Insurance Benefits:

One of the best benefits of a family car is cheap auto insurance policies. The cars are filled with the latest and best safety features to give parents with young children peace of mind. Those same safety features result in great car insurance discounts that save a family or individual large amounts of money over the course of a year.

Safety Features:

Family cars come with many standard safety features that the little sports cars or fancy cars might not always include without adding to the price. Most family cars have front and side airbags, anti-lock brakes and stability control through electronic means. These features help give peace of mind to parents who might worry about young children.

Cost:

Family cars will vary widely in cost, but in many cases the vehicles are reasonable when compared to other types of vehicles. It is possible to find new family cars at low prices to mid-ranged prices without difficulty. Many new cars in the family vehicle category are reasonable and most families can find used cars for budget friendly prices.

Technology:

One thing that is often misunderstood is the technology features in the family car. Many think that the reasonable prices and family oriented designs mean the vehicle is limited in the technology included. This is simply not true as many of the latest family cars are filled with as much or more technology than other types of vehicles. The family vehicles often come with a GPS system and the latest vehicle technology.

Space:

Family vehicles are designed for numerous passengers and car seats, resulting in a spacious interior that is comfortable for the whole family. This is a benefit that many other types of vehicles cannot match because sports cars and vehicles designed for individuals or couples are not made with the idea of passengers in the back seat. Family cars expect the family to grow with the vehicle, so the space in the back is made for infants and teenagers to feel comfortable.

Storage:

Like the space requirements, the storage needs of a family means a larger trunk and more options for storing items when traveling or carrying young children. The large storage space is a typical feature of any family vehicle.

Family cars have numerous benefits that make them perfect for a growing family, carpooling or an individual who wants to take friends out on the weekend. Though it is designed with the family in mind, the benefits are available to anyone who buys the car.

Purchasing home insurance means that Britons have protection against fire or flood. If the home were to be damaged by a fire, it would need to be repaired. In the worst cases, it will need to be completely rebuilt. In these cases, the repairs or the rebuilding would cost the owner an exorbitant amount of money, and people don’t always have such a large sum of money available. With buildings insurance, the policy holder has paid monthly or yearly premiums, but this amount of money will be much less than the amount they would need to pay to completely rebuild the home in the event that it has been destroyed.

Another part of home insurance is contents insurance. When there is a fire, more than just the home will need to be replaced. Everything within the house will be destroyed and if the home’s owner has to replace all of the contents, this can also cost a large amount of money. Some home contents that contents insurance covers are furniture, electronics and personal belongings such as clothes. Home owners who only have buildings insurance wouldn’t have to pay to have the house repaired or rebuilt, but they would have to purchase everything that goes in the home, and this can be expensive as well.

When people need to file a claim, they will need to pay the excess. The excess is the amount of money that the insured’s pay before the insurance company takes over. Typical amounts insurance companies charge for the excess are around 50 or 100 pounds. If the house is a victim of subsidence, the excess tends to be much higher. For example, some companies charge as much as 1,500 pounds for subsidence claims. With the excess and the yearly premiums, these amounts combined would cost the home owner much less than having to pay to have the house repaired or rebuilt and have to replace everything in the house.

When a house has been damaged to the point that it cannot be lived in until it has been repaired, the inhabitants will need to find alternative accommodations. This would be another expense that can cost Britons a lot of money, especially if they have to live in a hotel for an extended period of time. Home insurance will also provide the money needed to pay for other living arrangements while the house is being repaired or rebuilt. Because hotel rooms can be very expensive after people have to live for an extended period of time, a buildings and/or contents insurance policy would save Britons a lot of money.

His argument was simple. He did not believe that a 16-nation currency bloc could survive without a single fiscal policy. The constraints of EuroZone monetary policy would inevitably serve to help some countries, while simultaneously helping other countries. Let’s break down this argument into real-world events.

Central Bank Action

In the modern economic model that rules the developed world, when a country [or in the case of the EuroZone…countries] is facing recession and deteriorating economic conditions, a Central Bank will lower interest rates in an attempt to ease credit markets and spur economic growth. Conversely, when an economy is growing very well, and begins to grow too fast, then inflation becomes a threat, and when inflation becomes a threat, a Central Bank must increase interest rates in order to curb economic growth and stem inflation.

