Category Archives: Smart money

What is inflation and why is it an intensely debated economic phenomenon?

By Smart money, , , ,

Inflation

Inflation is considered by most specialists as one of the most serious macroeconomic imbalances that jeopardize the development and economic progress of a country, but “What is inflation?”
The most widespread definition in literature is that “inflation is a process of cumulative and self-sustaining growth in overall price levels and declining money-buying power.” Taking a look at the above image, we can see that we can buy different quantities of products over the years. If today you can buy 1kg of tomatoes with 2 EUR, in a few years you will buy a smaller amount of tomatoes with the same amount of money because inflation has increased and purchasing power has dropped.

But what are the causes of inflation?

– the injection of money into the economy (the state is printing money without cover, the action leads to rising prices and imbalance MV = PT where: M = Money supply V = Currency circulation rate P = General price level T = Volume of transactions)
– demand for goods and services is higher than supply and hence supply-demand imbalance. (increase the incomes of the population and, implicitly, the purchasing power, take the consumer loans and reduce the inclination towards saving)
– rising production prices (increasing production costs, falling production and increasing prices)
– rising prices for imported goods / assets (increasing the price on materials, raw materials, etc.)
– High prices that are not related to the drop in supply or increased demand
The most popular forms of inflation: trap / quiet (rising prices up to 3%), rapid (annual growth rate approaching 10%), galloping (annual price increase exceeds 10%) and hyperinflation (monthly price increase over 50%
<What’s really going on?
The population is affected as the purchasing power decreases, there is a redistribution of income and wealth, confidence in the local currency is lost and the interest in saving is lost.
Companies are forced to reduce production capacity and are more concerned with asset protection against inflationary erosion.
If economic inflation benefits borrowers (who contract loans in the national currency at a certain purchasing power and return them in other inflationary conditions, to a lower buying power) and the interest rate is influenced by the inflation rate.

The inflationist phenomenon is one of the most serious macroeconomic imbalances but I recommend you take a look at hyperinflationary cases.

Why smart people do stupid things with money?

By Smart money, , , , ,

Smart people

It’s a pretty good question, is not it? How do intelligent people manage to do things with money and after a while become totally disappointed with their “successes”?

I suggest you think a little bit!

And here I do not mean people without financial education or any other kind of education.

Let’s think of intelligent people who have completed a faculty or a master and who have obtained a job because of their competencies or who have developed a start-up that has become a “small profitable money machine”. How do they become totally disappointed with their own financial situations, even though they have earned a lot of money over the years?

Here are three of the most common reasons:

  • They have a disastrous financial behavior. Although there are people who have extraordinary professional, social or family behavior when it comes to financial behavior, they completely ignore it!

          They are implusive consumers, meaning “perfect” for traders. Buy anything at any price. If they like something, they put in a basket without considering how much money they have available until the next salary. “I even withdraw money from my credit card if I do not have any money left in my salary account”. You’ve heard of such people, right?

         The first step in changing financial behavior is definitely analyzing your own behavior. If it’s not one you can be proud of, you can change it. Instead, if you go like a ostrich – just put your head in the ground and deny your own financial situation – it takes only a short while until the frustrations and shortcomings will arise.

  • They omit the financial planning activity. They do not have financial goals, they have no clearly defined plans to follow, and this is why they do not take into account the financial planning activity. Surprisingly, all people know that without a plan whatever it is financial or any other type, the chances of success tend towards zero.
    To increase your chances of succeeding in what you propose, take a pen and a sheet, write down your short, medium, and long-term financial goals, make plans for action, and set up tight financial targets.

          If you want a house, set the amount of money you need, the detailed plan to get that amount, the intermediate targets delimited by clear terms and get to work. Without action, the results are always zero!

  • They do not have information, skills or financial skills. The result of not very profitable investments is often the lack of understanding of financial products and services and business investment in areas that they do not know.

          I’m sure you’ve heard questions like “I have 10,000 euros and I do not know what to invest in.” Or “What are the most profitable businesses?” Often, those who ask for such questions are people who lose money because of their lack of skills and entrepreneurial experience.

         Lack of understanding of financial products and services such as savings accounts, deposits, investment funds, shares or the Forex market can also cause a small amount of trouble if you do not understand how they work.

