Category Archives: Smart money

What is Cash Flow? Find out how you can use it to your advantage

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

Cash, and more so the lack of it, can be a determining factor in whether you will achieve your goal of financial freedom. In short, cash flow is the net amount of cash that is flowing in and out of your accounts each month. Traditionally, this has been an important measure for business owners as they can keep track of how much money they are generating from customers that they offer their services to. It’s also important for them to know how much they are paying out each month for things like business loans, office rental and many other expenses.

However, the same cash flow measures can be used by individuals like you and me. Let’s say that each month you earn €2,000 net per month from your employment, €500 from your side hustle and €200 from your investments. But you need to live, so you can deduct your mortgage payments, car costs and any other expenses you have. The result of this will be either a positive or negative cash flow.

cash flow money

Cash Flow from P2P, Real Estate and Income vs Accumulation Funds

One of the most popular asset classes today is Peer-to-Peer (P2P) lending, notably for the opportunities it gives investors to become the bank and receive a monthly cash flow. Let’s say you invested €10,000 across thousands of loans from a range of risk ratings, loan durations and countries. Every month, the borrowers will make their loan repayments which consists of principal and interest, you then have the option to withdraw this cash flow or reinvest your profits to compound your interest and maximize your overall returns.

Quite similarly, real estate investments work in a comparable fashion. If you buy a rental property for €100,000, each month you will receive a payment from the tenants (e.g. €600 per month). You might use some of that to pay the remaining mortgage on the property or add it to a growth account to save a deposit for another property. An important difference between this and P2P is risk, as previously mentioned you can spread your risks across thousands of loans where as you rely on the payment from a tenant in a single property – if they default then there is no other cash flow. Protect your cash flow by diversifying within your chosen asset class.

real estate investment

If you are familiar with investing in equity funds, it’s likely you have come across the accumulation vs income conundrum. Simply put, an accumulation class fund will reinvest any cash generated from the investments within back in to the fund, over time this can significantly increase the size of your total pot. On the other hand, an income class fund will pay any cash generated from the investments back to you to use as you wish. This is for those who are looking to increase their total monthly cash flow amount and are not necessarily focused on the long-term growth of their investments. Almost always, the accumulation fund will be the most profitable in the long run.

Take a look at the graph below:

income vs accumulation-en

The same principle can be applied to your investments with Bondora, as the only difference is the underlying asset (consumer loans rather than equities). In the graph above, we have compared the growth of a portfolio with the same interest rate, starting capital and duration, the only difference being reinvesting your monthly cash flow compared to withdrawing it each month. Using our Portfolio Manager, starting with €10,000, an outlook of 5 years and a respectable interest rate of 10% per annum, there’s a stark differential in performance.

In fact, by simply allowing the Portfolio Manager to reinvest your monthly cash flow, your account value at the end of the 5 year duration would be 33.9%, or €4,462 larger (€17,623.42) than if you did not (€13,161.42). This is literally how you can “Make your money work for you” with minimal effort.

Cash for thought

Cash Flow Quadrant

Do you recognize the quadrant above? If you do then you are most likely well accustomed to the benefits of having a positive cash flow, congrats! For those who are still puzzled, this peculiar yet simple diagram is the brainchild of Robert Kiyosaki, the king of cash flow. As the creator of the Cash Flow Quadrant, Kiyosaki divides the general population and their mindset in to 4 separate categories:

  1. E: Employee – This person values job safety and security over everything.
  2. S: Small business owner/Self-employed – An independent person who wants to do everything related to their business by themselves.
  3. B: Big business owners – People who create a large business run by intelligent people.
  4. I: Investor – Those who make money work for them.

His main theory is that people should learn how to become big business owners and learn how to become investors, as the people on the left side of the quadrant only have active income compared to those on the right earning passive income. Creating a viable and sustainable source of passive income is seen as a core principle of achieving financial freedom.

Source: www.bondora.com

4 ways to save money for investing

By Smart money, , , ,

Something we hear time and time again is “I would love to start investing, but I don’t have any money”. By human nature, we are at times reluctant to change, especially when it comes to parting with something we hold so dear such as our money. When you hear your friends or that rich uncle of yours talk about their investment portfolio, know that everyone has started somewhere and the most critical thing you can do is to get started. But how can you actually save money each month for investing?

If you’ve reviewed your monthly budget and you still don’t think you can start, here are 4 things you should consider.

1. What are you planning to invest in?

Firstly, you should think about exactly what you want to invest in as this will determine how much capital you need to get started and also how you can get there. For example, if you are choosing to invest directly in to real estate then you will need quite a considerable cash amount available. Not to mention, you will needed further capital available for repairs, maintenance and any related fees for agencies, insurance and legal.

