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

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.

Join in and learn to invest with common sense

Do not settle for learning just the basic fundamentals of investment. Strive to learn something new every day.

Have you ever wondered what’s the reason you have not yet invested in the stock market? There may be many answers: “It has never interested me”, “If I don’t have enough money for monthly expenses, less I have it to invest”, “I know a friend who invested all their savings and lost them”, “I don’t like the idea of investing because I’ll only see profits after many years”, “I don’t trust anyone with my money”, etc. The truth is that people don’t dare, and if they do, then they may be tempted to quickly withdraw the money they have invested because they think they will end up losing it or that it could be intended for something more useful.

The investment road can be long and tortuous, but the final results will be worth the effort. The “wood” that an investor is made of can only be shown after a few years; therefore, to learn the art of investment, we must understand the way of thinking of those who have persevered to achieve their goals, and they all focus on the long term and invest in companies managed by honest people, with transparent business models, comprehensible and of course, with attractive prices and favorable prospects. Successful investors such as Warren Buffett or Peter Lynch, do not use large formalisms to make their investments, nor deal with macroeconomic analysis or detailed technical reports. Do not settle for learning just the basic fundamentals of investment. Strive to learn something new every day; they have mastered the art of investment, but if you are just taking the first steps, you should consider some tips so you start off right and so your intent to travel the long road of investment will not remain only as an attempt.

If you are already convinced that to succeed in investments one must make decisions wisely, you will have to learn from the best, and for that you don’t need to travel to Tokyo or New York to attend expensive seminars; you can learn from them by reading books and articles written by people with weight in the world of finance; for example Benjamin Graham, author of a wonderful book entitled “The Intelligent Investor”, in which the foundations of something very interesting called Value Investing are explained; in this book you will understand the art of long-term investing maintaining a margin of safety. You can also use multiple forums, blogs and social networks, where besides of meeting new people with similar interests, you’ll find good investment ideas.

But one thing is to learn the basic fundamentals of investments, and quite another is to master the art of investment; this requires much more time and effort of constant learning. Combining theory and practice is essential for good results; therefore, allow yourself to make some mistakes; any error can and must become a learning experience and as one learns to walk without falling, you must be consistent and reject the idea of abandoning the path; remember that you’ve failed the moment in which you decide to give up. A good way to not fall into the temptation of giving up and to not get out of the road at the first difficulties is to establish specific targets at very short notice, for example, weekly analyze a company listed in the S&P 500 or the Dow Jones. You can also commit to do daily monitoring of fluctuations occurring in certain stock market, and try then to find the causes that might explain these variations in prices, if you prefer, you can set as weekly target reading a specialized newspaper in economics and finance or gather market information of interest to understand and exchange reviews with other people with knowledge in this field.

Reached this point you may have noticed you need the discipline to stay on track with your investments. Perhaps you’re thinking this is not for you, but keep in mind that every beginning is a challenge and you’ll get more and more excited as you go taking the first practical steps.

Dare to invest and do it with common sense.

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.

Understanding the concept of Net Cash Flow

The more widespread and positive your Net Cash Flow is, the greater the leeway to deal with unexpected expenses will be.

One of the most basic terms of personal finance is the one known as the Net Cash Flow, so much so that your personal or family financial situation can be easily diagnosed by a quick glance at it.

The Net Cash Flow describes the revenues and expenditures of cash during a determined period of time (for example, a month or a year). If you spend less than you earn, your cash flow will be positive and will increase your net worth; on the other hand, if your expenses are greater than your income, your cash flow will be negative and you will be wasting your net worth, which is not sustainable over time and requires that you take a prompt decision.

The more positive and larger your cash flow is, the greater the leeway you will have to deal with unforeseen contingencies, as well as it contributing to obtaining the financial independence you want. Your peace of mind, freedom and quality of life will improve substantially.

To increase your cash flow, you don’t necessarily have to earn more money; you can increase it by reducing the amount of your recurring expenses (for example, the monthly utility bills), or decreasing unnecessary expenses (for example, buying the latest mobile phone or buying a bigger TV). Another way (maybe the fastest) is to reduce your debts (like Credit Cards or the loan for the purchase of your car).

In any case, always remember that what you are looking for with your financial decisions is to improve your quality of life and to progressively get closer to your goals. Maintaining your Net Cash Flow under control will help you achieve it.

Knowing the expression «Blue Chips»

If you want to start playing at the world stock market, the “blue chips” could be a good investment option

No wonder that a significant number of investors prefer to operate with the so called Blue Chips. This tems, which referes to casino blue chips (which are those that represent more value) is used in the stock exchange world to identify stocks of stable companies, financially solid, well-established and with products or services with good acceptance. Typically, blue chips correspond to the stocks of financial institutions globally recognized, as well as the leader multinationals in sectors like energy and telecommunications.

The shares of these businesses are very attractive to investors for their reliability, the evolution of the price is uniform, remaining stable to market swings; Blue chips can be traded when desired and, sometimes, payment of dividends (shareholder earnings) is done on a regular basis even though the company is not going through its best moment.

A good way to understand the blue chips is considering them as the premium stocks in the market: stable, with predictable yield (although lower than others) and with little financial risk, making them ideal for conservative investors, cautious and with little tolerance for uncertainty and risk.

As is to be expected in any investment, profitability is proportional to the risk; in the case of the blue chips, profitability is fairly low and due to high demand, these stocks tend to have higher prices, so they are not attractive for those who want quick profits; however, they are a good way to start playing on the market.

Had you ever thought about being a shareholder of a large bank? By buying blue chips, you are not only taking your first steps into the world of investments and getting dividends from time to time, but also, you will be owner of a small part of that business; a very small part, but that is the starting point.