This is how the Federal Reserve operates in the United States, the Bank of England in the U.K., the Reserve Bank of Australia in Australia, and other Central Banks around the world. How is the European Central Bank supposed to operate, though? It doesn’t have only one country to take into account; rather, it has 16 nations to take into account. How can the European Central Bank satisfy the needs of every country? This was the primary objection of Milton Friedman.

The Global Credit Crisis of 2008

When the Crisis of ’08 erupted, every country in the developed world, for the most part, was thrust into recession and financial Armageddon at the same time. The United States, Germany, Canada, Australia, Greece, Portugal, and Spain—they were all in major trouble. Therefore, the response of every Central Bank was the same—slash interest rates! The United States slashed rates to near 0%, the U.K. to 0.5%, the EuroZone to 1.0%, and forex brokerage firms were forced to widen their dealing spreads as a result of the wild volatility that unfolded.

Interest rates needed to be slashed in order to fight off another Great Depression, and the concerted and unified effort of Central Banks around the world did act to stave off another Great Depression. However, the response to the global economic recovery was different in every nation around the world. Every country plunged into recession at the same time, but every country emerged from recession at a different rate of velocity, and this is where the problem lies. How does the European Central Bank satisfy the needs of all these 16 countries who are emerging from recession at different speeds. Furthermore, some EuroZone countries are still in recession! This is a major challenge.

Therefore, Germany is going to need much different policy than Greece. Germany may be facing inflation and need a stronger currency, but Greece may be facing deteriorating conditions and need a very weak currency in order to stimulate growth. This dilemma has been a major cause of trouble in the EuroZone, and so far two countries have suffered sovereign default—Greece and Ireland.

So, what is the solution? Some believe that struggling countries such as Greece and Ireland must be allowed to peacefully exit the EuroZone, reinstitute and devalue their national currencies, and then attempt to regain a competitive edge economically. Other possible solutions are being debated behind closed doors, but the consensus opinion, largely, is that something must be done to help these struggling EuroZone countries regain a competitive edge economically.

by Jonny Pean

Your Personal Finance can be broadly divided into categories like Banking and Budgeting, Loans, Insurance, Career and Work, Real Estate, Lifelong Investing and Retirement. Here are a few guidelines which must be followed for managing personal finance:

·  Mortgage Mistake must be Avoided
·  A Sound Retirement Plan must be prepared
·  Student Loans must be repaid
·  Always Budget When Broke
·  Cut Down your Car Insurance Costs
·  Save on Gas, Utility Bill, Energy Wasters at Home
·  Get a good Mortgage deal
·  Advantage of Homeowner Tax Breaks must be utilized
·  Cut the costs of college
·  Unnecessary expenses must be avoided

You need to make a strong resolution for improving your personal finance. Here are the top keys to help you move ahead strong financially:

1.     Get the Desired Pay Package and Reduce the Expenditure: Do not spend more than you earn and make sure you are aware of your job’s worth in the market.

2.     Budget must be fixed: A budget plan is compulsory for going ahead with your personal finance.

3.     Credit Card must be paid off: The debt on your credit card is a big obstacle while moving forward financially. So just pay off the balance as soon as possible.

4.     A Golden Retirement Plan must be formulated: A retirement plan is very important in your life. While managing your personal finance you must contribute to your retirement plan and it should be worthwhile.

5.     Make a Savings Plan: A minimum of 5 to 10 percent of your pay package must be kept aside for savings every month.

6.     Employment Benefits must be maximized: Do not forget to maximize your employment benefits and take advantage of those where you can save money.

7.     Insurance Coverage must be reviewed: You must have enough insurance coverage for your dependents.

8.     Your will must be updated: Protect your loved ones with your will.

You can simply choose one at a time and then set goals for incorporating them into your lifestyle. Money errors are too common and therefore be a careful manager of your personal finance.

by Jonny Pean

A few things that you have to consider when making a budget are as follows.

