According to David Fabian, “A vital part of Investment success depends upon one’s ability to compare historical returns with an index or benchmark.

Doing so will let you measure if your approach meets the performance expectations or evaluate the efficiency of somebody else’s recommendation prior to hiring them. Although is may be very common in the entire industry, many investors still make knee-jerk conclusions based on unreliable or biased information.

Two primary conditions that must be satisfied when determining the viability of any investment approach are discussed below:

A proper standard of evaluation

We now lay down the reasons why these concepts are essential to your decision process.

Let us talk about time.

In reality, time is a commodity that has lost its overarching value in the fast-evolving dynamics of our daily existence. People so often fall prey to the temptation of immediate gratification provided by modern technology that they totally overlook how much time is required to accumulate wealth through the process of compounding.

For instance, if you start saving and investing starting at your mid-20’s and then you retire in your mid-60, it would have taken you 40 years to accumulate your wealth. But it does not end there. You need to sustain your wealth’s security for another 20 years through managing and conserving your investable assets. The growth period alone will take 480 months or 40 years, while the distribution or income period could last for 240 months or 20 years more. You need enough patience to see it through.

You cannot simply compare returns over very short time-durations. That is why you can hear people cry: My portfolio has been stagnant in four months! I’m below the benchmark on a 6-month rack record! Alas, my portfolio is 250 basis points lagging from the S&P 500 this year – I am done for!

The truth is that even the most efficient investment method will suffer some setbacks through underperformance. It may take some months or even last for a couple of years or more at a time. The best step to take during such doubt-filled or self-pitying moments is to recall why you chose this strategy in the first place.

Is your investment strategy still consistent with your risk tolerance level?

Could there be an intervening and temporary factor that is causing the adverse conditions?

Can you do something to manage this factor in order to enhance your long-term returns?

Have you really considered the risks of shifting to another approach in mid-stream?

Experts would advise that you analyze the performance of any investment method over a period of 3 to 5 years, enough time to determine the strengths and weaknesses over several conditions of the markets (bear, bull, transitional, and others).

The bond or stock markets can proceed for a few years along a particular direction. While that may favor some investors, it can also hurt others. Not that either side is bad investing; it all has to do with each group being exposed to different risks.

Creating and protecting your wealth is not a 100-meter dash -- a short-distance race, so to speak. Rather, it is a marathon -- a sustained race where risk conditions must be considered at close-range and behavioral principles applied with accuracy. Great patience is, therefore, of utmost importance in order to succeed as an investor. There are no short-cuts in this industry.

A Suitable Benchmark

A common pitfall among investors is the tendency to compare apples and oranges.

A prime example is that of a company whose primary approach is to have a mix of bonds and stocks allocated through ETFs that are adjusted according to meticulously-developed strategies. As such, it has a total of 20 to 40% stocks and 50 to 70% bonds in the Strategic Income Portfolio at any particular period.

However, the most common feedback the company derives when evaluating performance is how its portfolio stacks up against the S&P 500 Index. It seems that people are programmed to think that the S&P is the singlular reliable benchmark available, such that it has become the darling standard of many index lovers throughout the world.

Obviously, there is no basic logic to comparing the returns of a 100% stock portfolio (the S&P 500) versus a multi-asset portfolio that contains less than 50% exposure in stocks. A better and more suitable benchmark for such a type of investing method would be the 40/60 allocation in the iShares Core Moderate Allocation ETF (AOM). That is where the data will exhibit a clearer picture of actual performance.

In a similar manner, comparing the 0 to 60 mph rate of starting acceleration of a Porsche in a few seconds to that of a Suburban would not make sense either, would it? Although that is an accepted truth, in general, only a few investors consistently apply that universal principle in their investment practices.

It is vital to appreciate that fundamental concept in the process of accurately measuring risks or comparing similar approaches.

Never compare investing in bonds and stocks to the revenues of a CD or a money market account.

Never relate a portfolio of technology stocks to closed-end funds.

And never compare hedge-fund revenues to that of a bunch of ETFs.

We can continue down the line. . . .

Perhaps, the most difficult hurdle to making this logical conclusion is the fact that most investors do not know the suitable benchmark for comparison objectives or where to locate them. They merely gravitate to the S&P 500, the NASDAQ Composite or the Dow Jones Industrial Average because they see them flashed on the news or on the web daily.

In the end, every particular asset type or investment instrument should be weighed or evaluated by a similar group of equals. ETFs have made that process less difficult for many years now; however, you must always undertake the task of finding an appropriate index to serve as a benchmark. Ask a professional analyst how and where to find a good benchmark as a reliable yardstick.

The Ultimate Goal

Investing involves a lot of psychology and comprehension of the relationship of certain facts and information. This article hopes to develop a new perspective not considered previously or to strengthen an existing point-of-view. It is hoped that either way, the reader will attain a more reliable and more solid frame of reference for evaluating a portfolio’s performance in the future.

As early as you can, avoid common mistakes so you can enhance your retirement savings without losing precious time.

Saving for your retirement while you are in your early twenties can be one of the wisest financial decisions you can make. This is proven by the fact that starting in your 20’s can help you gain hundreds of thousands of dollars more than if waited until you are in your 40’s.

Nevertheless, deciding to save money may not always be a sure path toward financial success. You must be aware of certain errors most people are prone to commit along the way and which you must avoid in order to safeguard your future.

Along with saving for retirement, you need to enhance your financial intelligence on the path to a secure future. So, even without consulting with a financial adviser and assessing your situation, these following tips will give you some general and practical advice on avoiding the common mistakes in saving for retirement.

#1: Too Much Caution so Early in the Game

Striking a healthy balance between caution and eagerness helps a lot; hence, do not be too cautious early in your plan. Starting at the age of 25 is ideal, as most experts say, gives you about 30 or 35 years prior to using your retirement savings.

With still plenty of time in your hand, you can have the luxury of taking some chances instead of being too cautious. And so, investing into one or two big investments that early on in your career can provide substantial revenues within a long-term investment time-frame. On the other hand, you may go to the other extreme and take the extremely conservative approach, which may prevent huge losses but also keep you from significant returns.

#2: No Diversification

Avoid also the mistake of putting all your eggs into one basket, or into one asset type.

Let us consider the stock market. Assuming you put your whole retirement portfolio into stocks and you gained a massive $1 million return over the years. At 59, with one year remaining until your planned retirement, the market suddenly falls and suffers losses of 40% and eating away $400,000 off the stock value. It would take short of a miracle to recover that huge loss within one year! The solution is to diversify. Balance your savings and choose more conservative investments in the few remaining years of your career.

#3: Neglecting to Consider Fees

Majority of people make the mistake of not taking the time to study the fees connected with retirement savings. One percentage point increment in fees could mean costs of up to tens of thousands of dollars over the entire duration of an account. Analyze fees like a bee searching for honey and avoid entering into an account without a thorough picture of the fees required.

#4: Aimlessly Moving On

Setting up retirement goals at the start beats having to proceed aimlessly, even though life is unpredictable and you will always experience such situations as salary reduction or other external economic factors. Having exact amounts to aim for and deciding when you need to enter into new investments will help you easily manage your finances, since you know where you are exactly at the scoreboard and how much time you have left.

#5: Avail of Tax Breaks when Filing

How to manage taxes well forms a big part in a successful retirement planning. Certain accounts will give you the option to defer tax payments until maturity, allowing your money to grow more with interest. Others demand that you pay post-tax payments, freeing you from having to pay when you withdraw the money.

To know more on this matter, consult with a financial adviser to decipher the pros and cons of either of the two schemes.

Be Wise: Plan Right and Avoid Retirement Mistakes

The wise always plan ahead, enhancing the likelihood of securing a secure and comfortable retirement with sufficient money to support their needs over the coming golden years. The key is to avoid those mistakes that erode your portfolio’s full potential or stunt its growth.

Commit yourself to these proven guidelines and rest easy knowing a bright future awaits you.

You must have taken a peek at this year’s billionaires who made it to the top of the list of those who added fortunes to their wealth. How many billions did they gain over the previous year’s figures?

Most investors think that having a high debt is undesirable and must be avoided. Naturally, they tend to see it as adding more risks to a company’s present exposures. And once that company defaults on its debts because of underperformance, it could fold up.

Nevertheless, high debt can lead to positive consequences. It can bring in greater returns, even offsetting the greater risks involved in the process.

Enhancing yields

The major reason why debt can improve overall returns is because it costs much less than equity. A firm can raise capital either through equity or debt, with debt generally offering a less expensive option. Hence, maximizing a company’s debt levels in order to generate higher returns on equity is more logical. It can lead to greater profitability, stronger share-price performance and increased dividend growth.

The proper circumstances

Admittedly, maxing out a company’s debt levels is not a wise move at all times. Businesses with highly seasonal performance and dependent upon the conditions of the general economic environment might encounter great difficulties if their balance sheets are heavily leveraged. During times of low returns, they may not be able to undertake debt-servicing steps, aggravating the company’s situation.

On the other hand, companies performing in sectors that offer strong, consistent and viable revenues should increase debt to comparatively higher levels to enhance the gains for their equity-holders. For instance, it is to the advantage of utility and tobacco firms to raise their debt levels because of their high level of earnings visibility and the relatively strong demand for their products.

Economic periods

During periods of low interest rates, it certainly makes sense for businesses to borrow as much as possible. The previous ten years provided such an opportune time to borrow, rather than to lend. Global interest rates have experienced such record lows, thus, leading many companies in various sectors to decrease their overall borrowing rates.

