Money rules you should expertly break
SEE ALSO :How to build an emergency fundHere are some of them: 1. Don’t Borrow Money to Invest You might have heard that relying on borrowed money to invest is a no-no. According to financial experts, although this tactic has been used by many investors for decades, it can ruin the average individual investor. In a 1991 speech at the University of Notre Dame, billionaire Warren Buffet reportedly said “I’ve seen more people fail because of money and leverage – leverage being borrowed money.” Financial experts agree that borrowing against an important asset, such as your house, to buy stocks is a bad move. However, there are instances where borrowing to invest makes sense. When the return on investment of the loan is high and the risk is low, then a loan is definitely good. A prudent investor also makes sure that the investment will mature before the loan is due. Certificates of deposit or bonds are great investments for someone who’s using borrowed money.
SEE ALSO :How to start a business2. Don’t Use Credit Cards Credit cards make it super-easy to spend money that you don’t have, getting you deep into debt. No wonder most people feel that it’s best to avoid credit cards. But if used wisely, credit cards are not that bad at all. Having credit cards can help you build credit score, which can make you eligible for more credit. Credit cards also come with awesome incentives and rewards such as travel points and even cash back. They can also be a tool to track your spending while also protecting yourself from the risk of cash payments. Instead of using credit cards to go on crazy spending sprees you can’t afford, stick to your budget and spend within your means. Focus on your credit card balance- not the card limit. Rather than just making minimum monthly payments, set auto payments from your checking account to pay credit card debts in full. By paying the entire balance as soon as you get your statement, you will avoid accruing interest and thus escape the credit card debt trap. 3. Save 10 per cent of Your Income for Retirement
SEE ALSO :How to raise capital for your start-upBut using rent standards crafted decades ago for a different society might not be realistic today. A 2012/13 study by Kenya National Housing Survey found that Nairobi residents spend as much as 40 per cent of their income on housing. Consider affordability, instead of focusing on the 30 per cent rule. Considering factors such as how much you earn, your debts, where you live, rent can be more or less than 30 per cent of your income. If you live in an expensive city or neighbourhood, work on earning more. In the long run, that might be easier and more affordable than relocating. On the other hand, if you in less expensive towns, you don’t have to spend 30 per cent on housing. In that case, you have more wiggle room and can channel the rest of the money into your savings or investments. 5. Pay off Mortgage before Saving for Retirement A mortgage is a long-term loan, and you might feel pressed to pay it off before you start setting money aside for retirement. After all, not having a major loan hanging over your head, and having a home that is fully yours gives you and your family security. However, financial experts say that paying off your mortgage at the expense of retirement savings is not always a smart move. If you can pay off the house you plan to stay in for five years or more after the debt is paid, it makes sense to focus on paying off the mortgage as soon as you can. If not, you’ll be better off saving the money for retirement or investing it in assets that have potential for growth. The key is to prioritise your expenses. 6. Buy in Bulk Buying household goods in bulk makes sense, especially when you buy goods on offer or from wholesale shops. However, buying in bulk doesn’t work for everyone, and it can even cost some people more money. In studies, shoppers have confessed that they bought more than they needed when they came across “super deals.” Additionally, perishable goods bought in bulk can go bad even before you’ve had a chance to get full value from them. Instead of buying in bulk, buy only what you need and can use within a specific time period.
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