1. What time frame you will be considering?

You must first decide the time frame that you will be using for your budget. The time frame that you consider can be monthly or yearly or even quarterly. It is best for you to use the monthly budget. This is because mostly all your bills come once a month and thus using a monthly budget will be most beneficial for you.

2. What is you total income?

One of the first things that you will need to consider when making your budget is how much money you earn. You are to determine exactly how much money do you have incoming. This should include not only your monthly income but also the income that you make from other sources such as investments or additional jobs.

3. What is the amount that you spend?

Now you must calculate how much money you spend. It is important to note that there are some expenses that are fixed. Such expenses do not change over the months. These include expenses such as food bills, rent, etc. Some other expenses are variable expenses that change every month. You must understand that these expenses must be recorded precisely to get the total expenditure. Thus, it is essential that you include all major and minor expense in the budget that you make.

4. What is the surplus?

After you have found out your total income and your total expenses you are to find out how much is the surplus. To get this amount you are to subtract your total expenditure from your total income. The amount that is left behind is the total that you have in order to pay off your debts as well as to save for your future. This is the amount that you are to allocate to paying off your different debts. In case this amount is a negative figure, then you must consider ways in which you can reduce your expenses and increase your income so that you can opt for speedy debt reduction.

These are a few questions that need to be considered when formulating a budget.

by Martha Jackson.

This is not that debts are grown-up things. You can include the whole family in your debt solutions. Just try to tell your kids and family about the debt problems you’re facing so that they can help you with the financial problems. You can also go for debt consolidation process to get rid of your credit card and other unsecured debts.

How can you take help of your kids in your debt payment?

If you give some responsibility to your children, they’ll be able to follow that very well. Try to explain to them about the financial and other monetary problems so that they can understand your problems and can help you. Try not to barge on them with the adverse things that make them feel they’re poor. Just tell them the general problems that the country is facing which in turn have made everyone financially strained a bit. Take a look at the ways your kids can help you manage your debts well:

1. Creating a budget

After you tell them about the budget creation and other financial things, you can ask them to make a note of their spending and savings. That way, they can manage to have a good savings plan and can also monitor the money they’re spending. If they can save most of their allowance of a month, you can rest assured that the next month won’t be that strained. You can also help create a small budget for them so that they can act as a grown-up and try to have responsibilities.

2. Debt payments

This is not only your forte but even your kids and family’s too. You can ask them to contribute part of their money to pay off your debts. If you try to treat your kids as responsible individuals, you can get out of debts fast. Your children can help you pay off your debts with the help of their allowances or you can also sell off certain unused items you have in your storeroom. This garage sale can implement good habits in your kids and they’ll be able to learn the importance of money. Even in small percentages, your kids can help you pay off your debts through do it yourself debt consolidation process.

3. Savings and a frugal life

This is also a huge milestone in your financial matters. You can also teach your kids about frugality and how to manage that. For festive season, you can ask your kids to make their own gifts so that they can save their allowance money and you can pay off your debts. Apart from festive seasons, you can also teach your kids about different things you can make at home to save the supermarket money. That way, you can have a good payment history and can also save for the future.

The 3 ways that are given above can help you pay off your debts faster. Try to involve your family so that you can get out of the vicious cycle of debts united and not separate.

***

Author’s Bio: M.J loves to write financial articles and she is a contributory writer associated with the Debt Consolidation Care Community and has written several articles on debt consolidation, debt settlement, bill consolidation and get out of debt for various financial websites. She holds her expertise in the Debt industry and has made significant contribution through her various articles.

Pressing up against the window trying to create some space between himself and the man sitting next to him, Joe Aspiring kept wondering how great it would be getting around by taxi. The redundant meeting he had just left only served to increase his frustration. Never ending travels by bus were one of his less desired pastimes. One more year of internship and my status will change, he kept encouraging himself.

The luxury of taxis on the company’s expense did cheer him up, for a while. It was a refreshing change sitting back on black leather, enjoying the leg space. Looking at the windows of the adjacent bus he took some pleasure in the fact he had moved up in life.

