Saturday, September 6, 2008

Financial Mistakes You May Be Making

All of us make financial mistakes, and research in the new fields of evolutionary economics and behavioral economics are starting to explain why. It will be good to have this knowledge someday. But in the meantime, here are ten of the more common money mistakes you may be making, so you can start correcting them now.
1. Making A Competition Of Financial Decisions

Trying to "beat" anyone else in a financial transaction is a bad habit, unless you are playing poker or negotiating a business or investment deal. The first people to buy new technology get to show it off, but they also get the worst version at the highest price. If you "win" at an auction it means you paid more than anyone else was willing to pay. Looked at that way it doesn't seem so smart.

Evolutionary economics explains why we feel this need to "win." It developed as a way to gain a better position in the tribe, which increased one's survival odds thousands of years ago. This tendency of ours is of very little value in a modern economy, so ignoring such urges is wiser.

2. Believing You Are Owed Something

Nobody owes you a thing unless you have a contract or a promise. Dwelling on what is "owed" to you is a financial mistake because it gets in the way of doing what is necessary. And why does anyone owe you a thing? For example, health insurance came to be expected of large employers based on nothing more than the fact that many provided it. Had enough companies provided cars to employees, we would think we are "owed" a car by our employer.

Forget what is "owed" to you. Just work honestly to get what you can. Ask for a raise, but if you're not paid enough, find another job. Collect that unemployment benefit if it's available, but don't think others have an obligation to provide your income for you. Once you stop looking for your "due" you can start looking at how to make money and create what you need for yourself. Usually this means seeing what others want, and finding a way to provide it for a paycheck or a profit.

3. Believing Value Is About Prices

Suppose a television normally sells for $900 and is on sale for $400. Is that a good value? Most people may think so, but the value of personal items is measured by what the individual user needs. If you're as happy with a $200 television, then the other is over-priced from your perspective. Such personal purchases are worth only what it makes sense for you to pay. If a $20,000 car is worth just $3,000 to you, then that's that (and you don't buy it).

4. Believing Value Is All About You

I once saw a man lose $30,000 by pricing his home too high and leaving it empty for years - one of the more common financial mistakes. With investments, value has nothing to do with what you think a thing is worth. The only important measure is what the market will pay for it.

People often confuse personal consumption items with investments, thinking, for example, that a car is an investment. A $22,000 kitchen remodeling project isn't an investment either, if future buyers will pay only $10,000 more for the home afterwards. The owner might like to think it added $30,000 in value, but his ideas are irrelevant. He better enjoy that new stove and cupboards, because they were not investments, but a $12,000 personal purchase (that's his net loss).

5. Believing High Profits Are Unfair

In any honest sale, the price is fair, or it wouldn't have been paid. Consider if your own house had a market value of $400,000 and you wanted to sell it. Would you lower the price to make it more "fair?" Not likely, so why expect any business to charge less than what the market dictates?

How much profit is made on something is entirely irrelevant to what its value is. Your choice is to buy it or not. It's a financial mistake to waste time complaining about a profit you would gladly accept if you were on the other side of the transaction. The truth is that you wouldn't buy it if it wasn't a fair price, and nobody (in a free country) is forcing you to. Spend your energy looking for a better alternative or finding ways to make more money instead.

5 Simple Money Rules

The idea of tackling their financial situation often intimidates people. They feel as if the situation is too large, too overwhelming, to be tackled, and so they adopt the Ostrich mentality (ie sticking their head in the ground) and say things like "I will sort out my finances when I get my "big break"... at least, I know I did!
But the reality is that there are several small, simple things that anyone can do to improve their financial situation right away, things that will lay great ground work to build on over the course of people's creative careers.

Pay Yourself First

This really is the corner stone of any long term financial stability, let alone wealth. What this actually means is simply that, every month, you are putting a set percentage of your income into a high interest savings account, and not touching it until you are ready to invest with that money. And that is the key. This is not the "rainy day" account that you dip into when things get hard, nor is this the "splurge" account to get something special for yourself as a celebration. Money is only withdrawn from this account to buy assets with - an asset being defined in this case as something that either makes you money, or appreciates (increases) in value (so a new car would not be an asset under this definition!). Do this consistently and, over time, you will build up a very nice amount of cash to be investing with.

