How To Manage Your Finances Effectively?

Good day, ladies and gentlemen. Today I would like to talk about a not entirely evident topic in forex trading as free money management. There are 2 stages: 1. Earn money; 2. Spend them or invest.

Anyone can cope with spending money without any advice, but I would like to talk more about investing, or rather daily life money management. All stated below is the personal experience. No sitting room analysis.

For whom is this article

Tips outlined below will be useful both for those who have very little income, and those earning more or less decent money. Up to about $ 15,000 per month. If you are an experienced tycoon, you’re unlikely to find here anything useful)

Why should I invest if there is forex?

I often give the advice to withdraw every month half of earned money on forex. Many do not understand why. There is an illusion that if you continuously invest all earned in your own trading account, you will become a billionaire very soon. This is not true. Think about it: why the owners of factories/steamers invest in other people’s business? Invest in funds, etc.? Why don’t they put all the money in their own business?

The answer is simple - to diversify. This reduces risk and gives emotional tranquility. And this is very important.

Passive income, investment, and self-employment

There is an illusion supported by scam vendors that there is some opportunity to invest $ 100 and get millions of dollars in a couple of years. As an example, Apple shares or Peter Thiel, who early invested in Facebook. These cases - the only exception to the rule, and to expect that you are also lucky, is at least not reasonable.

Money makes money whether you like it or not. Huge profitability is only possible if you work in your investment. If this is your Forex account or your business. Investing is passive money management. Namely, when you once have made some calculations, invested, and then all the work is done by someone else.

If you open your own business, invest your own money and work with it, it is not an investment, but self-employment. Time and energy resources are very limited, so a self-employed will not be considered in this article. It will be just about investing.

Investment Tools

It may seem that there are countless tools for investment, but in fact, they are divided into a small number of groups:

1. Bank deposits
2. Mutual funds, investment funds
3. Real Estate
4. Shares, futures, etc.
5. Asset management, PAMM-accounts
6. Various murky schemes à la Ponzi
7. Somebody’s Business

Pyramids, HYIP, Ponzi, network marketing, and other scams

Leave such nonsense to naive students and gullible alcoholics. You can only earn on pyramids and projects like “invest $ 100 - get $ 100,000” if you organize it yourself. Which means, you’re standing on the top of the pyramid, and money from stupid investors flow to your pocket.

Bank deposits

The main and the easiest way to invest free funds available to mere mortals. Although many neglect it, because of the small yield. It’s not due to a great mind, but to a small amount of money. In fact, having a deposit in the amount of 0.5 mln USD with an interest rate of 8-10% per annum is already enough not to work at all. And this amount is not so huge, believe me.

Main advice when using bank deposits - is, of course, distribution of money deposit in pieces of not more than $ 20,000 of deposit in the same bank. Because you can get this amount back on the insurance if the bank is closed. What if you already have a maximum amount of insurance in each bank? Involve family members, spouses, children, etc. Just do not forget that you must absolutely trust this person.

How to find a good percentage of deposits? To search for deposits with suitable conditions (in current realities, I advise to focus on the rate of 7-10% per annum) website http://www.bankrate.com/checking.aspx is useful.

But anyway try not to invest in the worst banks. Check the reliability in the annual Forbes list.

You should understand that the more reliable the bank, the lower its interest rates on deposits. The golden mean - open deposits in banks actively giving loans to the population. The bottom line is that this bank has a good cash flow from those who take loans and pay huge interest, and it enables the bank to give us high-interest rates on deposits. And since lending profitability is high, the bank has no need to engage in gray operations like cashing operations and the likelihood of its closure is low.

Another tip - sometimes there are “delicious” proposals from banks for deposits. They need to be caught and you should open a deposit for a long term. For example, you could open a deposit in some banks with a yield of up to 17% per annum in 2008 crisis.

Do not forget about diversification. We invest in deposits with high stakes in the “progressive” banks and banks with high reliability, but small interest rate.

Deposits disadvantage - the loss of interest when closing the account. If there is a possibility that you may need the money, you can put them on the current account with interest on the remainder. You can withdraw money at any time and you get your interest each month.

Should I open a deposit in another currency? Yes. Although foreign currency deposit rates are much lower, it is another diversifying tool, which should not be neglected. In addition, low rates are often offset by the growth of the exchange rate.

Even more - save up your money in a different currency. You can do it on a deposit or on a forex account, it doesn’t matter.

Loans and debts

Try not to take loans (in any form) and don’t lend money. And you will be fine.

An exception may be a “good” credit for businesses, such as the purchase of equipment in installments.

Generally, when you have debt, it eats a hole not only in your budget but also eats your energy. Although this is again not the topic of this article.

Exceptions are credit cards with a grace period when you can repay the debt without interest for some time (usually 1-2 months). Which means that if you bought something for $ 1000 and repay this debt within a month, you will be charged no additional penny.
But be careful, because it is very easy to get in a rage of consumerism. Think of such credit as a tool, for example, when you don’t have a sufficient amount to do a purchase by the debit card or to book a hotel for the trip. By the way, it is better to book hotels with a credit card rather than a debit card - it is easier to remove the money lock in case of cancellation.

