Personal Finance

Personal Finance is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. Components of personal finance might include checking and savings accounts, credit cards and consumer loans, investments in the stock market, retirement plans, social security benefits, insurance policies, and income tax management.

The six key areas of personal financial planning, as suggested by the Financial Planning Standards Board, are:

1 - Financial Position: this area is concerned with understanding the personal resources available by examining net worth and household cash flow. Net worth is a person's balance sheet, calculated by adding up all assets under that person's control, minus all liabilities of the household, at one point in time. Household cash flow totals up all the expected sources of income within a year, minus all expected expenses within the same year. From this analysis, the financial planner can determine to what degree and in what time the personal goals can be accomplished.

2 - Adequate Protection: the analysis of how to protect a household from unforeseen risks. These risks can be divided into liability, property, death, disability, health and long term care. Some of these risks may be self-insurable, while most will require the purchase of an insurance contract. Determining how much insurance to get, at the most cost effective terms requires knowledge of the market for personal insurance. Business owners, professionals, athletes and entertainers require specialized insurance professionals to adequately protect themselves. Since insurance also enjoys some tax benefits, utilizing insurance investment products may be a critical piece of the overall investment planning.

3 - Tax Planning: typically the income tax is the single largest expense in a household. Managing taxes is not a question of if you will pay taxes, but when and how much. Government gives many incentives in the form of tax deductions and credits, which can be used to reduce the lifetime tax burden. Most modern governments use a progressive tax. Typically, as your income grows, you pay a higher marginal rate of tax. Understanding how to take advantage of the myriad tax breaks when planning your personal finances can make a significant impact upon your success.

4 - Investment and Accumulation Goals: planning how to accumulate enough money to acquire items with a high price is what most people consider to be financial planning. The major reasons to accumulate assets is for the following: a - purchasing a house b - purchasing a car c - starting a business d - paying for education expenses e - accumulating money for retirement, to generate a stream of income to cover lifestyle expenses.

Achieving these goals requires projecting what they will cost, and when you need to withdraw funds. A major risk to the household in achieving their accumulation goal is the rate of price increases over time, or inflation. Using net present value calculators, the financial planner will suggest a combination of asset earmarking and regular savings to be invested in a variety of investments. In order to overcome the rate of inflation, the investment portfolio has to get a higher rate of return, which typically will subject the portfolio to a number of risks. Managing these portfolio risks is most often accomplished using asset allocation, which seeks to diversify investment risk and opportunity. This asset allocation will prescribe a percentage allocation to be invested in stocks, bonds, cash and alternative investments. The allocation should also take into consideration the personal risk profile of every investor, since risk attitudes vary from person to person.

5 - Retirement Planning: retirement planning is the process of understanding how much it costs to live at retirement, and coming up with a plan to distribute assets to meet any income shortfall.

6 - Estate Planning: involves planning for the disposition of your asset when you die. Typically, there is a tax due to the state or federal government at your death. Avoiding these taxes means that more of your assets will be distributed to your heirs. You can leave your assets to family, friends or charitable groups.

    

Spending Within Your Means

Spending within your means:
 
The most important thing in economics as a whole is spending within your means.

Having a budget to control your spending is a good habit. Surely, what can go wrong if you stay within your spending territory? Some may think that a budget is simply a dog in a manger, trying to deny you from having all the pleasures of over indulgence. That is a wrong mindset. Being able to live within your means and within a budget so to speak is a habit many people wish they could adopt. The following are some benefits of never crossing your budget.

Living without too much pressure: You can easily avoid debt if you stick to a figure. You do not have to suffer the burden of credit card debt that is unbearable. You decrease rather than increase debt. It is not as if you will be able to pick everything you always wanted from the shelf simply because you had planned for it. What we mean here is that you are not the same person who constantly has to service runaway debt and interest rates form cards.
It is always good to have a savings plan. Save money no matter what. Have a certain percentage of your earnings that diligently directs to your savings account. Be strict with yourself and keep this if you want to have an easy time after retirement. It will also be a nest egg fund to help you go through those hard times when an emergency crops up out of the blues. You are better prepared.
You can look forward to an organized life. Budgeting helps you live a more stable life. You know where money is coming from and you know where it is going. There is a lot of controlled spending and enough money saved. Budgeting and staying faithful to it is not a wrong thing to do. It is one of the most enjoyable experiences that you can go through. Come up with a simple budget and see it work for you rather than against you.
Saving money makes it easier for you to clear out your debts one by one. You will do that with relative comfort compared to that of haphazard dealing with credit. This in turn eases the stress and tension involved with spiraling debt.
http://ezinearticles.com/?Spending-Within-Your-Means&id=5356146

Helpful Article:Spending Within Your Budget

Personal Budget

How You Manage your Budget Wisely-
1. Know the Difference between Fixed and Flexible expenses:

Flexible Expenses- Opposite of fixed expense, it is more of a luxury payment such as gas payments, food/grocery payments, or entertainment payments such as movie tickets or football tickets.

Fixed Expenses- A bill that is paid on a regular basis such as mortgage payment, car payment, loan payment, or rent.

2. What's the difference between Compound interest and Simple Interest?

Compounding interest- When adding money to your savings account it accumulates interest over a certain amount of time, compounding yearly in most cases and grows at a faster rate than simple interest.

Simple interest- simple interest gives us an idea of what the amount of money might be pain on a  loan or  what an investment will give us. 

3. The importance of saving: 

The importance of saving will help you out most in your future, setting aside a certain amount of money each month or year for your retirement will help you have a stable, liquid amount of money to rely on when your done working. Also saving money and putting it into a separate account could help you out if there ever is an emergency. My advice for anyone is to set aside a small amount of money every 6 months and that money can go towards buying a house or car for your future or even help pay college loans. It is okay to spend money now just as long as you have calculated your fixed and flexible expenses.

