Sunday, January 20, 2008

Money, Investments and Emotions... (Part 4)


When you talk with your family and plan how to spend (Spend??? How about invest and save???) your money, the last thing that you'd like to do is flipping a coin just because the unknown is something you feel excited about and like to take
risks, Right? Your emotions are not in charge of your family budget, so, you are in charge, Right?

Whether you find exciting to flip a coin or not, probably you don't realize -because of the excitement of flipping a coin- that you're in fact making your first basic financial decision (!!!) that you'd like (obviously) to discuss with your family; in this regard, you may be wondering:

* Do I need to buy some new stuff for our house, car, ourselves, or whatever I'd like to buy?
* How about if that stuff is not exactly what my family need at this moment?
* What would happen if I don't buy the stuff that I want for me, our house or my family?

Let's consider an additional underlying factor about how you decide to handle the family budget: if you've had -at least for a moment- some second thoughts as to buying that stuff or wait a bit longer, also without realizing it, you've made your second basic financial decision: you've taken into consideration the "risk" of not spending your money right now (so far so good!).

There is another underlying factor to consider: if you've been "lucky" enough to realize that you, your home and your family can wait a bit longer before buying that stuff, although you've decided to wait and not spend your money.

Wait! Does the surprise of realizing that you've made some "careful" spending decision could make you feel excited about considering yourself a "thrifty" person? Don't feel bad about it but you aren't a thrifty person yet... How about if you are curious for a while and explore if you feel yourself convinced of possessing a bit more thorough ability to have second thoughts when your money is at stake?

How about if you consider the possibility of applying a basic "financial check list" (How is your Math knowledge doing?) for you to explore (How about if you include your wife?) not only if you could make mistakes while handling and investing/spending your money (and the family budget of course) but the possibility to apply some basic measure to correct those mistakes:

You could be losing money (interests).-
You could underestimate how much you could make your savings increase. Do you know that an interest rate can make your savings double because of the time (compound interest) you keep that investment (having your interests "reinvested") rather than assuming that at the end of -let's say- 10 years you could "earn" 80% if you initially invested your money at 8%? (It doesn't work this way). We'll talk later about simple and compound interests.

The "dreadful" credit card.-
Do you know that most credit cards can be quite expensive for you because you must pay interests on your original spending (the stuff you bought for you, your house, your family, etc, etc, etc)? Do you know that the compound interest works exactly the same way but "against your personal finance"? How? Well, you not only earn interests from a good investment but in the "worst case scenario", you must also pay those interests to the bank (creditor) you got your credit card from. We'll talk later about credit cards.

You can improve your financial knowledge and understand how the things really work.-
How about if you understand and learn how to use some good online financial calculators if you want to keep yourself informed about the interests you can earn from your savings and the costs you must pay from your debts? There is a good online calculator on

No comments: