5 ways to teach your kids about investing

For many adults, investing is still a confusing pipedream that is rumored to lead to something called financial freedom. For those working outside of banking and finance, it may seem like those who invest are part of an exclusive elite club that have access to deals that are not available to the masses.

Teach your kids about investing

While this is of course not true, we recently thought that if adults still think this way then what about kids? By nature, kids are more open-minded and care free to the financial constraints of adult life (and they absolutely should be!). If you can reinforce the importance of investing and financial discipline from an early age, you will give them a valuable life skill which they most likely will not get from school.

Here’s our top 5 ways to teach your kids about investing:

1. Apps that help kids invest

With a variety of innovative apps available in the modern day, thankfully someone has created an app specifically for helping kids to learn to invest. BusyKid is an app that lets your child see the money they have earned from doing chores, manage their allowance and invest in to stocks. Investing can be intimidating for first-timers, but apps like BusyKid help simplify this experience so it becomes second nature to your children.

Apps that help kids to invest

2. Create an investment account for them

Start making monthly deposits to an index linked fund or a P2P account which you plan to set aside and transfer ownership to them in the future. Over time and once they reach a mature age (Say their mid-teens), you can show this to them with a comparison of the total deposits you have made and how much interest you have earned for them with virtually no effort. Understanding the power of compound interest is the key to becoming an intelligent investor.

3. Compare 0% returns to your own returns

Do you give your kids pocket money every month? If you do, you can tell them how much their pocket money over the past few years could have been worth today if they had invested it. You can compare this with the performance of your own investments or for simplicity, at a rate of 10% per year in monetary terms or something better…

4. Speak their language

What’s the big thing they have wanted for a long time? Talking in terms of something visual or physical is much more receptive to kids than saying your money could have grown by X%. If they have been saving up for that new games console or bicycle and are still short of some money, you can help them understand that they could have been able to pay for it already if this money had been invested in the meantime.

Teach kids to invest

5. Pay themselves first

If they are in their teens, maybe they even have a part time job at this point and you can help reinforce budgeting and paying themselves first for investing. If they have financial discipline from this age, they will carry this with them for the remainder of their lives and most likely be very thankful down the line when they retire 20 years earlier than their peers.

Tell them about the risks

It’s important to mention at this point, you should also inform your kids about the risks of investing and not putting all of their eggs in to one basket.

How to create a monthly budget

Setting yourself a monthly budget is a fantastic way to stay in control of your spending and move ever closer towards your financial goals. In reality, no one wants to spend the rest of their lives living pay-day to pay-day. To move away from this habit, you need to have discipline and determination while you’re getting used to it, after that it all becomes second nature and you will feel much better about your monthly budgeting.

If you’re paid once a month then a monthly budget is even more critical, even if you pay all of your bills at the start of the month can you honestly say you never find yourself short towards the end of the month? Luckily, this is completely in your hands and you can start to make a change today.

First things first

Calculate your base income each month, this could be from full or part time work and any other source of regular cash flow. Things you shouldn’t include here are:

  • Bonus payments
  • Irregular overtime
  • Volatile investments.

The reason being you need to know the absolute minimum amount of income you will achieve each month, thereafter you will avoid setting yourself an unrealistic (or unreliable) monthly budget.

After you have done this, pay yourself first! We discuss this in more detail in our recent Top 3 Money Saving Tips post, however the general idea is before you pay for anything you should immediately set aside a percentage of your net income and use these funds for your investments. Like budgeting, setting aside money each month for investments will eventually become second nature.

How to create a monthly budget

Calculate and pay your bills

At this point, you need to calculate all of your bills (yes, including your gym membership and the subscription to that magazine you never read) to the cent and then total them up. Spreadsheets are your friend. As an alternative, there are plenty of innovative companies that offer budgeting apps completely for free.

Next stop, pay all of your bills remaining for the month so you’re not tempted to dip in to the funds reserved for them later on. If you do this manually, a simple yet effective way to make this even easier for you is to set up automatic payments. Most companies actually prefer this and the benefit for you is that it removes the possibility of forgetting to make your payments, especially if you are travelling abroad at the time or are occupied elsewhere.

calculate your bills

Divide your money for the remainder of the month

By now, you’ve paid yourself and all of your bills. Nice! Now you should divide your remaining funds per week for things like food, fun and socializing. We’re assuming here that you have an emergency fund in place for any large unexpected expenditure that may arise before your next pay-day.