Trade

Trade is one of the most essential topics of economics because it branches into so many other areas and contributes to a country's worth. People trade because they want to acquire something better than what they have or get rid of something that they don't think has value. Some countries have free trade which means it is not taxed or regulated by the government. Protectionism is the name for countries who trade with government regulation. Embargo's are when two countries refuse trade with one another.

There are many advantages to trade. An absolute advantage is when one person or country has the ability to produce more units of a good than another using the same resources. A comparative advantage is when there is a country with the ability to produce a good or service at a lower opportunity cost than another. When a certain business, person, or country has an advantage, others are more likely to buy goods from them because they get goods at a cheaper price. A great example is when a multinational corporation produces a good for a very low cost, then exports it. Advantage is the economic basis for specialization and trade! It also leads to competition which helps to produce lower priced goods and more of a variety.

Investments

Stocks: Ownership in a company. Can be bought or sold through a broker.
Mutual funds: Stable set of stocks. Make money long term.
Bonds: Long-term investment. Based on a maturity time frame.

Risk can influence a person's investment decision. If they are willing to lose a little money here or there they might invest in stocks with risk. Other individuals that cannot afford to lose money may invest in mutual funds or bonds.

Time is very important when it comes to investing. For long-term investments, more money is accumulated as more time passes. For stocks on the other hand, a day could make all the difference in someone's investment amount.

Investments differ from savings accounts because they have a higher chance of risk and failure. Savings accounts won't lose money. A small amount of interest is actually paid to the person with the account.

Three tips for investing:
1. Plan ahead, invest to have money for the future.
2. Only take risks you can afford.
3. Have fun!

Investments

Stocks

Also called equities, stocks are the cornerstone to most retirement accounts because they've boasted higher returns than many other investments, clipping along at an average 10.4 percent a year between 1925 and 2006, according to Ibbotson Associates.

That said, stocks come in many different flavors. They represent all industries, with some based in the U.S. and others overseas. Stocks also come in all sizes: There are large-cap, mid-cap and small-cap stocks. The term "cap" is short for "market capitalization," which is computed by multiplying share price by the number of a company's outstanding shares.

Bonds

When you buy a bond, you're essentially becoming a lender, since bonds are really nothing more than an I.O.U. that's been issued by a government or corporation.In general, bonds are considered safer investments than stocks. But that's not always true. It depends on the bond you buy. The riskier the bond -- that is, the lower a borrower's credit quality or "rating" -- the higher the interest rate and the more you stand to gain, unless, of course, the borrower defaults. Firms such as Standard & Poor's and Moody's are among agencies that determine if bonds are "junk" status, meaning they carry high risk, or "investment grade," meaning they carry little to moderate risk.
U.S. government bonds are guaranteed by Uncle Sam, so they're the safest around. They mature -- or come due -- in various time periods. Treasury bills generally mature in three months while Treasury notes typically mature within a year. Treasury bonds mature over longer time frames, usually between five and 30 years. Historically, long-term government bonds have returned an average of 5.4 percent annually, according to Ibbotson Associates.
http://www.bankrate.com/finance/retirement/stocks-bonds-and-mutual-funds-1.aspx 

Mutual Funds

A mutual fund is a type of investment company that pools money from many investors and invests the money in stocks, bonds, money-market instruments, other securities, or even cash. Here are some characteristics of mutual funds:

Investors purchase shares in the mutual fund from the fund itself, or through a broker for the fund, and cannot purchase the shares from other investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock Market. The price that investors pay for mutual fund shares is the fund’s approximate net asset value (NAV) per share plus any fees that the fund may charge at purchase, such as sales charges, also known as sales loads.
Mutual fund shares are "redeemable." This means that when mutual fund investors want to sell their fund shares, they sell them back to the fund, or to a broker acting for the fund, at their current NAV per share, minus any fees the fund may charge, such as deferred sales loads or redemption fees.
Mutual funds generally sell their shares on a continuous basis, although some funds will stop selling when, for example, they reach a certain level of assets under management.
The investment portfolios of mutual funds typically are managed by separate entities known as "investment advisers" that are registered with the SEC. In addition, mutual funds themselves are registered with the SEC and subject to SEC regulation.

There are many varieties of mutual funds, including index funds, stock funds, bond funds, and money market funds. Each may have a different investment objective and strategy and a different investment portfolio. Different mutual funds may also be subject to different risks, volatility, and fees and expenses. Fees reduce returns on fund investments and are an important factor that investors should consider when buying mutual fund shares.
http://www.sec.gov/answers/mutfund.htm

A savings account on the other hand is an account maintained by a customer with a depository institution for the purpose of accumulating funds over a period of time. Funds deposited in a savings account may be withdrawn only by the account owner or a duly authorized agent, or on the owner's nontransferable order. The account may be owned by one or more persons. Some accounts require funds to be kept on deposit for a minimum length of time, while others permit unlimited access to funds. Earnings may be in the form of dividends, as in the case of a share type savings account, or interest as in the case of a deposit type account. 

http://www.teachmefinance.com/Financial_Terms/savings_account.html 

 Three Tips for Investing:

