My Personal Finance Blog

It all starts with a simple step – make a budget! The most important thing about improving your family finances is to get a clear picture of exactly where you stand. Once you know that, you have a clear understanding of the positive and negative aspects of your financial position you can identify clear steps to take in order to move forward, and improve your finances.

A budget is the backbone of any financial endeavour – whether you are running a business or a household. You must be clear about what financial responsibilities you have, as well as be clear about what your income sources are. The key here is to be completely open and honest with yourself – if you’re not, the whole exercise is futile.

It’s also important to identify financial goals for yourself and a clear timeline in which you want to achieve them. Examples may include going on a holiday, buying a car, paying off existing debt, or buying a house. No matter what the goal, make sure you have a set date you want to achieve it.

To speed up the achievement of your goals, take steps to increase savings, income streams (if possible) and reduce your level of debt. Your personal debt is money you give to someone else each time you have income, so obviously if you reduce those debts, you’ll improve the amount of investable (not disposable) income.

Pay off your credit cards, then cut them up to make sure you don’t run them up again. Pay extra – as much as possible – on your debts to repay them earlier. This will usually save you money because the longer you have these debts like a car or personal loan, the longer you are charged interest. The more you pay on the debt, the less interest is charged and you can pay it off quicker because you are reducing the principal amount of the loan.

If you’re like most people you will have multiple interest incurring debts. You can attack your debt using a number of strategies. Personally, I like to repay smaller amounts first, because the psychological impact of removing a debt from your list of liabilities is fantastic. Plus, the amount you used to pay on the smaller debt can then be snowballed onto other debts – reducing them quicker. Other people may like to repay any extra they have on the debt which is incurring the highest amount of interest. The bottom line is that you should do whatever suits you and your goals.

Are you a shopping addict? Do you buy something every time you go shopping? Do you go to the mall more than normal, like every day or multiple times a week? Do you buy things you don’t need and more importantly can’t afford? Then chances are you are a shopping addict. Not only is it a bad habit but it also can jeopardize your financial life and your family life if you use credit to pay for everything. You can take some steps to break the addiction.

The first thing that you need to do is to limit the amount of money you can spend on shopping. Destroy your credit cards today so you can’t build up any more debt at astronomical interest rates. Did you know that interest rates on credit cards of 15% and up are more rule than exception. Not to mention the fees if you make a late payment. So do yourself a favor and destroy that credit card. You do not need them, people have lived without them for many decades and so can you.

If you can’t live without credit cards, try to limit them to only one credit card with a limit you are comfortable with and that you can manage. Contact your bank and ask them to lower the limit. They will try to talk you out of it as issuing credit cards and collecting the hefty interest rates is one of their primary sources of income so don’t give in!

Get a charge card where you have to pay the full amount every month. You will be less likely to overspend if you know you will have to pay it all back the next month. Consider getting a prepaid VISA or MasterCard on which you first have to deposit money before you can spend it.

Never use credit for something that depreciates in value like clothing, food, rent, vacation and even your car. That is bad debt that carries a high interest rate and negatively influences your credit score. Save your credit lines for things that really matter like buying a house, starting your own business or getting an education.

Salesmen have a tendency to make everything inexpensive by talking in terms of monthly down payments. Don’t fall for this and look at the total cost. You will notice that when you buy something on credit, the final cost will be a lot higher than the actual retail price when you count the interest rates.

When you go shopping, leave your cards at home and only take a limited amount of cash. The less you have on you, the less you can spend on things you don’t need. Also make a list of what you actually need before you go shopping and stick to the list.

Trading Stocks With Cash Account? Or Alternative Instrument?

Most people have the wrong idea that stock trading is a rich man’s game and requires a large capital to begin with. This is absolutely a misconception!!

In my definition, the rich can temporary manipulate the market the way they want it to be and we, the commoners, will simply follow suit with what the big boys do. Large capital is not necessary to build your investment portfolio given that we have a new instrument type called CFDs (Contract for Difference) available in today’s market.

CFDs enable investors to pay only a fraction of the contact value amount with indefinite time frame. Furthermore, you are allowed to long or naked short any counter in any market situations. Therefore, giving us the opportunity to profit in whether a bull or bear market. Before you rush off to open a CFD account, please ensure you have fully understood the instrument CFDs, the benefits and risks involved when trading with CFDs.

Know The Instruments You Play At Your Fingertips

You need to know the risk involved when playing with CFDs. CFD is often accompanied with margin trading, hence, to a certain degree, they carry a higher risk than trading in cash market. When you borrow for bad investments, the consequences may not only make you lose all your own capital, you might end up owning a debt as well. So what exactly is a CFD?

In layman terms, buying shares on margin is akin to borrowing money through a margin loan to buy stocks. It is the same logic as buying a house using a mortgage where you are not required to pay the full purchase price in advance, rather, only a down-payment.

Let me give you an example. Let’s say you have $10,000 spare cash for investment. You decide to play on margin since you only need to pay a fraction of the contract value amount unlike normal cash account. You went on to buy Stock A which is priced at $10.52. It has a 10% margin and you decided to buy 2,000 shares.

