Blog about Personal Finances, Investments, Money Management and Financial Freedom

It’s time to change your attitude

The difference between success and financial failure of any person is in their attitude.

Everyone aspires to have a good financial situation, but although the rules are the same for all, only a few are able to achieve it. Most people, when they turn 65 years of age, live of the Government or their relatives, and even some must continue to work to meet their own needs or help their children financially. It is not luck or inherited capital; the financial health of a person does not depend on having accumulated many college degrees or having climbed multiple positions in a large company, earning a good salary and earning good remunerations. The difference between  financial success and failure is in the attitude. It’s your attitude that determines your financial success.

The fundamental reason why only a small percentage of the world population achieves financial independence (between 5% and 10%) is because most people do not possess the necessary attitude to put their finances in order, set financial goals , plan their budget, and even protect their current assets.

There is no point on knowing how to make money, if you do not know what to do with it beyond spend it or save it under the mattress to meet unforeseen expenses at home. It is true that formal education has not acknowledge the importance of financially educating people, but a change of attitude that drives you to set your goals and manage your personal finances is the first step to print a change in your life and achieve the welfare that you want.

This change of attitude should begin acknowledging how you perceive money, savings and investments, ask yourself what does money means is for you, is it the most important thing in your life, it is a necessity, or simply a vehicle to achieve your dreams? Once you have an answer to this question, evaluate what your goals, your priorities and the risks you are willing to assume are and how important it is for you to protect your assets.

And at this point, with all these answers in hand, you are wondering ask: What do I do to change  my attitude? Where do I begin? I won’t suggest that you go to a bookstore to buy books on the power of attitude in the world of finance; in return Instead I’ll ask something easier without a cost: think of the five people who have the greatest influence on you, your way of thinking and your decisions; if you don’t have them, find them, but they have to be experts in the world of business and finance. They will be your reference group. Learn from their experiences, adopt their advice, focus on their ideas, study them, visualize yourself in their role as free and influential people and start thinking like them.

I assure you that’s the best way to start changing your attitude towards life, to business, to money and to finance; but you must do it now; you do not have to wait for anything. You must start to change your attitude right now, without further delay.

Join in and learn to invest with common sense

Do not settle for learning just the basic fundamentals of investment. Strive to learn something new every day.

Have you ever wondered what’s the reason you have not yet invested in the stock market? There may be many answers: “It has never interested me”, “If I don’t have enough money for monthly expenses, less I have it to invest”, “I know a friend who invested all their savings and lost them”, “I don’t like the idea of investing because I’ll only see profits after many years”, “I don’t trust anyone with my money”, etc. The truth is that people don’t dare, and if they do, then they may be tempted to quickly withdraw the money they have invested because they think they will end up losing it or that it could be intended for something more useful.

The investment road can be long and tortuous, but the final results will be worth the effort. The “wood” that an investor is made of can only be shown after a few years; therefore, to learn the art of investment, we must understand the way of thinking of those who have persevered to achieve their goals, and they all focus on the long term and invest in companies managed by honest people, with transparent business models, comprehensible and of course, with attractive prices and favorable prospects. Successful investors such as Warren Buffett or Peter Lynch, do not use large formalisms to make their investments, nor deal with macroeconomic analysis or detailed technical reports. Do not settle for learning just the basic fundamentals of investment. Strive to learn something new every day; they have mastered the art of investment, but if you are just taking the first steps, you should consider some tips so you start off right and so your intent to travel the long road of investment will not remain only as an attempt.

If you are already convinced that to succeed in investments one must make decisions wisely, you will have to learn from the best, and for that you don’t need to travel to Tokyo or New York to attend expensive seminars; you can learn from them by reading books and articles written by people with weight in the world of finance; for example Benjamin Graham, author of a wonderful book entitled “The Intelligent Investor”, in which the foundations of something very interesting called Value Investing are explained; in this book you will understand the art of long-term investing maintaining a margin of safety. You can also use multiple forums, blogs and social networks, where besides of meeting new people with similar interests, you’ll find good investment ideas.