Cash vs Card

So you’ve divided your funds for the remainder of the month, how are you going to make sure you stick to it? It works differently for everyone. Some prefer to have the cash and divide it equally for each week, others find it harder to manage this way. Find what works for you by testing both options.

credit-cards

Stick to it!

If you can stick to this for a least 3 months and ensure your monthly budget is accurate, you will find the following months far easier to financially manage. After that, you won’t even remember a time before you budgeted.

Maybe you are already budgeting each month but in a completely different way, leave us a comment below and let us know what works for you.

The Ultimate Guide to Buying a Car

Nowadays, having a car is a necessity in everyday life. Whether it’s for commuting to work, going to your local food store or visiting your family in another town, there’s no denying that having a car makes your life easier. Other than the expense of buying a home, owning a car is typically the second largest expense you will have in your lifetime and since it is a depreciating asset, you want to make sure you get it right.

Ultimate guide to buy a car

What car?

There are literally millions of cars out there and hundreds of different manufacturers, this makes it even more difficult to decide which car is the best for you. The good news is, most online car sales sites like auto24.ee, autotrader.co.uk and mobile.de allow you to enter your filters and search for vehicles across the marketplace. Even an extremely good car salesman might be able to help you in a similar way. A few things you should take in to consideration:

  • Type – SUV, Sports car, Van, Estate, Saloon? This depends on where you live and the terrain you will be driving on, your family size and the main purpose you will use your car for. For example, if you live in northern Europe then a sports car may not be the most practical option for the icy winter conditions, in comparison it might be perfect for those living somewhere like sunny Spain.
  • Mileage– Generally, this has a huge impact on price as it’s commonly said the moment you drive your brand new car out of the dealership it decreases in value.
  • Fuel– Petrol, diesel, hybrid or electric. If you’re environmentally conscious then the electric option may be your first choice, for others using a van for trade purposes you might find a diesel engine more suited with your daily routine. LV has created an excellent article comparing the pros and cons of each fuel type here.
  • Age – While older cars are likely to be cheaper, you should check a few things like the chassis, any evidence of rust and the engine to see if it has been taken care of by the previous owner.
  • And of course, price

Price

Before anything, you should first work out exactly how much you can afford whether it’s on a monthly basis or a full cash payment (We’ll get to this). After you’ve come to a figure, remember that when purchasing a car your emotions and impulses will often try to take over, especially if you are in the presence of a car salesman.

parked cars

Yes, you may be able to buy a new Mercedes for an extra €10,000 but think about how much you actually need it and what restrictions it might impose on your financial standing (and ultimately your personal/social life) if you were to buy it.

If you’re still not sure, a good place to start is by either looking at the total amount of your savings balance or the net free income you have each month after your investments, bills and social life. Decide on a percentage of this to put towards a car and stick to it.

Cash, lease or finance?

This is an interesting one. A small percentage of people will have the spare cash lying around to purchase a brand new car that’s priced at over 5 figures, and with this option you will certainly pay less money overall for the car. When leasing a car, your repayments will usually be much lower than financing because you are essentially paying for the value of the depreciation in the car. At the end of an agreed term, you then have the option to make a lump sum payment and buy the car outright or hand it back to the dealer and take out a new similar deal. If you choose to take out finance for the car, your payments will be higher than the leasing option but you will own the car in full once the loan term has ended.

But, even if you have the cash available this does not necessarily mean it is the most cost effective option. Why? Well, if you have a good credit score and can obtain a low rate of finance on the car (e.g. 3%) and you know that you can make 10% per annum when you invest that large lump sum, this option works in your favour and pays for the interest due on the loan with some left over for you to compound.

Insurance and tax

It’s surprising how much the price of insurance varies significantly between providers. Based on their internal models and data, one insurer may quote you a price 3 times higher than another and offer pretty much the same package. Similar to taking out a mortgage, we suggest you use a comparison website to get an idea of which providers can give you the best price and overall cover. Usually, you can find some providers that will give you free extras like breakdown cover, legal cover and even unique quirky offers like theatre tickets. It’s important to point out here that when it comes to renewing your policy, it’s likely that your existing provider will not give you the best price out there since you are already a customer so make sure to shop around.

insurance and car

In most countries, the tax payment due for your car is heavily influenced by the age, type of fuel and the level of emissions it produces. If you have an old diesel SUV that pumps out Co2 emissions like there’s no tomorrow, prepare for a hefty tax bill. On the other hand, if you have an electric car then some governments have imposed a rule of no tax due on these cars. You should get an idea of the insurance and tax payments you will be responsible for before finalizing the purchase of a car and review this against your overall budget.

Beware of the extras!

