Category Archives: Financial Investments

How to Budget for a House

A man’s accomplishments in life are the cumulative effect of his attention to detail.

— John Foster Dulles

Start with Principal and Interest

This is your purchase price spread out over the length of the loan along with the finance cost of delaying the payments from the date of purchase. For example, if you buy a €200,000 house with a 10% down payment, and you borrow with a 30 year fixed rate mortgage at 4% interest, then your monthly PI (principal + interest) = €859.35. This is the one part of your housing cost that is constant and predictable, but unfortunately there are many other costs.

High Return Investments

An professor and his student were walking. The student notices €50 lying on the sidewalk and says, ‘Look! €50 on the street!’ The professor replies, ‘Rubbish. Markets are efficient. If there were really €50 on the sidewalk, someone would have already picked it up.’
So both keep walking
.

When people need to cut their budget, they generally start the process by attempting straightforward ideas:

Reductions: “I will try going out to eat less often.”
Eliminations: “I do not need to take a trip this year.”
Substitutions: “Maybe I can find a cheaper mobile phone contract.”

Eventually, however, you will exhaust all the low hanging fruits. If you attempt to hold your budget steady, you will need to continue to make routine cuts in order to combat inflation. It will not take long until all the straightforward cuts have been made. Now what do you do?

Create a Framework for Budgeting

High achievement always takes place in the framework of high expectations.

— Charles Kettering

In the first part of this series on budgeting, we discussed the importance of starting the budget process by looking at the big picture. Now let us try to bring those lofty ideals down to earth. When we asked ourselves significant questions about life (listed in the previous article), we found that some of the things that were important to us were the follwing.

Mental Accounting

Understanding the mental accounting helps with spending, budgeting and investing decisions. Mental accounting means that people mentally divide their assets and income into buckets. Depending on the mental account, vastly different decisions are made regarding the money. Even though money should be exchangeable. Scientists mainly seem to be interested in trying to predict and explain behavior, so they do not necessarily label mental accounting as a negative thing. There can indeed be some positive aspects to mental accounting. However, when a mental accounting decision has a negative impact on current or future net worth and there appears to be no rational motive for it, it is a mental accounting error.

Top Ten Online Markets

A profitable internet business model needs a huge target market. The larger the market, the higher the upside.

Impulse Purchase

How to attract impulse purchases? What motivates impulse buying? Consumers made even large purchases on impulse. Three sales arguments are related to such impulse decisions. Valuable information for both, the conscious consumer and the eager salesman.

#3 The Friend

The most powerful force in the universe is compound interest.

— Albert Einstein

Why you should let time and capital work for you together as a mantra.

#2 The Enemy

Reality is hard. Everybody wants something from you and you have to be cautious especially with your financials. Knowing your enemy, you will automatically select the right information in communication and think about the right questions (due the selective perception effect in your reticular activating system).

#1 Why Financial Independence?

Most people or even companies live from paycheck-to-paycheck. You want to escape this debt-powered and self-imposed treadmill or hamster-wheel and jump into a new lifestyle.

Assets & Liabilities

The problem with financial education is that it is not taught in schools. So usually parents teach. Unless your parents are in the top 1%, they usually teach how to be poor. Not because they do not love you – they just do not know what they are teaching. They do not read books like “Rich Dad, Poor Dad” by Robert T. Kiyosaki and learn how to work with money.