       Developing a “healthy” thinking, how the most important financial products and services work, and developing entrepreneurial skills can help you increase your personal income.

What is Crowdfunding?

By Peer-to-Peer Lending, Smart money, , , ,

Crowdfunding

Crowdfunding is not a new concept, in fact, it’s been around for centuries. Investopedia describes it as:

“Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together, and has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists.”

Which can be summarised as decentralizing the banking monopoly by bringing together investors and people in need of finance. It’s unique compared to the traditional method of raising capital (especially a start-up) because your funding options were limited to a small group of wealthy individuals and institutions – today the power is in the hands of the individuals.

3 types of crowdfunding

Whilst there are still many niches of crowdfunding, here are the top 3:

  • Donation Model – This is commonly used for charity projects, such as raising funds for medical costs, foreign aid or specific organizations. Those who donate do not receive anything in return as their motive is usually believing in the specific cause or wanting to help. Two of the biggest platforms in this space are www.justgiving.com and www.gofundme.com.
  • Reward Model – If someone has an idea for a product, they may release the prototype of this on a page like www.kickstarter.com and allow people to make pre-orders. No equity is given here and it gives the business owner the opportunity to ‘Kick-start’ their project with guaranteed customers in the pipeline.
  • Equity model – You’ve seen Shark Tank and Dragon’s Den right? Imagine this, but instead of a panel of 5 billionaire’s you have a panel of thousands of ordinary people willing to invest their hard earned money for a given percentage of a business. The end goal for investors is to receive an appreciation in their initial investment based on the future success of the company, for example, profits and dividends.

The bottom line for the success of each model is a secure and trusted platform that connects both end users. A huge benefit of using these platforms is that some have a screening process that validates the concept or project before posting, it’s then published in a clear and understandable way for everyone. From the perspective of the person looking to raise the funds, they have the advantage of reaching a vast market of investors with most of the marketing and PR taken care of by the platform itself.

What is the difference between Peer-to-Peer (P2P) lending and Crowdfunding?

In short, crowdfunding as an investment focuses on the equity based reward whereas P2P investments (occasionally referred to as ‘Debt Crowdfunding’) fund a share of a loan which can be issued for personal, business, real estate use and more. With crowdfunding, your investment grows if the company grows and in turn makes a profit. On the other hand, your P2P investments can start to generate a return for you very quickly as borrowers start to make their monthly repayments, returning your initial principal and also interest on a monthly basis.

Generally, P2P lending can be viewed as lower risk and does not require the investors to have any previous financial knowledge as most platforms take care of all the hard work of screening the borrowers for you.

What are the benefits of crowdfunding and P2P other than interest?

This form of micro-financing truly is something revolutionary. Giving the power back to the individuals to mass fund a project that they truly believe in has a positive snowball effect on the wider economy. Projects and borrowers that traditionally may not have been funded by the banks (and would therefore have been forgotten about) now have a unique chance, with the end result being:

  • More small companies
  • More jobs
  • More social mobility
  • Less social inequality
  • Integrated society
  • More value and control for investors

Source: Bondora.com

Do the money come to you at the speed of the turtle and go with the speed of the rabbit?

By Smart money, , , ,

money-coins

If you feel the money are coming to you very rarely or hard and going very fast, you should do something different than what you have done so far, that’s clear!

What can you do differently?

Here are some suggestions:

1. Manage your finances. This would be the first step to see where the money comes from and where they go. It is also the oldest advice you have received from grandparents, right?

Perhaps too simple, but once you start managing your money you will become more aware of the decisions you have to take and act smarter.

2. Change your mentality. If you grew up in a family where money is not being discussed, or if you feel that you are not earning the money you deserve, you probably have a poor man mentality.

You may think that everyone is “busy”, that you can not develop a lucrative “honest business” or that “you are not ready enough to get a good job”. If you think so, I advise you to talk to people who are business owners or friends who have financially worthwhile financial situations.

3. Change your financial behavior. It can not change overnight, but right now you can change the way you spend your money.

4. Answer the question: “Why do money come to me with the speed of the turtle and go with the speed of the rabbit?” Try to answer this question, I’m sure you know the Solution! … and with perseverance I am convinced that you can improve your financial situation.

When does it worth to have money in bank deposits?

By Smart money, , , , ,

Balance inflation

Is it worth having bank deposits? Can you live of the interest you gain?

