances like a regular person and start treating your checkbook like you work for the bank. This is the key towards successful management of your finances and will help you grow your current income and create more streams of income at the same time. By getting the right mindset in place, you can easily start making more money and get on the road to financial independence.
In the event that you’re not good with managing your own money, it’s definitely time to take a crash course in good debt management principles. Remember, you’re going to need a little bit of debt to build up your credit and if you want to get ahead and make more money, you’re going to need to leverage that debt properly. The first place to start is to make a budget and force yourself to keep it. Put aside enough money every month to pay your bills so that you can keep your finances running smoothly.
A banker looks at things a bit differently than the average person. They are all about returns – and making more money. Bankers want money to go to work instead of sitting there collecting dust. If you want to start managing your money effectively, you’re going to need to adopt this mindset. Instead of thinking, “cool, I’ve got an extra $500 I can blow,” start thinking, “How am I going to invest that $500 so it becomes $1000?”
After all, who wants to settle for a little money, when you could be making a lot of money? The next step towards thinking like a banker is understanding risk. All banks take risks every single day and while some are more conservative, other recognize that in some cases, big risks have big payoffs. The key is knowing how to read an opportunity and knowing how to take advantage of it.
Let’s say that you’ve got a chance to get in on a stock that is bargain basement priced, but has the potential to quickly take off. You don’t have a lot of spare cash on hand. In this situation, a banker would go to the board and get a loan in order to get in on the opportunity. You need to do the same thing. Once you’ve determined how risky the investment is, and come to the conclusion that if it does fail you won’t be ruined, go out and get that loan to take advantage of it!
Bankers also know that the bottom line is essential. They don’t run around overspending your money, so why should you? Never get into debt over your head and curb your spending habits so that they’re in line with your income, not your desires. By thinking like a banker, you’ll be able to turn your finances around and start seeing some amazing returns in a very short time. Give it a try and see what kind of a difference it makes.
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July 2nd, 2008 — Banking, Income Streams, Investing, Personal Finance, Stocks, passive income
If you’re trying to make more money, chances are you’ve heard the phrase, multiple income streams. However, there are two main types of income streams that you can use, and they are quite different. The first is known as active – and as the name implies, this is a type of income that you actually have to work for. Examples of active streams of income include running a part time internet business in addition to your work, or something that requires you to actually DO something to earn that money.
Passive streams of income make up the second type. These are the most popular, simply because you don’t have to worry about investing your most important quality – time. If you are already working a full time job, you may not have the kind of time necessary to develop an active stream of income. However, there are numerous kinds of passive streams of income that will reap the same benefits with a lot less effort. Let’s cover just a few examples.
Investments –
This is probably the most common form of passive income. You invest a little money, the stock does well, you cash in. It’s easy, quick and requires no effort on your part. While there is some risk involved, with proper research you can lessen this risk and reap the rewards.
Rental Properties –
This is a bit of a hybrid between the two types and the degree that it trends towards passive will depend on whether or not you have a property management company assisting you. In this event, this is a great form of passive income that is usually quite reliable. If you’ve got someone handling the maintenance, rent collection and other landlord duties, you’ll just have to collect the check every month. While you will have to pay that management company, it’s well worth it since you won’t have to deal with these issues.
Interest Payments –
Whether it’s from a P2P loan, a certificate of deposit or a savings account, interest payments are the easiest form of passive income. They also have some of the lowest rates of return but are generally considered to be quite safe. This is the perfect place to start if you’re completely new to building multiple streams of income and you can pick up a lot of helpful knowledge along the way.
Variations on a Theme –
There are numerous types of non-traditional forms of passive income streams that are variations on the themes mentioned above. Basically, anything that makes you extra money without requiring any work on your part can be considered passive.
When managed correctly, passive income streams are a vital part of your future financial planning. Many will keep returning long after you are retired and can serve as a cushion to keep you living your life the way you want to. The best way to take advantage of the situation is to implement both active and passive income streams so that you can have the best of both worlds and keep building up your bank account.
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June 30th, 2008 — Investing, Money, Personal Finance, Wealth
Every day we hear success stories of those who made a killing in the markets, and at the same time, we hear about those who lost everything they owned in the markets. What makes one person succeed and another fail? While there are thousands of answers to this question, let’s focus on the fundamentals of smart investing. Granted, you can never invest without at least some risk, but there are ways that you can minimize that risk, make smart choices and become one of the success stories instead of one of the failures.