In the future, a higher rate of inflation is expected, portending higher interest rates. Although it could lead to increases in the cost of servicing debt, it should be compensated somehow by higher prices passed on to the end consumer. Moreover, a higher inflation rate will serve to diminish the real-terms value of debt. This can lead to increased levels of borrowing in the future.

Conclusion

Although increasing debt levels can also increase overall risk, it can be a viable step under the proper conditions. During periods of low interest rates, businesses with strong business models may enhance overall revenues by raising debt levels. And while higher interest rates may entail rising costs of servicing debt in the future, higher inflation may reduce the real-terms value of debts. Hence, investors can opt to buy stocks with a modest degree of debt exposure to optimize their overall gains over the long-term.

What is the difference between investing money and saving money? Although they seem to be similar, they mean entirely different things. Knowing the difference and applying that knowledge can help you build your personal wealth.

So many novice investors do not realize the fact that the two have different uses and have distinctive roles in their financial approach and balance sheet. As you begin the adventure of enhancing your wealth and establishing financial freedom, learn how to avoid problems by properly dividing and allocating your money.

A lot of individuals, in spite of having great portfolios, lost everything for not having given sufficient respect to cash in their portfolio. Cash has exceedingly greater use than merely for making more cash.

To appreciate the use of cash, let us see how investing and saving differ.

Defining what Saving Money Means

The idea saving money involves keeping hard, cold cash in a secure place, as well in liquid (that is, easy to access or sell in a matter of days) assets.  This includes checking accounts and guaranteed savings accounts. You can also include U.S. Treasury bills or money market accounts, although the latter involves a lot of monitoring work.

Most of all, your cash funds should always be ready to use for your needs; available at any time for immediate withdrawal with the least delay under any circumstances.  Most rich and famous investors, including veteran investors who went through the Great Depression, strongly recommend hiding plenty of cash in secret storages even if that will incur a big expense in terms of profit loss.

Although the papers did not carry the news, back in the 2008-2009 market collapse, some hedge fund managers were apparently asking their spouses to withdraw as much cash as possible from ATMs, expecting the whole economy to collapse and limiting the availability of greenbacks for a short period..

After you have ascertained the preservation of your capital should you consider secondary measures for money you have kept in savings. That is, hedging against inflation.  

Defining What Investing Money Means

Investing money involves using your money or capital to acquire an asset with the potential of producing a safe and reasonable rate of return, allowing you to build wealth even through volatile periods, which can run into years. Genuine investments have a certain factor of safety, usually in the form of assets or owner returns. From your basic lesson in novice investing, the most productive investments are such assets as bonds, stocks and real estate.

What is the Desirable Ratio between Savings and Investments?

As a rule, saving money should generally take precedence over investing money. Consider it as the foundation over which you will erect your financial house. For a very simple reason: Unless you have inherited a sizeable amount of wealth, your savings alone will generate the capital to support your investments. During the lean periods when you will need cash, chances are you will have to sell your investments at the most inopportune time. Such an event would set you back by a big stretch.

Two major kinds of savings strategies should become part of your financial concern. They are:

• As usually recommended by experts, your savings should be enough to address all your personal needs, such as food, mortgage, utility bills, loan payments, insurance costs and clothing expenses for a period of six months. Hence, in case you lose your job, you still have enough time to cope with the crisis without the daily stress of working for a regular salary.
• Whatever specific goal in your life that will demand a big amount of cash for at least 5 years should be powered by savings, not by investments. In the short-term run, the stock market can be considerably volatile, taking away 50% of its value within a year. Buying a house can be a prime example for saving your money in real estate instead of investing it.

With these things under your belt, you can acquire health insurance as your first line of defense in your portfolio. One possible exception is contributing to a 401(k) plan at your company in order to get free money from your employer’s matching contributions. That is on top of getting a large tax break for contributing to your retirement account. You also have material bankruptcy safeguards for assets held within such an account against any non-payment or default on your part.

Additional Info on Saving Money

Avail of more information on how you can start saving money by reading online materials for beginners on how to save money. Get hold of resources, articles, essays, and lessons teaching you how to save money, how to invest money and how to build your personal wealth. It may seem scary for now, but remember that even successful and rich people began by earning money, living within their means, saving money and investing in ventures that brought interest, dividends or rentals. You can be as good, if not better, than they are. It is all a matter of gaining the same knowledge and wisdom to allow you to act as prudently in handling your money with discipline in order to reap a certain measure of success. In the same way that they did their homework and applied the right principles of money management, saving your own money can be as simple as adding 1 and 1 to get 2.

If you are involved at present in a tussle with your life insurer over the escalating costs of their universal life premiums, you may need this article like a shot in the arm.

Within the past couple of years, scores of universal life insurance policyholders have been adversely affected by the double-digit premium increases from firms such as Axa Equitable, Transamerica and Voya Financial. And more premium increases, particularly to long-time policyholders, are still coming.