If you’re investing in securities, P2P or something similar, it’s likely there will be a minimum investment amount required but significantly less than real estate. Once you know how much you need to get started, you can move on to the next step.

2. Refinance existing debt

If you’re in a situation where you have absolutely no debt then you can skip past this one (and congratulations!), although statistics show that the average debt per person in the UK is £8,000, with the highest debt-to-income ratio in Europe seen in Denmark. Start with your largest debt, i.e. your mortgage, and check if you are getting the best interest rate available. Your property may have increased in value since you last checked and therefore your equity will have increased, this is usually the single most important factor for a bank when determining the rate they can offer you. Another common debt is a credit card; today there are a number of providers offering 0% interest rates for 12 months and over if you complete a balance transfer to them. Take advantage of these fantastic offers while they are available and use them to pay off your debt quicker, smarter and free up further income for investing.

3. Pay yourself first

Before you pay any bills (or anything at all for that matter), you should always pay yourself first. The day you get paid, you should set aside a minimum of 10% of your net salary to pay yourself and use the funds for investments, then you can focus on your bills and everything else. Once you get in to the habit of doing this, you may find that you choose to up your monthly percentage that you invest to 20%, even 30%, because it can be extremely motivating once you start to see your money work for you and generate interest.

4. Make some cutbacks

You don’t have to give up your car or downsize your house, but we’re certain that you can think of a few things you pay for each month that aren’t really necessary. What about that gym membership that you never use? Maybe you have a subscription to a magazine or a set of TV channels? The little things add up, so make a list of all the discretionary expenditure you have each month and you’ll be amazed at what you find.

Source: www.bondora.com

Savings can help you in the world full of risks we live in

By Smart money, , , , ,

We all live in a world full of uncertainties. Everything that surrounds us – nature, people, things – is in constant transformation, and the result is beyond the limits of our knowledge.
But our economies could be a solution (at least partial) to this problem.
Why? The answer is simple: in situations where we are confronted with many unknowns, over which we have no control, a good idea would be to act in the directions in which we can really do something.
For example, in terms of personal finances. Because money is a mean by which we have been taught that we can interact with the world around us.
So many of the things we need, or the problems we face daily, can be attained or even partially resolved with a certain amount of money, so we might be tempted to believe that ALL our problems would instantly disappear if we had enough money.
A totally wrong perception, for the most important aspects of life really have nothing to do with the notion of money.
But many other things really are related, which is why we are in danger of generalizing …

How can we increase our savings?

By definition, savings are the difference between what we get and what we spend. So, first of all, we could try to act on revenues. We all know that it’s not easy to increase our income, but at least we have the certainty that we know it. I mean, to a certain extent, we can rely on it.
Then, secondly, we can act on spendings. Of course it is not easy, but at least here it depends on us to a greater extent. And if we correctly correlate earnings and revenues, we’ll start to see how savings are gathered.

How can our savings help?

First of all, savings will bring a sense of control into our lives.
Beyond the countless things we CAN NOT influence in any way, the fact that we can act on our personal finances is a positive thing. And when this money control even produces results and we see savings as it accumulates, then we make clear progress towards increasing our safety.
But not only that, our economies influence our lives more directly.
A study made in the US showed that in the years of the last economic recession, 46% of those actively saving said that they were comfortable with their financial situation. Unlike them, 37% of those who did not save said they had to reduce much of their spendings to make it. Clearly, some people manage their money more efficiently than others.
The fact that you have some money set aside and, in fact, in order to live, you need a lower income than you have, it gives you the opportunity to keep your lifestyle even in unfavorable economic conditions. Due to the fact that the option not to put money aside for a certain period (or even to spend from existing economies) does not exist for those who are not accustomed to constantly saving, they will be more affected by any negative changes may occur at some point.
Those who make savings will be less concerned about unforeseen events and will have the ability to make it easier. What is even more important is that they know this, and that gives them a sense of security that no matter what may appear, they can do it.
Also, those who make savings set goals that they want to achieve. They know it’s more financially advantageous to raise money to go on vacation, for example, than to make a loan for that.
For them, savings are an integral part of their life, and the moment they reach their goal is a positive stimulus.
Unlike them, those who are not preoccupied with their economies, even if they get to put something apart, will do so because the fear of unpredictability, not because they are accustomed to do so.
Especially during recessions, economies help foreseeable people to be better prepared and less affected than others. And due to the fact that there will probably be other recessions in the future, maybe it would be a good time to think about your savings.

Also, as inflation is already becoming more and more clearly felt, maybe it would be a good idea to inform yourself about ways to invest your savings so that in the long run you can get profits that go beyond at least the rate at which your purchasing power decreases.

How to earn 10% per year with no risk

By Smart money, , , ,

Recently an investor asked a great question:“Hey, how can I earn 10% or more interest every year with no risk?”

We would love to say earning 10% each year with absolutely no risk is possible, but the truth is that with any investment you should always be aware of the risks involved. This is applicable for all asset classes, with the level of risk being different for each.

But there’s no need to despair, plenty of people consistently earn 10% or more per year because they are aware of the risks involved and manage this risk appropriately in proportion with their targeted gain. This is actually not exclusive to an individual or retail level investor either. Investment banks have been doing this for centuries, even today, if you walked on to a trading floor on Wall Street or Canary Wharf you would see financial traders leveraging themselves with extremely high-risk high-return strategies.

Here are 3 ways you can easily and instantly start managing your risk today:

1. Diversify

It goes without saying that diversification is the golden rule of investing. That being said, many prolific investors are known for saying that concentration within a single asset class is equally as important. This means that you do not necessarily need to have a share of your portfolio in every single asset class that exists, but you could pick a few and become experts in those areas. Even within an asset class itself, there is plenty of room for diversification. For example, different stocks and bonds if you invest in securities or loans with different credit ratings, durations and country of origination in P2P.

Here are the top 7 asset classes worldwide:

  • Cash Equivalents
  • Equities
  • Bonds
  • Real Estate
  • Gold
  • Precious Metals & Commodities
  • Alternative Investments

Did you notice anything about this? P2P isn’t even listed here, mostly because the idea of the individual investor having access to the wider consumer credit market has only been possible for the past 10 years. However, with the rate of year-to-year growth in the past decade it’s more than likely this will gain a top spot in the future.

Anyway, the point we’re trying to make here is that it’s highly likely that either you or someone you know has earned an excellent net return consecutively without having exposure in all 7 of the major asset classes.

As Benjamin Franklin once said:

“An investment in knowledge always pays the best interest.”

So, like Benjamin, get to know a few asset classes extremely well, diversify within those asset classes, monitor your progress and adjust your strategy appropriately.

2. Check your maximum exposure

This is connected to the previous topic. First things first, take a look at your net worth (no, you don’t have to have tens of thousands for this to apply to you) and how much you plan to invest initially as well as on a monthly basis. Then, ask yourself, how much risk are you willing to take and how much do you need the money you plan to invest? If the amount you choose falls nicely within your monthly budget, and you know you don’t need this money each month for your committed expenditure and bills, then you’re already on the right track. If you’re looking for short-term gains (such as day-trading) to pay your bills at the end of the month, you might want to take a step back and review your monthly budget.

Once you’re confident in the amount you will invest, decide on how much exposure you want to have in different asset classes, companies if you’re buying stocks, platforms and credit ratings if you’re investing in P2P, geographical areas if it’s real estate and so on. This will allow you to manage your risk by allocating a specific percentage of your total investment portfolio in different places, so if there’s a macro-economic event then you can be confident that you have taken the steps to minimize the impact this will have on your investments.

The famous U.S. investor and entrepreneur Robert Arnott once said:

“In investing, what is comfortable is rarely profitable”

This is not to say that investing cannot be made simple, instead it emphasizes that you should step outside of your comfort zone to make the most of your returns. Seeing your strategy through to the end and not jumping ship at the first sign of volatility is critical.

3. Cash and Cash Equivalents

Suffice to say, anyone who holds their money in their local bank will not earn 10% per year interest. In fact, you may be lucky to earn 0.01% depending on where you live. While it is important to have access to some cash with a very short maturity and near-instant liquidity, review how much is actually necessary so you avoid eating in to the absolute return (and the knock-on effect on compounding) in the long run. How do you review it? First, take a look at your emergency fund and make an assessment of how realistic the amount is; If you’re holding on to 2 years equivalent of your salary, you should think about whether you will ever need this much money for a rainy day.

Another tip

You should also consider the impact of tax and inflation on your overall net return, as this varies significantly between asset classes, your country of residence, current financial standing and more. If in doubt, always consult a certified tax or financial advisor.

There you have it, manage your risk religiously and you will have a realistic opportunity to consistently earn 10% interest or more per annum.

Source: www.bondora.com

5 ways to teach your kids about investing

By Smart money, , , ,

For many adults, investing is still a confusing pipedream that is rumored to lead to something called financial freedom. For those working outside of banking and finance, it may seem like those who invest are part of an exclusive elite club that have access to deals that are not available to the masses.