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Trust
First, there’s the premise of going with your gut. Our instincts are very powerful and usually do not lead us astray. Usually – but not always. Smart and successful investors learn to go with their guts, but they also learn to separate what their heads, hearts and guts are saying to find the answer they need. This isn’t some strange spirituality, it’s actually common sense. We can convince ourselves of almost anything, but it’s hard to get rid of that little pit in your stomach that is warning you.
In order to become a smart investor, you need to learn how to hone your gut instincts. Listen to that little voice that says, “Are you sure?” before automatically defaulting to what your head is telling you. This is the easiest way to save yourself a lot of trauma, but it’s only one of the components that you’ll need to become a smart investor. There are a few others that are just as important.
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Due Diligence
Next, you’ll need to learn how to research and do your own due diligence on an opportunity. The Internet has made this easier than ever and you can learn quite a few things with just a simple search. If you’re thinking about investing in a new company, do background searches on all of the principles. You’ll learn a lot about what they’ve done in the past and if they have been involved in anything untoward or overly risky. Check the company with the Better Business Bureau and see if other people have had issues with it in the past.
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Balance
Due diligence is the key to becoming a smart investor, but it’s not the only one. The last piece of information that will separate the success stories from the failures is that you need to know how to balance your risks. Would you put your entire family into a car and head them toward a cliff, trusting that the breaks will not fail? You should never put your home, family or livelihood in jeopardy with an investment, no matter how solid you think it may be. It’s just not worth it.
Smart investors learn how to combine all three of these keys into one main philosophy that keeps providing them with winners, over and over again. Your best bet is to start small to test your instincts. Never get in over your head and always remember your instincts.
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June 25th, 2008 — Banking, Income Streams, Investing, Money, P2P Lending, Personal Finance, credit score
Peer to Peer lending is quickly becoming one of the hottest new ways to create multiple streams of income. While there is risk involved, there are various methods that can reduce the risks that individual investors face and provide protection against non-payments. If you’re looking for an potential way to make extra cash every month, P2P lending is definitely worth consideration.
If you’re not familiar with how P2P lending works, it’s actually quite simple. Instead of going to a traditional bank for a loan, a person will visit one of the many P2P sites that are in existence right now (Prosper for all loans and Fynanz for student loans are the only one for p2p lenders at the exact moment but Lending Club may reopen soon and Loanio has been in beta for some time…). They’ll post their loan request and the lenders in that P2P community can go over it. Sites will run the credit rating of posters to determine how risky they are, be careful of borrowers with bad credit or even good, but unusual credit. You are looking for very clean borrowers with 5 years of credit history, no public records, 0-2 inquires in the last 6 months, for reasonable loans amounts, with a story that makes financial sense.
After the loan opportunity has been posted, lenders or investors will browse through and see if they want to take that risk. Most of the current P2P sites allow sharing of loans so that the risk is spread around. For example, if someone needs a $9000 loan, instead of one lender offering the whole amount, thirty lenders may each provide $300. The interest rate payments will be equally divided among those lenders based on much of the loan they purchase. As with everything make sure you diversify, ideally you would want AT LEAST 30-50 separate loans.
The claimed returns on the Prosper Select Index as of May 2008 was 7.87%. There is a bunch of fine print that goes along with that number which is why it is essential to diversify and stick to very clean loans. While possible I wouldn’t trust anyone that claimed it was easy to earn out sized returns (15+%) on these marketplaces. Still, 7% is better than most savings accounts, especially since the rates are currently dropping. While it is a bit more risky than a certificate of deposit, it’s a lot nicer to earn two to four times the amount of interest on your investment.
When you’re shopping around for a P2P community it is important to find one that will provide you with the tools that you need to succeed. For example, they need to have a system in place for debt collections if someone defaults on a loan and they need to be able to provide you with an accurate assessment of the risks involved in making that loan. Currently the sites will not allow loan requests from those with credit ratings lower than 540 on Prosper, which can greatly reduce your amount of total risk, but even then you should stick to the higher credit grades (AA-C). Once you get 12 months of experience you might consider expanding beyond that range… personally I am not.
While there is no magic bullet when it comes to easily making money with P2P lending; however, you can easily make a nice little return on a small investment and you’ll have the benefit of being able to create multiple streams of income. If you’ve only got a small amount to invest and you don’t want to tie it up in a CD, consider giving P2P lending a try.
Keep in mind that any venture has its risks, but the benefits of P2P lending might outweigh them. By picking the right kinds of loans, you can reduce your own risks and manage your investments. Start out small and as you start to get larger returns you can invest more money. Overall, P2P lending is fun and lucrative, when managed properly.
I have read that P2P lending is addictive because it is like financial voyeurism. Funny, but true analogy.
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