Concepts on personal loans.

Personal loan has been used by many to achieve great feats and it as also choked up many. Most people take personal loans to handle financial obligations that savings alone cannot handle in the short run.

How do I mean? let’s look at this example: if one of my personal finance target for the year is to get a landed property, that will cost me a million if I pay now, but the might increase at the end of the year and also I may not get a good location if I am to wait till the end of the year and I have just two hundred thousand in savings, which means I have a shortfall of eight hundred thousand and if I am to save on a monthly basis, I will need a minimum of Sixty Seven thousand monthly for the next twelve month and by that time the value of the land might have moved higher, so to hedge this I get a personal loan to secure the land and I will then pay back, over the period, this example simplifies the advantage of time value of money with loans. As beautiful as the example looks so many times when you do not calculate well it might end up choking you. As a personal finance coach I advise that before you take a personal loan, try to factor the repayment such that it does not choke other essential financial obligations.

Even though I am no averse to loans, I will like to say that the following points are worth pondering upon before you take that personal loan.

Basic Concepts of Credit Cards.

Credit Cards are becoming more accepted in our society as it avail you of the opportunity to access soft loan on the go. It’s important to note that Credit Cards are a recent phenomenon and their ubiquity is owing to the ease with which Banks give these Cards. The reason is that Banks make tons of money through the issue and usage of these credit cards at the expense of the consumers. The hidden costs of credit cards are not known to the recipients of this cards. This money is taken from the vendors of the goods and services who in turn charge you for this extra money that they pay. However, Credit Cards also have substantial advantages if they are used wisely. Just as known in case of credit and debit, the human mind is not prone to prudence and care. Many in western world are in serious debt as a result of having access to credit card funds. The ‘short term pleasure’ of buying stuff from your credit cards is too much to resist for most people. If the credit was unavailable, then people would not have fallen into the problem of debt in the first place.

Bank Statement Review

 

Let me start by wishing everyone a happy new year, 2016 was a great year for some for the larger population it was challenging and that is why I feel we should talk about little things that cost of money.

And that is our banking relationship, yes Banks make money from us one way or the other, the truth is we cannot totally eradicate hidden charges from dealing with banks, some are not even hidden.

Personal Finance and Risk Part 2

From our last post (Get it Here), we were able to pin point that everybody is a Risk taker, and I believe that most of us would have by now know the category we belong too, but by and large, research as shown that most people belong to the Neutral Risk takers. But can I ask this sincere question, most people say they do not like to take risk at all, but yet their vehicle insurance is third party, meaning you will have to pay for your own vehicle repairs in case you are involved in an accident. And yet you claim you are risk neutral or risk averse.

Let us look at Risk management:

Risk Part 1

Risk is a part of our everyday life and as such we cannot talk about Personal finance and not discuss our risk appetite because so many financial decisions are hinged on our risk level.

 Virtually all areas of Personal Finance have risk elements in it, from Investment decisions to Savings decisions to Spending decisions to borrowing decisions, to changing your job, etc. and therefore we must consider it.

My Personal Finance Story

Hey, my name is Felix (Not real name), I am in my mid-thirties and this is my personal finance story:

I was born into a humble family, where both parents were Civil servants, our family finances were up and down, but we never lacked food and shelter at any point, and all the six children went to good school and at no time were we sent out of school for school fee, it was paid as at when due, how my parents pulled that off I do not know considering their salaries as at then.

One major key for a good life I learned from my parent is the dignity of labor, my dad was an electrical engineer and as such he did contracts, and this was my first shot at making money. I worked and I was paid to the level of my knowledge at par with the others at my level. I had my first proper job as a primary school teacher when I finished secondary school, that was 1996, salaries were paid in cash those days, well packed in envelopes with your name well written at the back, I remember my very first salary, I took it home very proud and I was encouraged by my folks, I can remember I bought a bible with part of the money, yea I love God.

Can we Face the Reality?