1. Plan and then plan again: Committing yourself to a realistic investment plan requires understanding your resources and obligations, as well as the essential attributes of the lifestyle you desire in the future. As you plan your investment strategy, leave room for investment underperformance. Committing your plan to writing may force you to address issues that you might otherwise glide over. 
2. Consider the tax effect on withdrawals: Taxes may seem unavoidable, but you can control when to buy or sell assets. Be careful about buying into a mutual fund that is about to declare a dividend and, in the U.S., also about whether the interest earned on municipal bonds is potentially taxable (i.e., included in pre-tax income for the calculation of the alternative minimum tax). It may also make sense to draw from your after-tax accounts rather than tax-deferred accounts.
3. Stay liquid: If a fund requires the manager to approve of redemptions, you should understand that in a difficult environment, the manager may decline your request. Speak with your advisor about the balance between earning extra income and maintaining necessary liquidity. The liquidity characteristics of money funds, bank money market accounts and bond funds differ considerably. Each has a role for someone, but that person may or may not be you.  

http://www.forbes.com/2010/07/08/investing-advice-tips-personal-finance-rock-and-roll.html

 Helpful Articles: Investing

Is it Possible to be Both Eco-Friendly and Frugal?

(This is a guest article by Connor Groening*)

I used to be the girl who runs to the coffee shop every morning. On the way to the coffee shop I'd pass the coffee maker, can of coffee and filters, and on the way in, I'd dump my disposable cup out in the trash. I am now a mother and living a financially friendly lifestyle is a must - for both mine and my kid's future. Whether it’s parenthood, job change or just a want to use your finances more efficiently, there are tiny little things and even big ones that we don’t even notice we spend money on. Lets say that I was spending 4 dollars everyday on coffee. That’s around 120 dollars a month and about 1,500 dollars a year! Amazing right, over 1,000 dollars spent entirely on coffee. And to boot, 365 disposable cups in the trash can. Lets just say I make my own coffee these days and drink it in my "I Love You, Mommy" coffee mug, with a little fancy creamer to make it taste like a coffee shop latte. You don’t have to be an accountant or go to a financial school to take control of your finances and the effects they have on not only you but environmentally as well.

When you go through your everyday expenses it is amazing the little things you discover your spending thousands of dollars on a year. There are some ways to eliminate some of those expenses and even do a little eco-friendly monetary rearranging. I’ll use some examples out of my own personal experience and a few tips I have learned from others. Financially friendly living cannot only help you in your life but can even help the environment!

Have you ever watched "The Story of Bottled Water?" The basic message is how we spend thousands and thousands of dollars on bottled water, and by buying the plastic bottles not only are we wasting money, but resources that could be used elsewhere. Instead of spending money to fund big bottled water companies why not put that money and resource towards making tap water safe and drinkable all over the world. Same applies to most of the trivial things we as consumers feel we need. We are a nation obsessed with "stuff". Not to condemn American’s we are not the only consumer happy country, just the most recognized. Basically the message I am trying to convey is that there are many ways to save money and in doing so conserve national resources.

Small but Expensive

Taking a step back from the national approach I will evaluate from a more personal stand-point the things I do to live a more financially and eco-friendly life. I will start with the tiny things that we can do as individuals to cut costs in certain areas of our lives. First the minute little things. If you use a computer often then this is something I’m sure you have done. When you are done with the computer you let it go to sleep rather than shutting it down, and probably leave it plugged in as well. This seems too minute to worry about but you wouldn’t believe the amount of energy it uses yearly. Studies show that by leaving a computer plugged in costs you an average of $27.90 a year. That isn’t including a monitor if you have a desktop which generates a cost of about nine dollars a year, and the modem costing you around six dollars a year. And that's just one computer. How many computers and other electronic gadgets do you have around the house. Itty bitty expenses that add up, while at the same time hurting the environment.

Lets go back to the simple idea of a water bottle. The average family uses about 10 dollars a week on plastic water bottles. Equaling an amazing 520 dollars a year. What could you have used the 520 dollar on? A car payment, paying bills within the household... buying 10 water filtering systems for your tap water faucet? Try using a reusable bottle for water or other drinks. This reduces not only the amount of money you spend on plastic bottles but also the amount of plastic you send to landfills all over the world. These are just a few of the small things that we don’t realize we are spending so much money on. There are hundreds of things like this in our lives that we can either cut out or reduce considerably. Try sitting down and calculating the amount of money you spend on things like coffee in the morning, fast food lunches, water bottles and other things such as this. After calculating you will be amazed at where your paychecks are really going. Try coming up with creative ways to change your consumer habits, do some research and save some money!

Budgeting

When looking at your finances on a larger scale in a round about way there are a few skills you can use to keep your spending in check and live more financially friendly. First try making a budget. If you take the time to sit down and make a rough allocation of your money it gives you an idea of what you have left over for things you want. Needs and wants are very different and using those two categories is really beneficial when making your budget. Doing this allows you to make sure you get all of your needs covered and slowly mark your want list off with money you have left over.

Spend Wisely and Consciously

When shopping, shop wisely and with purpose. Comparing prices can be a mundane task but if you take your time shopping you will be amazed at the money you save. This goes for all shopping not only grocery shopping. Whenever possible support environmentally friendly causes. Advertisement has many, many tricks up its sleeve. Sales are one of those very touchy subjects. "It was okay I spent the money because it was on sale". Finding a good deal is definitely something you can look out for when shopping but beware of the way advertising seduces us into buying things we do not need. An example, some price tags will have a regular price and sale price printed on. Meaning that this company never even tried to sell this product at regular price. Seeing a sale price is enticing and our mind automatically justifies spending if the item is "on sale". Unknowingly we sometimes fall into the schemes of today’s advertising gurus, who if you let them will take every penny you have! Their good... but you can easily be better!

