Personal finance

Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. It addresses the ways in which individuals or families obtain, budget, save and spend monetary resources over time, taking into account various financial risks and future life events. Components of personal finance might include checking and savings accounts, credit cards and consumer loans, investments in the stock market, retirement plans, social securitybenefits, insurance policies, and income tax management





Personal financial planning

A key component of personal finance is financial planning, a dynamic process that requires regular monitoring and reevaluation. In general, it has five steps:
Assessment: One's personal financial situation can be assessed by compiling simplified versions of financial balance sheets and income statements. A personal balance sheet lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.

Setting goals:
Two examples are "retire at age 65 with a personal net worth of $200,000 American" and "buy a house in 3 years paying a monthly mortgage servicing cost that is no more than 25% of my gross income". It is not uncommon to have several goals, some short term and some long term. Setting financial goals helps direct financial planning.
Creating a plan: The financial plan details how to accomplish your goals. It could include, for example, reducing unnecessary expenses, increasing one's employment income, or investing in the stock market.

Execution:
Execution of one's personal financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.

Monitoring and reassessment:
As time passes, one's personal financial plan must be monitored for possible adjustments or reassessments.
Typical goals most adults have are paying off credit card and or student loan debt, retirement, college costs for children, medical expenses, and estate planning.

Debt consolidation

Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

Sometimes, debt consolidation companies can discount the amount of the loan. When the debtor is in danger of bankruptcy, the debt consolidator will buy the loan at a discount. A prudent debtor can shop around for consolidators who will pass along some of the savings. Consolidation can affect the ability of the debtor to discharge debts in bankruptcy, so the decision to consolidate must be weighed carefully.

Debt consolidation is often advisable in theory when someone is paying credit card debt. Creditcards can carry a much larger interest rate than even an unsecured loan from a bank. Debtors with property such as a home or car may get a lower rate through a secured loan using their property as collateral. Then the total interest and the total cash flow paid towards the debt is lower allowing the debt to be paid off sooner, incurring less interest. In practice, many people are in credit card debt because they spend more than their income. If that habit continues, the consolidation will not benefit them much because they will simply increase their credit card balances again.

Because of the theoretical advantage that debt consolidation offers a consumer that has high interest debt balances, companies can take advantage of that benefit of refinancing to charge very high fees in the debt consolidation loan. Sometimes these fees are near the state maximum for mortgage fees. In addition, some unscrupulous companies will knowingly wait until a client has backed themselves into a corner and must refinance in order to consolidate and pay off bills that they are behind on the payments. If the client does not refinance they may lose their house, so they are willing to pay any allowable fee to complete the debt consolidation. In some cases the situation is that the client does not have enough time to shop for another lender with lower fees and may not even be fully aware of them. This practice is known as predatory lending. Certainly many, if not most, debt consolidation transactions do not involve predatory lending

Reference : http://en.wikipedia.org/wiki/Debt_consolidation

Debt Managment -snowball method

Snowballing is all about paying your debts in the correct order

Snowballing is all about paying your debts in the correct order.
The debt-snowball method of debt repayment is a form of debt management that is most often applied to repaying revolving credit— such as credit cards.

The basic steps in the debt snowball method are as follows:

• 
  List all debts in ascending order from smallest balance to largest. This is the method's most distinctive feature, in that the order is determined by amount owed, not the rate of interest charged. However, if two debts are very close in amount owed, then the debt with the higher interest rate would be moved above in the list.
  
• Commit to pay the minimum payment on every debt.
  
• Determine how much extra can be applied towards the smallest debt.
  
• Pay the minimum payment plus the extra amount towards that smallest debt untilit is paid off. Then, add the old minimum payment from the first debt to the extra amount, and apply the new sum to the second smallest debt.
• Repeat until all debts are paid in full.

In theory, by the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow (thus the name). The theory works as much on human psychology as it does on finance; by paying the smaller bills first, the individual, couple, or family sees fewer incoming payment requests as more bills are paid off, thus giving the impression that they are making headway towards debt elimination.

All retirement contributions are to be halted during the debt snowball, thus freeing up more money to pay down the debt snowball. Many dispute this practice, citing the cost of compounding interest to be greater than the gains of paying off debt. Some compromise by reducing retirement contributions to only what a company will match with an employee. Ramsey teaches that this halting of retirement contributions should last no more than two years.