Regular Money Days - records & Organization

A "Money Day" is simply a day that you set aside to work on your finances. Now, it does not have to be a whole day, of course - unless your situation merits it... usually because you haven't done one for a long time! Personally, I set aside a couple of hours every other week, and then a meeting with my accountant over the phone every couple of months. Doing this accomplishes two things: it keeps your accounts in impeccable order, and it allows you not to think about your finances between times, freeing you up to think about and do other things... like your art

Fore-cast your spending

Forecasting is the process of allocating where your money will be spent. You start by going through your Chart of Expenses (email us at if you need one of these), and finding out where and how you currently spend your money. You then go through that list, and determine which categories cannot change (rent, for example) and which ones can (groceries, entertainment etc). Having got that list, you can then make strong, educated decisions about where you choose to spend your money... as opposed to just blindly trying to cut out Starbucks or eating out. And that is the big difference between this process and traditional budgeting. We never suggest eliminating a category, as we have all heard "absence makes the heart grow fonder". But as opposed to going to Starbucks every day, can you go every other day? Or order a Tall instead of a Venti? Doing this in several areas can make a huge difference to your overall spending.

Keep business separate from personal

Many of us do something called "co-mingling": we operate our entire lives out of a personal checking account. The problem with this is that no "real" business does this - you would never see the CEO of Kinkos write a check for the company out of his personal account. What we need to do, at the very least, is set up a DBA (Doing Business As) account ( can help with this) for our artistic career, and get a business bank account associated with that DBA. Not only does this then allow us to clearly see what we are spending and earning through our acting career or art sales, but it also legitimizes the tax deductions we take due to our art - the IRS can clearly see that we are running our career as a business, not as a hobby. The reason this is important? Business expenses are deductible, hobby expenses are not (this distinction can hurt, to the tune of thousands of dollars of back taxes: one of our students got nailed this way)

Regular financial education

Keep doing what you are doing right now! We take time to go to art school, acting classes, workshops... but we expect our finances - something most of us have never worked on (a fundamental problem with our education system, and something we will address in a separate article) - to somehow take care of themselves. Not only is this not realistic, it is dangerous, as we can make numerous serious mistakes blundering around while we try and find our financial way. The biggest reason people stop pursuing their artistic careers is lack of money. Knowing this, doesn't it make sense to put some time into financial education now, so that you are around for the long term? We read all the time about people only breaking out in their forties: wouldn't it have been sad if they had had to leave the arts before then because they had to make money? And wouldn't it be sad if that was going to happen to you... and you had to quit for the same reason? So carve out some time now to learn about money - it will be well worth it in the long run.

So there you have it - five simple things you can implement right now that will significantly improve your financial picture over the coming months and years. Incorporating all of these things into you daily and weekly lives is only a tiny time commitment of time, but the dividends from doing so can last a lifetime.

Simplifying your Finances for Seniors

Trying to survive in this fast paced world seems to be the motto for most of us, but that very mindset is what keeps us from truly preparing and managing our finances for the future. We all could use some financial tips, but for those that are already in their later years, managing their money as a senior citizen can be a very daunting feeling, especially for those that did not plan before they reached retirement.
When getting your finances in tip top shape, your first order of business should be to safeguard your important documents. Always make copies of important documents, put the copies in a safe place that you may have easy access to, and then put the originals in another safe place. What are important documents? Important documents could be a number of things, but most commonly they are your (social security card, pension records, insurance policies, and brokerage accounts).

Stop the procrastination, go head first and deal with the difficult topic of your will, the sooner you do it right the first time, the quicker you can get on with enjoying life to its full potential. What kind of medical treatment are you ok with receiving or what kind of medical treatment are you dead against? Who will inherit your real estate? Who will inherit your savings accounts? These are just some of the question you need to tackle with writing your will. Of course, when writing a will make sure to see an Attorney who specializes in this area.

Get up to speed with the times, there is no reason for you to have to wait in line at your local bank to deposit your pensions or social security benefits. Take the effort and set up direct deposit with your bank, this will save you time and hassle in the future. Since your reading this article, you do have internet access. Pay your bills online, it’s very easy, just simply contact your creditors and ask for their website address, most creditors now a days make it very convenient to pay online.

