Are Biweekly Mortgages Really Worthwhile?

You may have got heard people, especially mortgage lenders, extolling the virtuousnesses of fortnightly payments, saying that you can salvage thousands of dollars and take 5-7 old age off your mortgage--and then offering to put up a biweekly program for you for as small as $400. But you don't have got to pass $400 to get economy money and clip on your mortgage. In fact, you don't have got to pass anything at all! You can put up a money-saving mortgage payment program yourself--easily and at no extra cost.

The cardinal is to look carefully at the mulct black and white in many fortnightly plans. You happen that even though you'd be making biweekly payments, the lender may only post them to your account on a monthly basis, which intends that you wouldn't be economy anything on interest, because mortgage interest is paid in arrears (as opposing to lease payments, which are paid in advance). Your lone existent nest egg would be in the fact that you'd be making the equivalent of one extra payment a year. That’s A good thing, of course, but you don't need to pay person $400-500, possible monthly care fees, to be able to carry through the same results.

Here’s how biweekly payments save clip and money: By making biweekly payments, you actually stop up making an extra monthly payment each year. Over the course of study of a year, you'd do 26 payments (one every other hebdomad for 52 weeks), which is the same as making 13 monthly payments. Making one extra payment per twelvemonth will shorten the life of your loan and salvage you thousands of dollars.

But you don't have got to do biweekly payments to obtain those savings. Here are a couple illustrations of how you can salvage large money, using the same basic idea:

If you get paid every two weeks, watershed your monthly principal and interest payment in one-half and then direct your lender a check for that amount during those calendar months in which you have three paychecks. Just sending in those two extra checks will be the equivalent of one extra payment a year.

If you don't desire to direct lump checks, you can get the same consequences by dividing your monthly principal and interest payment by twelve and then adding that extra amount to your payment every month. Normally, that figure won't set too much extra strain on your budget, and it will add an extra mortgage payment to your loan every year.

You really can salvage important amounts of money and shorten the life of your loan by making extra payments, but you definitely don't have got to pay a lender $400-500 to make it. Making those extra payments is easy to make yourself, and at no extra charge--which is always a good thing.

Copyright © 2005 Jeanette J. Fisher All rights reserved.

Bill Pay Makes It Easy to Keep Your Bill Payments Under Control

Just about everyone have had the frustrating, time-wasting experience of trying to pay measures over the phone, and many people still pay their measures by authorship out a check, sticking a postage on an envelope and mailing it. Even paying online can be unnecessarily clip consuming if telephone, electricity, credit cards and other measures are all dealt with separately. Fortunately, Yokel Bill Wage offers clients a much better alternative.

Bill Wage do it easy to pay measures online, and maintain path of which measures are owed and which have got been paid, all in one place. Users can schedule regular measure payments, and have got electronic mail reminders sent when measures are due. The home page shows a neat summary of the payment agenda and of recent payments made in the word form of a measure inbox and payment outbox. A listing of payments which have got got been made to a single payee may also be viewed with a few clicks.

Customers can pay measures to any payee they have added to their list. It’s possible to pay absolutely anyone using this service. If the biller is one of over two hundred who supply an e-bill service, clients can have and position their measure online.

Signing up is very easy, and there are two plans. For a small fee of about five dollars a month, clients have got access to a Premium Plan, which includes the full range of features. The first three calendar months are free.

They also offer a Basic Plan, which is completely free and gives clients access to a limited service. Any number of payments can be made to any biller on a listing over over one hundred, and e-bills may be received from over 80 five. Bill payment programming is not available on the free plan.

Find out more than at this billpayment site.

Bank Payments - Happiness Is

The aged common people among us may retrieve a song that was popular in the mid-1960s, by Bobby William Tecumseh Sherman titled “Happiness Is”. To quote a cardinal line from the words “happiness is different things to different people”. And this is my starting point. It is the “different things to different people” portion that is so important, especially when one sees the critical issues that environ the payments industry.

Banks have got long claimed the right to be the exclusive middleman in the payments human race – a right that they claim on the strength that they alone legally throw the accounts of people from which and to which these payments are made. Traditionally because of this banks have got been the exclusive and arbitrary determinant of what information represents a payment. Usually this is the bare minimum to fulfill the banks ain operational demands – originating and receiving banks, transmitter and receiving system account numbers, the currency and amount and the briefest of mention information.