While this is of course not true, we recently thought that if adults still think this way then what about kids? By nature, kids are more open-minded and care free to the financial constraints of adult life (and they absolutely should be!). If you can reinforce the importance of investing and financial discipline from an early age, you will give them a valuable life skill which they most likely will not get from school.

Here’s our top 5 ways to teach your kids about investing:

1. Apps that help kids invest

With a variety of innovative apps available in the modern day, thankfully someone has created an app specifically for helping kids to learn to invest. BusyKid is an app that lets your child see the money they have earned from doing chores, manage their allowance and invest in to stocks. Investing can be intimidating for first-timers, but apps like BusyKid help simplify this experience so it becomes second nature to your children.

2. Create an investment account for them

Start making monthly deposits to an index linked fund or a P2P account which you plan to set aside and transfer ownership to them in the future. Over time and once they reach a mature age (Say their mid-teens), you can show this to them with a comparison of the total deposits you have made and how much interest you have earned for them with virtually no effort. Understanding the power of compound interest is the key to becoming an intelligent investor.

3. Compare 0% returns to your own returns

Do you give your kids pocket money every month? If you do, you can tell them how much their pocket money over the past few years could have been worth today if they had invested it. You can compare this with the performance of your own investments or for simplicity, at a rate of 10% per year in monetary terms or something better…

4. Speak their language

What’s the big thing they have wanted for a long time? Talking in terms of something visual or physical is much more receptive to kids than saying your money could have grown by X%. If they have been saving up for that new games console or bicycle and are still short of some money, you can help them understand that they could have been able to pay for it already if this money had been invested in the meantime.

5. Pay themselves first

If they are in their teens, maybe they even have a part time job at this point and you can help reinforce budgeting and paying themselves first for investing. If they have financial discipline from this age, they will carry this with them for the remainder of their lives and most likely be very thankful down the line when they retire 20 years earlier than their peers.

Tell them about the risks

It’s important to mention at this point, you should also inform your kids about the risks of investing and not putting all of their eggs in to one basket.

Source: www.bondora.com

The best 8 reasons to become an individual investor

By Smart money, , ,

Nothing complicated, an individual investor is simply a person who makes certain investments on his own, from personal money.
This is unlike the big investors, the institutional investors, which are very large companies and engage in large-scale investments.
This is the reason why an individual investor is often called the “small” investor, even if this is not always appropriate …
Beyond the title, becoming a “small” individual investor today is one of the best decisions you could ever make.
I know, maybe at first glance it seems to be a very complicated, costly and time-consuming thing, but in reality it’s not like that.

Here are 8 reasons why becoming a “small” individual investor is a very great thing:

1. To get profits

Okay, this is probably the no.1 reason for which most people are thinking of becoming individual investors …
However, it is a good idea to know from the start what kind of profits you intend to get.
For example, if you want to get big profits quickly, even at the risk of disappointing, I have to tell you from the beginning that this is not working. At least not from investments. And certainly not on a regular basis.
On the other hand, if you want to make reasonable profits but on long and very long term, then you have a good chance of succeeding. You just have to make a good plan and keep it with consistency and the results will begin to appear.

2. To build a prosperous future for you and your family

Investments really work on long and very long term. That is, that is why their most beautiful results will come exactly when you will most need them: AFTER ending your active life when you get to … a “retirement”.
Then you will enjoy more than ever that in your youth you have made the decision to become an individual investor because your investments will continue to produce positive results that will significantly improve your standard of living.
Plus, you will have the opportunity to teach your children to do the same thing as you, so they will have the chance to continue your legacy successfully.

3. To create passive income streams

Of course, the sources of active income you have now are very important, whether you are an employee or you have a small business.
But they have a major problem: they are strictly based on your work. It is for this reason that you should not rely solely on them for the future, but start building yourself as many sources of passive income as you can.
They have the great advantage that they require very little of your time, energy and attention, and they continue to earn you income in your absence.

4. To get financially independent

Getting financially independent may seem – at first glance – just a beautiful dream …
But it’s not like that.
The passive income sources you build as an investor will develop over time in the long run, so it is very likely that at some point they will bring you enough income to sustain your living standards at a reasonable level.
On the other hand, without these passive income sources, it is certain that you will remain dependent on your work, so you will never get financially independent.

5. Because otherwise nobody cares about you

Okay, if you do not take care of your financial future, who do you think will take care of you later, the government, the state?
The pension system is already bankrupt, and works only because it is supported by the state budget.
Meanwhile active population declines and retirees are getting more and more numerous.
That’s why I think it’s a good idea to create your own investment system, which in the long run can turn into your primary source of passive income.