Stop holding onto your old documents that are non-important, for some reason we have the tendency to hold onto every bill or bank statement we have received from the beginning of time, we really do not need to do this anymore, unless it is a receipt that you must keep until the warranty expires, just shred all the non-important stuff.

Never stop be cautions, as we see on TV all the time fraud is rampant, and sad to say senior citizens are usually the major targets, so as mentioned before keep your important documents in a safe environment, also never give out your social security number or credit card numbers over the telephone, as that is usually how most frauds start.

Senior citizens living in Nevada, can contact the Consumer Credit Counseling Services of Nevada for free consultations, the CCCS of Nevada offers counseling for debt management. This is a great place to get free information.

Personal Banking: Easy Access is the Key

Whenever new technology makes a universal impact the business world soon finds a way of harnessing it to suit its own and also its customers’ ends. That axiom is particularly true in banking which as an industry tends to be a keen ‘early adopter’ when it comes to significant technological advances.

Today, most UK banks deliver or aspire to deliver a wide variety of ways for their customers to do day-to-day banking with them, otherwise known as a multi-channel approach. For example, if a customer prefers to do their banking in person at a branch, over the telephone by voice or text, by using an ATM (automated teller machine) or even via the internet, the major banks will allow them to do so by successfully integrating all their systems.

Of course, it is not completely altruistic of banks to offer a multi-channel approach. Certain ways of interacting with customers cost banks less than others, and although bank accountants would prefer all their customers to interact via the cheapest channel, not all customers want to do their banking in that way. So, it is also in the bank’s interest to ensure that customers can still do their personal banking according to their own individual preference, or a variety of methods if that is what the customer wants.

As more of the younger generation - who accept technology change more readily - open bank accounts, combined with the growing trust in internet and other technologies from a section of reluctant older users, more of the total number of transactions on the internet will inevitably grow. However, as yet it is still impossible to physically pay cash into an account without either using an ATM, bank branch or approved collector such as the post office so they will continue to operate into the foreseeable future.

Indeed, many people still prefer to do their personal banking face to face, so the major five UK banks all possess significant branch networks that allow for personal interaction. At bank branches customers can do all the usual financial transactions such as withdraw or deposit cash and cheques. In addition, administration queries can be handled by staff, such as setting up a standing order, change of address and various other changes to details. A number of major banks also offer free personal financial reviews in their branch networks, during which they will look at all your financial dealings to make sure you are getting the best deals available on the market.

The massive numbers of daily transactions that take place in the banking world mean that the quicker and simpler banks can make any process the better it is for both customer and bank. In an ever demanding world the banks that thrive will be those that can deliver instant service across a multitude of platforms.

Choosing Between Debit and Credit Cards

Cardholders make a lot of choices. First they must choose whether or not to apply for a card. Then they have to decide which card they want. Their choices include 0% interest cards, reward cards, charity cards, and so forth. But now there’s another choice for cardholders to make: debit or credit? Which card suits your needs better? Is one payment method superior to the other?
Debit Cards

Debit cards are a convenient choice for everyday purchases. You swipe them at cash registers and gas pumps just as you would a credit card. Debit cards pull money straight from your bank account. There is no interest involved, and no monthly payments to worry about. If you tend to carry a balance on your credit cards from month to month, debit cards might be a good alternative.

Still, buyers should pay careful attention to their bank balances when using debit cards. Most debit cards won’t be declined until you’re overdrawn by hundreds of dollars, and each overdrawn transaction will cost you big.

Also, debit card users aren’t subject to the same amount of purchaser protection that credit card users enjoy. For example, purchases made with credit cards can be reimbursed if the merchandise turns out to be shoddy. When you buy something with a debit card, you’re pretty much stuck with the purchase unless you can get an old-fashioned refund from the seller.

Credit Cards

Credit cards offer variety, perks, and consumer protection. They also come with the temptation to make purchases now and pay for them months later. If you’re not careful, it could even take years to pay off that family vacation or Christmas shopping spree! The number one rule for credit cards is this: Pay your balance in full every month. If you don’t, interest rates and finance fees will inflate the cost of your purchases.

