For no apparent reason other than the planetary systems were correctly aligned or some "karma" had returned in your favour, you find yourself with a bunch of money.

Suddenly, choices rip through your mind faster than Dr Who's time travel as does the subsequent doubt reminding you off past poor decisions.

What to do?

Well you have three options;

1. Spend it

The first option is the easiest and less confronting. In fact spending it can actually be comfortable (if you're already conversant with spontaneous spending, that is).

Spending a windfall isn't always bad though and sometimes it can actually be the best alternative. If you've been saving and scraping for [insert the item here] then using some of your windfall to purchase it is great. Don't listen to all the experts who give financial advice bully you into saving it.

Money is to be enjoyed as much as it is to be used wisely. Consider this: too much frugality and the one and only life you have becomes boring. Too much spending and your life becomes hard work. Somewhere in the middle is a compromise that satisfies us.

2. Invest It

Make your windfall work for you. Find some investments that you can pour some, or all, of your windfall into. This could be reducing your high-charging credit cards or other personal loans. Pay off more of your mortgage. Buy some shares or invest in upcoming companies. Use it as a deposit toward some land or another piece of property.

Better still, use it as capital for that business you always dreamed about having. Investing your money can be as exciting as spending it if you be creative.

3. Save It

Now this is the least interesting option which is why I saved it for last. When we receive a windfall of any sort, we're usually wired to do something with it. However, the best option may be just to hold onto it for another time. Repress the desires to spend or invest and place it in a high interest bank account until you've had time to process your thoughts.

This windfall may even be the start of your emergency fund that you had always hoped for.

Whatever you choose to do with your windfall, consider each of these three options first. Find which one suits your needs at the moment and then feel empowered to act on your choice knowing that you made the best decision.

Posted by Stuart at 7:10 AM | Permalink | Comments (2)

Free The Drones is asking "What Use Is Personal Finance Advice If You’re Making Minimum Wage?" Fair question when their's not much laying around the bank account.

My response would be that there is great use in low income earners taking personal finance advice. Investment advice for low income earners may be less important but advice for people earning minimum wages, PF advice is paramount.

Here's my advice for low income earners wanting to get ahead;

1. Learn Contentment but Cultivate Dissatisfaction

If you can't be content with what you have already then getting more will never make you happy. Take pride in your current possessions rather than wishing for something you can't have yet.

Once you understand contentment you can then begin to cultivate a healthy dissatisfaction for staying where you are.

2. Earn More than a Low Income

Find other ways to build your income. This may be via a sideline business, a part-time job or using your hobby skills to generate extra income. Selling body parts may not be the best income source but there are many ways to find extra income;

- Become an election polling attendant
- Signup for Census distribution and collection
- Get a paper or junk mail round
- Take up a night-fill position at the local shops
- Sell your hobby plants at the local weekend market

3. Submit yourself to a Savings Plan

If you're surviving on your low income then start putting your extra income into a good savings account. Commit yourself not to use any of these funds unless its for a dire emergency (holidays are not a dire emergency).

4. Reward Yourself when you hit your Goals

Set some goals both for your income generation and also for your savings achievements. As you set them, build in some reward system for yourself as well and when you hit them then celebrate. Keep your rewards in balance though.

5. Give to Others Less Fortunate

As a low income earner its easy to justify that the rich wil support the poor. However, for you to grow financially you need to realise that money is not the "be all" and "end all". Some good advice I received early on was to not hold money too tightly that it ends up controlling you. You take control and learn to live without it by giving some away on occassions.

6. Opportunities only knock once - but there are a lot of opportunities

A plethora of opportunities await you as that savings account continues to grow. Be choosy and wise by considering all your options and what the risks are. Then commit to one. Opportunities won't stay around forever but realise that there are many available.

7. Embrace your family and friends

This doesn't seem like personal finance advice but it is one of the best tips you'll ever get. With your family and friends on your side life is going to be a whole heap easier than if they begin fighting against you or leaving you altogether. Take time out to spend with them and nurture your relationships - they're more important than money anyway.

