Blog about Personal Finances, Investments, Money Management and Financial Freedom

3 ways to maximize the usage of your salary

Most people manage their budget using mental accounting. It is easy to imagine the fate of our salary or what we will do with that money, even before we receive it. But on payday we come back to realize (again and again) that every penny counts and that we have very little money left over to add any additional expenses.

Maybe you’re thinking that you need to increase your monthly income, getting an additional second salary or working more overtime, but it often goes unnoticed that the way you maximize the usage of your income is as important as the amount of money you receive.

Three smart ways to maximize the performance of your salary are:

  • Benefit from tax incentives that you could take advantage from.
  • Ensure good protection for you and your family to avoid costly bills in cases not covered by public health care.
  • Preserve your money by reducing unnecessary expenses. Try reducing your grocery bill and spend less on fuel; reduce your wasteful spending, discard habits of onerous consumption and rethink your social preferences.

In many cases, we prefer to use money for leisure and recreation rather than be earmarked for basic payments, acquiring a good health insurance or reducing mortgage debt. In other cases we acquire a new car or a house in the beachfront, just for the desire to look wealthier and not by necessity. This seems to be the reason why in some societies, credit growth for the purchase of consumer goods has accelerated in recent years, and it is also starting a boost on mortgage lending.

We live in an atmosphere of constant anxiety about money, and that anxiety can affect our personal and family life. We always want to win more to buy more, and as you may have noticed, in many cases the solution to our lack of freedom in the family budget can’t be found by working extra hours or finding a second job. In most cases, it all works out with a little more financial discipline to help you maximize the usefulness and enjoyment of the money you earn.

Try to achieve an adequate financial balance; When you succeed, you’ll notice that money has ceased to overpower you.

4 Financial advices given by the rich

If we talk about money is there anything that rich people know that most of us do not? Perhaps in some occasion you’ve wondered what is the key to keep control over money, maximize it, and begin to think and live like rich people do; Well, let’s unravel the mystery; I will begin by telling you that the difference between a rich person and a poor one, is on the manner in which they mix knowledge, attitude and action.

If you’ve always dreamed of having bank accounts of several digits, but you do not make a move because you do not know what to do or you are afraid of where to start, you’ll never make it. To achieve this, heed these 4 tips from people who have managed to overcome the barrier of a million dollars and, most importantly, they remain happy and their wealth growing to be enjoyed by their children and grandchildren.

  1. Find alternative strategies to protect your money: One of the reasons for the financial success that the rich of today enjoy is that they learned to protect their assets, combining financial products of high returns, while avoiding paying heavy taxes (we are not talking about tax evasion, but tax incentives conformed to the law). Think of life insurance and annuity products.
  2. Understand the importance of diversifying: Do not put all your eggs in one basket, it is a wise recommendation that we hear from our grandmothers. This popular adage also works for the rich. Wealthy people know the cyclical nature of investments and therefore do not concentrate on a single place to create wealth, but diversify their investments in order to ensure a steady flow of money into their coffers.
  3. Save money wisely: Financial intelligence is not just about finding new ways to grow money, but also to preserve it by holding off the personal lifestyle. Lack of control in spending is one of the main reasons why some wealthy people, at a given moment of their lives, have ended up losing everything and in absolute poverty (as some athletes and others in the showbiz). Never go into debt just to maintain a lifestyle that is above your means. Do not waste what you have, let alone the money that is not yours.
  4. Design your action plan and move: Did you ever think of what you want your money to do for you? Getting money is not the ultimate goal of your life; Money is simply a tool to achieve your most important personal goals. Progress towards these goals is more a matter of action than of thought. Do not waste your life imagining a beautiful future with all your personal goals achieved. If you want to be financially free and feel like the protagonist of the future that you dreamed for you and your family, stand up and walk until you get it. Remember that mere desire will not lead you anywhere. Move, find that future, do not wait until tomorrow to start building your own path to wealth.

In short, realize that the most important thing is to invest in your own future. Search precise knowledge, assume the necessary attitude, get going and, even in difficult times, keep on sowing the financial seeds that sooner rather than later will flourish in your life.

