How much do you know about finance?

Each time financial surveys are published, I astonished at the results. These surveys are not new but, reading some books on economic history, they have left me amazed:

According to a 2007 survey in the United States:

• Almost a third (29%) of respondents said they had no idea what the interest rate on your card was.

• Another 30% said it was less than 10%, when in fact the vast majority of cards have interest rates well above 10 percent.

• The 50% of respondents said that they had learn nothing or not too much about finance at university

A 2008 survey revealed that:

• Two-thirds of Americans ( 66.6% ) do not understand how compound interest works

In a survey conducted by a group of graduate students from School of Business at the University of Buffalo:

• Only 14% understood that equities would outperform bonds in  more than 18 years.
• The 59%t did not know the difference between a private retirement plan, the Social Security pension and a pension plan.

But it does not only happen in the U.S., in 2006, the British Financial Services Authority conducted a survey which revealed that:

• One out of five respondents had no idea what would be the effect on the purchasing power of their savings if inflation rate were 5% and an interest rate were 3%.
• One out of ten did not know which was the best discount for a TV which cost £ 250: if £30 or 10%.

And you, how much do you know about finance?

How to save monthly

The other day I said a reader who had started working, I had no mortgage, living with his parents and was not able to save.

Another reader told me that he had two children, mortgage, paying the car was hardly reached to make ends meet. He said that now was not the time to think about saving.

Two cases are different but have the same result: I cannot save because I have so many expenses.

Most people can not save because they do not know their expenses and they do not know each amount they spend. Therefore, a first step would be put in writing, and record the expenses / total income of each concept.

• INCOME : They usually do not vary much unless our income is variable or have significant investments that we provide high dividends. Therefore, as planned should match the estimate.
• EXPENSES : They are divided in several categories, each of them, there are different concepts. Typical costs are facing a family / person. If you're not seeing any, can be included under "Other."

This will allow us to:

1. Identify all our expenses.
2. Rebalancing our expenses.
3. Adjust those overspending.

After including all income and expenses, may be given several cases:

CASE A. High loan

If a large portion of our revenues are to pay different loans (credit cards, personal loans, mortgage) is necessary to design an action plan to be able to  eliminated these debts. Starting first on the cards and loans, as detailed here or here . In short, if we have different debts is time to fight againts them and design a plan to cancel our debts. Once done, we'll get to work with the cancellation of the mortgage that requires time and discipline .

CASE B. High expenditure on leisure

Maybe you'd have to ask yourself the level of life you lead. Certainly the money is to spend it, but someday you will have to save for a house, your retirement, etc, if you do not want to lower your standard of living when you reach those goals.

CASE C. High expenditure on day to day

Many of these are inescapable expenses (electricity, water, electricity) but with responsible consumption can be reduced. With regard to spending on mobile, landline, internet, satellite tv, etc. I recommend you to compare different companies and reduce consumption.

Analyze our costs is the starting point for making a plan and start saving in order to meet targets in the future.

Save or Spend

People usually say that they do not save because the money is to spend and to be lived daily. I save because this way I will be able to spend more on and I do not want to borrow.

The differences between saving and not saving:

1. Mortgage

• Savings: allows me to buy a home, I have to pay the mortgage costs and a major gateway that allows me to apply for a loan you can afford without relative difficulty (Euribor up or not). This is the most efficient way to buy a house and save € 60,000.

• No saving: I have to get a high mortgage, because I barely saved to afford the down payment and I have saved practically nothing to give any money. Consequently, my mortgage fees will be higher and, therefore, to be more affected the interest rate will be worse.

2. Buy Car

• Savings: I bought the car as explained with my savings. So I do not have to get a loan.

• No savings: Since I have no money I ask for a personal loan, so my standard of living will decline in coming months to repay the loan. Besides, I have to pay a lot of interests for the loan. Finally I also bought a car, the difference is that I'll be drowned out by a loan.

Save 2,000 $ with your credit card

Do you have debts with your credit cards? Have you begun to use the card recently and has increased your debt without realizing it? Do you always shop with your credit card and pay the monthly minimum? Think you could make better use of your credit cards?

If you answered "yes" to either question, I have to give you a bad and good news. The bad news is that "you have a problem," the good news is that " It is possible to manage debt and go slowly reducing it if we develop an appropriate plan . "

First, we must be aware that the money spent on credit is not free and that the interest we pay for using that credit is very high (around 20% APR). Second, you have to write to the head as follows: "NO COSTS OR BUY SOMETHING IF YOU DO NOT HAVE MONEY FOR IT" (the credit card is not your money).

Just use your credit card if you pay the total month-end.

I recently asked a friend who had three credit cards with a debit balance of  2,000 $ each, how he had come to that situation. He shrugged his shoulders and he said he only used his card to buy and pay the minimum on each (60 $) per month because it was more convenient.

Well, it's time to take the bull by the horns and design a plan to pay off our debts. Let's do the numbers:

Discipline. The key to create wealth

When I say discipline, I mean that the most important thing to save is to do consistently, so it is important that we consider as something aside each month / year for future expenses. It does not work to pay mortgage, loan, buying clothes / food, school expenses, dining out, vacations and then, if spare, save. NO, first turn away a lot of my monthly income and then come the bills.

The reason for doing it this way is because to be able to save, it needs to be regular and constant.