October 6th, 2008 — Budget, Personal Finance, bad debt, credit cards, saving
Whether economics is your idea of a great way to fight insomnia, or you just didn’t get the benefit of learning about money management early on, it is never to late to learn the basic skills of proper money management. We highly recommend taking a brief course on finance if possible, but there are other ways that you can develop a strong financial foundation that will get through your life and help you retire with less worries.
Basic money management can be broken down into three main principles – Spending Less, Avoiding Bad Debt and Saving More. Let’s take a look at each one and determine how you can start including these principles into your own life.
Spending Less –
This is a vital lesson that everyone must learn, and unfortunately, it is a hard one. While most of us get the point that you have to spend less than you earn if you want to stay in the black, that concept tends to fly right out the window when faced with every day life. The prevalence of credit cards, easy payment plans and a lack of knowledge about bad debt has led many into spending much more than they make.
One of the best ways to start spending less is simply to monitor exactly what you spend, keep a log and determine where you can cut expenses. A budget is a vital tool that will help you learn more about the money that goes out the door each month and how much comes in. By working with a budget, you can start to tip the scales in favor of how much is coming in.
Avoiding Bad Debt –
This is a major problem for millions of Americans and it is only getting worse. It is vital to recognize that there are two main forms of debt – good and bad. If you have gotten into a bad debt trap, getting out is extremely difficult. Remember, bad debt is something that drains your finances, good debt is something that adds to it. Reduce your amount of bad debt, increase your amount of good debt and watch your finances turn around.
Saving More –
No matter how much money you make, saving part of it is very important. Whether it is a simple emergency fund that can help you get through bad times, or a fund for retirement, saving is essential. If you find it difficult to have any extra money each month for savings, it is time to investigate how you can change that.
Whether you need to find a better job that pays more, manage your finances better, or find ways to create more than one stream of income, there are many ways that you can start saving more money.
These three principles will help you learn more about how your own personal finances work and how to start managing your money more effectively. Everyone makes mistakes, but the difference is whether or not you rise about them, recognize the problem and implement the solution.
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August 19th, 2008 — Debt, Long Term, Money, P2P Lending, Personal Finance, loans
There are two new trends in the banking world that may actually be very dangerous for consumers. Long term personal loans and interest only loans are gaining in popularity, especially in the wake of the housing crisis. While these may seem to be a great option at the time, there are many risks from these loans that should be avoided if at all possible. If you’re considering refinancing your home to an interest only loan, or if you are looking at getting a personal or car loan, it is very important to understand exactly what you are getting into before you agree to any loan.
An interest only home loan means that each month, you only pay the interest that you owe. At face value, this can save a lot of money and it may help you keep your home if you are refinancing. Even though interest rates are going up, when you’re not paying on the principle, your overall monthly payment will be lower. However, the part about not paying on the principle is the kicker.
At the end of your interest only loan you will not own your home. Instead, you will have to pay the principle, in full, in order to get the deed. Now, if you’re planning on selling your home after the loan is paid off, this may not be as dangerous. However, with falling property values and a down market, this can be disastrous. In addition, by only paying interest, you will end up spending a lot more at the end for your home. In most cases, homeowners with this type of loan find that they spend $25k to $50k more for their actual homes.
Another issue with interest only loans is that you will not have the benefit of gaining equity in your home, even though you are making payments every month. If you end up with an emergency on your hands and need to get money quickly, you will not be able to draw on the equity in your home. This is a big problem that many people do not consider. Would you rather have lower monthly payments, or the ability to earn equity in your home with every payment that you make?
Next up, long term loans are becoming very popular as interest rates go up. Most people prefer to keep their payments as low as possible, but right now, that is pretty tough. The solution has been to roll out new long term loans, particularly for cars. As an example, you may be paying only $300 a month for your car, but you will have to keep making those payments for the next seven to eight years. Compare this to the usual time period of three to five years.
That is a lot of extra interest and many people may not even realize just how much extra they are paying. At the end of the loan term, you will have spent thousands more than the car is worth and by then, the vehicle has depreciated to the point where you will never get that money back. Long term loans do make it easier to make payments, but at the end of the day, you’re worse for the wear.