Payment information plant for banks, but makes it really work for any other participants in the payments chain? The reply is an emphatic NO! Different participants in the payments concatenation need and would wish to have other payments related information. The ability to accomplish existent s.t.p. (Straight Through Processing) can lead to greater efficiencies in terms of operating procedures, processing times, fewer mistakes etc., etc. Inch short greater efficiency leads to reduced costs – and reduced costs enchantment increased profits. And this uses to client and banks alike.

Broadly speaking there are four users of payments related information and they all would wish to see different types of information that volition help in their ain pursuit for efficiency.

•Customers - To clients a payment is a small (but very important) portion of the business chain. Customers are seeking elaborate information that associates to its human relationship with its ain clients and with its suppliers. Single payments may affect 100s or even thousands of different transactions such as as invoices, credit and debit entry notes, returns, accommodations and so on. Accurate inside information of each of these are critical to the record keeping and the business operations.

•Banks - Banks are account keepers – and because they throw accounts or their clients’ payments and payment systems are the natural vehicles for moving finances from one account to another. Who pays, who receives, when and where, what currency and how settlement will be effected – and of course of study the client inside information too.

•Clearinghouses - Clearinghouses are the distributers of payments on a mass scale. Recent old age have got seen the rapid development and deployment of many different payment mechanisms. Often these allow for direct input signal by the client against his bank’s authorization – and the client still have got to happen another manner to go through on all that critical information that he so desperately needs.

•Banking government - Events in recent old age have forced the regulators to take a much closer look at what payments flow where in the banking world. Either the regulator himself desires the information directly or he have got made it obligatory on the banks to record, monitoring device and reserve certain inside information that associate to payments such as as AML (anti-Money Laundering) requirements.

The following legal brief verbal description summarizes the political parties from the remunerator to the donee including all the intermediaries who have an interest (and of course of study need information) on a typical payment being made through an RTGS system. Against each political party I have got briefly indicated what information they need to know.

•Sending Bank – (1) Which bank is it going to, (2) the amount, and name of the paying customer, (3) name and account inside information of the receiving customer. At the end of the procedure they may desire to also have a confirmation that the payment was made.

•RTGS system – (1) Which bank is sending, (2) which bank is receiving, (3) the amount, (4) the transaction type.

•Receiving Bank – (1) Which bank sent the payment, (2) the amount, (3) name and account inside information of the receiving customer, (4) transaction type, (5) settlement confirmation from the RTGS system.

•Payee – (1) The amount, (2) the name of the payee, (3) payer’s mention data, (4) donee mentions such as as as bill numbers, payment amendments such as credit short letters etc.

•Payer – (1) Confirmation that the payment was made and (2) the day of the month on which this occurred.

And this is just the basics! It should be clear that payments intend different things to different people.

Ah well... those 60s...

"To a preacher man it's a prayer, prayer, prayer,
To the Beatles it's a yeah, yeah, yeah,
To a banker tons and tons of dough,
To a race driver a GTO.
Happiness is, felicity is, felicity is,
different things to different people,
That's what felicity is."

(“Happiness Is” Bobby Sherman, 1965)

Estate - How To Legally Avoid Taxes On Gifts And Inheritances

Nobody likes to pay taxes. If done incorrectly, though, the way you inherit an asset can result in you needlessly paying tens of thousands of dollars in taxes. Knowing some simple rules will reduce your tax bill and allow you to keep more of what you inherit. And it will also keep you from creating tax headaches for loved ones to whom you wish to gift assets.

Whenever an asset is sold, Uncle Sam wants to collect capital gains tax. And that tax is figured using cost basis. Cost basis refers to how much money you invested in a given asset. When sold, the cost basis is subtracted from the amount received to determine the gain or loss. Your amount of gain or loss then determines how much you will pay in capital gains tax.

If you buy an asset for $10,000 and sell it for $25,000, your cost basis is $10,000 and the taxable gain is $15,000. Currently, the highest capital gains tax rate is 15%, which means you'd owe capital gains tax of $2,250. Losses can be used to offset other gains, but we won't get into that in this article.

Determining the cost basis can get complicated. If you buy an asset and add money to it, your cost basis increases. If it's a mutual fund and you have the dividends reinvested, that adds to your cost basis. If you sell a portion, that affects your cost basis as well. This means that it is important to keep track of the amounts you paid and received on all of your assets.

An asset can be many things, not only stocks and bonds but also houses, property, jewelry, coins, artwork, etc. Legally, you are required to pay capital gains tax whenever an asset is sold at a profit. In fact, 1099's are issued whenever investments like real estate, stocks, bonds, and mutual funds are sold.

Here's where people lose thousands of dollars. If someone gives you an asset, you 'inherit' the giver's cost basis in that asset. So if mom gives you $10,000 of stock that she's owned for years, you inherit her cost basis and are responsible for paying the capital gains tax on it when you sell it. If she only paid $1,000 for that stock and you sell it for $10,000 then you will owe taxes on the $9,000 gain.

On the other hand, let's say you inherited that stock from mom after her death (through her estate). Then your cost-basis would be the stock's market value at that time. This is called 'stepped-up basis'. So, even if mom only paid $1,000 for the stock, if it is valued at $10,000 when you inherit it you can sell it and not owe any capital gains tax. You just legally avoided the Tax Man!

This stepped-up basis is the government's way of making up for people having to pay taxes on the transfer of their wealth. But estate tax laws are in a state of flux. Under current regulation, the stepped-up basis disappears in 2011. However, there's some talk in Congress of doing away with stepped-up basis altogether, especially since the death tax only affects estates that are larger than $1,500,000. Most likely, if Congress ends the estate tax for all but the largest estates, they will collect revenues from smaller estates by abolishing stepped-up basis.

There are situations where it is better to have an asset given to you instead of it being inherited. It all depends on the size of the estate. Death taxes range from 37% to 50%, while capital gains tax rates are capped at 15%. So if an estate is going to be worth less than $1,500,000 then there will be less tax paid by inheriting an appreciated asset through the estate. If an estate will be worth more than $1,500,000 then less tax will be paid on that appreciated asset if gifted to you prior to death.

I'll provide several examples in my next article that will clearly illustrate real-life situations. That way, you will be able to more easily determine which course of action you should take and can save thousands of dollars in the process! There's no reason to pay tax when you don't have to!

I'll personally answer your financial questions. Go to www.guardingyourwealth.com and click on 'Ask Jeff'.

In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Estate - Clearing Up Estate Document Confusion

Few topics confuse investors more than figuring out what estate-related documents they need. Living Wills, Living Trusts, and Powers of Attorney are just a few of the terms that most find hard to define, let alone understand. But being comfortable with these terms and what each one can do for you is important, and can make the difference between your wishes being followed or creating a nightmare.

A Living Will is a document that is designed to convey your end-of-life wishes regarding medical care. Many people have strong feelings about being kept alive by machines and feeding tubes. The Living Will allows you to express your 'will' concerning your end-of-life preferences. Please note that the Living Will doesn't give any other person the right to make medical decisions on your behalf.

A Living Trust, on the other hand, has nothing to do with end-of-life medical decisions. A Living Trust is a vehicle that controls the management of your assets while you are alive and how they are distributed after your death. Plus, the assets owned by the Living Trust don't have to go through probate before they are transferred to your heirs. (Go to www.guardingyourwealth.com for more articles on Living Trusts.)

So how should a Living Will and a Living Trust apply to you? Every adult should have a Living Will, regardless of age. A great deal of stress and potential conflict is removed from your loved ones when you clearly state your end-of-life wishes. But not every adult needs a Living Trust.

For those with very simple estates consisting of a home and a few other accounts, proper account registration and transfer-on-death provisions can solve most estate problems. But if you have out-of-state property, are remarried, have children with special needs, or otherwise wish to simplify the settling of your estate for your those you leave behind, then a Living Trust is something you should look into.

Another very confusing topic concerns Powers of Attorney. Here is a simple way to understand how they work in general. An attorney is someone who acts on your behalf. A Power of Attorney, then, is just a way for you to legally name who you want to act in your behalf. You determine when that person can act on your behalf. They can do so immediately, only if you should become incapacitated, or both now and during incapacity. A Power of Attorney is only in force while you are alive.