But one thing is to learn the basic fundamentals of investments, and quite another is to master the art of investment; this requires much more time and effort of constant learning. Combining theory and practice is essential for good results; therefore, allow yourself to make some mistakes; any error can and must become a learning experience and as one learns to walk without falling, you must be consistent and reject the idea of abandoning the path; remember that you’ve failed the moment in which you decide to give up. A good way to not fall into the temptation of giving up and to not get out of the road at the first difficulties is to establish specific targets at very short notice, for example, weekly analyze a company listed in the S&P 500 or the Dow Jones. You can also commit to do daily monitoring of fluctuations occurring in certain stock market, and try then to find the causes that might explain these variations in prices, if you prefer, you can set as weekly target reading a specialized newspaper in economics and finance or gather market information of interest to understand and exchange reviews with other people with knowledge in this field.

Reached this point you may have noticed you need the discipline to stay on track with your investments. Perhaps you’re thinking this is not for you, but keep in mind that every beginning is a challenge and you’ll get more and more excited as you go taking the first practical steps.

Dare to invest and do it with common sense.

Let’s talk about financial intelligence

Financial intelligence incorporates multiple dimensions and transcends the mastery of the concepts of finance.

Robert Kiyosaki says: “Financial intelligence refers not so much to how much money you earn, but how much money can you keep, how hard that money works for you and for how many generations it has been preserved.” Obviously, obtaining financial independence by  constructing a business system (quadrant D) or by investing (quadrant I) requires that we have a degree of intelligence applied to the world of finance.

But financial intelligence is not only essential for those who live on the right side of the Cash Flow Quadrant; it is also needed by those at the left side: those who are not comfortable in their role of employees (quadrant E) or who independently and on their own work long hours to ensure economic sustainability (quadrant A). With certain knowledge and enough willingness to break emotional attachments, these people can begin to design a system of self-generating money and thus cross the threshold of their respective quadrants.

Obviously, financial intelligence is not limited to the mastery of the concepts of finance, but also is associated with leadership, strategic thinking, personal marketing, communication, negotiation, conflict management, social skills and management of emotional heritage, and others.

A good way to identify to what extent you possess financial intelligence, is checking the following items:

  • Your income is greater than your expenses (you have capacity for saving).
  • You manage to find new forms of income (in several quadrants simultaneously).
  • You have identified your financial goals and you have designed your task list to achieve them.
  • You know how to optimize and earn higher returns on capital.
  • You feel you are on the right track to achieve your financial freedom.

The people possessing a meaningful financial intelligence always think big, and regardless of the circumstances surrounding them, continually design plans to enhance their assets and reduce their liabilities, thereby obtaining greater profitability and liquidity while they improve their quality of life.

If you want to have a financial culture that is your ally in the life project you’ve designed, you must start by understanding the functioning of money as well as the psychological aspects that drive people to use it in a certain way.

The expensiveness of ignoring financial matters

The lack of financial literacy is one of the major factors that trigger anxiety and anguish in the contemporary world.

One of the main triggers of anxiety and distress, is derived from the almost total absence of financial literacy, resulting in profound and costly mistakes regarding the generation and management of money.

Financial issues go far beyond money management; that would be equivalent to going on a holiday and taking the first plane you find without knowing where it is going. In the same way as you plan your vacation dates, destinations, accommodation, attractions you will visit, appropriate clothing depending on the destination and time of year, your budget, visas, travel insurance, etc., you should also plan your financial life.

If you think I am exaggerating, ask yourself why in the United States (for instance) half of all marriages end in divorce, and why financial issues stand out as one of its main causes; and even if they end in divorce, most (if not all) acknowledge having starred in serious discussions on issues associated with money. Ask yourself also why almost 25% of people between ages 35 and 54 have not started planning their retirement, and imagine the little economic tranquility of these people when they stop receiving their monthly salaries.

Another fact that calls us to reflection has to do with the fact that 90% of the world population (employees and self-employed) only owns 10% of the money available in the world; while the remaining 10% (business owners and investors) handles the other 90% of the global wealth. This has nothing to do with gender, race, nationality or academic preparation; It has to do with our attitude towards money and finances. The truth is there can’t be productivity and happiness, as long as money remains the main cause of strain and stress. Remember that if you are not capable of controlling money, money will control you.

