July 28th, 2008 — Budget, Cash Flow, Debt, Financial Security, Income Streams, Long Term, Money, Personal Finance, retirement
Whether we realize it or not, many of us face financial risks every single day. From the high powered investor, to the minimum wage earner, every one of us has the potential to lose everything we own. How can you evaluate your financial risks and find ways to secure your future? Let’s take a look!
First, it is important to figure out exactly how much you spend in a single month. Get a notebook and write down everything you spend over the space of one month. Include everything from the smallest item to the largest, and don’t forget to include your monthly bills as well. At the end of the month, total up everything you spent and compare it to how much you make.
If you are overspending or cutting it close, you are definitely at risk for financial ruin. If you have more than enough left over at the end of the month, your risks are quite a bit less, but they may still be there. One of the best ways to tell how close you are to the brink is to experience what it is like when your paycheck is a few days late. Do you panic? Do your bill collectors panic? If the answer is yes, you may be cutting things a little too close.
Not many of us realize how much we depend on our paychecks every month. We may think we’re doing ok, and we have plenty of stuff to make us comfortable. Few of us put aside anything and before we know it, we’re living paycheck to paycheck. Add in credit cards and you’ve got a recipe for disaster.
Now, let’s look at the other end of the spectrum. Let’s say you’re financially well off, you’ve got plenty of investments bringing in some pretty decent returns. You’ve come to rely on those returns and you’ve always got the back up of your 401k, right? Now, let’s say the market takes a nosedive, ala Black Monday or the dot com fallout. How well off would you be then?
No matter if you make $800 a month or $8000, diversity and multiple streams of income are the best answer to shoring up your defenses against financial ruin. Let’s face it, most of us would not turn down more income every month, especially if we didn’t have to work hard to get it.
By reducing your reliance on your paycheck, or your standard investments, you are increasing your chances of being able to withstand a finance shattering event, such as a market crash or the loss of a job. The more ways you have to make money, the less likely you are to fall into financial ruin.
One of the secrets that millionaires have is leveraging debt to create a new stream of income. For example, let’s say you take out a loan to use to buy an investment property that you rent out. This is now an income producing property and you’ve got more money coming in. As you pay off that loan, the profits keep rolling in, and you’re less reliant on your standard means of income. That is one powerful way to avoid financial ruin.
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May 27th, 2008 — Banking, Debt, Diversification, Financial Security, Leverage, Money, Personal Finance, Wealth
If you’re interested in leveraging your credit in a safer environment, credit card arbitrage is one of the best ways. In order to succeed, you need to make more interest than your low interest balance transfer offer and for that you need to invest your money in a high interest bearing account. However, there are many different high interest banks out there and it can be difficult to know which one is right for you. Here are some guidelines to help make your choice easier and help you get the best deal for your investment.
1. Are there any fees?
Numerous high interest banks charge account fees that can gradually chip away at your funds. If possible, look for a bank that does not charge these fees so that you won’t be out anything. If you can’t find one that you like, look for the banks that charge minimal fees and guarantee that they won’t go up. There are numerous scams out there that involve getting you in a low fee rate and then suddenly raising the costs.
2. How reliable are they?
Just because a bank sounds good on paper doesn’t mean that they are. You’re going to need to do some due diligence to protect your investment. If you’re dealing with a pretty well known bank than this isn’t such a large concern. Keep in mind however, that even big banks can fold suddenly, as evidenced by the fallout in the current housing markets. While US banks are insured up to $100K, getting access to your money in such an event is a potential issue in the short term and more than likely the high interest paid will convert to a substantially lower amount paid after the closure.
3. What is the minimum amount required to open an account?
If you are only placing a limited amount of funds in a high interest bank you need to be aware that some of them have limits as to how little you’ll be able to put in. For some larger banks, like ING, the minimum is only a dollar. For others, the minimums may be higher than $10,000. This can really help narrow the field, especially if your investment is very limited.
4. How good are the rates?
Although most high interest banks offer similar rates, keep in mind that even a tiny little point or percentage can make a big difference when it comes to the amount of your return. Make sure that you do your homework to find the right bank that not only meets the criteria above but also offers you the best interest rate.
5. Will the rate fluctuate?
It goes without saying that it is much smarter to put your money into a fixed account. Sure, if the rates go up suddenly you may be out a few bucks, or even a lot of bucks. But it’s a lot better than facing the music when the rates plummet down.
It is also a good idea to consider opening more than one high interest bearing account with different banks. Diversity is always key when it comes to smart investments. It’s never a good idea to put all of your eggs into one basket. As we mentioned earlier, even the best banks can fail. You won’t be hit quite as hard if you’ve got your money spread around with different banks.
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