Universal life was developed in the 1970s and accounted for one-fourth of all of life insurance policies bought from the ‘80s to the ‘90s. This development will affect tens of millions of people who will have to eventually deal with huge premium increases.

What is Universal Life Insurance?

What is happening? To fully understand, let us start from the beginning.

If you are not familiar with universal life, it is a permanent (for as long as you pay the premiums promptly) and rather flexible, crossbreed life insurance policy that mixes the sensibly affordable properties of term insurance with a savings component similar to whole life insurance.

A universal life insurance policy provides holders a “cash value” savings account that brings them tax-free interest, including the flexibility to modify premiums and to raise or reduce death benefits. The policy’s investment account earns cash when interest rates rise but can also deplete it when rates dip low, as in the present. During the ‘80s and the '90s, the most accepted guaranteed rate in universal life policies was 4%; although some insurers offered more, says James Hunt of Consumer Federation of America.

Premium Increases of More than 200%

In the past two years, numerous universal life policyholders have been warned that their insurers are hiding in the fine print of their contracts their option to substantially raise their long-steady monthly premiums. And so, more than a few customers have suffered hikes of more than 200%.

It means that some people who are aged from 60 to 80 or more, many of whom receive fixed salaries, are being told to pay up amounts ranging from a few hundred dollars to thousands of additional dollars monthly for policies they bought many, many years back. The consequence of not doing so will be the lapse of their policy or the surrender of the policy and withdrawing any cash value remaining (with some possible taxes on that value). In any case, no death-benefit will be in sight.

An 82-year-old retiree, Nicholas Vertullo of Long-Island, told The Wall Street Journal last August that his premiums for 3 universal life policies more than 200% hikes, reaching a staggering $30,000 yearly premiums (for a death-benefit of $500,000). And he had promptly paid premiums for about 3 decades. We wonder where all the goodwill in return for all the years of loyalty shown went.

Why the Unimaginable Rise of Universal Life Premiums?

How could this thing happen -- and why is it happening at all?

It is because of the economy, according to life insurers. In the 1980s, interest rates gradually declined and suddenly plunged during the 2008 recession as the Federal Reserve took some measures to enhance the economic situation by providing easy access to borrowed money. However, low interest rates adversely affected majority of investors, life insurers included. This led to minimal returns for insurers who invested their money heavily.

As a result, life insurers started protecting their investments and hiked premiums on policies bought in the not-so-recent past. (Many of the policies offered in recent years are tied to the stock market and offer no guaranteed returns of a minimum of 4%.)

How Policyholders and Insurers Respond

Justifiably, many universal life policyholders who got assurance that their premiums would remain fixed are not happy about all this development. According to The New York Times, a dozen lawsuits have been filed against insurers who had sold such policies.

Feeling some pressure from public opinion, some insurers are said to have reimbursed, in part, some determined holders who had complained after they were being required to drop their policies. From the looks of it, there seems to be no positive outcome to this trend in the insurance sector.

Safeguarding the Rights of Universal Life Policyholders

Steps are being made by several regulators and consumer advocates to seek protection for universal life policyholders.

A recent by the New York Department of Financial Services seeks to require insurers to inform the agency not more than 120 days before instituting any “adverse change” in “non-guaranteed elements of an in-force life insurance or annuity policy.” The rule likewise requires insurers to inform policyholders not more than 60 days before any change. The regulation may serve as a precedent regulation for other state insurance agencies.

Moreover, in 2016, the Consumer Federation of America sent a letter to all state insurance commissioners requiring them to evaluate and prevent any unjust price hikes being implemented on holders of universal life policies.

In case you are one of those who has an older universal life policy and have not experienced any premium hike, expect it to come soon. The better approach is to become proactive and find out ways to avoid being hit by an adverse increase.

Recommendations for Longtime Universal Life Customers

Be prepared by taking the following steps:

• Get in touch with your insurer and ask the exact value of your policy’s cash reserves. Based on the amount you have accumulated from the start, you might be in a position to weather any premium hikes in the future.
• As an alternative, try asking your insurer to reduce the policy’s death benefit, and subsequently, your premiums.
• Ask if you can change your policies. Perhaps, they have other policies they can offer you. If you are in your 60s or more, however, it might be quite difficult to get approval for a life insurance policy.
• Failing all else, find a life insurance firm or agent who could purchase your policy in exchange for getting the death benefit in the future.

Warren Buffett recently gave his best investment advice, and criticized the 'elite' for having thrown away $100 billion by snubbing it. Berkshire Hathaway came out with Buffet’s yearly letter to shareholders, covering an assortment of topics, speaking on everything from stock buyouts to his favorite book last year and dishing our expert investment advice.

"For many years, people have often sought investment advice from me; and in providing such advice, I’ve learned to comprehend human behavior more and more," Buffett’s letter said.

Buffet further said, "My constant advice has been a low-cost S&P 500 index fund. Fortunately for my friends of modest means, they have often heeded my recommendation."