5 ways to ruin your credit score

 

We all have a record of our financial life that often goes unnoticed by each of us; and its score will be better or worse depending on the loans we have obtained, our financial performance and the payment history we have built. Based on this information, banks and other financial institutions assess our profile and make decisions on the loans we request to purchase our home or our car; they also take this into account to extend credit limits for consumption.

Obviously we want to have a good credit reputation, and we must avoid some mistakes that will derail this claim.

  1. Delaying the payment of your bills: This is one of the highest impact factors when assessing your history. Paying late your mortgage, credit cards or car loans (for example) are big mistakes that significantly penalize your personal credit score.
  2. Skipping payments: Your financial reputation will crumble if you fail to pay off the loans you were granted, credit cards, or even invoices for goods and services (telephone, Internet, electricity, etc.) It goes without saying that it would be catastrophic to your history if you were to file for bankruptcy or suspension of payments, or if you found yourself under a garnishment or foreclosure.
  3. Overspending with your credit card: Most people believe that if they do not exceed the limit of the credit card or religiously pay the monthly balance (even if it is just the minimum) they already have secured the sky in the financial universe. Is not always that way. Credit risk analysis and policies may vary, but for purposes of your history and reputation, experts say it is best to prevent the card balance from exceeding 30% of your credit limit.
  4. Not getting into debts: Although it seems like a contradiction, this is one way to damage your credit score. If you have never asked for a loan before how do you tell if you are responsible and trustworthy? It is not the same for a 21 years old person to apply for a loan for the first time than it is for another of 35 or 40 years old. If you’ve avoided during the course of your life to go into debt and have always had an aversion to the banks, then when you apply for a loan you need you will not have great things to show. Remember that the greater the age of your credit score, the better you can prove your financial profile.
  5. Not using your credit cards: If you are of the people that breaks credit cards just as you receive them, hide them not to use them, or if you just settle for simply using them occasionally to keep them active, then believe me you’re not doing yourself any favor to your financial reputation; that way it will be very difficult for the Bank to increase your credit limit, or worse, chances are you won’t get your card expiration date renewed; therefore, your financial history will not be the brightest, and it may even lose some points.

Avoid ruining your financial history, because it is the only way to show the world that you are trustworthy in money matters. Important: If you have economic problems to make ends meet, do not throw overboard what took you years to build, assume your situation and talk to your creditors; perhaps it may cost you some score points, but eventually you will see your sincerity and responsibility rewarded.

3 small habits that can lead you to ruin

 

It is no secret that compulsive shopping and the obsession for purchasing the latest models of technological fads are fast tracks to the financial collapse, but there are certain habits that appear to be harmless and can also cause great damage to our personal economy, and even some financial havoc with the passage of time. Three apparently innocent but potentially harmful habits are:

1 – Making many small purchases: Common sense tells us that no one will stop buying coffee or a small sweet candy at mid-afternoon, thinking that that decision could be driving him into bankruptcy; but we probably have not realized the tremendous economic impact of these innocent whims when they are recurrent and become an habit. If you’re not convinced, simply add up all the “little” expenses you did for one month, and you’ll see it. The morning coffee, dessert in the afternoon, the small water bottle, the daily newspaper with sports news, the package of candy, the weekly magazine to find out the love life of celebrities, goodies that you take your home and many other examples like that. The expenses on all these consumptions should invite you to prevent these recurring consumption habits.

2 – Being overly generous: Generosity is a personality trait that moves you to offer and share your wealth with others. It’s okay to be generous, even more with those who really need your understanding and help, but you must be careful because your generosity may be affecting your pocket amazingly. Calculate the total amount of tips you leave in the barber shop, in restaurants, in taxis; sum the donations you regularly give to your church, or the times you’re asked for a contribution for certain charities. Complete calculation with coins you offer to street musicians, or to people who ask for alms. You can continue adding what you spend in sponsoring social projects or protecting certain endangered animal species; include also the money you gave “borrowed” to acquaintances and co-workers when they asked for help to solve a need. All those little expenses (and many others) affect your economy. We do not ask you to stop being generous; we just warn you and invite you to calculate the economic impact of your generosity and benevolence.