Assume that money is a serious matter that involves accepting responsibility and assume the consequences of how you handle it. You don’t need to be an expert in finance to manage money in a responsible way, but always keep in mind that everything depends on you (and not your circumstances). As long as you don’t know the basic financial principles you will be prone to spending much more than you need, to indebt yourself,  you won’t be able to pay monthly bills, you won’t provide happiness to your marriage,  you also won’t have how to cope with unanticipated expenses (diseases, occasional housing expenses, investment opportunities, or even a new child), live constantly concerned about the lack of money and you’ll have to take drastic measures that can affect your health and that of your loved ones.

You need to gain (and keep) money

The key you need to gain and retain money is just a good financial education that contributes with the foundations needed for you to think and act.

Everyone wants to make money (some more than others), but if you really want to make money in the best way possible and for longer, the worst decision you can make will be to go out right now and try to find a good job hoping to stay a long time on it, because even if you find it, you will never have the certainty of getting the money you really want, and worse, if you get it, you may be unable to keep it, and then you will always depend on others. Remember that lifetime wages are long gone.

Keep in mind that it is not just to make money. The fact that you earn a lot of money today is no guarantee that you’ll have it tomorrow. What this really is about is that you retain that money, and your children and grandchildren should also benefit financially from what you’re doing today. So no matter how much money you make; the important thing is how much money you are able to keep, and for that there is no magic formulas or recipes.

The most important thing that you really need in order to earn and retain money is a financial education that will contribute to a good foundation for thinking and acting from the conviction that you are never going to achieve economic independence by having a good job nor even working on your own, literally forcing you to crush yourself hour by hour to more or less satisfy your basic needs and indulge yourself with an occasional treat. Always keep in mind that you deserve more than that.

Do you think you’re a person prepared to win and keep money? See if it’s true; try to answer this question as honestly as you can: Do you really know the difference between an asset and a liability? If your financial knowledge is what most people has, maybe you’re acquiring liabilities believing they are assets; and the worst is that without realizing it you’re building your own financial problems.

From a practical perspective, the first and most important rule to make money and keep it is to acquire assets, because as Robert Kiyosaki (author of Rich Dad Poor Dad) says, assets are those that put money in your pocket while liabilities will extract it (sometimes without you even realizing it). The difference between your assets and liabilities is your Net Worth. Until you assume this basic principle, you will find yourself with serious difficulties in making judgments and taking the best financial decisions on how to earn and keep your money.

Above all, remember that your time, your knowledge and skills are very valuable to only be exploited by others. Avoid selling your time in exchange for money; Use it rather to learn, design, build and implement a system that is able to generate money for itself.

How to set your financial goals

Your financial goals should be the product of your convictions, and will always be adjusted to your principles, values and priorities.

One of the first difficulties when organizing personal finances has to do precisely with setting financial goals; that is, the destination to which we are going. There are no good or bad goals; you also can’t pretend to set your financial goals by copying those that other people have imposed for themselves, far from it; financial goals vary according to your attitude, your needs, your heritage and your current financial situation.

First, before you get to work on establishing your goals, keep in mind that any goal must be expressed in numbers or percentages. If you think your goal is to have enough money saved to pay for unexpected expenses of your home and vehicle, you are not really saying anything; what is “enough” for you? How will you know if you’re getting close to the goal you set if you can not see your evolution? You should rather say: I’ll save 15% of my income as of the month of January 2016. As you can see you must not only concentrate on your desire, but also quantify what you want.

A second aspect to keep in mind is that goals are the expression of a balance between ambition and realism. It’s useless to establish poorly ambitious or easily achievable goals (eg, reduce weekly coffee spending, knowing that that’s what it costs a modest breakfast of churros with chocolate) Similarly, it is not useful to set unrealistic or difficult to reach goals (eg, to reduce by 80% the monthly utility bill for next month). In the first case, if the goal is very easy to accomplish, there would be no reason to change financial habits that contribute to achieving the medium and long term plans. In the opposite case, if you set very hard or hardly achievable goals, you will feel frustrated at not being able to reach them and in the end, dismiss the possibility of establishing new guidelines to put your finances in order. You may already have noticed that goals should involve some additional effort; In other words, your goals should require you to maintain some discipline and rigor in your daily action; therefore, that’s why you should avoid goals imposed by other people. Keep in mind that your financial goals should be the product of your conviction and consequently adjusted to your principles, values and priorities.

A third element to consider when setting your financial goals is that they can not be contradictory; all of them form part of a gearing that lets you achieve the welfare state you want. If you set a financial goal like this: save 30% of my monthly salary, and another defined in terms of: allocate 80% of my salary to reduce the outstanding balance of my credit card, which one are you going to fulfill?. Obviously both contradict each other, and at least one of them is not doable.