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July 1st, 2008 — Debt, Money, Personal Finance, bad debt, credit cards, credit score, good debt
For many Americans, dealing with a low credit score can be incredibly frustrating. It’s tough to get any loans and in some cases, it may even affect your prospects for employment. If you’re sick of dealing with a low score, it’s time to starting putting into motion some techniques that will help your score go up. Some people have reported a bounce of more than 120 points after using these tips, but everyone’s credit is different. However, any jump up is a jump in the right direction.
1. Request a copy of your credit report and thoroughly examine it.
Errors are incredibly common on credit reports but the good news is that you can fix these. Go through each item on your report and make sure that they are accounts that belong to you. If not, start disputing them. The big three credit reporting agencies all offer online dispute services, so you can easily get these errors off of your report. It may take up to three months for the whole process, but this is the best way to quickly get your score back up.
2. Don’t close off your old credit cards.
Most of us have been trained that all debt is bad and we immediately close off our cards when we’re trying to get back on track. While it’s perfectly fine to pay off your cards, closing the account will definitely hurt your credit. It’s actually smarter to keep a small amount on those cards and make monthly payments. You’ll get the benefit of good reporting and the accounts won’t be marked as closed.
3. Get a small personal loan.
If you have the money to pay back a personal loan, go to your bank and request a very small loan. It’s the principle of the thing that matters here, not the actual loan. You’re going to use this to rebuild your credit. It’s best if you use this loan wisely and make an investment that will create another stream of income. That way, while you’re repairing your credit, you’ll be making money.
4. Open a secured credit card.
If your credit is so bad that most credit card companies won’t even charge you, open up a secured credit card. Use it sparingly and pay it off every month. You’ll get the benefits of glowing monthly reports and you really won’t be out much.
When it comes to fixing your credit score, it won’t happen overnight, but you can make a great deal of progress by following the above tips. You should see a change in your score in as little as three months, and it will just keep getting better as you keep making those payments. Creditors will see that although you may have made some past mistakes, you’re back on track and a much less risky prospect.
Remember, not all debt is bad. When you leverage your debt with your future in mind, this is the easiest way to make money and improve your credit.
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June 23rd, 2008 — Diversification, Financial Security, Income Streams, Money, P2P Lending, Personal Finance
Most of us would like the chance to spend more time with our families, work a lot less and still bring in a sizeable income. If you’re only going to rely on your current income, the chances of that happening are pretty small, unless you’ve got an incredible job. However, there are ways that you can achieve this dream and they’re a lot easier than you might think. You’re about to learn how to work smarter and less and still make more money than you are right now.
The key to working less is having more than one stream of income coming into your pocket every month. This is a sound principle for many different reasons. First, you’re reducing your risks by not having to rely on your main source of income to pay your bills and keep living well. You can spread that risk around and if you do lose your job, you’ll have the resources on hand to keep paying your bills until you can find a new one.
Another benefit of having multiple streams of income is that you can eventually phase out your full time job, if you’re making the right investments, and start working part time. The old adage that two part time jobs make one full time job is certainly true here. By creating another stream of steady income that you can rely on, you can eventually scale back your current hours until you’re working only part time. If you’ve got some really great streams of income coming in, you may even be able to quit that full time job and focus on these streams instead.
Ok, so we understand how multiple streams of income can make your life easier, but how do you get started? You’ll need to take a small amount of risk here if you want to get to the point of being able to spend less time at work, but it is well worth it. It is best to try to reduce these risks when you’re first getting started so that you don’t jeopardize your finances, but with smart choices, it’s easy to pick a great income stream.
Some of the most common forms of creating multiple streams of income are actually the most simple. Let’s say that you have a knack for fixing cars. During the day, you’re a buttoned down corporate worker, but on the weekends, you’re a car fixing fool. Start taking on outside work during those weekends and boom – you’ve got your first income stream coming in. As word of mouth travels, you’ll get more business and it will most likely pay better than your current job.
Other streams of income include investing in P2P lending, other business opportunities, or even stocks and bonds that have a steady rate of return. The main goal of using multiple income streams to work less is to stop treading water at your job and start doing what you love while you’re getting paid for it. With the right amount of dedication, you should be able to go part time or even quit your old job.