3 – Using your credit card for everything: It is true that a credit card avoids the need to go out with a lot of cash (with the benefits that entails), not to mention many other benefits associated with its use; but it is very dangerous to get into the habit of paying all your purchases by credit card, because by doing so you can lose sight of the economic and emotional impact associated with spending, and this will lead you to spending more than you need or buying more than what you should. Keep in mind that many establishments conditions for accepting credit cards is that you have to make purchases for a minimum amount, so you may feel the need to buy even beyond your means. Do not forget that every time you use your credit card, you are acquiring a debt.

If you really want to start making good financial decisions, take care of these three habits and avoid making excuses that could tie you to them; that way you’d be fooling yourself and you would not be acting wisely to protect your net worth nor your family’s.

Some signs that you are financially lazy

On many occasions we have heard very encouraging expressions such as:

  • Starting tomorrow I will begin to save more.
  • I am convinced that I should not spend so much.
  • I’ll start saving for retirement.
  • I will pay all credit cards debts.

And so many others like them, which represent a good start to bring order to financial matters. People tend to promise things for themselves, but sometimes something comes up that requires that financial goals to be relegated to the background.

Just like there is a large group of people who have good intentions to straighten their economy and set their financial goals, there are others who do not even speak about these issues, much less take the minimum actions to enjoy a better financial situation . These people are not aware of the need to set goals, they believe that the world of finance is not for them or, worse, have mental laziness to think about such issues even if their financial health is critical. These people are genuinely “financially lazy”.

By their way of thinking and their attitude towards money and finance, financially lazy people own certain qualities that prevents them from achieving higher levels of welfare and economic conditions. I invite you to review your financial attitude in search of some of these signs:

  1. You do not have sense of urgency. If you feel that there is no reason to worry now by financial issues, or your favorite phrase is “someday” (someday we will think of retirement, someday I’ll have more money, someday I’ll be able to start saving, someday I’ll have my own house, someday we will live without debts), perhaps you are financially lazy. Never think that this is not the right time to think about money savings, loans, retirement and investments. Every day you must think in financial terms, because if you do not, your life and your family will be increasingly exposed.
  2. You think things are fine just as they are now and so they should stay that way. Some financially lazy people do not have a strong desire to improve their financial situation, which makes them to remain happy and static in their comfort zone. Remember that there are always opportunities for improvement; there is always space to enjoy greater welfare, but financially lazy people do not find the incentive to take the first step; They think that what they have is good enough for them and prefer to keep things as they are.
  3. You feel you do not progress because you are looking for perfection. Many people who want to approach perfection end up paralyzed and being financially lazy. Those people, very demanding and too harsh with themselves, are devoted to go through the same ideas over and over again; they are happy thinking and analyzing, but they fail to act, and when they finally manage to complete a mental puzzle on their financial goals, they may not know how to prioritize, they are out of ideas to take the first step, or are unable to accept mistakes and tolerate failures. Remember that fear paralyzes and the end result of thinking too much is inaction.

A minimal financial education, self-esteem and good attitude in front of uncertainties may prevent you from being financially lazy. Always act with a sense of urgency (starting today); enhance everything you can improve (never get complacent) and do not devote much time seeking perfection, because in the end who is perfect in this world?

When investing, do it wisel

 

One of the big differences between saving and investing is that by investing you are engaging part of your savings in hopes (which is not certainty) of earning some more money, which is fine, but every time you invest you will be accepting a risk , which does not happen with saving.

By investing you risk some of your money to get more money. This is one of the ways you have to make money work for you, even while you sleep, you’re on vacation or having dinner with friends; but investing is very different than playing roulette or any other casino game (where chance intervenes), so you have to do it with intelligence. To invest wisely it is not enough to have luck or intuition; you must also have a reasonable expectation of profitability, which depend on the quantity and quality of the information you have about the investment and the judgment with which you draw conclusions from it, besides the risk you are willing to take.