Finally, formulate your goals in the short, medium and long term. Don’t put them all in the same boat. For a financial objective of higher order, as might be the case: ensure financial freedom after retirement, you can set a short term goal, for example: Hiring a pension plan before the end of the fist half of 2016. You can also set a goal to medium term that contributes to achieve the same goal: for example: Acquire within the next three years, a house on the beach to rent it; and finally: A long-term goal might be: To reach retirement age without mortgage commitments and maintaining ownership of the two houses.

As you can see, setting goals is a dynamic process that requires constant review and adjustment, but the faster and at an earlier age you begin to establish your long-term goals, much better; for example, can you imagine that you start planning today how to earn income after your retirement, if you think that will happen next year? It would not make much sense, right?

Diversifying investment: a rewarding experience

If you are an investor you need to dominate the art of diversifying

Similarly as in the world of real estate, it is said that the key for a good purchase is in the location of the property, in the investment world is also considered that the place (or places) where the shares are located is the key for avoiding shocks due to market fluctuations. If you are an investor, it is very healthy to master the art of diversification, because if you combine a portfolio of well-diversified investment with a horizon of three to five years, you will be able to resist the majority of financial storms.

As we can never guarantee what will happen in the market, regardless of their condition or current characteristics, diversification is and will continue to be the rallying cry for planners, fund managers and investors. Before you decide to invest your money, you should spend time in designing an investment portfolio. Here are some tips related to diversification:

  1. Do not put your wealth on the same place, extend it by creating your own investment fund in companies that inspire confidence, either by the strength they show or simply because you feel comfortable when you use them in your everyday life.
  2. Consider including funds in the bond market. In the long term, it is healthy to incorporate this type of asset which, though less profitable, provide you some coverage against uncertainty and market volatility
  3. Invest regularly. Do not make the mistake of making an investment and sit and wait for the evolution of the price of those shares. Your financial “building” must be built daily, constantly putting your bricks one by one.
  4. Learn to sell. Investing usually associates with the purchase of a given set of shares, hoping to achieve profitability within a reasonable time; that’s fine, but you can’t put the investment in automatic mode. It is absolutely necessary that you keep up with your investment, meet the forces operating in the market and the general conditions in a given time; you must know what is happening in those companies in which you invested, so you can identify the right time to get out of that market, by selling all or part of your actions.

Even in the worst of times, investing should be a fun experience. With some knowledge, a lot of discipline and focusing on diversification, the investments you make will become a highly rewarding habit.

Understanding the concept of Net Cash Flow

The more widespread and positive your Net Cash Flow is, the greater the leeway to deal with unexpected expenses will be.

One of the most basic terms of personal finance is the one known as the Net Cash Flow, so much so that your personal or family financial situation can be easily diagnosed by a quick glance at it.

The Net Cash Flow describes the revenues and expenditures of cash during a determined period of time (for example, a month or a year). If you spend less than you earn, your cash flow will be positive and will increase your net worth; on the other hand, if your expenses are greater than your income, your cash flow will be negative and you will be wasting your net worth, which is not sustainable over time and requires that you take a prompt decision.

The more positive and larger your cash flow is, the greater the leeway you will have to deal with unforeseen contingencies, as well as it contributing to obtaining the financial independence you want. Your peace of mind, freedom and quality of life will improve substantially.

To increase your cash flow, you don’t necessarily have to earn more money; you can increase it by reducing the amount of your recurring expenses (for example, the monthly utility bills), or decreasing unnecessary expenses (for example, buying the latest mobile phone or buying a bigger TV). Another way (maybe the fastest) is to reduce your debts (like Credit Cards or the loan for the purchase of your car).

In any case, always remember that what you are looking for with your financial decisions is to improve your quality of life and to progressively get closer to your goals. Maintaining your Net Cash Flow under control will help you achieve it.

Knowing the expression «Blue Chips»

If you want to start playing at the world stock market, the “blue chips” could be a good investment option

No wonder that a significant number of investors prefer to operate with the so called Blue Chips. This tems, which referes to casino blue chips (which are those that represent more value) is used in the stock exchange world to identify stocks of stable companies, financially solid, well-established and with products or services with good acceptance. Typically, blue chips correspond to the stocks of financial institutions globally recognized, as well as the leader multinationals in sectors like energy and telecommunications.