For most estate planning purposes, you need two important Powers of Attorney. The first is a Medical Power of Attorney. This allows you to choose who will make your medical decisions should you become incapacitated. Only your spouse has this authority without such a document. But what if something happens to your spouse, or you're single? This document can relieve a lot of headaches in these situations.

The second Power of Attorney you need is a Durable Power of Attorney for Assets. Not even your spouse can make financial decisions for you if you're incapacitated. This important document lets you predetermine who can manage your assets when you are no longer able to do so yourself. Without this document, should you develop dementia or end up in a coma, someone would have to petition the court to be appointed your guardian. This process is expensive, extremely stressful and completely unnecessary, if you have a Durable Power of Attorney for Assets in place.

It's important to remember that these Powers of Attorney can be worded so they only become active should you become incapacitated. While you're competent, you regain complete control.

So every adult should at least have a Living Will, a Medical Power of Attorney and a Durable Power of Attorney for Assets. Many times you can get the forms for a Living Will and even a Medical Power of Attorney free of charge at your local hospital. All you have to do is fill out the form and sign it in front of two witnesses. In some states you may have to have it notarized.

A Durable Power of Attorney for Assets should only cost around $100 and can be done by any attorney. There are even kits available online for those do-it-yourselfers.

How the Advanced HealthCare Directive Makes Life-Saving Decisions

An Advanced Medical Directive deals with life's real issues and combats the problems that arise where most boilerplate healthcare powers of attorney, healthcare proxies, living wills and others fall short. The Terri Schiavo case is a prime example of such a problem where the power to control one's medical condition becomes a gray realm and ends up in a myriad of appeals, numerous motions, petitions and hearings for many years in litigious battle. The result is much heartache, financial strain and most often unrealized unwanted outcomes.

WHAT IS AN ADVANCED MEDICAL DIRECTIVE? TOP TEN FACTORS FOR YOUR MEDICAL CARE

An Advanced Medical Directive is a legal written instrument signed by you and the individual you identify as your Agent to control your medical care with both signatures supervised before a notary public. Herein are the top ten reasons how an Advanced Healthcare Directive can make legal, life-saving decisions for you when you cannot. Your written instrument should contain:

1. Legal identity of yourself, mailing address, social security number.

2. Legal appointment and identity of your Agent's mailing address and social security number.

3. Legal identity of an alternative Agent, in case where your primary Agent is unavailable, or unable to make decisions, or unwilling to make decisions.

4. An articulated written authorization for your Agent:

a. To consent or refuse consent to any care, treatment, service, or procedure to maintain, diagnose, or otherwise affect a physical or mental condition, including approval or disapproval of diagnostic tests, medical or surgical procedures.

b. To request, receive, examine, copy, and consent to the disclosure of medical information or any other healthcare information.

c. To make decisions regarding orders not to resuscitate as well as decisions to provide, withhold, or withdraw artificial nutrition and hydration, and all other forms of healthcare to keep you alive.

d. To select and discharge health care providers, organizations, institutions and programs and to make and change healthcare choices and options relating to plans, services, and benefits.

e. To apply for public or private healthcare programs, to include Medicare, Medicaid, and any benefits without your Agent incurring any personal financial liability.

f. To direct that your healthcare providers and others involved in your care provide, withhold, or withdraw treatment in accordance with the limits of generally accepted healthcare standards.

g. To decide not to prolong your life if you have an incurable and irreversible condition that will result in your death within a relatively short time, or you become unconscious and, to a reasonable degree of medical certainty, you will not regain consciousness, or the likely risks and burdens of treatment would outweigh the expected benefits.

h. To direct treatment or withhold treatment to alleviate pain or discomfort even if it hastens your death.

i. To the extent that your wishes are unknown to your Agent, your Agent may make all healthcare decisions in accordance with your best interest considering your personal values and other factors known by your Agent.

5. An appointment of your Agent to become your Guardian if there's a reason for a legal appointment of such a Guardian, together with power for the Alternative Agent to become the Guardian in cases where the primary Agent is unavailable, or unwilling to serve.

6. A very important paragraph to negate your consent to committing you or to place you in a mental health treatment facility, or to convulsive treatment, or to psychosurgery, sterilization, or abortion.

7. Participation or non-participation to the donation of your organs and body parts for purposes of transplant, therapy, research, or for other educational purposes.