8. Take Risks that aren't Gambles

Some opportunities that come your way will present far greater risks than others. This is not necessarily a bad thing. The risk may be high but if you've done your homework then it becomes and educated risk and not a gamble. In fact, a well researched risk may actually be safer than an opportunity with less risk.

9. Make Frugality an enjoyable challenge

One of the challenges of living on a low income is trying to make ends meets after each pay packet. Rather than begrudging thriftiness embrace it as a challenge to live even more scrupulously. Set yourself goals to be even more efficient with your spending.

Conclusion

Low income earners can sometimes be the wealthiest people because they're less frivolous with their money. Don't feel that a low income is going to hold you back from achieving your financial dreams. See this as a challenge and you will rise to the occassion.

Posted by Stuart at 11:42 AM | Permalink

I just finished reading a post from Punny Money where Nick shares his experiences of 5 Year Guaranteed Light Bulbs. "How can you lose?" Nick asks.

Trust me, businesses will find a way. And in Nick's case they did again.

Why do company's still offer these useless guarantees? More importantly, why do we still get sucked into them? I'm useless when comparing brands always opting for the one that has a 14-day money back guarantee or a Lifetime Warranty. Why don't we just choose the one that tells it like it is? Can you imagine seeing a label on the side of the product that stated;

We decided not to waste your time by adding a guarantee as we thought it would be better for you to be realistic about what this product can and can't do. This product is most likely to break before you expected so take your chances and stop whingeing.

Businesses aren't prepared to just stop at offering guarantees or warranties with the product anymore either. Oh, no! Now you can Supersize your warranty and pay for more years of unrealistic expectations. That security is so tempting, isn't it?

Flee from temptation young man. Buy the product and live with the outcome. If it's made from a reputable manufacturer then it will most likely last the distance. It may even exceed your expectations and last that life-time they were talking about.

I'm learning to put these in the "You Win Some - You Lose Some" basket. Warranties are just a security blanket for the foolish.

Posted by Stuart at 7:40 AM | Permalink

In an amazing twist of events it appears that teaching students from a school-based curriculum about personal finance isn't working.

Duh!! Even blind-Freddy saw that one coming.

It's like assuming that kids are going to learn all about relationships after reading Pride and Prejudice.

The keys to personal finance are not taught, they're learnt. And they can only be learned from putting principles into practice and allowed the freedom of failure.

See, the problem is that while most students are taught the basics of personal finance at school such as saving, using loans for appreciating items, the risks of credit cards and hire purchase etc what they see is modelled from those that are close to them - namely their family.

If Mum and Dad are able to buy whatever they want, whenever they want, by using the credit card why is a young person going to save their dollars for the proverbial "rainy day"? In this article the quote is made;

"Personal finances are not being taught in the home," said Patricia Hummel, a parent who also teaches financial literacy at Winters Mill High as a permanent substitute. "Studies have shown that only 26 percent of 13- to 21-year-olds reported that their parents actively taught them how to manage money.

The problem is a Catch-21. Parents don't know how to use their finances well and therefore it's like the blind leading the blind when it comes to teaching their children. They were never taught how to handle their money and so their bad habits are modelled before their children's eyes who are ever-ready to replicate what they see.

So what is the solution? In my humble opinion I believe that families need to learn personal finance together. Obviously this isn't the education system's mandate but I believe there might be a business opportunity here for some entrepreneurial soul to solve this.

I'm not talking about financial counselling but from the other end of the equation prior to families becoming so entrenched in debt and bad habits. Personal finance mentors are needed to work short-term with a family helping them to budget, reduce debt, start their emergency funds, and begin to invest for their financial future.

It's the only way we're going to turn the tide of debt poverty in our nations.

Posted by Stuart at 7:47 AM | Permalink | Comments (3)

Don't you hate it when you feel conned after having your emotions tickled?

Let me put this in context. I'm reading this article titled "Serious and Frugal, Far From Flashy, Davis Sees Himself as a Regular Guy" by Lloyd Dunkelberger on the life of Tampa's Jim Davis. The article starts out by portraying a man who having wealth, power and influence decides to steer his life without them. It's a picture we don't rarely see. In fact, it's a picture that seems to be too good to be true. But, we follow the ensuing detail imagining a man who is about to achieve some incredible humanitarian task - like offloading his family wealth to some poor third world nation.

Instead, three paragraphs in, we're slammed to the ground with;

That background, Davis says, gives him a connection to most Florida voters who are also struggling to pay for insurance, are worried about rising property tax bills and want better schools for their children.

Aaarghh! What happened? One minute I'm envisioning a man about to change the course of the world through some benevolent action and the next I'm brought to the ground with a "Vote for me" thud. But wait! Surely the editorial of some reputable news service would dig deeper to reveal why this comment needed to be made.

Alas, the article continues along the new chartered course without any mention for its deviation. We've been conned by a journalist playing with our emotions again and to think they didn't even disclose the sponsorship of the editorial. Please tell me it wasn't a paid article?

Posted by Stuart at 8:17 AM | Permalink

So much has been said already within personal finance blogs about budgeting that I thought it might be a nice change to reflect on pain-free budgeting.

Truthfully, when was the last time you found pure enjoyment out of the budgeting process? Never. Well of course not. That's because you're going about it the wrong way.

Being wealthy is not everything.

Your first mistake is thinking that building wealth is a 'be-all' and 'end-all'. Did you know that 95% of the world's population never experiences true wealth? That's right 95%. So, why bust your balls trying to fit into that miniscule 5% when you could just spend frivolously, incur everburgeoning debt and then leave it for the next generation to sort out?

There are people to help when budgeting becomes difficult.

Most people recognise that budgeting can be an insurmountable task so its best to take your concerns to someone who's qualified to give you good advice. These experts can guide you in matters of which credit card to get, how to consolidate your loans and why their bank is far better than the one which offers less fees.

Such guidance is hard to find yet their willingness to help you set financial goals by increasing your monthly spending limit each month is invaluable.

Other helpful people are those that are willing to invest in your working capacity and give you a quick loan to tide you over until payday. It makes budgeting even easier because then you know exactly how much you need to pay them back each week.

Budgeting takes far too much self-discipline

Discipline is such a stupid word. In fact, replacing it with the words 'torture', 'self-effacement' and 'going without' would be far more suitable. Discipline ensures that you have to think twice before buying that new shirt which has been reduced by 50%. It stops you from going night-clubbing both Friday and Saturday nights and it means you would have to change your shopping habits to purchase generics instead of named brands - and there is no way you should have to buy a substitute for your Johnson & Johnson cotton buds.

Budgeting is a wealthy persons concept.

Rich people have nothing better to do than place burdens upon those who are struggling financially. Which is why they came up with the concept of budgeting in the first place. It's their little inane game of trying to keep the middle folk unhappy. They talk about saving, investing and frugal spending habits as though it's something that everyone can do. Take my advice - they're just messing with your head.

Money was made for spending

They can't argue with one! It's a fact that the more you earn the more you can buy. And the more you can buy the happier you'll be.

So, in a nutshell, budgeting doesn't have to hurt. Its a mechanism designed to keep some sad little rich person alone in their lofty tower while the rest of us try and attain what they have.

Well, we don't want it so take your budgeting and ......

Posted by Stuart at 8:01 AM | Permalink

At first glance it seems that finding a niche in an extremely competitive business market is like looking for the proverbial 'needle in a haystack'. And in some ways it is...

However the challenge is not the "finding" but in the "looking." Finding a niche is actually the easy part - knowing where to look is the challenge.

Everday, in every location, opportunities arise with the prospect of being capitalised upon. New products. New services. New ways of doing things. In fact, I would not hesitate in making the assumption that there are more niches available to exploit today than were available 10 years ago. Many of them will allow some of your dreams to be realised while others will exceed your wildest expectations.

So where are they?

They're probably right in front of you.

Let me give you an example; Fivecentnickel.com shares a story about an enterprising shop owner who profited from capitalising on a current need. He was able to earn a high profit margin and retain a monopoly with a captive audience.

Darren Rowse of Problogger.net also gives an example of the umbrella salesman who would pitch his "shopfront" whenever it rained. The result; another monopoly that cordoned a niche and succeeded in an already flooded market (no pun intended!).

Bill Gates saw an opportunity to have a PC in every house running Microsoft software. Until then, the market was fractured, geek-ridden, and GUI stood for Geek User Interface because no-one else understood DOS.

People are the answer to your question!

Find out what they need right now or may possibly need in the future and service that need. Here's some ideas to get you started; Health and Fitness niches and 10 ideas you could exploit today.

Posted by Stuart at 7:17 AM | Permalink

According to Reuters (London) some credit card companies have hiked their interest rates by more than 12%pa after the Office of Fair Trading forced them to reduce their default fees.

Typically the financial mammoths began to "rob Peter to pay Paul" offsetting their losses in fees by increasing their interest rates on their cards. Moneyfacts.co.uk reported that 19 credit card providers had increased their fees with Barclaycard the worst offender.

The loss in revenue for these providers is possibly in the realms of 300 million pounds per year so trying to recoup this revenue stream is going to be hard. Especially for those providers who relied heavily on default fees while offering low interest rate cards.

How consumers respond within the next couple of months will be telling for some card providers.

Posted by Stuart at 8:21 AM | Permalink

As a gambler (risk-taker), I find Venture Capital Trusts and Angel Investing very tempting. The possibility of huge gains riding on the back of a new service or technology inspires the pioneer spirit within me.

For the uninitiated, Venture Capital is required by many start-up companies in order to proceed with the manufacturing of a patented technology or to bring a new service to the market. These start-ups are usually immature in their equity base and therefore they approach investors willing to take a portion of the business (and therefore its future earnings) for an agreed value - the amount of venture capital.

Without VC many startups can never progress to the next stage and their ideas never come to fruition. Banks and financial institutions aren't prepared to take the risk of loaning investment money and these businesses aren't big enough to float on the stock exchange.

Therefore, their dependence on a venture capitalist or angel investor is exceptionally high and deals in the investors favour aren't hard to procure.

However, while the possiblity for huge gains exists so too does the risk of losing your capital or being stuck with a company that will never perform as well as you expected. So, before you head into the investment heavenlies and become some startups angel you may want to consider whether this type of investment is for you.

The Daily Reckoning(UK Edition) have put together a list of 10 questions to consider before you venture off into the VC unknown.

1. Decide if this type of investing is for you
Do you get excited about new businesses and/or technologies?
Do you already invest in similar high risk investments such as AIM and PLUS Markets stocks and/or Venture Capital Trusts?

2. How much can you afford to invest?
Have you got at least £25,000 per year cash to invest?
Can you afford to lose the entire amount without feeling the pinch?

3. Make time to find and understand the best opportunities
Are your daytimes free to attend investor events?
Do you have time to look through the legal documents before you invest and perhaps perform your own "due diligence"?
Can you spare the time to monitor your portfolio after you have invested?

4. Use your own expertise to spot great investments
Do you have particular expertise in an industry?
Can you rely on your gut instinct to tell you if something is going to be a blockbuster?

5. Don’t get the wool pulled over your eyes
Are you readily accepting of a plausible explanation?
Can you spot a great entrepreneur amongst the also-rans?

6. Find the right advisors to help you with
your investments
Are your current advisors competent to advise you on your investments?
Do your social and business networks include people who could help with good deals and/or expertise?

7. Set your own level of involvement
Do you want to be active – and actually sit on the board or become involved in the management of your portfolio companies – or do you want to be passive – or something in-between?
Do you want to be a sector or stage specialist?
Do you want "prepared" deals or do you want to get your hands dirty?
Do you want to operate alone or in a club or syndicate?

8. How secret do you want your investment activities to be?
Would you be happy to have calls from friends of friends asking for investment money?
How would you feel if your friends asked you to invest in their business?

9. Set your time horizon
Are you trying to build a portfolio of say 25 investments or just two or three?

10. Do your research – and have patience
The best investors learn about this asset class before handing over a penny.

Posted by Stuart at 8:00 AM | Permalink

If "Image is Everything" then the type of car you drive is telling the world a part of your story. Is it a good story thus far, or are you hoping for a fairytale ending?

Here's a list of 5 reasons why we buy the cars we do. (BTW - I think we actually purchase them with these reasons in this order as well).

Status

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"My boss should drive a better car than me!" is one reason we often search for something a little less extravagant. In fact, how we perceive others level of success in regards to our own grants us a benchmark from which to purchase within. If you are a successful small business owner, your Datsun 120Y is most likely going to be traded in on an upmarket saloon or base model sports car. A high level exec earning $100-200k pa is more suited to a mid-priced Jaguar or Mercedes while an apprentice plumber should be comfortable with her rusting Ford panelvan.

But the other end of the status spectrum is equally interesting. What happens when you are earning the high incomes but the position you hold is seen differently? For example, a CEO of a not-for-profit charitable organisation is most likely to raise the ire of contributors should they be seen in a brand new Bentley.

Like it or not, our vehicles say something about where we perceive our place in the world is.

Performance

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Hot on the heels of Status is the Perfomance factor. In fact, in some ways it's hard to separate the two because they're not mutually exclusive. Performance is either considered by two types of people - Revheads and the new Enviro-motorists.

Revheads want power - and lots of it! They want maximum torque, deafening noise and a rumble under the bonnet that makes a posse of Hell's Angels sound weak.

Enviro-motorists want cheap to run, clean, environmentally friendly cars that use any fuel that begins with "Bio" (because it's greener!) They like these types of cars because they say - "I care about the environment"

Both types of performance image seeker are at opposite ends of the spectrum and loathe each other's point of view.

Security

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The Security image seeker buys cars that have incredible safety standards. Brands like Volvo, Mercedes and BMW are synonymous with this buyer. They would rather buy a car that's 20 years old with a badge from one of these makers than a brand new Ford or Chrysler with better technology. Why?

Price

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Price is only important when it comes to what a financial institution will loan you. Most people don't pay cash for cars these days so a HP loan or salary effective novated lease is usually the main method of sourcing finance. Obvioulsy, the more you are allowed to loan adds to your image and personal wellbeing!

Economics

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The Economics-image-seeker has been around the traps for a while. They bought and sold cars over the years and have become jaded at the waste of money tied up in keeping your image healthy. Therefore, this image seeker finds cars that are likely to hold a greater portion of their value when it comes time to trade it in. They're not prepared to buy a car off the show-room floor because they know it will only set them back a minimum $10K to drive it onto the street.

These image guys are frugal and they would usually buy a car in the reverse order of this image-seekers list.

The Big Question

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What are you currently driving and where does it place you on the list?

Posted by Stuart at 7:55 AM | Permalink | Comments (3)

There is considerable discussion amongst news-mongers that interest rates in the US, UK and Australia are likely to hold or at best decrease when each respective countries monetary boards next meet.

This is good news if you have a mortgage.

Why? Because it means that your repayments are likely to decrease as well allowing you to reduce your current payments and hopefully keep the shortfall. But, is this the best option?

Most people live "up" to their income levels (meaning that if you earned a $100K salary your lifestyle expenses would most likely be in this vicinity while a $50K wage earner would have expenses closer to this level). So, as you have already learnt to live with higher mortgage payments you may as well continue at this level.

It may seem strange to pay more than is necessary but consider it from another angle - forced saving. Firstly, for most average size mortgages the savings will be approximately $10 - $20 per week. This amount is hardly going to change your lifestyle considerably but it will alter your mortgage length and total interest payments considerably.

For this exercise I have used the following variables; a mortgage of $300K taken out over 30years at a current rate of 7%pa.

The Blue line indicates how your mortgage will continue should you reduce your payments to the new rate. The Pink line illustrates your mortgage should you continue to pay at the same amount and the Yellow line shows your mortgage if you were to increase repayments by $10 per week (paying fortnightly).

As you can see there are considerable savings to be made if you keep up the repayments or increase them. In fact, you could save 6-8 years off your loan period and more than $140K in interest.

Makes sense to sacrifice now than enjoy a little bonus.

Posted by Stuart at 12:21 AM | Permalink