Finance2007   Finance for personal business

One of the most confusing things about borrowing money is calculating the interest rates. Interest rates vary and when you go to take out a loan or a mortgage it might seem intimidating when the loan officer starts talking about interest rates per annum, nominal rates and market interest rates.

There are different types of interest rates depending on whether you are borrowing money or investing money.

When you are borrowing money you have to pay interest back at a set rate. These rates are determined by several factors. One of these factors is risk. If you have a bad credit rating the rates at which you pay interest on loans may be significantly higher than someone who has a pristine credit rating.

The reason for this is that the lender sees you as a risk. When you are a risk, the rates applied to your lending rise. This can make it especially difficult for someone with a bad credit rating to purchase anything major including a home or a vehicle. They may be able to afford the initial payments, but once the interest rates are added, the amount exceeds their budget.

Another factor that determines interest rates is the length of the loan. Lower interest rates are often offered if the consumer extends the period of the loan. To the consumer this may seem like a windfall. They view the smaller interest rates as a savings to them. Short term it is but since the loan is being extended to take advantage of the lower interest rates, they are actually paying out more money in interest over the length of the loan.

Interest rates do not only affect just the consumer but they have an impact on the economy as a whole as well. When interest rates climb, people are less likely to purchase goods that arent essential to their lives. Car sales drop and home sales often plummet as well. The average consumer doesnt want to spend the extra money on the increased interest because the rise in rate just means less money in their pocket. The cost of the goods they are purchasing hasnt changed, its the cost of purchasing those goods that has.

On the other side of the interest rates spectrum is investing. People want to invest when interest rates are high so as to yield the biggest profit. Years ago the traditional savings account was often viewed as the traditional investment tool. The bank would post their interest rates and people would save their money in the hopes that it would grow substantially over the course of a number of years.

Today you are more apt to find people investing in many diversified things; money market funds, the stock market and bonds. If you decide to invest in bonds they will have a posted interest rate. The rates on bonds might be slightly higher than other investments because with many bonds you have to lock your money in to the investment for a specific amount of time. The period can be anywhere from several months to several years.

Interest rates impact our lives everyday whether we are aware of them or not. To keep on top of both your borrowing and investment needs its a good idea to follow interest rates.

Frugal living requires skills and ways of looking at things that help you take advantage of the money-saving opportunities in life. The truly frugal person makes these into habits. Six of these habits are outlined below. These are techniques that can be learned in a matter of a day or two, and made into new habits a few weeks. Then they will save money for you for the rest of your life.

1. Frugal living requires a knowledge of values. How can you get a great deal on a car if you don’t know what a great deal is. Get in the habit of educating yourself on prices, especially before you’re ready to buy anything that costs a lot. It takes a few hours of looking at listings for sale, for example, to know what homes are selling for in an area, but this is knowledge that can save you thousands.

2. Learn from other people. Most of us know someone who always gets the best deal on cars, boats, homes, or even groceries. Why not ask him or her how they do it! One person will tell you that the cheapest coffee in town is 3 per cup, while another will say 50 cents. Ask the latter about coffee shops. People near you are living a good life on half of what you make. Investigate that. See how others do things, and you’ll know your options.

3. Frugal living means always looking for alternatives. You might have just as much fun taking a discount trip to Mexico as you would going to Jamaica. Maybe you happen to enjoy pizza more than fine French dining. If so, why not skip the expensive restaurant and call Dominoes. This isn’t about sacrificing, but about getting even more of what you really enjoy by paying less for cheaper alternatives that work just as well.

4. Pay cash. What happens when everything you buy costs an additional 20% because of the interest you pay over the years? You can’t buy as much! Everything is cheaper when paid for in cash instead of credit. If you want that new patio set, divide the price by the number of weeks you can wait to get it. Set aside that much each week, and buy it for cash when you have the money. Not only do you save on interest, but you’ll often get a better price when you pay cash.

5. Learn to do the math. Did you really save 400 on that car if it costs you 500 more in gas each year? Did you know that some stores are cashing in on shopper’s assumptions that larger is cheaper? It’s true. That gallon of pickles might actually cost more than four quart jars. Make it a habit to do the math if you want to save money.

6. Tell people what you need. Mention it in conversations. Many people get free or cheap things, just because they talk. For example, a neighbor wanted to upgrade her living room debt, and was thrilled that I would take her three-month-old couch off her hands for 30. I sure am glad that I mentioned I was looking for one. You need to make this little trick a part of your frugal living habits.