Get Crafty

In every home there are a number of unused items maybe you have a garage full or an attic. The point is we all have things lying around that can be of use. A personal example. I recently relocated, left my job, my home and all of the connections I had back home. It is the Christmas season and I love giving. However I have just started a new job and at the moment do not have the money to spend on a ton of Christmas gifts. I love to give everyone a special gift and so not having the money was killing me. I went to the basement to do laundry and started digging around. I found some clear glass ornaments that I had completely forgotten were there. So this year everyone is getting a hand made ornament uniquely painted for each individual person. And it worked out great... in stead of buying more and more stuff, I end up repurposing some the things I already have. Sometimes something you make means so much more! Getting crafty can be applied to many different things to not only make unique gifts but to make practical use of unused items just laying around at home. There is a book by readers digest "Extraordinary uses for ordinary things: 2,317 ways to save money and time". Its amazing how some of these directly or indirectly help save the environment as well. Try finding reads like this and using the information in your life.

There are many ways to live a more financially friendly life. I hope the information I have given you will spark some interest in the things you can do that not only save money but help save the environment as well. Saving money isn’t all about being frugal. There are a lot of things that I have learned on my journey to a more financially friendly living that have helped me in many aspects of my life, and have been great fun. Explore and gain knowledge on the different ways to save money that are out there and have fun doing it. When you begin to save and look back on the money you were spending on irrelevant things you will feel a great sense of accomplishment and pride. Sometimes it really is all about the simple things in life.

If you like this article you may also like:

• What I Do to Live Frugally


• Now Frugal, Now Not


• Air Travel Checklist for the Frugal Minded Traveler


• Frugality and Hardship

*About the author: This is a guest article by Connor Groening, who loves writing about personal finance and online finance schools.

*Image Credit: Photograph by beautyredefined [via Flickr Creative Commons]

Buying a Home

How to Get a Home Loan

Mortgage lenders will look at many different factors when you apply for a loan, but the most important ones are:

• Your credit score at the time of application.
• The amount of debt you're currently carrying.
• Your income, relative to the amount you want to borrow.
• The size of the down payment you can make.

The first thing you should probably do is start saving extra cash. It's also a good idea to check your credit reports and scores. Many first-time home buyers think it's the mortgage lender's job to determine their budget. Not only is this wrong -- it's downright dangerous! You can get approved for a home loan that's too big for you. It happens all the time, and it's one of the most common reasons people go into foreclosure. The only thing a lender can tell you is what they're willing to give you. They cannot tell you what you can realistically afford. That is something you must figure out for yourself, and you can do it by establishing a monthly budget.
The size of the down payment depends on the type of mortgage loan you choose, the lender's underwriting guidelines, and other factors. If you use the always-popular FHA home loan program, you could put as little as 3.5% down on the mortgage. If you use a conventional mortgage loan (one that is not backed by a government agency like the FHA), then you will probably have to make a down payment of 10% or more. Additionally, if you want to qualify for a mortgage lenders lowest interest rates, there's a good chance you have to put 20% down.
http://www.homebuyinginstitute.com/mortgageprocess_article30.php

Making the distinction between the improved portion of a property and the land on which it sits may seem trivial. But it is not until the real estate investor focuses on these differences that it becomes easier to find more efficient investments that provide the highest return for the amount of risk or capital invested. Because property prices are a function of local supply and demand, the appearance, functionality and maintenance of the physical structure will certainly impact value, but these factors have less impact than one may think. Understanding how location and the future prospects of land values influence property returns allows investors to make better choices between competing assets.The reason that land is an appreciating asset is a simple one. It is in limited supply, and no one is producing any more. The demand for land is constantly growing as the population increases, and since its supply is limited, its price must increase over time. Unless something happens to limit demand for a given area or make it unusable, the grounds should be expected to increase in value over time. http://www.investopedia.com/articles/mortgages-real-estate/08/housing-appreciation.asp

Article: Buying a House

Retirement

What's the difference between IRA and 401(K)? IRA is a retirement saving plan done on your own. It is non-taxable until it is withdrawn. A 401(K) is also a retirement plan, but its saving is matched by the employer. It is also non-taxable.
Social Security is a federal program to aid older citizens, orphaned children and the disabled. It is rather a large topic lately because the "baby boomers" are now all reaching retirement and receiving social security.
Retirement relates to personal savings. Retirement funds are the most important personal funds, funds to ensure a good life after retirement.

Investment Calculator: http://www.johnhancock.com/solutions/tools-calculators.html?EngineId=gsn&l=PPC:gsn:investment+calculator

After looking at the calculator, it is shown that the early you start saving the less compound interest will effect you. You will save much more than waiting for ten years or so. The longer you wait the larger the compound interest will grow.

Helpful video:

Helpful article: Retirement

Retirement Financing

Both IRA’s and 401k’s allow people to save up for their retirement. 401k’s are considered traditional because they are sponsored by the employer so employees choose an amount of their paycheck to have distributed into their retirement fund that is managed by the employer. An IRA or an individual retirement account provides tax advantages by allowing individuals to place money for their retirements into an account with a life insurance group.

Social security is a tax funded program that provides retirement funds to those who are retired but do not have sufficient retirement funds on their own. It is government run and also includes insurance for the unemployed. It is a big issue in today’s society because taxpayers sometimes feel cheated that their hard-earned money is going toward a comfortable retirement for someone else.

It is important that working people think about retirement funds as an investment so that we may save up for later in life when we won’t have the ability to continue working for our compensation. It has been proven that if a person begins saving for retirement when they are 19 rather than when they are 27, they will earn more money because of interest to live on when they retire.