In the annual letter, Buffet refers to Jack Bogle, who revolutionized investing through the introduction of the index fund, as a "hero”.

But not all people listen to Buffett's advice. "However, none of the super-rich individuals, pension funds and institutions has taken that same advice I gave to them," he said.

Buffet further said: "These investors, nevertheless, routinely thank me for my advice and then leave to follow the advice of a high-commission manager or, for a lot of institutions, to look for another class of high-priced adviser called a consultant.

"That professional, however, carries a problem. Imagine an investment consultant recommending to his clients every single year to continue adding to an index fund replicating the S&P 500. That is committing career suicide. But those hyper-helpers charge high fees, while they suggest small managerial shifts each year or so. That recommendation is usually served in mysterious language illustrating why trendy investment “fads” or present economic patterns justify the shifts.

"The rich have learned the habit for wanting the best cuisine, education, recreation, residences, sports ticket, plastic surgery, anything you can think of. They somehow feel their money should afford them something better than what the masses get.

"In certain instances, wealth can indeed bring the best services or products. As such, the financial “elites” – rich people, pension funds, college endowments and others – have difficulty signing up humbly along with people of modest means for a financial product or service. This hesitation of the wealthy ordinarily applies although the product concerned is – based on expectations – the obvious choice. In my crude estimation, the search by the wealthy for better investment advice has caused it, all in all, to squander over $100 billion in the last ten years. That is: A one percent fee alone on a few trillion dollars can accumulate. Certainly, not all investor who invested in hedge funds a decade ago lagged S&P gains. My calculation of the total shortfall, I believe, is conservative.

"Public employees suffered more from the financial damage that affected pension funds. Many of such funds are sadly insufficiently funded, partly because they have endured a double whammy: poor investment performance along with large fees. The shortfalls coming from their assets will be made up for by local taxpayers for decades.

"Human behavior will remain as is. Rich people, endowments, pension funds and the like will always feel they have earned the right to get something “special” in investment advice. And as a result, the consultants who are smart enough to take advantage of this expectation will reap a bountiful harvest. The favored investment this year could be hedge funds -- and something else next year. The expected end to this string of sweet promises is contained in a saying: “When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.”

Establishing a good financial budget and sticking into it isn't easy. Not everyone wants to keep track every single penny they spend. It can be a bit arduous but it is a matter that needs to be done.

With the rapid growth of technology, online banking and financial software can now help lessen this tedious task. Using a computer with an internet connection, you can now view your bank or credit card statements anywhere you are. This type of service offered by banking companies can help you to track what you spent, where you spent and the amount of money you spent using your credit or debit card. You can even download your account statement reports and save it on your computer. Moreover, financial management software features budgeting tool which enables you to clearly observe where and how you’re spending your money.

These solutions are perfect to effectively manage your finances. They are very beneficial for those who don’t want the old paper-based manual budgeting where you need to stack a bunch of receipts and expenses you made.

But these applications won’t be as effective and accurate as you want it to be because it only processes the data it receives. Sometimes, what greatly affect our finances are the small cash purchases we often overlook that gathers up to a significant amount. If you don’t bother entering those small details manually on your budget app then it will not provide accurate reports.

To plan an effective financial budget, you must have a solid understanding of your income and expenses, try not to miss anything and enter as much detailed information as you can.

Budgeting is really difficult to achieve. Try this few tips if you’re having a dilemma in achieving your financial goals.

The All Cash System

For every financial transaction, use cash. This is the simplest way to budget.

How? Here are the ways to do it:

• Once you receive your paycheck, cash it right away. Pay cash for all your expenses rather than using credit cards or checks. Carrying large amounts of money may be a bit risky, but everything is much simpler this way.
• One safer way is to deposit your paychecks. Withdraw a certain amount of cash enough to your needs for a week.

This may be a bit impossible because certain payments require automatic withdrawal from a bank account, such as mortgages and utilities. Clearly this is unavoidable, however, try to use cash for everything else. By the end of the month, you can see how much cash have left if there’s any. This will tell you whether your expenses match your income.

The Envelope System

This type of budgeting plan requires consumers to divide their money into categories, put it in their designated envelopes and spend it as they need it. Envelopes can be labeled and used for food, mortgage/rent, gasoline, utilities, entertainment and any other expense. If you spend all the money in a particular envelope, then you have to stop spending, so make sure that you don’t use it up too quickly. This method can easily point out weak areas in your finances you have to strengthen.

The Hybrid System

Why not try both? This will help you better manage your finances and money. Using the envelope system or all cash mode system along with the budgeting app you prefer will effectively help you to budget better and spend more wisely. There are some expenses that cannot be tracked down by an application, and using various methods be it all cash system or envelope system will help fill the gaps that most software misses out.

Following a budget or spending plan requires a lot of time and effort. But it has a great benefit as it helps you to ensure that you will always have enough money for the things you mostly need and important to you. Moreover, following a spending plan will help you keep out of debt if you are currently in debt.