For those who pay off their monthly balances, credit cards are good financial tools that offer benefits not found with debit cards. For instance, some credit cards offer cash rebates for daily purchases like groceries and gas. Others help frequent travelers rack up free airline miles. Special-interest credit cards put money toward a variety of good causes, from college funds for children to veterinary care for pets. Still others donate a portion of all purchases to the charity of your choice.

Credit cards offer other bonuses as well. Many provide rental car insurance and roadside assistance. Their greatest benefit is the protection they offer against fraud. If someone uses your credit cards to make unauthorized purchases, you won’t be liable for the costs. Also, if you purchase an item that turns out to be faulty, you can receive a reimbursement from the credit card company.

Are credit cards superior to debit cards, or vice versa? The answer depends on what kind of buyer you are, and what kind of perks you want. If you’d rather not deal with monthly payments, debit cards are a good choice. But if you want to build up your credit score and enjoy some rewards along the way, credit cards are your best bet.

Making Sense of Credit Card Offers

Have you received credit card offers in the mail? If so, you might have wondered which cards really offered good deals. Credit cards can be helpful budgeting tools, or sinkholes of debt. The difference is in the details: some cards have high rates and fees that make it difficult to keep your debt in check. Take a moment to compare credit cards before you decide to carry one in your wallet.
Credit card offers list the terms and conditions of various cards. When you compare credit cards, look at the interest rate, also known as the APR. It might be listed as 0%. If so, you can bet that it will be much higher in six months to a year. 0% interest cards have introductory phases. After that phase has ended, they are subject to regular interest rates. Most cards offer 12-24% interest rates. The lower the rate, the faster you all be able to pay off your debt.

Also make note of the type of interest rates on your credit card offers. Some rates might be fixed, and some might be variable. Choose fixed-rate interest whenever possible. Variable interest rates can change with little warning from the card issuer. If you do choose a credit card with a variable interest rate, make sure you know when and how much that rate can change.

When you compare credit cards, you all notice that some of them come with quite a lot of fees. There can be application fees, processing fees, annual fees, late fees, and fees for going over your credit limit. Fees can also apply when you close your account or make a balance transfer to another card. The credit card industry is competitive, so don't waste your time on credit card offers that indicate exorbitant fees.

Your next step when you compare credit cards is to look at the credit limit each one is willing to give you. Some might offer low limits, while others might offer you thousands of dollars. Higher credit limits can improve your credit score, but they can also tempt you to spend money on things you can't really afford.

Always check the small print on credit card offers. Companies should tell you their policies regarding interest-free grace periods, late payments, and how you will be informed if changes are made to the terms of your contract. If you have questions about specific policies, call the cards customer service division and ask to speak with a representative. Most card companies are only required to give 14 days written notice when making changes to your account. There is pending legislation that seeks to compel card issuers to give more notice before such changes are made.

Dont just accept the first credit card offers that come along. Take the time to compare credit cards. They can be great for building up your credit, but they can also leave you with a heap of debt if you dont use them wisely. Look for good deals with low fees and interest rates. The research you do in the beginning can save you a lot of financial heartache down the road.

How to Invest in Gold

Today, the price of gold is determined by how much is needed and how much it can be used by others. The supply of gold strengthens quite leisurely as additional gold is extracted from mines. Gold acts as a fortress against inflation. Presently, a single ounce gold coin is priced at about $780. If it seems to you that the dollar will continue to lessen in value, investing in gold may be just for you.
An exchange-traded fund appears to be one of the easiest ways to invest. An exchange-trade fund, or ETF, can be used similar to a mutual fund that is available to trade as stock.

An important benefit found from investing in gold by way of an ETF is that you don't need to actually store the gold yourself. Owning gold is a risky venture, if done by yourself, as it can easily be lost or stolen.

Furthermore, ETFs aren't solely the only opportunity to invest in gold. Many find collecting gold coins and keeping them over time is another clear way to invest. Storing them in a safe environment is considerably important, such as a safety-deposit box.

Another opportunity for gold investment is golf futures. Although this is another way to invest, it is also one of the most dangerous, since many people lose the money that they have invested. Though, there are a substantial amount of those who become quite rich. The profit would be gained from the current price in gold to the future price in gold.

Over years, gold has proven to be a worthwhile, and often lucrative, investment. Anyone who is considering this investment should weigh all of its aspects.

For more information on gold coins, visit

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