6. Because it is now easier than ever to do this

There is a preconceived idea that in order to be successful as an investor, it is imperative to have in-depth economic studies, to be a great specialist in this field, and to spend all day studying financial and graphic reports.
This is totally false.
Of course, being a trader in the capital market and in Forex is a full-time job, but there are tens of millions of ordinary people in the world who carry out their normal daily activities and invest PASSIVELY in the long run without much effort .
Also, the idea that to invest you need big amounts is totally wrong. Today there are many financial instruments that are very affordable and where even very small amounts can be invested.

7. Because the sources of information are very numerous

In the Internet age where we are, any investor can quickly find a wealth of information about the subject that interests him.

8. Because everyone does the same

All the responsible people are constantly concerned about their future in the long run.
And, as they know that the aid coming from the respective states (in the form of pensions) is rather limited, they are concerned about active life in contributing to private pension plans and build their own investment portfolios.
Because they know, for generations, that only in this way they will have the chance to build for themselves and their children a good future without stress, worry or need.

5 things you should know about Peer-to-Peer lending platforms

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

Peer-to-Peer lending (or P2P), is a relatively new asset class in the world of finance that has gained traction within the last decade. Most recently, the past 5 years have seen an explosion of p2p lending platforms offering different investment options, rates of return, business models and the assets they invest. As the baby of the alternative finance world, Peer-to-peer lending platforms have paved the way to a fair and competitive marketplace that challenges the traditional monopolization held by the high-street bank giants.

The banking landscape has undergone a major shift where an individual person, like you, can now become the lender and earn the exciting interest rates that were previously not accessible to anyone outside of institutions.

Do you need to have a financial background to take part? No. Do you need access to huge amounts of cash to get started? Nope. Do you need any special licenses? Absolutely not.

Let’s review 5 things you should know about Peer-to-Peer lending, whether you’re a complete beginner or a P2P veteran.

1. Investing options

This is different across every p2p lending platforms but in general, you can break the types of ways to invest in to three different options. The first is some kind of automatic or managed option, where you essentially click ‘Go’ and the platform does the rest for you. Some platforms allow an element of choice with this, such as what risk you would like to take and what target net return you have in mind.

The second type can be classed as manual/semi-manual, meaning you take the wheel and pick a number of customer filters which allow you to whittle down your selection of investments to match your specific criteria. Some argue that this can be more lucrative in the long-run, however it completely depends on personal choice.

The third and least common option available is to invest via an API, it’s fair to say that this is only suited to investors with a technical background or those who have the availability to invest significant time learning how to build their own API.

2. Secondary Market

Most platforms now have what is called a Secondary Market, we’ll use an example of investing in unsecured loans to explain how this works. When you invest in a loan, it may have been issued to the borrower for a term of 36 months. The borrower makes their repayments each month including the principal and interest payments and at the end of the 36 months (assuming all payments have been made), the loan will conclude and the investor will have received all of their original principal back in addition to the interest.

An investor may decide after 18 months that they want to withdraw their investment in the loan and use the funds for another purpose. In this situation, the investor would have to list their investment in this loan for sale on the Secondary Market which can then be purchased by another investor.

3. Different assets

While P2P may be viewed as an asset class on its own, peer-to-peer lending platforms commonly offer completely different and unrelated investment opportunities. For example, Bondora only offers investments in unsecured loans which individual borrowers take out for a variety of purposes, such as home renovations or a one-off large purchase.

Other platforms may only offer investments in property, where your investment accumulates with others to fund one large total investment in an apartment building or development project. Some platforms even offer investments to fund a business loan for either an established or start-up business.

4. Rate of return & Fees

When investing in the different assets mentioned above, this can have a direct correlation with the rate of interest you can expect to receive back on your funds. Ranging anywhere from 4% to 20%+ expected return, this varies significantly between p2p lending platforms and can also be determined by the duration you want to invest for.

Some platforms also charge management fees to allow you to invest through them, others may only charge these fees once you come to make a withdrawal. Due to each platform having their own expected net return and fee criteria, it’s best to employ a holistic view when making your decision of where and how much to invest with separate platforms.

5. Third parties

This one may not be as significant for every investor as the other points, but it’s still good to know all the information and make an informed decision on where you choose to place your funds. In the most basic terms there are two parties involved in P2P lending, firstly you (the lender or investor) and the borrower.

A platform may choose to outsource their borrower operations to third parties who provide the investors with customers who need loans. In another scenario, a company might internally source all of their own borrowers and then look to larger institutional investors to fund these loans. At Bondora we keep both sides in-house, meaning we source our own borrowers and investors, with only approximately 5% of these investments coming from institutions. Overall, this lets us focus on building a product that benefits both our investors and borrowers.