8. A severability clause not to void the agreement or any provisions of the agreement considered non-essential to the primary purpose and essential to the principal objective.

9. A modification clause allowing the agreement to me modified or revoked at any time.

10. A provision for the final disposition of your body and any funeral arrangements.

In conclusion, a Medical Directive is a morbid action to take, nobody wants to think about dying, but in this case, it could save your life.

Know Thyself - The Cardinal Financial Panning Rule?

While we often apply the rule to evaluating risk tolerance, it works for all aspects of financial management. Raw numbers mean nothing if you have to go against your established behavior patterns to achieve them.

To put it even more simply, if the success of your retirement, [tag]investment[/tag] or money management plan depends on you becoming a systematic saver, and you've never demonstrated that ability, you're probably dooming yourself to failure.

Psychologists know that few behaviors can succeed if they conflict with historical patterns supported by deeper beliefs, values and ultimately, your basic identity.

The fact is some of us have the discipline to save and others don't. A young woman I know of is "a saver", to the tune of $2,000 a month. She didn't spend her excess cash but stashed it away for her dream home. Yet I know plenty of young people who've lived rent free or nearly rent free at home for years and hardly saved a dime. And these are examples of "root identities" that govern our lower-level "behaviors".

The Know Yourself rule also applies to your life situation. If you make a financial plan, look down the road and ask yourself if there is anything in your identity, beliefs and values that might stand in the way of you carrying it out. There are periods in one's life when it is extremely difficult to save a dime, even if the cash stash ethic is deeply ingrained. You can be a pretty good saver when you're younger, but that changed when children, car loans and a mortgage came along.

Your stage-of-life can affect but not entirely override your identity, beliefs and values.

It was frustrating in our thirties and early forties to find ourselves skipping IRA contributions year after year, and we also delayed planning for eventual long term care needs. This pattern is completely normal but we could have avoided both frustration and a sense of failure if we had taken into account how these typical life events can affect savings and asset protection plans over time.

Now, with children vamoosed and cars paid off, we find there are a few extra bucks heading to retirement savings and long term care insurance every month.

One thing I've learned is that these plans are not just about me. They're about how my loved ones will be affected over time by the plans I put in place now.

While it's well and good to accumulate and grow assets, what matters is protecting these assets against catastrophic losses like long term care due to accident, longevity, disability and conditions like alzheimers, parkinsons, stroke and multiple sclerosis which are very care-intensive and which can drain your financial reserves, causing a tragic burden on your spouse and family.

Knowing thyself is paramount, but don't forget to filter your thinking through your life-stage, and protect against catastrophic loss from long term care. The long term care loss is a loss which, for a couple, has in fact well over a 70% chance of happening to you.

Stock Investing – New Warren Buffett Letter to Shareholders is a Model for the Rest of Us

Every year the master of stock investing, Warren Buffett takes the time to create a letter which usually runs about 20 plus pages in length. In the latest letter, he lays out for anyone to see, exactly why he is the premiere investor in the world today. Warren Buffett is the best at what he does because he understands what he is, and what he is not. In over a half century of investing, he has never bought a technology stock. The Chairman of Berkshire Hathaway believes if he cannot envision what a balance sheet of a company will look like in 10 years, he can't own it. Since you can't figure out a high tech company's balance sheet next year, how are you going to figure it out 10 years into the future?

What Buffett had to Say

Berkshire now has annual revenues approaching $100 billion, and 217,000 employees. "Size seems to make many organizations slow-thinking, resistant to change and smug." Buffett is questioning whether size is the right way to go. He does say that Berkshire has become the buyer of choice for many companies seeking to sell themselves. A company bought by Berkshire can still retain its individuality and unique focus. If bought by a strategic buyer, the same company would be torn apart, certain pieces sold off, and employees discarded. On the other hand if a company is sold to a private equity firm, it gets loaded up to the gills with debt. The acquirers really only want to own the company for as few years as possible, and then boom, the company gets sold again.

Buffett is a keen observer of human nature. Small things tell him everything. He recalled the time in the 1960's when he bought an insurance company from Jack Ringwalt. The day of the closing, Buffett is sitting at the conference table waiting for the seller to arrive, and the gentleman is late. Finally when he gets there, the seller announces to Buffett that he was driving around the block looking for a parking meter with unexpired time on it. Since Buffett always kept the old management team in place when took over a company, he knew that Berkshire Hathaway was going to be all right with this investment, since this guy was so cheap, his shoes would squeak. The Sage of Omaha loved every minute of it.