 

Buying A Car

The process of obtaining a loan is 1. Pre-Qualification, which a lender gathers information about the income and debts of the borrower and makes a financial determination. 2.Application, this is actually the beginning of the loan process and usually occurs between days one through five of the loan process. 3.Processing, this occurs between days five and twenty of the loan. The processor goes over the credit reports and verifies the borrowers debts and payment histories as the VOD's and the VOE's return. 4. Underwriting, this occurs between days 21 and 30 or sooner. The underwriter is responsible for determining whether the combined package passed over by the processor is deemed as an acceptable loan. 5.Mortgage Insurance, this occurs when the borrower has less than 20% of the loan amount to put towards a down payment. The loan is now submitted to a private mortgage guaranty insurer and this person provides extra insurance to the lender in case of default. 6. Pre-Closing, which occurs between days 25 and 30  this is when a closing time is scheduled for the loan. 7. Closing, this occurs between days 25 and 45 of the loan process. This is where the loan is closed with a cashier's check. This is the time when the borrower finishes the loan process and actually buys the car.

Down payments are the difference between the loan amount and the purchase price, usually paid immediately upon purchase with cash or a trade in. These are important because it is the part of making a major purchase like a car or home. A down payment is a sum of the money that is subtracted from the purchase of your price.

The value changes over time with buying a car because a car is not as good as it was when it first came out the more years that go by the better cars get and the more expensive they get so on one will want to buy a car for just as much as a brand new car.

Three things that every person should know about to buy a car is:
1. Make sure you either pay in cash or get a loan and make sure that you pay off the loan.
2. Get a good down payment
3. If you are going to buy a car and sell it make sure you do it in good time so that the car still has good value.

Credit Cards

Credit cards are small, plastic cards that consumers can use as payment. With credit cards, consumers are able to purchase goods and services. They have a continual balance of debt. Some charges associated with credit cards are interest rates, APR, late fees, and over charge. Interest rates can be avoided if holders pay their bill in full each month. If the bill is not fully paid, the holder must pay interest on the remaining amount. APR is the annual percentage rate. It is the rate of interest for the entire year. APR can be calculated by multiplying the rate for a certain pay period by the number of payments in the year. Late fees are charged to holders when payments are not paid on time. Over charge is when the holder charges more to the card than they have. Fees are put in place and vary from company to company.

To apply for a credit card you must first choose a company. Then it's simple. For example, with discover you can online to apply. The steps are laid out and easy.

Pros for owning a credit card: Can spend more money than you have, can receive rewards, can build up good credit.
Cons for owning a credit card: Fraud, debt, over charge.

Three tips for owning a credit card:
1. Pay your bill in full every month.
2. Don't give out your credit card information.
3. Don't hold too many credit cards.


Images:


Source: http://en.wikipedia.org/wiki/Annual_percentage_rate

Credit Cards

Some credit cards, such as American Express, require you to pay off all of your charges each month. As a benefit, they usually have no finance charge, and sometimes no maximum limit. Most cards, including Visa, MasterCard, Discover and Optima, offer what is known as revolving credit. This means they let you carry a balance, on which they charge interest (finance charges), and they require you to make a minimum payment. The minimum payment is usually about 5 percent of your current balance or $10 -- whichever is more.
Here are three of the ways used by financial institutions to calculate finance charges:

Here are a few choices

• Adjusted balance - This system, which consumer experts say favors the cardholder, takes the balance from your previous statement, adds new charges, subtracts the payment you made and then multiplies this number by the monthly interest rate.
• Average daily balance - This method, which is a pretty even-handed one and the most commonly used, works like this: The company tracks your balance day-by-day, adding charges and subtracting payments as they occur. At the end of the period, they compute the average of these daily totals and then multiply this number by the monthly interest rate to find your finance charge.
• Previous balance - This method generally favors the card issuer, according to consumer experts. The issuer multiplies your previous statement's balance by the monthly interest rate to find the new finance charge. This means you're still being charged interest on your balance a whole period after you've paid it down!

What you pay will vary depending on your balance, the interest rate and the way your finance charge is calculated. Here's an example that shows how much difference the interest rate can make in what you actually end up paying:

• High-rate card - Suppose you charge $1,000 on a 23.99-percent credit card. After that, you make no further charges and pay only the minimum each month. The payment will start at $51 and slowly work its way down to $10. You'll make 77 payments over the next six years and five months. By then, you will have paid $573.59 in interest for your credit privilege.
• Low-rate card - If you charge that same $1,000 on a 9.9-percent fixed-rate card, the minimum monthly payment will start at $50.41 and go down to $10. You'll make 17 fewer payments, finishing in six years and paying $176 in interest. This saves you almost $400!

Late fees and over-the-limit fees are a couple of newer charges that are used by pretty much all credit-card issuers now. And increasingly, issuers are drastically raising interest rates (to as high as 23.99 percent) after a set number of late payments (read the fine print and make sure you know whether the payment is considered posted on its postmarked date or on the date the bank or credit-card company gets it posted!). Unfortunately, once you have a couple of late payments, the credit-card company can charge you the inflated interest rate for the remaining life of the account. Try to avoid this -- all credit-card companies report your payment record to credit-reporting agencies and even a few late payments could cause you problems when you try to buy a car or a house.