The never-ending meetings frustrated him. I wish I could have worked on the international client, he had pondered. I could use a change of scenery. How did those guys get on the international team at the first place? Probably strings were pulled on their behalf. Spending every other week abroad must be fantastic.

The taxi that drove him to the airport was taken for granted. “Could you please turn down that music?” he angrily turned to the driver. These drivers are a menace, he thought. Next time I’ll insist on a proper ride. His senior team leader, traveling with him, had told him they’d probably only meet only at the baggage area at Heathrow since he was flying business.

The check in was a nightmare, as always. Endless lines and tiresome airport security personnel took their toll on him. Stepping slowly down the aisle he lovingly caressed the wide spaced sofas of business class. Perhaps one day, he thought. Inching further he had hoped and prayed. It took an eternity to get to his seat, waiting behind what seemed like a horde of people insisting on bending the laws of physiques by squeezing huge trolleys to tiny overhead spaces. Slowly raising his eyes he exhaled deeply, 42J was right between a 10 year old and an elderly woman. He cramped himself between his fellow passengers, legs, again, tightly squeezed against the seat in front of him. Someone should look into the relationship between leg space and social status, he thought. There must be a deeper reason than economy. Perhaps a constant reminder of your worth, he had bitterly thought.

He could stand the flights no longer. His surprising upgrade to business class was nice but left a bitter taste. He felt awkward among veteran business class travelers. An accidental upgrade is just that, he thought. Look at all these people; they must be wealthy and successful, groomed by their companies. When I’ve earned the privilege of routine business class I’ll know I’ve made it in life.

When his assistant handed him his e-ticket for his upcoming conference in Rome he was disappointed to see his miles weren’t enough for a first class upgrade. Those young executives with their constant laptop tapping and blackberry staring are impossible to travel with. Sitting in the lounge he eyed the door to first class’ part of the lounge. I wonder what kind of food they serve their. It has to be better than this bagel, and the wine is terrible, what happened to the service here?

First class was his dream coming true. Such comfort, such service, I could get used to this, but who are all these Nuevo rich surrounding me?

From leading magazines:

• The Lure of Store Credit Cards, and the Hook @ NY Times – A fitting article for the holiday season.
• Page-turners @ The Economist – The best books of 2009

Carnival of Personal Finance #234 – Weirdest Toy Crazes Edition was hosted by Suburban Dollar. My post on The Dangers of Excess Frugality – Budgeting and Balanced Living was chosen as Editor’s Pick! Recognition always gives me a warm fuzzy feeling. Here are some of my favorite posts from the carnival:

• 4 Japanese Personal Finance Gripes @ Foreigner’s Finances – My first acquaintance with this blog and it’s a good one. The blog broadens our financial horizons, a very stimulating concept.
• 5 Little-Known Websites That Will Save You Time and Money When Booking Airfare Online @ Get Rich Slowly – One of those focused niche posts that bring real added value if you’re looking to save on airfare. Highly Recommended.

More from fellow personal financier bloggers:

• How To Be A Skeptical Empiricist In One Easy Lesson @ Amateur Asset Allocator – Great post. I enjoy applied philosophy and have written quite about it myself (See philosophy under my categories for more).
• How To Invest Online Using The Peter Lynch Strategy @ The Digerati Life – Looking into another investing philosophy.
• What Is Your Financial Fear? @ Single Guy Money
• What are your dividend investing goals? @ Dividend Growth Investor

The dangers of excess frugality – The slippery slope of budgeting

The first steps in budgeting are usually a real eye opener. For the first time income and expanse are laid bare before our eyes more often than not resulting in surprise and disbelief as to the proportion of expense relative to income, the volume of different expenses and usually the inadequacy of income.

A little later on the potential hits. As with any new endeavor a significant portion of the benefit can be taken advantage on early on. Potential savings and sources of money leaks are easily identified and several quick and significant measures can be taken to materially improve the family’s financials.

Newly discovered personal finance enthusiasm usually leads, then, to further interest and reading which in turn leads to discovering the power of finance and compound interest. The affects of saving early are empowering and goals are set to allocate a more significant portion of the budget to saving.