The shares of these businesses are very attractive to investors for their reliability, the evolution of the price is uniform, remaining stable to market swings; Blue chips can be traded when desired and, sometimes, payment of dividends (shareholder earnings) is done on a regular basis even though the company is not going through its best moment.

A good way to understand the blue chips is considering them as the premium stocks in the market: stable, with predictable yield (although lower than others) and with little financial risk, making them ideal for conservative investors, cautious and with little tolerance for uncertainty and risk.

As is to be expected in any investment, profitability is proportional to the risk; in the case of the blue chips, profitability is fairly low and due to high demand, these stocks tend to have higher prices, so they are not attractive for those who want quick profits; however, they are a good way to start playing on the market.

Had you ever thought about being a shareholder of a large bank? By buying blue chips, you are not only taking your first steps into the world of investments and getting dividends from time to time, but also, you will be owner of a small part of that business; a very small part, but that is the starting point.

What you need to know about money and stress

It’s said that money is the root of all evil. Some popular sayings like: “more money, more problems”, or “blessed are the poor” invite us to think that on occasions, it’s preferable to not have money because it changes people and, in many cases, it’s the root of severe personal and family conflicts.

At the same time, when you have enough money, you feel that life is more bearable, less worrisome; what previously overwhelmed you, now you see from another perspective. Having  financial freedom makes you see the world with more light, you live carefree, you breathe air of safety and self-esteem, you can afford to buy a house, a nice car, enjoy holidays and of course pay religiously all monthly receipts and obligations which you have committed to.

Historically, money has always been stressful, but lately, the list of elements that generate tension and anxiety is being led by issues related to money, and with good reason. If we recognize how difficult it is to earn a living, it’s no wonder that we are so sensitive about the issue of money, and there are so many people that suffer day after day, building irreversible consequences for their physical and emotional health.

Pay attention to these facts about how money impacts stress levels

  1. The lower the income, the greater the propensity to stress. The American Psychological Association (APA) has shown that in recent years, people with lower income are more likely to suffer from stress. This contrasts with a study in 2007, in which a significant correlation between income and stress levels experienced by people who participated in the study was not found.
  2. Feeling the inability to pay for health care can really make you sick. Money problems cause stress that can lead to health complications for two basic reasons: firstly, you become ill due to stress; but at the same time, you neglect your health because you are too focused on money problems and also because you’re convinced that you do not have enough slack to allocate some of that money to health care, or you feel you must save the little money you have to meet mandatory and extremely necessary expenses. Under these conditions, health rapidly deteriorates, increasing vulnerability to serious events such as strokes or heart attacks. Moreover, the loss of health, the burdens and concerns, significantly influence the responsiveness to overcome the crisis; you cannot think straight, much less evaluate opportunities and choices you have to take to make smart decisions based on your personal circumstances and family. This generates more stress and a tendency to eat in an unhealthy way, to overeat and to have irregular sleep patterns. As you can see you get into a vicious circle that is difficult to escape
  3. You will never be able to buy with money one of the best antidotes for stress. In most cases, emotional support from family and friends is the only truly effective way to reduce stress and combat its effects. The simple fact of having the support of people who may help you in your worst moments, increases your tolerance to uncertainty and dramatically reduces stress levels. A survey by the APA in 2014, concluded that 43% of people who reported not having emotional support, increased their level of stress in the last year, compared with 26% of those who acknowledged such support.

You may have noticed the importance of preventing stress from taking root in your life, and even more money-related issues. To prevent this, the American Psychological Association makes a set of recommendations which are briefly summarized as follows:

1) Do not panic or fall into negativity; on the contrary, you should remain calm and focus your mind on the solution.

2) Identify factors that really cause financial stress. This is a must to develop specific action plans to overcome each of these factors.

3) Assess the way you are handling money related stress (smoking, alcoholism, depression, abuse, violence, etc.) and establish the necessary corrective measures before the conflict becomes more difficult to resolve.

4) Avoid the routine and find new ways to help turn bad times into real opportunities for personal growth.

5) Ultimately, if none of these recommendations take effect and you’re still overwhelmed by your financial worries, it will be very useful and convenient to seek professional support.