To these questions, there is no standard answer. The answer is influenced by the size of economies, inflation rate and bank interest.

There were times when interest rates were well above the inflation rate and all people who had savings were directing them into bank deposits. When the bank offers you an interest rate of 18-20% and the inflation rate is 5-8%, the real-positive interest rate is 12-15% and it deserves the investment, right?

Instead, it is not worth having bank deposits when banks offer net interest rates below the inflation rate (banks do NOT need money).
Normally, bank interest rates cover inflation or are slightly below inflation.

In conclusion, it is worth having bank deposits only if interest rates are over inflation rate, otherwise you will only get a reduction in the purchasing power of your own savings!

Personal finances and other aspects of life

By Smart money, , , , , , , , , ,

All people want MONEY – as much money as they can!!! Taking this into account, the theme “PERSONAL FINANCES” is one of the most important aspects of people’s lives!

Along with FINANCES, other important aspects of life are: Health, Relationships / Friends, Family / Love, Personal Growth, Free Time / Fun, Career / Business!

To achieve or maintain a balance in life, anyone should be concerned about all these areas!

If you care for your own health (you have a healthy diet, you do 30 minutes of sports daily, consume 2 liters of water a day), you will avoid throwing money on medicines and treatments!

If you have quality relationships (participate in networking meetings, maintain your existing relationships and friendships), it will be much easier for you to find a friend or specialist to help you solve a problem!

If you are well on the family / sentimental level (you have a beautiful and united family, the desired couple relationship) you will always find the necessary motivation and the support to succeed in everything you propose!

If you are focused on growth, personal education (go to classes and seminars, read books, listen to audiobooks) you will be motivated and you will acquire specialized knowledge that will broaden your horizons!

If you have free time and do what you like (traveling, practicing a sport, volunteering), you will reduce your risk of suffering the most common illness, simply called stress!

If you are developing a successful business / career (planning your career, attending seminars or business schools, consulting consultants), you increase your chances to generate more value and, implicitly, “higher income”.

If you take the time to educate yourself financially (financial management, concepts, financial products), you will increase your financial intelligence!

Conversely, if you DO NOT focus on all of these possible areas:

… to have a successful career but to be disastrous about love / family!

… to have money but not to have health!

… to have a profitable business but not to have free time!

Is peer-to-peer lending safe for income investors?

By Smart money, , ,

Anyone who has borrowed to buy a car or a taken out a home mortgage is familiar with the basics of how a loan works.

In a nutshell, borrowers ask for money, and lenders decide how likely it is that they will see that money back. If repayment is unlikely, those lenders charge a high rate of interest to offset that risk, and if the borrower is trustworthy they charge a lower rate of interest to win the business from competing banks.

But loans aren’t just ways to buy things. They can also be powerful ways to invest for income.

For instance, bonds are essentially a debt that’s owed by a corporation or a government to investors. A 10-year U.S. Treasury bond is a 10-year loan to Uncle Sam, and at current rates the government will pay you about 2.3 percent annually in interest – along with repaying your initial loan in full at the end of a decade.

That’s not just a nice way to grow your money, but a safe one, too.

In a digital age, debt markets have become more accessible for both investors and borrowers alike. Consumers can easily compare dozens of loans on the internet, investors can research and purchase a wide variety of bonds with a click of their mouse and more competition drives down the costs of a loan for well-qualified borrowers.

Another interesting development in debt markets has been the rise of peer-to-peer lending.

Peer-to-peer lending went mainstream about 10 years ago, with the launch of Prosper and Lending Club as two of the first large U.S. portals for so-called P2P loans. The idea was simple: an individual borrower makes their case for why you should give them money, and regular consumers can decide if it’s worth putting up the money.

It may sound like a scam to the skeptical or to the risk-averse. But remarkably, it worked in many cases – and continues to work today.

A common example is someone who has $5,000 in credit card debt with a 20 percent annual interest rate, who is asking the P2P community to lend them $5,000 at 8 percent or 10 percent. Everyone wins in that scenario, with the borrower paying less to their credit card company and the internet lender getting a nice return on their investment.

The downside, of course, is that investors who purchase debt via bonds from brick-and-mortar corporations have a much easier time of knowing what they’re getting in to. On a peer-to-peer lending site, doing your due diligence is much harder.