So there you have it

Now you know 5 important things about p2p lending platforms, take a deeper look in to the platforms you already invest in. If you’re a complete beginner, get started today.

Source: www.bondora.com

5 ways to increase your income today

By Smart money, , ,

We’re going to make a prediction that the majority of people reading this have no more than 2 sources of income, namely from employment and your investment portfolio. Have you ever considered yourself as an entrepreneur? The English Oxford dictionary defines an entrepreneur as “A person who sets up a business or businesses, taking on financial risks in the hope of profit”. The part of that definition that sings to us is the first half, and the good news is that you don’t need to start a multi-national corporation or an innovative tech company to create an alternative income source for yourself.

One of the most important rules any seasoned investor will tell you is to diversify, diversify, diversify to manage your risk. It’s the same with your income. With all of your commitments, family and future goals on the line, should you really only rely on the money you receive from your day job to support that? Other than the obvious benefits of having more money in your pocket, an alternative income stream can act as an insurance policy in case your employer makes some unexpected changes. And if you think you’ve got even a little bit of an entrepreneurial spirit in you, you can do it for the outright fun.

Let’s talk about 5 alternative income sources you can get started with today.

Side hustle

What are you good at? What do your friends and family come to you for when they need a favour? What has been a lifelong hobby of yours? The truth is, most people don’t realise they have something unique to offer and will cross off the possibility of a side hustle almost immediately. You might be a fantastic swimmer; adults and children alike both want to learn how to swim and you could be the person that leads a class to help them once a week. Or maybe you have more technical skills than most, we’re sure if you walk down the high street in your local town you will find some independent businesses in need of a website, social media presence and help with SEO. If you love to paint, try selling some of your beloved pieces of art online. There are literally 100’s of side hustles you can start up today with little to no cash required.

Affiliate Programmes

Since the dot com boom, millions of people all over the world have started blogging about a variety of different topics and industries. In finance, some make a comfortable living by blogging about their experiences in investing in different types of assets and platforms. Most companies have what is called an Affiliate Program, which compensates people for referring others to their business whether it’s through a blog or even just to your friends and family. This is the same for most industries including fashion, transport and accommodation to name a few.

Sell your stuff

Introverts might shudder at this, but fear not. Traditionally people went to markets, festivals and events to set up a stall and sell a variety of things to those in attendance. Thankfully, a few bright sparks had the idea of setting up companies like Ebay, Shpock, Gumtree and Osta to sell anything from the comfort of your home. Take a look around your house this weekend, are you going to hold on to that smoothie maker you’ve never used for the next 10 years or sell it to get some cash?

Sharing economy

Airbnb, Uber, Task Rabbit, you’ve heard of them all. Despite this, most of us stay on the consumer side of the transaction and let’s face it, they are great services. It’s a great opportunity for anyone with their own place to become a host, even if it’s once in a while when you’re planning a weekend away. Business Insider has compiled a list of 25 places you need to visit in 2018, do you live in one of these places? If so, then this year might be a great time to start and capitalize on a growing number of tourists in your area. With companies like Uber and Taxify, you could try working only the busy periods like Saturday nights or the morning rush hour to make the most of your time.

Invest

We expect most of our readers to already be doing this, but it’s worth mentioning. Whether it’s in P2P, real estate, stocks or something else, generating a monthly income from your investments is a very real possibility that you should take advantage of. Recently, we wrote a post on how this is possible in the miracle that is compound interest and the importance of setting goals in achieving financial freedom.

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If you’re serious about increasing your income, you could even try putting all of these sources together and make a significant change to your financial standing. If you’re already doing this, we’d love to hear how it’s working for you. Leave us a comment below and let us know how many alternative income sources you have.

Source: www.bondora.com

The Ultimate Guide to your mortgage

By Smart money, , , ,

Mortgages. The word itself comes from the French ‘Mort-gage’, which literally translates to ‘death-pledge’. On a lighter note, having a mortgage has for many decades been viewed as the first step into the adult world for many people as you move away from your family home or rented accommodation. While a mortgage is not for everyone (especially those who relocate often or have other commitments), financially it is indeed a fantastic way to reap the rewards of capital growth over time and create a nest egg to leave to your relatives in the future.

So other than finally being able to turn your basement into a miniature bar or build that greenhouse you’ve always wanted, there are a few things you should know to make sure you’re not paying any more than you need to and what to expect over the long-term.

