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Personal Finance

Intelligently Eliminate Your Debts

You must intelligently employ a strategy to repay your debt. Pay at least 20% or more of your total income toward your existing debts. When paying off multiple debts, always pay more money to the debt with the highest interest rate first because the higher the interest rate, the greater amount of money you pay to that debt over time. Repaying debts with higher interest rates faster than those with lower interest rates saves you money and allows you to repay all of your debts in less time.

Example: You make $3,000 per month from your primary job and have a car loan and a credit card bill that must be paid off. You have $600 per month, or 20% of your income, that can go toward this goal. Your car loan has a balance of $4,000 at 6% interest per year with a monthly payment of $290. Your credit card has a balance of $7,500 at 21% interest per year and a minimum monthly payment of $206.

After paying the combined minimum payments of $496 for both the car and credit card, you have $104 remaining in your budget of $600. The extra $104 should be used to repay your credit card because it has thehighest interest rate. Paying the credit card’s minimum payment, plus an extra $104 every month, will save you over $10,000 in interest and completely pay off this debt in 32 months.

Once your credit card is paid off, apply the $310 (remember, this is the credit card’s $206 minimum payment plus the extra $104) you were paying on the credit card toward your car loan. Pay the $290 minimum monthly payment on the car loan plus the old credit card payment of $310 for a combined payment of $600.

Repeat this process until all your debts are paid.

Before you repay any debt, make sure you understand the terms under which you borrowed the money. Some debts can’t be repaid faster than what was first agreed to when you initially borrowed the money. If you have any doubts and questions about your debts, seek professional advice.

Toward Financial Freedom

  • Only I can’t grasp how to manage money. If possible I would announce through a megaphone that several individuals didn’t receive the money memorandum. YOU ARE NOT ALONE! Current statistics report that relatively seventy percent of people live paycheck to paycheck. With this percentage, it is reasonable to assume these individuals do not have savings. They also have a considerable amount of indebtedness. Another report I read from Learn Vest, stated seventy-six percent of people feel that their personal finances are out of hand. Basically, three quarters of people feel their personal finances are uncontrollable and that they do not know how to make their money work for them. If you are in this group, reading this should decrease your isolated feelings. Actually, the majority of people right now don’t understand money.
  • I feel confused, guilty and humiliated because I don’t know about money. This is indeed a subdivision of number one and it causes people to feel that they are some how lacking because they don’t know how to manage money well. My perspective is how can you know how to manage money if you were not taught? Correct money management skills are not part of our school’s curriculum. It is an integral problem that most individuals do not understand how to manage their personal finances. I learned proper money management in college. School was where I realized that my parents educating me about money was not the general rule. I advise people to release the shame because they didn’t acquire the information on how to manage money. After this recognition, request help to learn how to premeditate and initiate a can-do attitude with your cash flow. Stop the guilt and confusion and proceed with kindness toward yourself and your past financial actions.
  • Managing My Personal Finances is very hard and takes a lot of time. Most of my clients’ focal point is their work, family and living well. These are great goals but they leave restricted amount of time to manage their money. They are in need of a fast centralized process that they can integrate easily in their swift moving lifestyles. The disappointing concern is adults outlook, which is that they feel they earn an acceptable salary and money management is hard. It is hard and takes lots of time. This idea has become adequate. It is time to consider how wonderful we want this aspect of our lives. Taking the initiative to know where you are financially and where you want to be is empowering. It enables you to organize a structure to joyously use the money on what they really want while saving and decreasing their debt. I guarantee money management can be easy and efficient as long as you actively do the work. It is important that you proactively create a stable financial plan then implement it.

Savings Accounts vs Investing Accounts

Investment Accounts

There are numerous types of investment accounts. There are a plethora of services offered with both discount brokers and full service brokers. Most people go to full service brokers because they like face to face transactions and customer service while others prefer internet based discount brokers because they don’t value face to face interactions. Since Millennials are tech savvy and don’t have money to be throwing away for steep fees, most young investors go the discount route.

I own an account with a discount broker because I like to micro manage my investments and I firmly believe Millennials should go in this direction as well. Most accounts are free to open, and I highly recommend using TD Ameritrade because of their vast array of pointers and customer service that goes above and beyond most other companies.

Savings Accounts

Savings accounts do have great benefits. Savings should be allocations of cash put aside for short term goals. Savings should also be used for personal expenses like loan payments, utility bills, and insurance. Savings accounts should also be used for anything in life that will require a large amount of cash in five years or less. The stock market can fluctuate and losing value of money while trying to achieve a short term goal is counter productive.

Wisdom of Warren Buffett

During the 2008-2009 stock market crash, when the nation was in a total panic, he invested $5 billion with Goldman Sachs and got a terrific deal. According to “What Buffett deal says about Goldman Sachs”, 3-28-2013 Forbes, Buffett agreed to give Goldman $5 billion in late September 2008. In return, Goldman handed over $5 billion in preferred shares and a warrant that would allow Buffett to purchase an additional $5 billion shares at a price of $115, even though the shares were trading at $125 at the time, so in the money from the beginning.

For the preferreds, Goldman agreed to pay Berkshire a yearly 10 percent dividend, with option of buying back the stock at any time for 10 percent more than what Berkshire had paid, which Goldman did in April, 2011 for $5.5 billion. Linus Wilson, a finance professor at the University of Louisiana at Lafayette, who has looked at the Goldman deal, puts the dividends at $1.3 billion. So that gives Berkshire a total return of $1.8 billion on the preferreds.

Now come the warrants. In the deal struck on Tuesday, Buffett’s firm won’t have to put up the $5 billion to buy the 43.5 million shares it has a right to purchase, which would be worth $6.4 billion today. Instead, Goldman is going to give Buffett the difference in stock at the time of the deal. Buffett’s return is the same, but he’s left with a much smaller stake in Goldman. All told, that means Buffett is walking away with a $3.2 billion profit on his four-and-a-half-year-old investment in Goldman, for a return of 64 percent. A classic value investor move. Swoop in when others are selling, and pick up dollars for pennies. Buffett’s legend is secure.

The investing public might need Buffett to remind them to “Be Fearful When Others are Greedy”. In a September, 19, 2013 interview on CNBC, Buffett said that “Stocks are more or less fairly priced now. “We don’t find bargains around but we don’t think things are way overvalued either. We’re having a hard time finding things to buy.”

The stock market reached its low around March 9, 2009, and it’s been more or less a booming market for almost five years. However, January 2014 saw the Dow-Jones stock market index dropped 5.3 percent and the S&P 500 slid 3.6 percent, their worst monthly percentage declines since May 2012. “When the first month of the year is negative, the chances of finishing the full year in the plus column drop to roughly 50-50, according to the Stock Trader’s Almanac (Source: “S&P 500 ends January with a loss: Bad 2014 Omen?” by Adam Shell and Kim Hjelmgaard, found in 1-31-2014 USA Today).