Experts say that if you're smart, you'll do the same kind of comparison shopping for a credit card that you do when you're looking for a mortgage or a car loan. This is a good idea because the choices you make can save you money. The process is not a simple one -- here are some tips that should help you get started:

1. Do some research - There are plenty of places, both online and offline, where you can read about credit-card offerings and even get credit-card ratings, but since rates and plans change so often, it's a good idea to call the institutions you're interested in to confirm the information and to see if there are other plans that might work for you. A reliable and non-commercial resource is the Federal Reserve Board. Also, the non-profit consumer credit organization U.S. Citizens for Fair Credit Card Terms offers credit-card ratings from its research (and so do a lot of commercial organizations -- many of whom are also credit-card issuers).
2. Make a list - Make a list of credit-card features that fit your financial needs and rank the features according to how you plan to use the card and pay your monthly bill.
3. Review the plans - Review all of the information you've gathered on different plans. Pay special attention to the APR - - you want a low rate, but not necessarily the lowest. This is because, depending on your lifestyle and payment habits, you might benefit more from a card that offers cash rebates, discounts or frequent-flier miles.
4. Check out credit unions - Look into the possibility of joining a credit union. Credit unions are non-profit, and they have lower overhead so they can charge lower interest rates. Credit unions are newer to the credit industry so they are eager to generate credit-card loans. However, you'll probably be required to open a share account or savings account to join. Credit unions typically are limited to a particular employer and its employees, but that's changing. Due to industry consolidations, credit unions are rapidly expanding their fields of membership. To find out which credit union you may be eligible to join, contact the Credit Union National Association (CUNA).
5. Compare plans - If you already have a credit card, be sure that you're making a good move before you swap cards. If you are a current cardholder and have a good credit rating, see if the institution that issued your card will lower your current rate. Don't be afraid to negotiate!

http://money.howstuffworks.com/personal-finance/debt-management/credit-card4.htm

Credit Card Pros

Convenience.

Credit cards wouldn’t be nearly as popular as they are today if they weren’t so maddeningly convenient. Paying at the store, at the pump, or at the ballgame is significantly easier with a piece of plastic that takes no immediate bite out of one’s pocketbook.
The fact that most major stores (and most minor ones) accept Visa, MasterCard, and Co. only adds to the handiness of carrying around a credit card. Lunch tabs and Lamborghini rentals could both be taken care of by a simple swipe. You name it, and a credit card can purchase it.

Peer pressure.

Everyone has one. That reason was good enough to spark digi-pets, and it is good enough for credit card applications, too. Watching your friends pay for meals with their American Expresses makes you feel pretty worthless when you break out your US Bank debit card to foot the bill for your soup and salad special.
Owning your very own piece of plastic provides a sense of belonging, serving as a platinum membership card into the world of commerce and retail. For college kids, owning one is a step towards adulthood. For adults, having one makes you feel like a true American. Either way, the pressure to fit in has a big say in whether or not you make the plunge.

Rewards.

One of the greatest parts to credit cards (other than the personalized pictures; hello spring break ’06!) is reaping the rewards for your spending habits. You worked long and hard to find the last copy of Pirates of the Caribbean in that Circuit City bargain bin, and you deserve every purchase point you get from paying on credit.
Depending on your card, the rewards can vary, but the good news is that there is such a wide variety of options that you are bound to be able to find the right card to fit your lifestyle. There are cards that offer plane tickets, sports merchandise, and good old-fashioned cash. Others build up a stockpile of points for cardholders to use to get whatever their hearts desire. Ironically, points may be used to achieve Pirates of the Caribbean DVDs.

Building credit.

Spending has its benefits (new jeans, perhaps), but spending with credit has benefits that go beyond mere denim. Using a credit card—and using it responsibly—can help build one’s credit score, which could mean a better shot at a loan or a better mortgage down the road.
The key part to using a credit card to build credit is keeping up with payments. Having a credit card does no good if you fall behind on payments or rack up an unconscionable amount of debt. Acting responsibly on your account, however, will help you build a credit score that reflects dependability and accountability.

This is an example of a credit calculator

Credit Card Cons

Late payments.

By far, the most dangerous part of credit cards is not paying them off on time, and for many, this problem is a constant temptation despite its obvious negative consequences.
Once you fall behind by one payment, the climb back to a debt-free account becomes harder and harder. Late fees, interest, and penalties build faster than you would believe, and you may find yourself making monthly payments that only cover your charges and don’t even touch your principal purchases.

Debt.

Often as a result of late payments, many people find themselves sunk in credit card debt with no way out. Credit card companies are great at getting customers in the door, but once you fall behind with payments, the companies make it nearly impossible for you to climb your way out. Between fees and charges and piling interest, the matter seems to continually get worse, not better.
If you cannot keep up with credit card payments, then owning a credit card is probably not for you. The disadvantages to not paying on time are innumerable, and the odds of staying debt-free are not in your favor.

Hidden fees.

Many times, credit card companies will say or do whatever it takes to get you to sign your name on their application. Of course, once that ink has dried, they’ll suddenly remember to tell you about start-up fees and processing fees that you never saw coming.
Annual fees are a big one, too. That credit card that earns you frequent flyer miles every time you buy might seem like a good idea, but for $100 a year, the right to own it may be too much.
Always check the fine print of a contract before you sign and ask if there are any extra fees. The free t-shirt just for signing up might be nice (and long-sleeved!), but the $50 paperwork fee isn’t.

Over-spending.

One of the most overlooked negative aspects to credit cards is the ease with which cardholders overspend. Really, the psychology behind this is simple. You purchase items without ever exchanging actual money, so you hardly feel like you’re paying anything at all.

http://blog.lendingclub.com/2008/06/03/the-pros-and-cons-of-credit-cards/

articles about credit cards: http://www.creditorweb.com/articles/

Video:

Personal Budget

What is the difference between fixed and flexible expenses? Fixed expenses are paid continiously and consistantly. For example, utilites and loans. Flexible expenses can change month to month, for example, the money you use for food and entertainment. Compound interest means that each time interest is received on an interest bearing investment, it is added to or compounded into the investment principal and thereafter also earns interest. For example, a bank deposit balance is estimated each day for daily compounding. Common compounding periods are daily, monthly, quarterly, annually and continuously. The more frequent the compounding period, the higher the effective rate of interest. Simple interest is used on loans with a single payment. Interest is calculated on the amount of the loan during the time period for which the money is borrowed. The effective rate is the same as the stated rate.