Applying for a mortgage

If you’re reading this, you might not even have a mortgage yet and you’re thinking about how you can get started. While there are several new alternative finance platforms cropping up who offer residential mortgages, it’s highly like that most people will still go to their local bank (for now). Trying to break through the jargon and ancient systems used by the banks can make applying for a mortgage feel like trying to solve a Rubik’s Cube. To get started, try using a comparison site to filter a few potential mortgage providers for you. Enter your income and expenses details as well as the price of the property and your deposit, then most should show you an indication of what interest rate and product you can expect to get.

After that, you can either fill out an application online or set up an appointment either via video link, phone or face to face if there is anything you are unsure about. This is most likely going to be the biggest financial commitment of your life, so make sure you take the time to understand the financial provider you will be using to help you with it.

Repayment type

In general, one of the first things a bank will ask you when applying for a mortgage is what type of repayment option you want. Huh? Don’t worry, in general there are only two separate options that you need to know about:

  1. Principal and interest (Repayment) – Each month you pay the principal that you borrowed on the property plus the interest that the bank charges, at the end of your loan term you own the property outright with no extra payments due.
  2. Interest only – Each month you only pay the interest that the bank charges (Meaning you have a significantly lower monthly payment than you would on a principal and interest repayment basis), the whole principal amount is due at the end of the loan term. Overall, you will pay significantly more interest over the loan term with this option.

Over the past couple of decades, a lot of people using the interest only repayment option have got in to financial difficulty at the end of their schedule and ultimately had their home repossessed by the bank. A lot of banks and financial regulators are now imposing much stricter regulations for people who request an interest only repayment due to this. In contrast, it can be an extremely lucrative option for people buying a property to rent it out.

Mortgage Term

Another important thing you need to decide is how long you are going to take out your mortgage for, known as the ‘mortgage term’. 10 years? 20 years? 40 years? The answer really depends on you and your personal and financial circumstances.

If you’re expecting a few life events over the next 5 years, such as getting married or having children, then you might consider extending the mortgage term to keep your monthly repayments lower. Or maybe you are in the middle of a training induction period at work and you know you are going to receive a considerable pay rise in the next 12 months (Lucky you!), in this case you might choose a lower mortgage term with higher monthly repayments.

Bear in mind, the length of your mortgage term has a significant impact on how much interest you will pay overall.

Product

Possibly the most crucial aspect of your mortgage is the product that you choose. In general, this can be separated in to two types of products; fixed rate and variable rate.

  1. Fixed – Your monthly repayment will remain the same for an agreed period of time, for example, 2 or 5 years. This can be very useful for budgeting and for the risk-averse person who does not want to take any chances with rising interest rates.
  2. Variable – A variable rate can change on a monthly basis, either in line with the banks own rate, EURIBOR or the rates issued by your national bank. You may benefit from lower rates especially in a booming economic environment, however it can be harder to budget on a monthly basis.

The length of time you can have one of the products for completely depends on your bank, ranging from 1 year to a lifetime product offered by some providers.

If you’re thinking you don’t have either of these products, you may be on the standard default option product issued by your bank. This is usually the rate you roll on to after your fixed or variable rate ends (and if you don’t arrange a new one), it is usually much higher than the other products available and most people see their payment increase once and completely forget about it. If this sounds familiar, check with your bank immediately because you have the potential to save yourself €100’s per month!

Overpayment

One of the most valuable tips we can give you is to make the occasional overpayment on your mortgage, it has the potential to save you a colossal amount of interest over the term of your mortgage. Money Saving Expert has a fantastic overpayment calculator you can use to test the impact of making an overpayment, we’ll add an example below for you.

Let’s say you have a mortgage of €100,000 on a repayment basis with a 35 year term at 3.5% interest. Each month, you give the bank €413 which pays back the principal and interest. Let’s also say that from your investment portfolio, you are generating a very realistic minimum figure of €100 per month in interest for yourself. You then decide to put this €100 to use and make a regular overpayment each month on your mortgage, this is what happens:

  • Overpaying would save you €25,594 in interest alone
  • You will pay off your mortgage in full 10 years and 11 months earlier than originally planned

Wow! For some, that means retiring from work over a decade earlier and having a nice amount of savings each month to spend on whatever you want. Go ahead, test it yourself and play around with the figures.

Remember, this is all realistically possible by generating a cash flow from your investments and setting yourself a goal.

Now you know

Hopefully this guide will be of use to anyone who has a mortgage or is looking to get one in the near future, make sure to read over these points a few times and take it all in, it could save you €€€’s.

Source: www.bondora.com

The Ultimate Guide to Buying a Car

By Smart money, , , , , , ,

Nowadays, having a car is a necessity in everyday life. Whether it’s for commuting to work, going to your local food store or visiting your family in another town, there’s no denying that having a car makes your life easier. Other than the expense of buying a home, owning a car is typically the second largest expense you will have in your lifetime and since it is a depreciating asset, you want to make sure you get it right.