Frugality often follows. Each expenditure is carefully weighted and considered against the future alternative benefit which, when compounded over time, amounts to hefty sums. Considerations such as “This $1,000 vacation has an alternative cost of $1,800 in 10 years using a 6% interest rate” are not uncommon.

Retirement planning takes up more and more of one’s time as a result. Thoughts of early retirement are fascinating with seemingly small sacrifices made on the way. Slowly but surely present time is replaced with imagery of retiring at 40.

Without noticing money becomes the object rather than the means. “I only need so and so much more and I’m settled”. The present soon is sacrificed for the future.
Sacrificing the present for the future
The real danger of the slippery slope presented is sacrificing the present for the future. The American public as a whole is in no real danger of this happening and the future has already been sacrificing several times over on the altar of consumption. Still, many personal finance enthusiasts quickly find themselves torn apart when it comes to spending money.

Frugality, in its moderate form, is probably a good trait. However, any excess (or deficiency), as Aristotle had so eloquently put, lead us away from virtue. Virtue or sense, in this case as well as others, lies in the middle.

Excess frugality will usually results in forgetting our original goals altogether, abandoning them to the accumulation of wealth with no real purpose. The inheritance will surely benefit the next generation but our lives are ours to live, not to pass on (again, reasonably).

The problem with sacrificing the presence for the future is the unavoidable frustration. Any extreme behavior takes its toll on the person as well on the surroundings. Being happy in such circumstances isn’t easy.

I should note I obviously do not suggest sacrificing the future for the present. I am only recommending a more balanced approach.
How to achieve Balance?
Balance will be represented, in this case, by the ratio of saving to consumption. In economics permanent income suggests a person wishes to average out his or her income over one’s lifetime in such a way as to not consume to much in the present or, on the other hand, consume too little (by saving too much – There is such a thing).

The rule of thumb suggests middle class households should consume 75% of their income. The rest will serve as either an emergency fund for non-expected expanses and big planned expanses (which can be expected as I’ve elaborated on in Budgeting for unexpected expenses) or as long term savings (equally weighted).

If you’re consuming less than 60% of your income or over 85% than an evaluation of income vs. expense is in order. Some circumstantial aspects obviously exist as dual income families with no kids would present higher levels of savings while others may present less available funds for savings.

Still, the rule of thumb serves as an indicator that something may be off. In higher income levels the ratio of saving out of income is obviously higher while in lower income levels saving money is something one can only dream of.

To some the idea of spending when you can save may sound careless. I argue the good mental health and happiness include the satisfaction of everyday needs. Stoic willpower may enable one to retire early but what of the years past? Usually the best years in life.
The illusion of having compounding interest working for you
There’s a reason why the 30′s are considered the consumption era in one’s life. Investing in education, raising a family, buying a house and other significant financial obligations put a damper on any attempt to really save for the long run.

True enough, saving throughout 20′s and 30′s will result in compounding interest working for us but who of us has managed to save significantly without sacrificing our present? Amassing a considerable amount of money requires many concessions, maybe too many.

The illusion of saving early is frustrating since saving at such an age is extremely difficult. For one’s good mental health savings should be balanced with consumption. The 40′s and 50′s are considered periods of wealth accumulation and will serve the purpose of amassing wealth as well (considering you are not intent on retiring at 40 – another illusion of you ask me).

A more balanced life and balanced goals will help achieve inner peace and acceptance that money is truly a means and not an end. This takes work and time. I suppose on cannot escape the slippery slope I’ve presented but understanding the need for balance early on will save considerable frustration and contribute to early happiness.

The recent, or ongoing, financial crisis has been attributed, amongst other things, to over reliance on quantitative financial models which replaced good business judgment instead of supporting it.

The reason behind the failure of models wasn’t simply poor modeling, for the most part. The main reason was poor business and risk management processes which placed blind faith in the models.

In this post I begin to explore the reasons why financial modeling increased the severity of the recent crisis and more importantly, what are the lessons we can implement to our personal finances?