Perhaps one out of a hundred investors is aware of this, Buffett always made his biggest money in the insurance industry. Insurance works off of the float that a company has available. You take money in against potential claims in the future. You have the premiums to work with until some day, some portion of these accumulated premiums, must be paid out in settlements. Now with insurance you have to get a couple of things right.

You have to price the premiums correctly for the potential losses, and you have to invest the premiums until that time comes when you might have to pay them out. It is said that Warren Buffett better than anybody in the world can price risk appropriately.

We already know that he certainly can allocate capital to investments better than anyone else. In the insurance business, this means he can invest those premiums on an interim basis better than his competitors.

As for risk, he says, "We remain prepared to lose $6 billion in a single event, if we have been paid appropriately for assuming that risk. We are not willing, though, to take on even very small exposures at prices that don't reflect our evaluation of loss probabilities."
He then goes on to say, "Appropriate prices don't guarantee profits in any given year, but inappropriate prices most certainly guarantee eventual losses."

Newspapers are a poor Business Model

If you know Buffett's history, you know that he made a killing buying into the Washington Post which is the Graham family newspaper in Washington DC. An $11 million investment in the 60's, is now worth $1.2 billion. Not a bad return at all, but that was then, and this is now. The business model for newspapers has certainly changed. A very bright publisher once said that he owed his newspaper fortune to two basic concepts – monopoly and nepotism.

If you have a town with one newspaper, you have yourself a monopoly. For much of our nation's history, we got our information from newspapers. People knew the different sections, and there were the ads that were incredibly profitable. If there were several newspapers in a town, the fattest newspaper with the most ads would ultimately dominate, and then the profits would go through the roof. Ads would go up in price every year, even though costs could be held constant.

In the last 10 to 15 years, it's obvious that people have more choices as to where to get their information than just newspapers. With the Internet, Television, and Radio, newspapers are simply not experiencing increasing readership. As a matter of fact, circulation is down across the board in just about every city, and sector in America. The business model simply doesn't work anymore.

Comments on Compensation

If he is nothing else, Warren Buffett is a straight shooter who calls them as he sees them, and doesn't mince words. He states that he sets the compensation for every major executive that works for him, which is about 80. Some of these people manage billions of dollars individually. He spends no time on it, and has never had anybody leave him. He has sat on tons of boards through the years, and no one, that's right, no one has ever asked him to sit on a compensation committee. They don't want him.

When selecting directors for Berkshire's Board, he wants them, '….owner-oriented, business-savvy, interested, and truly independent." He believes most board members are not independent, that they absolutely need the money that the Board is paying them. For big companies, Board compensation comes to $150,000 to $250,000 per year. This is a number so large, that for many directors, it's bigger than what they make from their day job, and basically kills off the concept of independence.

The law says that the directors have to faithfully represent owners. These directors are not doing that. Buffett's first question of any potential board member is, "Does he think like an intelligent owner?" Since Berkshire is in the business of running other businesses, they need board members who have "business judgment." There isn't much of that around according to master of investing.

Good bye and good luck,

Richard Stoyeck

How Not to Have More Money

Making more money will not translate to having more if all you do is spend on your lifestyle.

Have you ever wondered why you had more money while you were a student than you do now you are working and earning more money than ever before?

I recall a function I attended with a friend over the weekend. It was a surprise birthday party organised by the celebrant's partner. The number of people present was just right, not too many people, so it was easy to chat with everyone, after introducing oneself off course.

We talked about everything, growing old, getting married, the rising level of crime in the UK and jobs to name few. What caught my attention during the many discussions we had was the comment made by the celebrant's partner. She wanted to look for another job so she could have more money.

On hearing those words, I thought to myself, thinking if that wasn't what she said before she got her current job. I know I have -- am sure you have too -- thought the same in the past, "Making more money will mean having more". You think this is logical, but reality is the more you earn, the more you tend to spend, leading you to your original position of not having enough.

Apart from my internal mumbling, I found myself noticing the different electronics and gadgets in her flat. She had a video iPod, plasma screen TV, satellite system, Bose sound system, she also had a flashy car outside. Not difficult to see why she didn't have any money.

The sad fact is many people are in this situation, making a lot of money but also spending a lot on the latest gadget money can buy. It reminded me of a guy we used to make fun of while at university. This chap drove a nice car to university, but he never once had money to buy fuel in the car, the car was always running on empty.

It is a misconception to think the more you earn the more you can spend. Regardless of how high your salary is, if you keep spending, then you will always be without money, needing to make more. A vicious cycle if you will.

Making more money and having more money are two different things. It you wish to have more you have to learn to spend less than you make.

What is FOREX?

FOREX (Foreign Exchange Market)

Foreign Exchange Market is the arena where a nation's currency is
exchanged for that of another at a mutually agreed rate. FOREX
market has been formed in 70th, when international trade has
changed from system of fixed rates to system of floating rates of
exchange.

In fact, every national currency is merchandise, like wheat ore
sugar, the same medium of exchange, like gold and silver. Since
the world changes every year faster and faster, that economic
conditions of every single country (labor productivity, inflation,
unemployment and so on.) depend on level of development of
another countries more and more, and this, in turn, impacts on
value of its currency regarding currencies of another countries.
This is the main reason of the process of rate fluctuations.

Currency Symbols

EUR Euro


USD US Dollar


GBP British Pound


JPY Japanese Yen


CHF Swiss Franc


AUD Australian Dollar


CAD Canadian Dollar


NZD New Zealand Dollar


SEK Sweden Kronor


DKK Denmark Kroner


NOK Norway Kroner


SGD Singapore Dollar


ZAR South Africa Rand

Currency Exchange Rate

Currency exchange rate is simply the ratio of one currency valued
against another. For example, "EUR/USD exchange rate is 1.2505"
means that one euro is traded for 1.2505 dollars.

The exchange rate of any currency is usually given as a bid price
(left) and an ask price (right). The bid price represents what has
to be obtained in the quote currency (US Dollar in our example)
when selling one unit of the base currency (Euro in our example).
The ask price represents what has to be paid in the quote
currency (US Dollar in our example) to obtain one unit of the
base currency (Euro in our example). The difference between the
bid and the ask price is referred to as the spread.

1.0 lot size for different currency pairs (Table 2)


Currency 1.0 lot size Necessary margin for 1 lot 1 pips


EURUSD EUR 100,000 1000 EUR 0.0001


USDCHF USD 100,000 1000 USD 0.0001


GBPUSD GBP 70,000 700 GBP 0.0001


USDJPY USD 100,000 1000 USD 0.01


AUDUSD AUD 200,000 2000 AUD 0.0001


USDCAD USD 100,000 1000 USD 0.0001


EURCHF EUR 100,000 1000 EUR 0.0001


EURJPY EUR 100,000 1000 EUR 0.01


EURGBP EUR 100,000 1000 EUR 0.0001


GBPJPY GBP 70,000 700 GBP 0.01


GBPCHF GBP 70,000 700 GBP 0.0001


EURCAD EUR 100 000 1000 EUR 0.0001


EURAUD EUR 100 000 1000 EUR 0.0001


NZDUSD NZD 200,000 2000 NZD 0.0001


USDSEK USD 100,000 1000 USD 0.0001


USDDKK USD 100,000 1000 USD 0.0001


USDNOK USD 100,000 1000 USD 0.0001


USDSGD USD 100,000 1000 USD 0.0001


USDZAR USD 100,000 1000 USD 0.0001


CHFJPY CHF 100,000 1000 CHF 0.01

Let's assume that exchange rate for EUR/USD is 1.2505/1.2509.
You may have made market analysis and decide the EUR/USD rate
is moving higher (at least to 1.2600). You buy 0.1 lot (minimum
contract size) of EUR/USD at the 1.2509 (ask price). Table 1 will
help you to define what the contract size is: i.e. 1.0 lot for
EUR/USD is 100 000 EUR, then 0.1 lot (our contract size) is 10
000 EUR.

This means that you bought 10 000 EUR and sold 10
000*1.2509=12,509 USD. So, in order to make a deal you don't

have to sell total amount of 12.509 USD but 100 times less just
$125.09. The rest sum of the money (in our example $12,383.91)
is leveraged to you by a broker (a company you entered the
contract with to enter the market).