What is the importance of savings? Saving can insure you're able to retire at an appropriate age. They also can be used as emergency funds as well as a means to use cash instead of lots of credit piling up. The more you save the more comfortable you can live later on in life. This doesn't mean you shouldn't spend money. You don't need to live miserable to ensure  a better life later. Decide on a set amount you will put away for savings each month, the money left over then can be used for extras; food, entertainment, fun.

Links to help:
http://christianpf.com/make-a-personal-budget/ (article)

Link that helped me: http://www.extension.iastate.edu/agdm/wholefarm/html/c3-05.html

How to Find Scholarships If Your Parents Are in the High Income Bracket

(This is a guest article by Mark Davies*)

One of the biggest misconceptions about scholarships is that most people assume that they’re available on to those who belong to low income families. Yes, there are more need-based scholarships than any other kind, but they’re not the only kind of financial assistance available to students for a post secondary education. So if your parents are in an income bracket that does not allow you to apply for a need-based scholarship, yet cannot pay your way through college for various reasons and don’t want to take out a student loan and incur debt on graduation, here are the options open to you:

• Look for academic or merit-based scholarships – most schools provide these if you have a GPA of 3.7 and above and if your high school academic records are excellent. You help your case if you have a complete portfolio of all your academic achievements, any community service projects you’ve participated in, and any other accomplishments in high school that you think is significant.


• If you belong to a minority or ethnic background, now is the time to make good use of it – many colleges provide scholarships for members of minority communities.


• Certain academic departments in colleges have scholarships that they disburse, so ask about these in the colleges you want to apply to.


• If you’re physically or mentally disabled, you qualify for many scholarships that are set up to help those who are at a disadvantage because of their disability.


• If you have lost a parent or other family member to cancer or any similar debilitating disease, you may qualify for certain scholarships that consider families who have used up a considerable portion of their savings and income towards medical expenses.


• If you’re thinking of signing up for the military (army, air force or navy), then consider an ROTC (Reserve Officer Training Corps) program where you can get federal aid for college before training to be officers in a branch of the military.


• Some schools offer scholarships for students who have lost a parent in the line of duty, as a cop, fireman or military personnel.


• Your parents’ employers may be offering scholarships for meritorious children of employees in the organization, so get mom and dad to ask some questions in the workplace.


• If you belong to a local community or church, ask about any scholarships or grants they provide for aspiring college students who actively volunteer and help out whenever needed.


• If you don’t qualify for scholarships in your freshman year, you can always apply again in your sophomore, junior and even senior years. So don’t give up just because you lost out the first time, just keep looking for alternatives open to upperclassmen.

So don’t despair if your parents haven’t saved up for your college expenses, if your 529 savings amount is not enough to cover the cost of four years of college, or if a bad financial year has left your parents unable to pay your tuition and living costs in college. Start looking around for academic and other scholarships well before you must apply to college, and reap the rewards of your effort and persistence.

Scholarships that are not need based are not advertised prominently; so if you want to apply for and qualify for these, you must talk to the admissions office and your department of study specifically to see what you can do.

*About the author: This guest post is contributed by Mark Davies, he writes on the topic of Online Masters Degree. He welcomes your comments at his email id: markdavies247<@>gmail<.>com.

*Image Credit: Photograph by haagenjerrys [via Flickr Creative Commons]

Investment Banker

Investment Banker Career Overview: Investment bankers raise funds for corporations by structuring the issuance of securities such as stocks and bonds. They also advise corporations that are contemplating mergers and acquisitions. Careers in investment banking require strong quantitative abilities combined with excellent sales skills, not to mention a large measure of self-confidence.

This is a fast-paced, pressure-packed field noted for long hours and extensive travel requirements. In particular, junior associates should expect to be on call virtually 24/7 for their first few years. The payoff for those who survive this grind is that compensation packages can be extremely generous, allowing a successful person to build a fortune within a relatively short period of time.

Investment Banking Industry Trends: Data from the Boston Consulting Group (BCG) and Thomson Reuters indicate that industry-wide investment banking revenues were down by over 75% in the third quarter of 2008 from the same period in 2007, while the dollar volume of activity (securities issues, loans and mergers & acquisitions) in the first nine months of 2008 was down by around 50% from 2007. 

Investment Banker Career Outlook: The view of senior investment bankers participating in the annual Wharton Finance Conference on November 7, 2008 was:

• Merger & acquisition work should be in demand, especially as corporate restructurings increase in number.
• Capital markets work (such as securities underwriting), by contrast, generally should be weak over the next few years.
• Distressed debt, however, will be one capital markets area with growth prospects.
• Emerging markets will be the other capital markets area worth looking into.
• Boutique firms report booming M&A business, and generally are much stronger than their larger rivals.

In sum, there is still hiring by investment banking firms, though not in the same numbers or at the same pay levels as in recent years. Especially for ambitious new MBAs seeking entry-level positions, it is a challenging environment, but with some opportunities still available.

Loan Officer

Loan Officer Career Overview: A loan officer assists prospective clients in applying for loans and in determining the type and amount of loan that is most suitable for their needs. A loan officer also assesses the creditworthiness of loan applicants, judging their suitability as borrowers and the precise terms (interest rate, repayment schedule, etc.) on which credit may be granted to them. Depending on the position, a loan officer may be expected to actively seek out clients, rather than passively wait for applicants to approach his or her financial institution (bank, credit union, etc.) for credit.

