Simple Financial Tips That Can Make A Difference

tips2018 has certainly flew by and wow.. we’re going into March already? Perhaps now is a good time for us to do a stock-take on our money. Here is a couple of tips on how to keep more money in your wallet this year.

1. Don’t Do Mental Accounting When Building Your Budget
Mental accounting means the behavioural thinking of having different piles of money for different reasons. You might have a “jar” that says this is for emergencies or a vacation, and you’re putting money in there every month – at close to zero interest rate.

Then you also have a credit card debt. You mentally classify it as a different thing and pay your debt with income each month.

Financially, this doesn’t make much sense. Money is fungible, it really is all the same. You shouldn’t have a jar with money sitting in it that’s getting no interest or growth while you still have credit card debt.

The solution is to think about all your money as the same. People like to put cash in different buckets for different reasons, but that’s mental accounting and we need to overcome that hurdle.

2. Prepaying your mortgage
Some people add a little extra to their monthly payments to pay the loan off faster. This brings up a common question – is this a good use of the extra cash?

With current mortgage rates at under 4%, you should not be prepaying your mortgage. In fact, mortgages have really low interest rates and are designed for long periods of payments, and you should stick to that payment.

Prepaying it means you are giving up opportunity to use that money elsewhere – whether it’s paying off credit card debt or just investing it, putting it aside for retirement. If you’d be getting 8% returns on your long-term investments, why put your money in something that’s only 4%?

So from a financial planning standpoint, it’s not a good strategy. Nonetheless, people feel comfortable doing that. I know you want to feel like you’re paying off the house faster, but resist if you can.

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3 things about your employer-provided insurance you may not know

benefitsIt is great if you are working in a company that provides you with benefits such as insurance. However, there are some limitations to employer-provided insurance that you should know. Here are 3 of them:

1. It’s a benefit, not a guarantee.

Fact is, companies are not obligated to offer life or health insurance. Just because your employer is offering it now, doesn’t mean they will in the future. A lot of companies are in cost-cutting mode, and benefits like life insurance can disappear without notice.

2. If you have it, it’s most likely not enough.

Most employer-provided life insurance coverage is one to three times your salary. So if you make $50,000, having up to $150,000 of life insurance sounds like a lot, right? But if you try to put that money to work in today’s interest rate environment, you’ll soon find out it doesn’t go very far. And if your family needs to spend $50,000 each year, what are they going to do after the third year?

3. It doesn’t protect your insurability.

Think about what would happen if your health changes while you only have employer-provided health insurance, but then they drop the coverage and you’re no longer able to get covered? Or what if you lose your job, or change jobs and the new employer doesn’t offer life or health insurance as a benefit?

Typically, employer-offered group insurance is not portable, meaning you can’t take that coverage with you when you leave a job. Buying an individual policy prevents this because it’s something you own.

The bottom line, is that it’s good to have employer-provided life insurance, but don’t ignore the greater need you may have for individual life insurance coverage too.

3 Investing Myths Holding You Back From Success

investing mythsMany of us are interested in investing but have some concerns. Here are 3 popular myths that could be holding you back from investment success.

Myth #1 You can time the market
Timing the market is close to impossible. And studies actually show that a majority of the investment return that you are going to make over time doesn’t come from buying at the right time or selling at the right time.

But rather, it comes from proper asset allocation and diversification. So stop wasting your time trying to figure out when is the right time to buy and sell, day in and day out. Instead, choose a solid investment strategy, diversify your money and hold for the long term.

Myth #2 You need a lot of money to get started
This is one myth that holds a lot of people back. They think, “I’ll wait till next year when I have more money, then I’ll be able to dump a whole lump sum into the stock market at that time.”

No, it’s very difficult to do this. Instead, start with what you have even if it’s only $50 a month or $100 a month. Figure out how you are going to invest this amount automatically into an investment portfolio. Just set it up, so that it’s happening without you even thinking about it.

Myth #3 You can start next year
Time is absolutely critical when it comes to investing. The more time you have, the less amount of money you need if you are trying to achieve a certain nest egg amount at the end (e.g. retirement).

So if you have this myth holding you back, say “No, I’m not going to start next year. I’m going to start right now.” There’s no better time than now to start and catching up can be very difficult, if at all possible.

Hope you’ll understand now how to avoid these 3 investing myths, and be able to put into place prudent investment strategies and principles that over time, will maximise your income and assets so you could achieve long-term goals such as retirement with ease.

The 7 Deadly Sins of Investing

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There are a few investing errors that many people make — mistakes that are detrimental to their overall investment strategies. Here are the Deadly Sins of Investing that you should avoid…

  1. Not taking your goals into account

Make sure that the investments in your account and their risk levels reflect what you are trying to accomplish. If retirement is 20 years away, and you have your money sitting in cash or bonds, you may not reach your goals. Conversely, if you plan to buy a house in six months, and you have that money invested in the stock market, you might lose your money and not be able to recover the loss in time to buy a home.

  1. Basing your investment strategy on someone else’s risk tolerance

You wouldn’t buy shoes based on someone else’s shoe size, would you? So why would you copy your friend’s portfolio holdings without taking into account your own goals and risk tolerance?

  1. Making too many short-term moves with your long-term money

While buying and selling stock can be fun, it should be done with money that is not intended for your long-term goals. If you are really set on short-term buying and selling, open an account that is just for “play money” and leave the rest of your “serious money” in well diversified, long-term investments.

  1. Having too much money in one investment

If your income depends on your salary from a company, make sure your investments don’t also depend too heavily on the same company. A good rule of thumb is to have no more than 20% of your investments in any one company’s stock — and ideally closer to 10% or less.

  1. Not knowing what you’re actually invested in

You don’t need to know the exact stocks in the index or mutual fund that you have, but you should have a general idea of what is in your portfolio. If you use a financial advisor to manage assets, and you have no idea what they’re doing with your money, ask him or her to break it down for you in simple terms or, graphs and charts.

  1. Basing investment decisions on the news

You can’t predict what’s going to happen in the market based on what you read in the news. It can’t tell you that the stock market is really going to tank tomorrow, and that you should sell everything and go to cash. Research shows that having a well-diversified portfolio that you leave alone is a better strategy than trying to time the market.

  1. Not saving enough

This is crucial. If you aren’t saving enough, it is going to be really hard to get to where you need to be.

For example, say you make $60,000 a year. If you save 10%, or $500 a month, for the next 30 years, with an average 9% return, you’d have around $900,000 to work with come retirement. If you saved 15% and made the same return for the same time period, you’d end up with around $1.34 million. That’s a big difference!

So make a plan to bump up your savings. You don’t have to go from saving 5% of your income to 15% instantly. You can set up automatic increases of 1% every 6 months until you get there.