Bank cards

Oddly enough, but the plastic debit cards also provide an opportunity to multiply your money. First of all, we are talking about cards with interest on the remainder. I.e. you spend money from the card and get interest on unused funds at the end of the month.

Another way to save a little is Cashback. I.e. the return of a small percentage of purchases to your card. Previously, it was only for a credit card, but now there is cash back from debit cards.

You should have a lot of cards. Because they can be blocked at any time with or without a reason (happened to me more than once). And the prospect of being left without money in a foreign city or even abroad is not very pleasant. So, do not limit yourself to a card from one bank, make 5 in different ones.

Never order cards of GOLD and Platinum type, if it requires additional costs. The status of these cards has long been devalued and you get nothing but extra fees for the service.

Cash

Personally, I do not like cash, but you need to have it. And both of the currency of your country, and dollars. The amount must be determined by yourself, but you should have enough money to live quietly for about a month. In the event of war, invasion of aliens or the collapse of the banking system. Everything happens in life.

I recommend keeping your money in safe. The safe itself and its installation cost in your apartment are not expensive, and you will not worry about your valuables when you call a maid or plumber.

Mutual Funds

Mutual funds are often presented as a source of enrichment. But it is not the case. Yield over 3 years, rarely exceeds on average bank deposits, and the management commissions and loss risks totally kill the attractiveness of mutual funds. I believe that investing in mutual funds is possible only if don’t have anywhere else to invest it.

Somebody’s business

Very difficult subject. If you think that there are risks only on Forex, you are wrong. 9 out of 10 new businesses are being closed during one year. Will you be lucky to invest in the project that will be successful? It may be so, maybe not. I personally gave for the whole time a large sum of money only to one person to do business, a good friend of mine. But just because his partners are seriously experienced people.

Unfortunately, but my money is stuck in debt for an indefinite period. So, you shouldn’t invest in someone else’s business.

Shares, futures, etc.

To earn money on stocks (not active trading) you need to do it from the morning to the evening. To study a bunch of reports, calculate risks, monitor the market, policy …. So, it becomes not an investment, but self-employment. For me, Forex is more than enough, so I do not buy shares.

PAMM accounts

Not perfect, but a good selection of PAMM accounts generate more revenue than bank deposits. I note that PAMMs are risky investments too, and you shouldn’t invest in them more than 10% of your capital.

Real estate investment

“Kiyosaki” model works only in the US. So if you’re hoping to get an apartment with a mortgage and repay the loan at the expense of rent – forget it. Or move to the US.

Buying a property for investment, not for your own residence, is very difficult and costly. Moreover, they are “long” profit, as you can sell purchased apartment without losing on taxes, only in 5 years. Therefore, I believe that real estate investment can begin to be considered when you have millions of assets. So that temporary freeze of money will not interfere you.

Unfortunately, my experience of investing in real estate is not very good. In the current crisis, I do not advise to invest in new buildings, but if you take an apartment as an investment – either secondary housing or on a cycle close to the object completion.

Little tricks

Finally, a couple of simple everyday financial tips.

Electronic Payment Systems

Do not keep big amounts in virtual systems such as Webmoney, Skrill, Neteller, etc. Still, it is virtual money, and it is not insured. In the end, your account can be simply hacked, and you will lose your money.

Because all this kind of systems takes a commission for withdrawals, try to pay through the internet everything possible with the money that you have accumulated. Namely, mobile phone, the Internet, utility services, tickets, shopping at various online stores.

Loyalty Programs

Each of us has ever seen cards that give discounts or bonuses in various shops, restaurants, etc. They are nothing more than loyalty programs. Their goal - to make you come again not to the neighbor’s shop, but to one that gave you a card with a discount.

How to outsmart the system? Very simple. We get, by occasion, discount cards EVERYWHERE. Then we do not feel affection because of discounts in any shop or restaurant, we get the freedom to choose + discounts. That help to save a little.

Sales

Buying on sales is not a shame, but often profitable. Whatever your snob friends say. And if things are expensive, sometimes you can save a huge amount. The most important thing to remember - do not buy anything you don’t need. The purpose of the sale in the store - to sell you something unnecessary just because it’s cheap. So, we buy only what we would buy not on sale. Don’t look at anything else, otherwise, you’ll get other expenses instead of savings and a lot of trash in your house. This advice especially applies to women.

Duty Free

If you often fly to other countries, note the Duty-Free zone at the airport before departure - the goods without VAT, which again helps to save. The principle is the same as with sales - take only what would buy anyway.

Clever saving

Never save on health, products and your own peace of mind. Everything should be in moderation. No need to walk across your town to buy a bag of potatoes for $0.5 less. The time losses are too high. It is usually better to spend time on earning money than on the search for cheapness.

Conclusion

I sincerely hope that the above tips will be useful for you. And how do you manage your money? Share in the comments 🙂

Take care, Michael

ForexTraderPortal.com