Loan Officer vs. Credit Counselor: The Bureau of Labor Statistics considers a credit counselor to be a subcategory of loan officer, with similar skill sets and levels of compensation.

Loan Officer Specialization: A loan officer tends to specialize in one of three major types of lending: commercial, consumer or mortgage. Commercial lending is the extension of credit to businesses. Consumer lending includes personal loans, education loans, home equity loans and auto loans, among others. Mortgage lending includes loans for the purchase of real estate by individuals (a business normally would be served by a commercial loan officer, even for real estate purchases) or the refinancing of existing mortgages.

Loan Officer Education: A Bachelor's Degree is expected for a loan officer. Coursework in finance, accounting and/or economics is helpful, though not required. Strong quantitative and analytic skills are vital. An MBA can give you a leg up in the hiring process, depending on the firm.

Loan Officer Certification: Most loan officer positions do not require any special certification or licensing. A notable exception, however, is mortgage lending. Most states regulate this field, especially regarding loan officer positions in mortgage banks or mortgage brokerages, rather than in traditional banks or credit unions.

Loan Officer Duties and Responsibilities: The majority of loan officer positions combine sales responsibilities with analytic requirements: selling loans while determining who are appropriate clients, and on what terms. Some loan officer positions are focused largely on the analytics, with no sales dimension and limited client contact. People in these types of jobs are sometimes called loan underwriters. Other loan officer positions specialize in dealing with clients who are having problems meeting their payments. One example is a loan collection officer, who tries to work out agreements with troubled borrowers that adjust the repayment terms.

Loan Officer Typical Schedule: The majority of people in loan officer jobs tend to work a standard 40 hour week. A consumer loan officer is most likely to work set hours from a fixed location, such as a bank branch or office. A commercial or mortgage loan officer often has to work variable hours to confer with clients at the latter's places of work or residence, and thus spend significant time out of the office and on the road.

What's to Like About Being a Loan Officer: Depending on the firm and its policies, a loan officer can have a large degree of professional autonomy, more akin to being an independent entrepreneur than a corporate employee. If the compensation scheme is largely commission-based, there is a close correlation between performance and reward, with high earnings potential. Also, doing your job well can make a discernible, positive impact on your clients' lives.

What's Not to Like About Being a Loan Officer: Rejecting loan applicants who do not meet your institution's lending criteria can be an unpleasant process, as can dealing with clients who have run into financial difficulties and cannot repay their loans as agreed. Also, loan officers who are expected to prospect for new clients can be under heavy pressure to perform, the downside of the greater earning potential that such a position offers.

Loan Officer Salary Range: Per the Bureau of Labor Statistics, median annual compensation was about $52,000 as of May 2006, with the top 10% earning over $107,000. Compensation schemes vary by employer, with varying mixtures of salary and commission. Where commissions are paid, they normally reflect the number and/or value of loans originated. The highest pay packages for a loan officer tend to be commission-based and at large institutions.

Public Finance

Public finance is a field of economics concerned with paying for collective or governmental activities, and with the administration and design of those activities. The field is often divided into questions of what the government or collective organizations should do or are doing, and questions of how to pay for those activities. The broader term, public economics, and the narrower term, government finance, are also often used.

The purview of public finance is considered to be threefold: governmental effects on (1) efficient allocation of resources, (2) distribution of income, and (3) macroeconomic stabilization.

Overview 

The proper role of government provides a starting point for the analysis of public finance. In theory, under certain circumstances private markets will allocate goods and services among individuals efficiently (in the sense that no waste occurs and that individual tastes are matching with the economy's productive abilities). If private markets were able to provide efficient outcomes and if the distribution of income were socially acceptable, then there would be little or no scope for government. In many cases, however, conditions for private market efficiency are violated. For example, if many people can enjoy the same good at the same time (non-rival, non-excludable consumption), then private markets may supply too little of that good. National defense is one example of non-rival consumption, or of a public good.

"Market failure" occurs when private markets do not allocate goods or services efficiently. The existence of market failure provides an efficiency-based rationale for collective or governmental provision of goods and services. Externalities, public goods, informational advantages, strong economies of scale, and network effects can cause market failures. Public provision via a government or a voluntary association, however, is subject to other inefficiencies, termed "government failure."

Under broad assumptions, government decisions about the efficient scope and level of activities can be efficiently separated from decisions about the design of taxation systems (Diamond-Mirlees separation). In this view, public sector programs should be designed to maximize social benefits minus costs (cost-benefit analysis), and then revenues needed to pay for those expenditures should be raised through a taxation system that creates the fewest efficiency losses caused by distortion of economic activity as possible. In practice, government budgeting or public budgeting is substantially more complicated and often results in inefficient practices.

Government can pay for spending by borrowing (for example, with government bonds), although borrowing is a method of distributing tax burdens through time rather than a replacement for taxes. A deficit is the difference between government spending and revenues. The accumulation of deficits over time is the total public debt. Deficit finance allows governments to smooth tax burdens over time, and gives governments an important fiscal policy tool. Deficits can also narrow the options of successor governments.

Public finance is closely connected to issues of income distribution and social equity. Governments can reallocate income through transfer payments or by designing tax systems that treat high-income and low-income households differently.

The Public Choice approach to public finance seeks to explain how self-interested voters, politicians, and bureaucrats actually operate, rather than how they should operate.

From :   Wikipedia, the free encyclopedia
Source: http://en.wikipedia.org/wiki/Public_finance
For:         Public Information, non profitable