I have been a bit disturbed by the timing of recent policies of the Nigerian government, there are three in particular that I feel is bound to make a standard of living that is already low, lower:

   1)       The total deregulation of PMS (Premium motor spirit) which increased the price of the product by about 67%. I am not against deregulation, in fact, it is the way to go, but I thought necessary infrastructure/policies and structures would have been put in place before such statements are made public. The bottom line here is that cost of goods and services will increase, and as a matter of fact, it has increased already.

2)      The intended increase of VAT from 5% to 10%. This will increase the cost of goods and services because the increase in Tax will be passed to the buyers.

Differentiating Needs and Wants

In the past week, I have had to explain to blog readers the concept of Needs and wants, as this is a key area were we can cut down on expenses so as to achieve a good savings habit.

Yes Saving Habit, savings is a concept that needs to be learnt and we will discuss more in our next post, however we will not get a grasp of it until we have been able to separate and identify our wants and our needs.

Needs can be defined as something you have to have, something you can't do without they are essentials and without which living will be very difficult. While Wants are non-essential expenses but make our life more pleasurable, enjoyable and adds comfort to our existence, but we can live without them. Allow me to categorize our Basic Needs into the following headings which are:

1)    Housing, this should not be tacky, but decent and nice.

2)    Food, I recommended a good healthy meal

3)    Clothing, having appropriate clothes for all occasions, not too many.

4)    Basic toiletries.

5)    Means of Mobility

LBI—Living Below your Income,

This is the last set and the most appropriate. They live within a strict budget, the people under this category have a firm financially disciplined life style. They have an organized finances and they have proposed and are building up savings by keeping an amount consistently on a monthly or daily basis. They even have wise investment making extra income on the side line and, this is a sure way to being wealthy.

LAI—living above your Income/ LWI—living within your Income

Over the past week, I have had to answer a lot of questions from blog visitors about the three categories that I talked about in the last my post, if you miss it you can get it here. I will take out time to explain in details about the three categories, starting from the LAI—Living above your Income, I must stress at this juncture that we can only have a grasp of our financial life if we are ready to take responsibility for the way we have being spending and not explain things away, in a bit to justify how we have been spending our money. Note we all are looking for financial liberty and freedom, we all want to be financially stable. Also, it is not only low-income earners that need financial literacy, even the rich who do not manage their funds well.

Living Above your Income is simply a situation where you spend more than you earn on a monthly basis and you are left with nothing to save. In principle, we are to save at least 10% of your earnings. Sadly a larger percentage of people are in this category, the deception of most people is when I earn more I will save better, forgetting that spending and savings are habits which need to be cultivated over time, so I put it to you if you cannot save when you earn little you will not save when you earn big as your expenses grow as your income grows and it is a big pitfall that we all have the potential of falling into.

Dynamics of Budgeting

As individual, family or corporate organization, we have had to do a form of budgeting either once or twice.

 What then is the term BUDGETING? Budgeting is an estimate of income and expenditures for a period of time. Budget is futuristic; it is a workable plan of all income and expenditure for a specified future period. To have a good understanding of wealth and equally be wealthy, budgeting plays a crucial role. The formula for Wealth is:

                    Wealth= Time + Money.  

We must understand that to be financially independent our passive income must be greater than our expenses.

Mortgage 101

Been a house owner via  Mortgage is very prevalent in developed countries, however not in Nigeria due to the high interest rate which is applicable to any other loan that can be accessed here. So what then is Mortgage?

 A mortgage is a debt instrument, secured by the collateral of a specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments, usually monthly. It is a secured form of loan and usually secured with the property being purchased. In Nigeria most commercial banks offer mortgage loans we also specialized banks called mortgage banks whose primary focus is mortgages.

In accessing a mortgage loan, there are few criteria that you must fulfil and there is a limit to the loan you can get for your home, irrespective of your income. These factors may include but not limited to the following: