A Good Personal Finance Program Gives a Peace of Mind

Without a personal finance program it’s hard to manage your money. Most people have several bank accounts, credit cards, loans, retirements account and investment accounts. Without a financial program it’s impossible to keep track of all of these accounts.

I personally use Quicken Premier 2011. It’s really worth the money. I only buy it every 3 years because it allows me for 3 years to use its online features.

There are a few very useful features I use all the time. I download transactions from my banks and credit card companies every couple of days. This way it’s very easy to monitor how I spend my money. I also know exactly what is charged on my credit cards. I match the downloaded transactions with my saved receipts. If I find anything suspicious I call my bank or credit card company.

Another feature I often use is to manage my bills. It’s very easy to schedule bills. I also schedule my paychecks too. If the paychecks vary week to week it’s possible to enter an average paycheck. I know exactly how much money I have in my accounts today tomorrow, next week, next month or even a few months from now. Now surprises.

As I mentioned I download the transactions every couple of days so when it’s time to reconcile my account at the end of the billing cycle all the transactions are there. Many times it only takes less than a minute to reconcile a bank or credit card account. It’s so easy that it’s actually fun.

I have been using Quicken for over 10 years and I couldn’t live without it. I save a backup of the Quicken file on an external hard drive once a week. Once my hard drive crashed and restoring everything from the backup files was very simple. I never thought about using an online financial software. I like to keep my personal information personal.

Can You Really Make Money Fast on the Stock Market?

I recently started to follow the stock market. It’s amazing how the market fluctuates day after day. A lot of the numbers didn’t make any sense until I read a couple of books visited financial web sites and watched business news on the TV.

Soon I found out that basically there are two types of investors, passive and active. Most of the passive investors let someone else manage their money and don’t really care about the market’s daily, weekly even monthly movements.  Sometimes they don’t even know what exactly they have in their portfolio.

The active investors closely follow the market’s every movement and they frequently buy and sell securities based on the market conditions. Successful active investors know exactly what they have.

So how much money can you make? Passive investors make less money. They usually make money when the market is in an uptrend and they lose money when the market is in the downtrend. A successful passive investor can make 5-10 % a year.

An active investor can also make money when the market is in a downtrend by what is called shorting stocks.  Although shorting stocks is risky, but in a downtrend you can make money faster then in an uptrend. An active investor makes about 10-15% a year.

There are also options which are derivatives of securities such as stocks. The price movement of options is not as simple as it is for the underlying stocks. Options which are basically contracts also expire, so after a certain time they can be worthless. Options are risky but they are highly leveraged. For example a 1% price movement of the underlying can result in a 15-20% price increase in the option’s value. With options it’s possible to make 100% profit in less then a week.

If you want to start to invest it’s best to get familiar with stocks first and a couple of years later move on to options trading. No matter what you trade, you can’t control how much money you are going to make but you can control how much money you lose. 

What You Need to Know for Successful Investing

When you start investing you need to know that investing money on the stock market comes with certain risk. Before you invest you also have to figure out how much money you want to start with.

If you are new to investing it’s not a good idea not to invest all your money without learning about the basics. There are too many people start investing too much money without the knowing basics of investing. It’s better to start to invest with less money perhaps with a couple of hundred dollars while you master the investment terms. It’s also a good idea to keep an emergency fund and never touch it.

As I mentioned investing comes with risk. How much risk are you willing to take? Remember the money you invest is not insured, when you lose it its gone. Stocks are the riskiest investments. Mutual funds are a lot less risky since they are more diversified. Buying bonds are even much safer and you can still earn a lot more money than in a regular savings account. The higher the risk the more money you can make but also the more money you can lose.

You have to learn how much risk you can take also called risk tolerance. Starting with a little money and watching the stock market you will learn to get used to the market fluctuation without panicking.

What is the Difference between Saving and Investing?

When you save money you normally put your money in the bank and in return the bank pays you interest. The longer you keep your money there and the higher the interest rate the faster your money will grow. A savings account is a very safe place to keep your money. There is no risk involved.

With a savings account the problem is that the interest rate is so low, the highest rate I could find today is about 1.50%. With this interest rate your money won’t grow fast.

There are better ways to make your money grow faster. Investing in stocks is one of them. Your average return on investment could be easily around 12%. When you invest in stocks:

• You will own part of the company you invested in, unlike with a savings account ;
• You participate in the growth of the company, with a fast growing company your money can grow much faster than in a savings account;
• With investment there is always risk involved unlike with a savings account. Your money can grow but there is also a chance that you lose some money;

If you learn the basics about investment you will dramatically decrease the risk. For most people investing is not a way to get rich quick but to make your money grow over a long period of time.