Making Riskier Investments: Know The Options

Commercial forestry holdings

The advantage of this investment is that it is free of income and capital gains taxes and, if held for at least two years, is excluded from your assets for inheritance tax purposes.

The disadvantage is extreme illiquidity and volatility in value.

Investing in commodities

Anyone can buy a commodity, whether it be a metal, farm produce such as grain or coffee, or even wine. The objective is to hold the commodity in the expectation that it will increase in value. There is extra expense because of storage, insurance and perhaps shipping costs.

A more risky way of investing in commodities is to buy or sell futures or options in commodities.
A less risky way is to invest in companies or investment or unit trusts which deal in commodities or commodity companies.

Buying convertibles

These are bonds or shares issued by companies, earning fixed interest or dividends, which are subsequently convertible into equity, i.e. ordinary shares. They are usually redeemable before conversion.

Conversion can take place after a specified date in the future at a set price which is usually in excess of the ordinary share price when the convertible is issued. The conversion premium is the amount by which the equity
share price must rise to make conversion worthwhile; it can be a negative amount.

Initially, market price is controlled by current interest rates. As the conversion date nears, the equity share price has increasing influence.

Convertibles can be very valuable if the share price goes up but meanwhile should be judged on the fixed return.

Understanding EISs and VCTs

EISs are enterprise investment schemes, where the investment is in one company. VCTs are venture capital trusts, which are pooled investments. In both cases, they are investments in new companies.

Investments for at least fiv6 years (three years for new issues after 6 April 2000) in new qualifying schemes receive tax relief at 20% at the time of investment. The annual limits are high £100,000 in each case.

Capital gains are tax free and, in the case of VCTs, so are dividends. Furthermore, CW liability on any investment realised to make the investment can be deferred till the new investment is realised.

Losses on disposal of unquoted shares in an EIS investment can be set off against income. Also the allowances on EIS investments remain even if listing of the shares is sought within the initial period.

But these investments are risky because they are in new companies very risky in the case of EISs, where all the money is put into one company, less so for VCTs where the risk is spread.

Backing films

This is very risky as few ventures succeed.

There is a tax advantage - production costs receive 100% relief from income tax provided they are less than £15 million and are at least 70% insured in the UK.

Becoming a Lloyd's name

Lloyd's of London is an insurance organisation. Members (called names) who put up capital as underwriting collateral get 100% relief from inhefitance tax provided they have been members for at least two years.

However, you first need to have large sums to invest and your liability is unlimited so, although it can be very profitable, it is extremely risky.

Using offshore funds

You can invest in investment trusts and unit trusts. based outside mainland UK, in tax havens such as the Channel Islands.

If you are resident in the UK, both income and capital gains are taxable in the UK and there is no indexation or taper relief for gains, but income in certain funds is 'rolled up', i.e. left in, and is not subject to tax until disposal of the investment.

On disposal the total gain is treated as income but this might be advantageous to you if you are going abroad to live before then or if your income after retirement is such that you have a lower marginal tax rate. Not many people fall into either category.

Charges can be much higher than in the UK. Also investment protection is lower than in the UK and in some places is non existent.

Buying penny shares

Shares with a low unit value (though not necessarily a penny) are known as penny shares. The official definition is where the bid/offer spread exceeds 10% of the share price and the market capitalisation of the company is below £100 million. Often they are companies which have been in trouble and the share price has fallen to a very low level.

There is a proliferation of penny share tipsters and enormous profits can be made but also enormous losses. Penny shares are very risky because:

• the wide bid/offer spread needs a high percentage increase to cover it;


• they tend to be highly volatile;


• they can be difficult to sell because there is a small market.

Buying warrants

A warrant is a right (but not an obligation) to subscribe for shares, or another form of security, at a set price on or during a set future period. They are usually issued as part of an issue of new shares, particularly by new investment trusts, but once issued they have their own market value.

Warrants are only different from call options (see above) in that they are issued by the company itself, most often by new investment trusts. They have all the same qualities as options high gearing and therefore high volatility and a risk of losing all the investment if the underlying share never reaches the option price.

They are freely traded on the Stock Exchange.

Unit trusts specialising in warrants are available; because they invest in a number of warrants, the risk is spread and so reduced.