So how do you know if peer-to-peer lending is right for you?

Well, for starters you need to assess your risk profile. The potential for 8 percent or 15 percent annual returns is nice, but there is a very real case your money is just walking out the door. So never consider P2P lending if you can’t afford to lose a big chunk of that principal.

If peer-to-peer lending is still an option you’re interested in, then find a major peer-to-peer lender that is transparent about its process and track record. That doesn’t make your investment in P2P loans via these sites a sure thing by any stretch, but can help mitigate some of the risks of default.

Lastly, always consider the importance of diversification. If you want to invest in peer-to-peer lending then make sure it’s only a limited part of your portfolio. And rather than dish out $10,000 in loans to one person on a P2P portal, consider 100 smaller loans of $100 a piece so you don’t get hit as hard in the event of default.

 

Top 4 reasons why borrowers choose P2P lending platforms instead of banks

By Smart money, , ,

As investors, hopefully you are already aware of the multitude of advantages available to you by investing with a peer-to-peer lending platform. An important questions that is not so commonly discussed is, why do borrowers use P2P platforms instead of banks?

Below are the top 4 reasons why borrowers choose a P2P platform rather than a bank for an unsecured loan.

1. Purpose

Whilst every P2P platform is different, collectively they are certainly much less restrictive than the traditional banks when it comes to the purpose of a loan. Whether it’s for real-estate, starting a business or a once in a lifetime vacation trip – P2P platforms cater to all. That being said, most choose to specialize in a specific area.

2. Faster

Imagine – You decide you need to take out a loan, great. Now, you call the bank to make an application and they tell you that you will need to go to their city center branch and meet with an advisor. You take a day off work, travel out of your way to the bank with a thick folder full of paperwork and documents hoping you have everything that you need. Next, you’re subjected to an hour long application full of strenuous and pedantic questions. As the meeting ends, the advisor tells you he’s going to send off all of your documents to their head office for underwriting and you should receive confirmation in the post in 4 – 6 weeks. 6 weeks have passed by and you receive a letter saying unfortunately, we cannot accept you for a loan at this time.

Need we say any more?

Most P2P platforms have an automated online experience where you enter all of your information, upload your documents and receive an instant decision. How? Advanced technology and a service built to exceed customers expectations. This one is a no brainer.

3. Cheaper

Contrary to popular belief, many P2P platforms offer their customers interest rates that are even lower than those offered by the banks. Mainly, this applies to the platforms offering longer durations on their loans – those issuing loans with durations ranging from 1 – 3 months typically charge extremely high interest rates with huge default rates.

Looking at this from a psychological perspective is also worthwhile, since logically you can deduce that the financial awareness and responsibility of a borrower who takes out a €300 loan at 1,000% APR for one month, is most likely not as trustworthy as someone taking out a longer term commitment. Most financially aware borrowers would withdraw their application once seeing a huge rate of interest and reconsider if the short term loan is actually necessary for them.

Bringing all of this together, P2P platforms allow borrowers to see and interact with all of this information up front – such as by using tools offered by the platform to see how their payment will change depending on the duration and amount of their loan, letting them take full control.

4. Unique credit scoring

A win-win advantage for all parties involved is the unique credit scoring models offered by the P2P platforms. Typically, main stream banks use the standard credit referencing agencies as a sole source of information on a borrowers credit-worthiness due to the ease of access and cost efficiency. On the other hand, P2P platforms uses a proprietary credit modelling system that uses traditional data such as the credit referencing agencies, population registries, employment records and also non-traditional data like social media, national identity card data, how they interact with our website and 100’s of more data points.

For the borrowers, this creates a seamless experience that gives them a quick decision for a loan application which is often for a time-sensitive purpose. For investors, this gives them the opportunity to invest in loans with different credit ratings based on their own risk appetite. Most importantly, all of this builds trust and long lasting relationships with both borrowers and investors alike.

Remember, P2P is person-to-person, so your investments are going to real people and boosting the societal value of the sharing economy in finance.

Source: Bondora.com

6 tips for improving your family budget

By Smart money, , , , , , , , ,

Family budget

In order to be able to draw up a budget of incomes and expenses as accurately as possible, it is best to keep our daily records of spendings so we don’t omit anything. That’s why we can use more tools, either to write daily spending on an agenda at the end of each day, or to use an app on your mobile phone that you have at your fingertips at any time, and we can write down the expenses as we perform them, either use an excel file, so we can personalize it to fit our needs better.