Simple Example

Ignoring interest rates, let's pretend you have the following debt (along with the minimum payments):

• 
  Car Payment - $2500 balance - $150/month minimum
• 
  Credit Card A - $250 balance - $25/month minimum
• 
  Loan - $5000 balance - $200/month minimum
• 
  Credit Card B - $500 balance - $26/month minimum

Your minimum payments for all debt would be $401 per month. You would order your debts in the following order (lowest to highest):

• 
  Credit Card A - $250 balance - $25/month minimum
• 
  Credit Card B - $500 balance - $26/month minimum
• 
  Car Payment - $2500 balance - $150/month minimum
• 
  Loan - $5000 balance - $200/month minimum

Now, assuming you had $100 extra per month to send in, you would apply that $100 to the Credit Card A so that the payment for it would be $125 per month and the other debt would receive the minimums.

After Credit Card A is paid off (in two months), you would apply the extra $100 to Credit Card B PLUS the $25 you were sending in to Credit Card A. So now your payment to Credit Card B would be: $26 normal minimum + $25 that you normally sent in to Credit Card A + $100 that you are able to send extra.

Your payment to Credit Card B would be $151 instead of $26. Therefore, you would pay it off much faster. Then, when Credit Card B is paid off, you would now send in the following to the Car Payment: $150 normal minimum + $25 that you normally sent in to Credit Card A + $26 that you normally sent in to Credit Card B + $100 that you are able to send extra
Your payment to Car Payment would now be $301 instead of $150.
If you didn't have $100 extra (or any extra amount) the debt snowball would be the same minus $100 per month.

Criticism

People with more financial discipline can get ahead quicker by paying off the credit cards and loans with the higher interest rates first. This will minimize costs to become debt-free faster than the Ramsey approach.

The primary benefit of the Ramsey plan is the psychological benefit of seeing results sooner. Retirement contributions should start once your expected investment yield is higher than the next highest debt interest rate (generally 8% for a balanced portfolio).

Reference
http://en.wikipedia.org/wiki/Debt-snowball_method

Different ways to save money

Find out where your money is going

Reduce monthly fixed expenses

Don’t go shopping on an empty stomach

Eat At Home- Stop eating outside

Bring lunch to work everyday

Eat fewer restaurant meals

Cut credit card interest rate

Take advantage of the current low mortgage rates and buy a home and pay down debt,instead of being as tenaet

Always buy classic style on clothing

Car pool with your neighbors

Reduce the number Of Credit cards

Get the best price by comparing supermarkets

Fewer long distance calls

Cancel voice mail

Get free checking account

Give up manicures

Go for shopping in season

Find cheap car Insurance

Don't overpay your income tax- try to use the use the facilities offered by gov to reduce tax

Follow The Sun, solar roof panel cut your annual water-heating bills and other type of bills

Shop for the best prices. Don't pay too much attention to percent discount.

Pay Credit Card Bills soon after they arrive

Transfer high credit card balance to low-rate card

Think your vacations

Buy in bulk- such as paper towels and diapers

Cancel what you don't absolutely need

Things to consider when taking a loan

Have a need? The bank has a loan.

Today, you can get a loan catering to virtually every need that arises. Home loans, education loans, personal loans, consumer durable loans, wedding loans, vehicle loans, used car loans and home improvement loans are the most common.

Out of all, personal loans are the most convenient because the customer does not have to explain why he needs the money. He can use it for whatever purpose he requires. The most exciting part is that, for most of these loans, often no guarantor, security or collateral is required. Within 72 hours, the cheque arrives at your doorstep. What's more, in some cases, you don't need to have an account at the bank.

Personal loans are a great method of getting the money you need quickly and efficiently. However, they may not always be the best loan for your particular situation.It is also important that you conduct your own research on various types of loans you may be eligible for. This will assist you in making informed decisions while ensuring you get the best loan available. There are a few things to consider before you make the decision to apply for a personal loan. Here, we tell you what to look for when opting for a loan.