With the arrival of the New Year 2017, young adults need to consider ways to refresh their spending from a good starting point.

The news recently bannered how financially stretched millennials are: So many of them are lagging on their savings.

If you are one of those lagging behind, you can take small steps that will change your habits and still create a big impact on your annual expenses, right now.

While they are short-term or tiny adjustments to help you save money for the whole year, they have the potential to help you obtain bigger financial objectives.

Gareth Shaw, top executive of Which? Money online, says: “With all the uncertainties of 2016, it behooves everyone to be more proactive and take control of one’s money instead of postponing it for an indefinite time.

“People can save so much money by just shifting from one energy provider to another or by availing of a prepaid travel money card during a vacation trip. Debt consolidation and having the right Isas and bank accounts could also help you save money in 2017, allowing you to have more money for a longer period.”

We asked Hannah Maundrell, editor-in-chief at www.money.co.uk as well as Lee Murphy, financial adviser at Platform Pandle, an accountancy software firm, to suggest 10 saving tips for 2017.

Consider then these valuable steps to save money the way savings-savvy millennials do:

1) Make a foolproof budget

This is the old faithful way to financial success. So many young adults often fail to even follow a mental budget monthly, not being conscious about the meaning of money available to spend in relation to one’s monthly expenditures.

Hannah Maundrell says: “Calculate the amount of money you have available every month and assign the necessary amount to cover your bills. Whatever money is left, pay your debts fully as fast as you can or begin a personal savings program.”

2) Be creative in handling available money

Oftentimes, many young adults get into the practice of buying something new; so, why not try to be practical and creative with your spending habits and consider ways you can set aside some money, according to Lee Murphy.

Murphy adds, “Before you realize it, expenses already add up to neck level. Hence, find ways to reduce your costs. If you have TV/cable now but rarely use it, you might end up saving a significant amount by shifting to a Netflix account and a wi-fi connection. Consider how you can do away with things you never use or do not really need.”

3) Avoid emotional buying

Buying or spending out of emotional compulsion ends in owning something you do not need or, sometimes, do not even want. This happens when you let certain emotional triggers lead you to buy on a whim, especially when you feel depressed or bored and going to the mall is the only solution you can think of to escape the situation.

“Somehow, you will have to do something about your habit of getting into overcharging on your card as well as emotional buying when you have the blues. Escape the pattern by diverting yourself with back-to-back episodes of Game of Thrones instead of getting another guitar worth £250,” Ms. Maundrell said.

4) Find the best deals before buying things

Many young adults can rack up hundreds of pounds every year on practically anything, from gifts to groceries and outings with friends – if they only look hard enough for the best deals from eBay or Lazada or hunt for the best shop bargains.

“It can be as exciting to hunt for good bargains online as it is to go to the mall; and you save the effort and transport cost. Before doing your groceries, check out the flyers to look for items available at lower prices. Saving pennies now and then can add up to so many pounds eventually,” Mr Murphy says.

5) Reduce your entertainment cost

This refers to such things as Friday or Saturday bar hops or a fast-food treat after a morning jog.

“Your indulgence for preparing organic juicing every day may be a healthful necessity to you; but considering how much you are spending, doing it twice or at most thrice a week might help you save a lot each month,” Ms Maundrell suggests.

6) Never neglect your finances

Never ignore obvious signs that tell you that your finances need a revamp, especially if you are in your early 20s.

Although it can be a scary thing to know, find out whether you are running out of money. When you realize your cash is about to say goodbye – shape up and do something about it as soon as you can. That beats having to wake up one morning and finding out you have zero balance.

7) Maximize the use of your savings

The savings you now have can be made to work to your advantage.

Ms Maundrell suggests that you put them in an account paying a minimum of 1.2 % interest to make sure they can balance out the effects of inflation. “Not doing so will practically reduce your money’s worth,” she says.

8) Consider how you move around

Do you live in a city? Avail of a monthly or yearly season ticket for your use (preferably, one that is on interest-free loan from your company). Living in London, for instance, allows you to use the night tube to reach almost any point without paying for high cab fares.

9) Avail of cashback deals

Cashback can be enjoyed almost anywhere now.

“Whether for insurance or for a new pair of shoes, find out how you can get back some money. Save these funds for a time that you need it most, especially for medical care,” Ms Maundrell says.

10) Think of buying investment products

You may not be an investment expert, or personal finance pro, or a member of a wealthy family, or adept at using complex economic terms; but you can be a novice investor.

“Buying an item that you will eventually neglect or discard for being old or useless is essentially an unwise practice. Why not put your money into something that will become a profitable investment? Are you spending your money on things that provide fleeting satisfaction or on something that will bring you long-term and continuing benefits?” Mr Murphy asks.

