Posts Tagged "interest rate"
Leverage Part 1: What is Leverage?
Leverage: Think of it as using “other people’s money” to make money more quickly. Probably another topic that is best explained with an example. Greg has $1,000 a year to invest for 10 years. Assuming a rate of return of 10%, at the end of 10 years he will have $17,531. BUT, we know from the post on the magic of compound growth that TIME has a large effect on growth. The philosophy is that if you could instead take all that $10,000 over 10 years and just put it in now, you will have more money than by putting it in over 10 years. Okay, let’s look at a simple use of leverage: Greg only has $1,000/year, so he can afford a loan payment of...
Read MoreWhat is a GIC?
GIC: Guaranteed Investment Certificate. In the US these are known as CD’s (Certificate of Deposit). This is pretty much as safe as you can get when it comes to investing. You buy a GIC at an advertised rate (say 4% as an example) and you earn 4% per year for the duration of the term. They are guaranteed in that it doesn’t matter what happens to the stock markets, or with interest rates after you buy the GIC, if you bought a 4% GIC, you get 4% annualized for the duration of the term you chose. (Term is just a fancy word for how long you want to hold this investment.) The only way you could lose out is if the bank went under – even then, your money is...
Read MoreWhat is a "Line of Credit"?
A Line of Credit is basically like a credit card in that you apply to have the ability to borrow money whenever you want and have a set limit that you are authorized to use (let’s use $10,000 as an example). The Line of Credit remains open even when your balance is $0 – and you have no payments to make. If you were to use $5,000 then you would start to be charged interest. You could pay back the $5,000 right away or you could pay it back over time, the only thing you have to make certain is that you pay the interest monthly. So if your line of credit had a 10% interest rate you would owe a minimum of ($5,000 x 10% / 12) = $41.67 per month. You could...
Read MoreRefinancing your home
I’m going to offer up an example in a following post, but this post is to deal with the psychological aspect of refinancing your home to consolidate debt. First, let’s just make sure we’re on the same page and define “refinancing your home”. This is basically when you have some equity built up in your house (after paying your mortgage payment for a few years or having put a large down payment on it) and you use that equity to pay off OTHER debts so that instead of having a mortgage payment, a credit card payment, a line of credit payment, a vehicle payment, etc you will only have one slightly larger mortgage payment and that’s it. I...
Read MoreYour savings account choices could save you $100,000 over your working life!
Let’s take a look at how a relatively simple decision can make such a huge impact. Many traditional banks charge monthly account fees. My personal account with my previous bank charged $11/month and it paid 2% in interest. Some “virtual banks” like ING and President’s Choice Financial have savings accounts that have no monthly fees. They typically pay a higher interest rate as well, for this example let’s call it 4%. Let’s examine what the real cost is: $11/month x 12 months = $132/year But let’s take is a step further. Many banks offer a lower-fee or fee-free account to students or kids until they turn 18 – so...
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