Even with the uncertainty and the risk involved, smart investments will grant you more control of your money and the financial independence you’ve always wanted, but never forget that by investing you will be using some of your savings and therefore, you are compromising your financial capacity.

Always invest wisely, and never risk money you need to pay immediate or short-term obligations.

How to keep your money from leaking

 

Many times we complain about not having enough money to cover our monthly expenses; it seems that we never have enough money, because the greater the amount entered in our bank account, the faster we spend it.

Although the issue of money is a sensitive subject for most of us, it is very likely that we are unaware of what we spend, or do not know for sure what we do with our money (we just realized that we no longer have it ), and those little recurring and regular expenses are the main routes where it escapes from us. Unnecessary purchases, unnecessary expenses, certain habits and certain social compromises, undo our pockets allowing our money to “Drain”, significantly reducing our ability for saving and investing.

If you take out your pen and play around with the numbers, try to calculate what you spend on coffee, bottled water and cigarettes; sum the monthly payments you make when you invite your classmates or workmates; try to calculate all the money you spend making small purchases of what you like or what attracts you, even when you don’t really need them.

It is not about depriving yourself of the things that please you, but to become aware of what you do with your money and the need to preserve some leeway that allows you to handle unforeseen situations.

If you want to prevent your money from leaking, try to get enough discipline to stop eating at fast food restaurants, reduce your consumption of coffee and cigarettes; have fun with outdoor recreational activities such as parks and rides that do not require large outlays of money activities. If you go to the movies, think about what you spend on popcorn and soda (these costs are quite significant). Try to go to work on foot or by public transport, and attempt to reduce the use of your own vehicle to avoid payments for fuel, parking and even an occasional fine which you would be exposed to.

And if you go to groceries stores, do it after eating; that way you can resist the lure of buying what you do not need, or purchasing too much (remember that the more you earn, the more you consume). Of course, avoid buying items for their beautiful packaging, as well as articles and magazines that are on the waiting lines of the cashiers (if they are there, it’s because they are not really needed).

In short, start identifying the small holes from where your money is escaping. You may be surprised when you see that without realizing it you’re losing up to 30% of your salary, and that that amount can be used far more intelligently to reduce some of your debts at your own pace, and make investments that increase the value of your money.

If you really want to save, you can do it

If you are one of those who wait until they have some leftover money to start saving, you are missing a golden opportunity to achieve financial freedom.

Do not be of those people who still think that savings don’t get along with the debts. It is true that most people believe that what we call “saving” is the money that is “left over”; and it is a mistake to think that way because money is never left over. Consider that saving is simply the part of your income that is not destined for consumption; if you see it this way you will understand that Mr. Savings and Ms. Debt can live together happily ever after; you just need to be aware of what is truly important to you, to have ideals, will, and a certain discipline in terms of how you manage your money.

If you still haven’t started saving, this is the time to do it. There are many reasons, but here are some:

Saving makes it easy to plan your future and achieve goals in life; you will reduce economic dependence on family and friends; you will have greater capacity to respond to emergencies or other unforeseen contingencies; You will not need to contract certain debts that may be difficult to pay; you will be able to plan your trips, holidays or any other recreational activity that you like; you will have some economic slack to help improve the quality of life of your family; you will feel less stressed or overwhelmed against the economic problems of everyday life; You’ll make better decisions regarding your future, your studies or work; you will go building a financial profile that will be helpful when you want to borrow money to purchase your home or buy a vehicle; you also will go consolidating a way of thinking that will allow you organize your income, prioritize your expenses and live without major upheavals after retirement.

You see, saving has advantages that although almost everyone recognizes, many decide not to use. If you are one of those people who find it difficult to start saving, I recommend that at the very moment in which you receive your monthly or biweekly income, set aside a small portion for savings and power it up by trying to spend less on candy, soda, coffee, outings with friends or eating outside the home. Believe me, it is not difficult; you should just keep your commitment to grow the amount of money saved and in the end you will see that it becomes a healthy lifestyle.