The need for Financial Modeling

With the development of computing power advanced mathematical models enabled the creation of complex new financial instruments and professions such as financial engineering. Mathematicians and statisticians found their way to investment banks and hedge funds due to the increased demand and profitability of these endeavors.

These financial instruments included, for the most part, new underlying assets, that require complex financial models to model their pricing and behavior. Financial models which sadly broke during the recent crisis.

That is not to say that financial engineering and the use of models have been proven unsuitable for the financial markets. Much on the contrary, financial engineering and complex financial instruments help, in many cases, to increase the level of perfection in the market and ease the transfer of undesirable risks from one party to the other.

Models as a Representation of Reality

A Model, by its definition, is a representation of reality. Economics, for example, as any 1^st year student knows is based on very simple models of production, supply, demand and price. The strength and importance of these models is their ability to explain economic behavior even under very simplistic assumptions.

Think of the prisoner’s dilemma in game theory or Nash’s equilibrium which are very simple models that won their authors Noble Prizes. The beauty of the model is its ability to represent reality with a very limited framework.

As modeling advances assumptions are slowly removed creating more and more complex models which require a better understanding of the mathematic complexity. The reason is simple, the more “free” parameters the model needs to explain the higher the complexity.

Naturally, when dealing with financial instruments and their fair value pricing, models need to explain as much of the price as possible to adequately represent the fair value of the instrument. As such, models have grown quite complex as room for assumptions is very small.

What went wrong?

Before we get too judgmental let’s consider the simple, commonly used model of Net Present Value. Net present value is a model used to determine how much a certain stream of cash flows is worth today – or, the present value of the cash flow.

Net Present Value is commonly used to determine the economic sense behind undertaking certain projects and investments. All those in the finance profession, as well as personal finance enthusiasts have probably tried to determine the net present value of a certain undertaking. The problem starts when you dig deeper into the model.

Most people are not aware Net Present Value assumes the following due to the very central role of the cost of capital in the model (further reading on NPV is available here):

• The existence of an efficient financial market – In order to price correctly an efficient financial market is required. NPV cannot be turned into value in the present if an IPO cannot be performed or valuated correctly.
• Access to financial markets– Without access to an efficient financial market the entrepreneur, again, cannot transform NPV to value in the present.
• The existence of diversified investors – Adequate pricing of the cost of capital can only be performed by ignoring the specific risk of the investment. A diversified investor, in finance, sees only the market risk when investing (the reason being a diversified portfolio will stay diversified even after investing in this particular project, for example).

When was the last time the Net Present Value calculation you had performed met these requirements? My guess is never.

The model is a helpful tool but the underlying assumptions and limitation cannot be ignored.

The reason behind why many of the financial models broke has to do with the assumption of liquidity and volume in the markets. Pricing models are built to price instruments under a normal market environment, as part of the normal course of business. When stressed scenarios occur the assumptions behind the models cease to exist and the model breaks.

• Black and Scholes model very commonly used for option pricing assumes normal distribution of returns (Not true, obviously).
• The CAPM Model (Capital asset pricing) which is a corner stone in asset allocation is based, again, on normal distribution of returns but also assumes, amongst others, the following highly debatable assumptions: Perfect availability of information, No taxes or transaction costs and a market portfolio which includes all types of assets (!).

With no liquidity in the markets strange phenomenon start to take place, phenomenon which cannot be analyzed through modeling but rather through good judgment and independent thinking.

The Importance of an Adequate Process

The role of an adequate risk management process cannot be overstated. Financial modeling is a tool, nothing more (and nothing less).

Like any tool the one who uses it needs to understand its capabilities and its limitations. Model limitations are inherent as they are, and only can be, a representation of reality.

Financial modeling will not go away. The need is too strong. What does need to happen is the implementation of robust risk management processes which will continue to remind what are the assumptions and limitation of the models and what the proposed mitigations against these limitations are.

The wisdom of the ancient Greek philosopher Socrates is a fitting quote: “I know that I know nothing” he said, not because he knew nothing because he didn’t claim perfect knowledge. A humble state of mind is a very good start.