We all know the practical uses of credit cards. However, it takes great discipline to use them responsibly in order to buy only essential things, obtain rewards and strengthen your credit worthiness. Many of us fall into really bad habits when using credit cards.

To learn how you develop the right way to use credit cards, avoid these five bad habits often committed by many individuals:

1. Out-of-Control Charging

Many credit cards user get carried away and charge mindlessly in order to gain as many rewards points as possible. The key principle is responsible charging; as long as you do, a credit card can be your best friend. That is, charge only what you can truly afford to pay, monitor your credit use ratio and pays your debts promptly. People often become complacent and forget how much debt they are raking up within a month.

What steps to take: Create your personal budget and follow strictly. With a budget, you have a clear basis upon which you will make your purchases; so that when the monthly statement comes, you can fully pay the required amount. To give an example, if your allotted budget for your regular weekend trips has been spent, have a picnic in your backyard instead.

2. Only paying the minimum

The rule to observe for credit cards is to pay above the minimum since this prevents accumulating big interest payments in addition to our expenses. However, sometimes we incur a few big expenditures at one time and we cannot pay our dues completely.

What steps to take: in case you cannot pay off your card fully after several months, set a definite time in which you will reset your payment schedule back to normal. (You can calculate the time this will take you by using the credit card payoff calculator application.) Aside from that, your main concern is to pay your statement promptly; and pay the least amount required. And while you are paying off excess purchases, avoid piling up what you need to pay by making more new charges.

3. Missing a payment

If you fail to pay your statement fully, you are adding to your interest payments on your unpaid statement. But the point here is that if you fail to pay or pay late, you will incur a late payment. For example, if your card company charges you a $35 late fee and you fail to pay three late statements in a year, you will crank up over $100 just in fees for late payment, plus other interest accruals. (Moreover, missing payments will negatively affect your credit — more to follow.)

What steps to take: Missing a payment can be remedied by setting up a reminder on your smartphone or by having an automatic payment arrangement. But if your real concern is not having the funds, visit your card company and ask for a payment schedule within which your may pay off the balance.

4. Ignoring your rewards

Some credit cards offer rewards for travel, cash returns or others which can be quite attractive for many people. This is particularly applicable for cards with annual fees. In general, if you do not use your points or your account is inactive, you may lose your rewards points. Learn what the fine print says about your card or you may miss out on big rewards.

What steps to take: As suggested, become familiar with the limitations of your card and then strictly observe the necessary requirements on rewards. Perhaps you could utilize your cash return to cover your Christmas shopping needs or take care of travel costs during your vacation.

5. Learn how your card usage can affect your credit

Some people may consider themselves responsible credit card user, not realizing that even if they pay their statement promptly and fully most of the time that they are not aware of some problems. It is crucial to review your credit profile and regularly.

What steps to take: Always review your credit statements every year at least. Get free report copies from the three primary major credit offices — TransUnion, Equifax and Experian — every year at this site: AnnualCreditReport.com. Check out any errors that might be affecting your scores and submit any problems. (We can help you do it here.) You may likewise find a photo of your credit reports at Credit.com. Aside from two free credit scores, which are regularly updated every two weeks, you are also provided an evaluation of things you can do to improve your scores or how to remain on course.

What risks will you encounter in investing? Risk can be a rather complicated matter we need to be fully prepared for. As wise words from a veteran businessman remind us, "The world belongs to risk-takers."

So, what is the true nature of risk? Along with volatility, risk is among those words or concepts often taken for granted or misunderstood by many people.

Yet, like beauty, risk is in the eyes of the beholder. In order to effectively manage risk, we must define and classify risk into manageable sizes.

Risk is fundamentally a multi-dimensional phenomenon consisting of adverse possibilities which an investor is bound to encounter. It affects many aspects of human life: our well-being, our profession, our family, our investments and many more. For our purpose, we limit our discussion to investment risks.

Different individuals will have different levels of risk tolerance. In investing, the higher the risks involved, the greater the potential for financial gain. This is the risk/reward relationship.

Moreover, good risks are as common as bad risks. Like wine, some friends are good; some are bad. Hence, the trick is to avoid the bad risk and deal with the good risk. Once you master this move, you can maximize your financial potential as you will remain where you can control the hazards along the way.

For any investor, the following fundamental pitfalls should be considered prior to making any investment decision and afterward:

• Market risk

• Systemic risk

• Interest rate risk

• Credit risk

• Counterparty risk

• Sovereign risk

• Estimation risks

• Extrapolation risk

Market risk:

This type of risk involves the inherent hazards which affect all investors engaged in the market. For instance, if the S&P 500 increases then your portfolio will also go up and an investor will have market risk relative to that index.

Market risk arises due to a phenomenon called beta, which is a stock or portfolio's correlation to an index. (For readers who want a statistical definition, beta is the correlation coefficient computed based on a regression between a stock/portfolio and an index.)

In short, for a 1% movement in the index, your stock or portfolio moves up X%. Beta is commonly presented as a unitized number. Hence, a beta of 1.5 signifies that for each 1% movement of the index, your investments would go up 1.5 x 1%, or 1.5%. This rule might be applied to other portfolios which might correlate closely with Nikkei 225, the Dow Jones Industrial Average or Nasdaq 100.

Systemic risk:

This type of risk relates to the complete meltdown of an economy, market or a portion of it. Historical instances of systemic risk include the 1929 Great Depression, the Arab oil embargo in the 1970s, the Latin American debt crisis of the mid-1990s, the Asian contagion and the Russian financial crises which occurred in the late 1990s.

Considered the most potent hazard to investors, systemic risks are hard to predict and manage for any individual or corporate investor.

Interest rate risk:

This type of risk results from exposure to any part or the entire term structure or characteristics of interest rates, adversely affecting any investor. Two factors influence this type of risk. First, term structure determines the maturity time for interest rates. Based on maturities, investment gains will vary accordingly, producing a portfolio’s yield curve.

The second factor pertaining to interest rates involves their fixed and floating nature. Fixed-rate investments will produce the same rate for the whole investment period. Floating or variable interest rates will vary over time.

Those who are subject to interest rate risk include lenders (mortgagees or bond buyers) as well as borrowers (mortgagers). Lastly, whereas interest rate risk may directly affect fixed-income investors, it can only indirectly impact stock investors.

Credit risk:

Companies do not have equal capabilities to repay their debts. Level of credit worthiness is measured by credit-rating groups such as Moody's, Fitch and Standard and Poor's. Every one of these will evaluate closely a debtor's balance sheet, income statement, cash flow, contracts and debt agreements to determine a company's capability to pay back its existing debt.

The highest credit rating of AAA is usually given to the most creditworthy firms. Next in line is AA, followed by A and BBB, etc. Some credit agencies have different ways of rating, using lower case letters or minus signs. Moreover, differentiation between investment grade and noninvestment grade is also designated accordingly -- investment grade being BBB-minus or better, and non-investment grade as BB-plus or lower.

While credit risk is measured subjectively in such ratings, a certain firm's rating may be either upgraded or downgraded. Companies are constantly under "credit watch." Any investor must include this fact as part of one’s credit risk management. Some investors are not allowed to secure non-investment-grade debt, and being moved from investment grade to non-investment grade may lead to portfolio liquidation and, therefore, adversely affect one's personal credit risk tolerance.

Counterparty risk:

When you enter into a deal with another party, you not only have to consider the capability of that party to pay. You also need to evaluate that party's willingness or ability to follow the requirements of the contract. Although credit risk and counterparty risk may appear the same, they expose investors to varying risks.

Credit risk fully hinges upon repayment of debt, while counterparty risk involves the performance of contract obligations. To apply in a specific case: If you plan to invest in renovating your house which includes fixing a leaking roof and the contractor refuses to fix it, you are exposed to counterparty risk as the contractor neglects a contract requirement. You can charge the contractor in court and upon getting a decision you can add credit risk to the equation, since you now become practically an unsecured creditor of the contractor.

Sovereign risk:

Many sovereign countries issue their own government debt which is most probably unsecured and which investors have ostensibly no ability to collect on. Classic cases of this type of risk include sovereign nations issuing worthless debt, for instance, the Weimar Republic prior to Hitler's ascendancy to power and Argentina when it defaulted on its debt in 2001-02.

Estimation risk:

A previous lesson covered earnings releases and earnings calls. We said that analysts derive EPS and income estimates, which they lump into consensus estimates as being mere projections of what each company will finally report.

Likewise, firms will offer their own guidance, offering management's projection of the company’s performance based on particular reporting parameters. Often, the risk lies on the fact that such figures are either too low or too low.

In a recent case, Men's Wearhouse informed investors one month prior to its earnings release that EPS for 2007’s first quarter will be at the low end of its guidance, leading to MW stock being sold off due to that revelation. When the company reported its actual first-quarter performance, EPS stood at the high end of its initial guidance. Many people were surprised and the firm’s stock rose almost 10% on the same day.

Extrapolation risk:

This risk is related to the use of historical trends to project future prices. For instance, if you see a stock growing 20% each year for the past five years, by extrapolating, you will expect that the stock will continue to grow by 20% the following year. You then buy the stock. But history will not guarantee that the stock will continue to rise 20% each year; most probably, it could decline in the following year.

This mistake is committed by many presumptuous and negligent investors who fail to undertake any fundamental evaluation or regular assessments of their investments. Remember the tech bubble that transpired a little while back? There’s your classic extrapolation failure.

Now, you can appreciate how multi-faceted the seemingly simple idea of risk truly is. Learn how you can enhance your newly-gained knowledge and how you can use it to manage your investments. Most of all, use it to fine-tune your ability to measure your risk tolerance level in order to aid you in making better investment decisions.