REMEMBER: never think you’ll save the money left over and do not expect to have a better chance to start saving. Saving is one of the great tools we have at hand to build the future we want.

It’s time to change your attitude

The difference between success and financial failure of any person is in their attitude.

Everyone aspires to have a good financial situation, but although the rules are the same for all, only a few are able to achieve it. Most people, when they turn 65 years of age, live of the Government or their relatives, and even some must continue to work to meet their own needs or help their children financially. It is not luck or inherited capital; the financial health of a person does not depend on having accumulated many college degrees or having climbed multiple positions in a large company, earning a good salary and earning good remunerations. The difference between  financial success and failure is in the attitude. It’s your attitude that determines your financial success.

The fundamental reason why only a small percentage of the world population achieves financial independence (between 5% and 10%) is because most people do not possess the necessary attitude to put their finances in order, set financial goals , plan their budget, and even protect their current assets.

There is no point on knowing how to make money, if you do not know what to do with it beyond spend it or save it under the mattress to meet unforeseen expenses at home. It is true that formal education has not acknowledge the importance of financially educating people, but a change of attitude that drives you to set your goals and manage your personal finances is the first step to print a change in your life and achieve the welfare that you want.

This change of attitude should begin acknowledging how you perceive money, savings and investments, ask yourself what does money means is for you, is it the most important thing in your life, it is a necessity, or simply a vehicle to achieve your dreams? Once you have an answer to this question, evaluate what your goals, your priorities and the risks you are willing to assume are and how important it is for you to protect your assets.

And at this point, with all these answers in hand, you are wondering ask: What do I do to change  my attitude? Where do I begin? I won’t suggest that you go to a bookstore to buy books on the power of attitude in the world of finance; in return Instead I’ll ask something easier without a cost: think of the five people who have the greatest influence on you, your way of thinking and your decisions; if you don’t have them, find them, but they have to be experts in the world of business and finance. They will be your reference group. Learn from their experiences, adopt their advice, focus on their ideas, study them, visualize yourself in their role as free and influential people and start thinking like them.

I assure you that’s the best way to start changing your attitude towards life, to business, to money and to finance; but you must do it now; you do not have to wait for anything. You must start to change your attitude right now, without further delay.

Let’s talk about financial intelligence

Financial intelligence incorporates multiple dimensions and transcends the mastery of the concepts of finance.

Robert Kiyosaki says: “Financial intelligence refers not so much to how much money you earn, but how much money can you keep, how hard that money works for you and for how many generations it has been preserved.” Obviously, obtaining financial independence by  constructing a business system (quadrant D) or by investing (quadrant I) requires that we have a degree of intelligence applied to the world of finance.

But financial intelligence is not only essential for those who live on the right side of the Cash Flow Quadrant; it is also needed by those at the left side: those who are not comfortable in their role of employees (quadrant E) or who independently and on their own work long hours to ensure economic sustainability (quadrant A). With certain knowledge and enough willingness to break emotional attachments, these people can begin to design a system of self-generating money and thus cross the threshold of their respective quadrants.

Obviously, financial intelligence is not limited to the mastery of the concepts of finance, but also is associated with leadership, strategic thinking, personal marketing, communication, negotiation, conflict management, social skills and management of emotional heritage, and others.

A good way to identify to what extent you possess financial intelligence, is checking the following items:

  • Your income is greater than your expenses (you have capacity for saving).
  • You manage to find new forms of income (in several quadrants simultaneously).
  • You have identified your financial goals and you have designed your task list to achieve them.
  • You know how to optimize and earn higher returns on capital.
  • You feel you are on the right track to achieve your financial freedom.

The people possessing a meaningful financial intelligence always think big, and regardless of the circumstances surrounding them, continually design plans to enhance their assets and reduce their liabilities, thereby obtaining greater profitability and liquidity while they improve their quality of life.

If you want to have a financial culture that is your ally in the life project you’ve designed, you must start by understanding the functioning of money as well as the psychological aspects that drive people to use it in a certain way.