Contract value = 2,000 x $10.52 = $21,040

10% margin = $21,040 X 0.10 = $2,104

Instead of using $21,040 to buy Stock A, now you only need to use $2,104 to buy Stock A. In margin trading, you get to maximum your money value compared to trading via cash account where you are required to pay $21,040 on due date. Apart from gearing, the plus point is that you get to put your money into better use.

Drawbacks

As margin trading is considered high risk, if ever your investment starts to lose its value or even ends up worthless, you are likely to face a margin call. Using the same example, let’s see the difference in terms of the percentage losses/gains if you trade on margin and cash account.

Please note that the examples described herein are all gross profits/losses. Net profit = gross profit – (commission + interest)

Scenario 1A

Suppose Stock A issues profit warning and stock starts to plummet. You purchased at $10.52 but it is trading at $10.10 now. Assuming you have not exited at $10.10.

On Margin

Paper loss = ($10.52-$10.10) x 2,000 = $840

Percentage loss = ($840 / $10,000) x 100% = 8.4%

On Cash Account

Paper loss = ($10.52 – $10.10) x 2,000 = $840

Percentage loss = ($840/ $21,040) x 100% = 3.99%

Scenario 1B

Stock A is performing well and making new highs. It is trading at $11 now. Assume you are still in position.

On Margin

Paper gain = ($11 – $10.52) x 2,000 = $960

Percentage gain = ($960/$10,000) x 100% = 9.6%

On Cash Account

Paper gain = ($11 – $10.52) x 2,000 = $960

Percentage gain = ($960 /$21,040) x 100% = 4.56%

Your percentage returns while trading on margin is bigger since margin trading helps to magnify your potential gains; likewise, it magnifies your losses too.

In Summary

Remember, margin trading is a double-edged sword. It cuts both ways. Know your risk appetite and risk accordingly to your tolerance level. Please do not be greedy and borrow up to the maximum. Only invest with your disposable cash and ensure you have the cash flow to cover repayments should the investment fail you. Last but not least, know the cost of holding a CFD position overnight and always check your spreads before entering your trades.

You need to be very careful before committing to the purchase of a house. If the house has wood and brick on the exterior, you need to consider the following issues.

Wood Issues

Wood is a beautiful material, particularly when it is used on the exterior of a home. Compared to stucco and other materials, it is a wonder wood isn’t used more often. The reason, of course, is wood simply doesn’t hold up as well as man made materials. If you are looking at a home with a heavy emphasis on exterior wood siding, trim and so on, here are some things to watch out for when evaluating the opportunity.

1. The first thing to realize is the appearance of wood has almost no relevance to the condition. A perfectly good looking piece of wood trim may be infested with termites or rotting and you will never know by just glancing at it. When inspecting wood exteriors, never trust your eyes.

2. One of the biggest issues with wood is degradation. When looking at particular areas, make absolutely sure you physically touch the wood. In fact, you are probably best off giving it a fairly good poke with a finger. In doing so, you should be looking for soft areas. Soft areas are indicative of rot in one form or another. Finding rot in one area should make you very concerned about finding rot throughout the structure. Put another way, you may want to start looking at other homes on your list.

3. Finding soft spots in wood can be troubling, but there is something worse. If you poke or squeeze a piece of wood and dust or bits fall off, run for the care. This type of degradation is often a sign of termite problems. Termite problems should be a huge red flag for any prospective home. If you buy the house, you are going to have to tent it to kill the bugs and pay to inspect and repair the damage done by the evil little bugs. In short, you are buying a minor, but expensive, nightmare.

Make no mistake, wood can be very attractive on the exterior of a home. Just make sure you don’t rely solely on a visual inspection of it when deciding on the merits of the house.

In St. Paul there is a clearance sale. Bargain basement prices being offered for foreclosed houses on Dayton Bluff may start from $1 and go up to $50,000. But there is a catch – the purchaser has to bear the repair expenses satisfying the rules of the city and guidelines related to preservation. Thus is boils down to the fact that for a cup of coffee one can become the owner of a house in St. Paul.

The Housing and Redevelopment Authority of the city is conducting open houses recently for 11 units in the locality of Dayton Bluff with prices that go up to $50,000 and down to $1. The properties are owned by HRA. The officials have laid down that they will sell only to those who can prove that they can afford repairs. The repairing cost could range from $140,000 to $190,000. It would be required of the purchasers to explain how the work would be executed bearing in mind the rules of the city and the guidelines regarding preservation.

The purchaser of a house costing $1 would get together with the house a lengthy list of things to be done compiled by the inspectors of the city. It would cover everything from demolishing a rotting wall to replacement of joists, beams, posts and studs that had been damaged by arson. Thus buying a house for a buck is nothing to lark about!

Ellen Biales of the city council said, “When people acquire these properties, they’re not just going to be paying the acquisition price. The $1 price has sort of piqued people’s interest, but it comes with certain obligations.”

Although buying a house for a dollar is a rare incident it is not without precedent in the Twin Cities said the local realtors. In the early part of this year Minneapolis spend a dollar each for two vacant plots being sold by banks after having foreclosed upon them. These plots were bought with an eye to future development projects. The structures on the plots were pulled down. One realtor described one of these derelict houses as not meant for those with faint hearts.

Another house in Dayton Bluff on East Fourth Street contains two floors and having a yellow outside. The inspectors said that by taking one step inside it is clear that extensive repairs would be required to salvage it from the damages wrought by fire.