What car?

There are literally millions of cars out there and hundreds of different manufacturers, this makes it even more difficult to decide which car is the best for you. The good news is, most online car sales sites like auto24.ee, autotrader.co.uk and mobile.de allow you to enter your filters and search for vehicles across the marketplace. Even an extremely good car salesman might be able to help you in a similar way. A few things you should take in to consideration:

  • Type – SUV, Sports car, Van, Estate, Saloon? This depends on where you live and the terrain you will be driving on, your family size and the main purpose you will use your car for. For example, if you live in northern Europe then a sports car may not be the most practical option for the icy winter conditions, in comparison it might be perfect for those living somewhere like sunny Spain.
  • Mileage– Generally, this has a huge impact on price as it’s commonly said the moment you drive your brand new car out of the dealership it decreases in value.
  • Fuel– Petrol, diesel, hybrid or electric. If you’re environmentally conscious then the electric option may be your first choice, for others using a van for trade purposes you might find a diesel engine more suited with your daily routine.
  • Age – While older cars are likely to be cheaper, you should check a few things like the chassis, any evidence of rust and the engine to see if it has been taken care of by the previous owner.
  • And of course, price…

Price

Before anything, you should first work out exactly how much you can afford whether it’s on a monthly basis or a full cash payment (We’ll get to this). After you’ve come to a figure, remember that when purchasing a car your emotions and impulses will often try to take over, especially if you are in the presence of a car salesman.

Yes, you may be able to buy a new Mercedes for an extra €10,000 but think about how much you actually need it and what restrictions it might impose on your financial standing (and ultimately your personal/social life) if you were to buy it.

If you’re still not sure, a good place to start is by either looking at the total amount of your savings balance or the net free income you have each month after your investments, bills and social life. Decide on a percentage of this to put towards a car and stick to it.

Cash, lease or finance?

This is an interesting one. A small percentage of people will have the spare cash lying around to purchase a brand new car that’s priced at over 5 figures, and with this option you will certainly pay less money overall for the car. When leasing a car, your repayments will usually be much lower than financing because you are essentially paying for the value of the depreciation in the car. At the end of an agreed term, you then have the option to make a lump sum payment and buy the car outright or hand it back to the dealer and take out a new similar deal. If you choose to take out finance for the car, your payments will be higher than the leasing option but you will own the car in full once the loan term has ended.

But, even if you have the cash available this does not necessarily mean it is the most cost effective option. Why? Well, if you have a good credit score and can obtain a low rate of finance on the car (e.g. 3%) and you know that you can make 10% per annum when you invest that large lump sum, this option works in your favour and pays for the interest due on the loan with some left over for you to compound.

Insurance and tax

It’s surprising how much the price of insurance varies significantly between providers. Based on their internal models and data, one insurer may quote you a price 3 times higher than another and offer pretty much the same package. Similar to taking out a mortgage, we suggest you use a comparison website to get an idea of which providers can give you the best price and overall cover. Usually, you can find some providers that will give you free extras like breakdown cover, legal cover and even unique quirky offers like theatre tickets. It’s important to point out here that when it comes to renewing your policy, it’s likely that your existing provider will not give you the best price out there since you are already a customer so make sure to shop around.

n most countries, the tax payment due for your car is heavily influenced by the age, type of fuel and the level of emissions it produces. If you have an old diesel SUV that pumps out Co2 emissions like there’s no tomorrow, prepare for a hefty tax bill. On the other hand, if you have an electric car then some governments have imposed a rule of no tax due on these cars. You should get an idea of the insurance and tax payments you will be responsible for before finalizing the purchase of a car and review this against your overall budget.

Beware of the extras!

So you have decided on the car you love, you’ve found a dealership and you’ve agreed on a (hopefully discounted) price, congrats! At this point you will be introduced to the ‘After Sales’ manager who is responsible for closing the deal and ensuring you buy as many optional extras as they can cram on to a piece of A4 paper. A typical extra might be a warranty offered by the dealerships themselves, this will be presented in gold wrapping paper and sprinkles but the truth is it’s not any different to the warranty already in place that the car manufacturer offers on a complimentary basis.

You can also expect a number of gadgets to be thrown your way as luxury options, such as three 12V sockets in the boot of your car that only cost an extra €499. Unless you are a frequent camper or the type of person who carries around a portable kettle for emergencies, then you probably don’t need it.

Drive away happy

Now you know the facts and you’ve done your research, you can feel confident in your decision knowing you have a great car that won’t negatively impact your financial well-being.

Source: www.bondora.com

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