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June 19th, 2008 — Personal Finance
Many of us have been conditioned to think that living debt free is the only way to be. While there is some truth in this statement, if you’re completely debt free and using only cash, you’re hurting your chances of getting a new home, and you may end up in a situation that requires more money than you have without any recourse. Let’s find out why paying with cash is not always the smartest idea.
1. It hurts your credit rating.
You wouldn’t think this would be the case, but you do need to have some debt if you want to build up a credit rating. In some cases, people with absolutely no debt have a credit score in the mid 600’s, while those with two or three cards that they constantly pay on will have a score in the high 700’s. What’s the difference? In order to keep your credit rating high, you are going to need to have a little debt.
We’re not saying go run up ten cards and hope for the best. What we are saying is that having one or two cards with low balances is a great way to keep your credit score high. You’ll be getting the benefit of monthly reports on your credit history and you’ll be building that score up to the point where no one will be able to turn you down for anything.
2. Emergencies happen.
No matter how proud you are of being able to pay cash for everything – what would happen if you woke up tomorrow and discovered that you have a serious brain tumor that needs to be removed right away. The cost of the surgery is more than $300k and you don’t have any insurance. You’ve been paying with cash for years and your credit rating has suffered as a result.
In this situation, you may not be able to get a loan to cover your health costs and while some hospitals will work out a payment plan, they’re going to use your credit score to determine their risks. The problem with emergencies is that you never know when they will happen and they usually cost an arm and a leg. If you don’t have a savings account that is sizeable, you are literally one step away from financial disaster.
3. You won’t be making any extra money.
You know the old saying, it takes money to make money? If you’d like to get some extra income every month, you need to find a way to take advantage of opportunities for multiple streams of income, such as investments. Debt leveraging is one of the best ways to accomplish this since you won’t be using your primary funds for the new opportunity.
While debt has a bad reputation, there are good forms that are necessary if you want to make more money and have good credit. There is such a thing as good debt and if you manage your finances properly, there is no danger in having a little debt.
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May 20th, 2008 — Debt, Diversification, Income Streams, Leverage, Money, Personal Finance, Wealth
The economy is in a state of constant flux. If one industry is doing well, you can bet another is suffering. While it can be difficult to weather any cycle, there are techniques that you can use to ensure that you stay on top no matter what happens. Here are just a few of the most proven ways to keep making money, no matter what state the economy is in.
1. Leveraging Debt -
The proper use of debt is one of the best ways to increase your income and have the stability you need to weather any cycle. Whether it’s a personal cycle, or a global one, if you are making more money from several different avenues, you’ll be prepared for no matter what happens. If you’re relying on only one paycheck, you’re at a much greater risk of losing everything if something should go wrong.
2. Multiple Streams of Income -
Why have just one source of income when you could have several. Let’s look at this on a personal level first, and then a global level. Let’s say that you have one paycheck coming in from a job you’ve held for years. It’s been a secure job, but today you wake up to find out that you’ve been downsized without warning. Even if you have severance pay, it’s going to take time to find a new job. Since you were only relying on that one stream of income, you’re suddenly at risk for losing everything you own, or at the very least, drastically reducing your savings.
On a global level, let’s say that you’ve had one investment that has been returning nicely for the past few years. Today you wake up to find that the bottom dropped out, the company went bankrupt and all of that stock you were counting on has evaporated. This has spelled disaster for numerous investors all over the world.
Now, let’s say that in addition to that one job or that one stock, you had several streams of income coming in every month. Suddenly, it’s not so earth shattering if one of them fails. You’ve got the benefit of having numerous different forms of income that will keep you above water.
3. Diversity -
There is nothing worse than putting all of your eggs in one basket and hoping for the best. It may work for a little while, but no economy is stable enough to keep performing at the same level for a hundred years. Using the same examples as above, it just makes more sense to spread your risks around. You won’t be running the chance that you’re going to be ruined if one of them fails. Smart investors always diversify and smart business owners usually have more than one way of making money.
It’s the smart way to do business. If you’re not diversified, now is the time to take a hard look at your stocks or holdings and determine how best to start. You can always ask for the help of a financial planner if you’re short on diversification ideas.
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