Is there a need ?
First thing to consider - do you really need them ? So ask yourself if there are there other sources of funds you can get money for your immediate needs. Such as an advance from your employer or a loan from family or friends. You’ll want to make sure that that is your best option for your financial situation. After reviewing your options, if you still find that a personal loan is the best means of regaining fiscal control and health, and If u cannot find any other cheaper means then go for it


Loan amount
You’ll need to decide on a practical loan amount.try borrowing the minimum possible amount, Beware of lenders that encourage you to borrow more than you need or more than you should. That is a red flag, warning of a potentially unscrupulous lender

Make a List of Loan Lenders
Once you feel that u have a need for loan then create a list of loan lenders then try to get Rate for you and neccassary details for u , since every bank can differ by their rate of interest Always explore the loan option with your bank first. Being a customer, you may get various benefits like minimum documentation or waiver of other fees.
The most important thing you can do as a consumer of loan products is to shop around and get several preliminary loan quotes for your consideration.
I suggest that you obtain 3 or 4 offers. You can then examine and compare the terms, rate, fees, and all other pertinent information about the loan product, and the lender, at your leisure and in the comfort of your own home Shop around for the lowest possible rate .The competition is intense, so you may get somewhat better deals if you do your homework.

Compare Interest Rates Offered to You

The interest rate is one of the key elements that determines the mortgage amount you'll pay each month. So it should also be a key decision-making factor when you apply online for a mortgage / home loan.

Monthly reducing and yearly reducing
Choose a bank loan where the interest is calculated on a monthly reducing basis as against an annual reducing basis. You end up paying less when the interest is calculated on a monthly reducing basis. So the principal amount you repay this month will be deducted from next month's interest calculation

Fixed versus Floating
The two most common loan products available are fixed rate versus floating rate. Fixed rate means that you agree on an interest rate that does not change through the life of the loan, whereas, an Floating means that rates and monthly payments can change, depend s on market factor Deciding on which way, to see if one of these products may be right for you. But, proceed with caution, and understand all the risks, alongside any potential benefits.

Know your processing fee and other type of fee
If you are taking a loan amount then a processing fee is 1% or 2%, then you will have to pay a processing fee. So keep low processing fees in mind when looking for a loan of a high amount. If the bank says they do not charge any processing fee, probe some more. Do they charge an administration fee? Is it high in comparison to the other players? Do they charge an application fee?.

Loan Types:
There are several standard loan products to look for, including 3 year fixed,4, 5year fixed, etc .the best place to start, is to obtain quotes for a for all year fixed rate loan, and then go from there.which u think relatively safe. In general, the longer the duration of the cash advance, the higher the money u pay . and u will know , the longer the duration , the less u will pay for less delayed payment

Pre payment of loan
Check for the prepayment penalty if you plan to repay the loan before the term ends. This is all the more important if the loan is of a long tenure and you are looking at prepayment. Look out for other benefits too. For example, scheme where the last Equated Monthly Installment was forfeited if you paid all earlier installments on time.

Read the contract
Read the contract very carefully. If anything makes you uncomfortable, ask all the questions you need to before signing a payday advances contract. Show the document to others, and even a lawyer if need be. Some lenders try to rush you through the process so that you don't have a chance to read the fine print. Don't fall for this tactic; let them know you'll take the time to examine the contract before you commit to taking payday loans

reputation
Run a check to find out more about the lender's reputation. If you find complaints about their conduct, look around for other sources for cash advances. As the buyer, you have every right to gather facts about pay day loan companies you're considering doing business with.


Is there a url where u can find details ?
Ensure that there is a url where u can find details where lender will giive you a complete breakdown of all amount paid and the remaing amount paid , and other details . And make sure the page where you input your details is secure. ensure that they have full contact details including a working phone number on the site. Give them a call and ask a question or two about their payday loans to see how they respond

Get Everything in Writing When you apply online for a loan, it's absolutely critical that you get everything in writing. This is good financial practice in general, For example, if a lender promises you a certain interest rate based on your qualification and credit score, ask them where it says that in writing.Lenders are required to provide you with this information within a day or two of your mortgage application. rates, terms and fees possible for your individual situation.

Insurance protection

if you get sick, have an accident, or made redundant.can u get payment protection insurance for your personal loan which covers your repayments

reference :
Top 10 Things to Consider on Home Loans By Tom Levine at: http://www.mortgagesexplorer.com/10667.php http://www.rediff.com/getahead/2006/aug/22loan.htm