  •  A great deal of daily spendings goes on various occasions, such as snacks during the day or city walks to a coffee. Do not omit to keep track of these costs because at the end of the month you will realize that they will weigh heavily in the budget and you will wonder where the difference is.
  •  For a better financial discipline, it is a good idea first to achieve a forecasted revenue and expenditure budget and then to draw up the budget actually made to figure out what is the difference between estimates and reality, and so you can improve your financial behavior. The forecasted budget can also be considered a target for your budget and try to fit into it.
  • Every month, the first expenses we have to make are the ones for our future, this are the sums allocated to savings and investments. After making sure that we first saved the amounts proposed, we can only then make the fixed costs that if we omit them in a month they will attract interest and penalties. Finally, we can allocate the difference for variable expenses.
  • As with fixed costs, to ensure that we do not postpone savings by the end of the month to see if we still have resources available for them, we can set automatic payments to our savings or investment accounts and so we will have better and better financial results.
  • To ensure that unforeseen expenses do not affect your monthly budget, it is advisable to have an emergency fund of at least 3-6 salaries that you can use only in emergency situations. This way, you will surely know that no matter if your car breaks down or you have an urgent medical problem, you will be able to resolve it without borrowing or delaying until you have the financial resources to solve the problem.
  • To improve spendings, try to divide them into expenditures that represent needs and expenses that are wishes. Start budgeting all the time by analyzing your wishes and see which ones can be eliminated for better long-term results.

Ultimately, the purpose of our revenue and expenditure budget is to manage our financial resources more efficiently. It is important, after realizing the family budget over a period of several months, to analyze its evolution in order to improve our financial behavior in terms of cost reduction in order to save more and ultimately invest in order to reach our established financial goals more quickly.

4 useful strategies to teach children about money

By Smart money, , , , , , ,

Many parents do not know the right age to start teaching children about money.
Financial education may seem an abstract concept, which surpasses the children if they are very young, especially when they have to learn so much more practical things.
In addition, once they reach a certain age, anything you try to tell them comes into one ear and comes out to the other.
Is there a perfect age at which children are able to understand financial concepts and are receptive to what family members have to say?
Or do you just have to leave the kids on their on and wait for them to make the same financial mistakes?
In fact, it is possible to start financial education for children at a surprisingly young age, and they are able to be receptive to what you are learning indefinitely, as long as everyone attending sees these lessons as fun.

Pink piggy bank

Here are 4 helpful strategies to teach children about money and personal finances:

1. Teach them by the power of the example

Parents have the power to invoke parental authority when it comes to money, but even children can figure out whether you are credible or not. If it is clear to you that you are not making proper decisions about your own money, how can you expect to teach them how to spend their money correctly?
In essence, transparency and sincerity are the best solutions: call the children to look at when you pay your bills, when making other bank payments or directing some money to your investments.
This works especially for younger children who still have the impression that everything their parents do is very interesting.

2. Give them an age-appropriate allowance

No matter how smart some children are, until they do not have money in hand and will not use them to buy things, money will remain for them an abstract notion.
That’s why it’s important to start giving your children a small allowance, age-appropriate, as soon as you’re sure they can learn the money concept.
You can even make the allowance in a shared account with your child. As cash is being used less and less, young people will have to learn the concept of debit card and virtual wallets anyway.
You can also condition the receipt of the entire allowance to perform certain tasks in the house.

3. Eliminate the wrong spending decisions

It is useful to let the children make their own financial mistakes, but to a certain point.
If you start to feel that they really do not know what they are doing or do they make misleading purchases just to defy you, stop them by invoking the abovementioned parental authority.
Explain this by understanding why it is very important to reasonably think about every financial decision you make.
You can help them by providing them with an age-appropriate educational game, such as Monopoly, for example.

4. If in doubt, let them work

Sure, this is not an option for those children who are small or very small. For teenagers, however, a part-time summer job can have a very positive influence and can significantly increase their financial intelligence.
Moving from zero income (or a modest allowance) to a real salary, even if small, earned at a job in the local supermarket, for example, is extremely important.
Just make sure you provide them with the necessary job search support. They will thank you later.

error

Enjoy this blog? Please spread the word :)