So you have decided on the car you love, you’ve found a dealership and you’ve agreed on a (hopefully discounted) price, congrats! At this point you will be introduced to the ‘After Sales’ manager who is responsible for closing the deal and ensuring you buy as many optional extras as they can cram on to a piece of A4 paper. A typical extra might be a warranty offered by the dealerships themselves, this will be presented in gold wrapping paper and sprinkles but the truth is it’s not any different to the warranty already in place that the car manufacturer offers on a complimentary basis.

You can also expect a number of gadgets to be thrown your way as luxury options, such as three 12V sockets in the boot of your car that only cost an extra €499. Unless you are a frequent camper or the type of person who carries around a portable kettle for emergencies, then you probably don’t need it.

Drive away happy

Now you know the facts and you’ve done your research, you can feel confident in your decision knowing you have a great car that won’t negatively impact your financial well-being.

If you’ve recently bought a car, add a picture in the comments section below 🙂

The Ultimate Guide to your mortgage

Mortgages. The word itself comes from the French ‘Mort-gage’, which literally translates to ‘death-pledge’. On a lighter note, having a mortgage has for many decades been viewed as the first step into the adult world for many people as you move away from your family home or rented accommodation. While a mortgage is not for everyone (especially those who relocate often or have other commitments), financially it is indeed a fantastic way to reap the rewards of capital growth over time and create a nest egg to leave to your relatives in the future.

So other than finally being able to turn your basement into a miniature bar or build that greenhouse you’ve always wanted, there are a few things you should know to make sure you’re not paying any more than you need to and what to expect over the long-term.

ultimate guide to mortgages

Applying for a mortgage

If you’re reading this, you might not even have a mortgage yet and you’re thinking about how you can get started. While there are several new alternative finance platforms cropping up who offer residential mortgages, it’s highly like that most people will still go to their local bank (for now). Trying to break through the jargon and ancient systems used by the banks can make applying for a mortgage feel like trying to solve a Rubik’s Cube. To get started, try using a comparison site to filter a few potential mortgage providers for you. Enter your income and expenses details as well as the price of the property and your deposit, then most should show you an indication of what interest rate and product you can expect to get.

After that, you can either fill out an application online or set up an appointment either via video link, phone or face to face if there is anything you are unsure about. This is most likely going to be the biggest financial commitment of your life, so make sure you take the time to understand the financial provider you will be using to help you with it.

Repayment type

In general, one of the first things a bank will ask you when applying for a mortgage is what type of repayment option you want. Huh? Don’t worry, in general there are only two separate options that you need to know about:

  1. Principal and interest (Repayment) – Each month you pay the principal that you borrowed on the property plus the interest that the bank charges, at the end of your loan term you own the property outright with no extra payments due.
  2. Interest only – Each month you only pay the interest that the bank charges (Meaning you have a significantly lower monthly payment than you would on a principal and interest repayment basis), the whole principal amount is due at the end of the loan term. Overall, you will pay significantly more interest over the loan term with this option.

Over the past couple of decades, a lot of people using the interest only repayment option have got in to financial difficulty at the end of their schedule and ultimately had their home repossessed by the bank. A lot of banks and financial regulators are now imposing much stricter regulations for people who request an interest only repayment due to this. In contrast, it can be an extremely lucrative option for people buying a property to rent it out.

mortgages

Mortgage Term

Another important thing you need to decide is how long you are going to take out your mortgage for, known as the ‘mortgage term’. 10 years? 20 years? 40 years? The answer really depends on you and your personal and financial circumstances.

If you’re expecting a few life events over the next 5 years, such as getting married or having children, then you might consider extending the mortgage term to keep your monthly repayments lower. Or maybe you are in the middle of a training induction period at work and you know you are going to receive a considerable pay rise in the next 12 months (Lucky you!), in this case you might choose a lower mortgage term with higher monthly repayments.

Bear in mind, the length of your mortgage term has a significant impact on how much interest you will pay overall.

Product

Possibly the most crucial aspect of your mortgage is the product that you choose. In general, this can be separated in to two types of products; fixed rate and variable rate.

  1. Fixed – Your monthly repayment will remain the same for an agreed period of time, for example, 2 or 5 years. This can be very useful for budgeting and for the risk-averse person who does not want to take any chances with rising interest rates.
  2. Variable – A variable rate can change on a monthly basis, either in line with the banks own rate, EURIBOR or the rates issued by your national bank. You may benefit from lower rates especially in a booming economic environment, however it can be harder to budget on a monthly basis.

The length of time you can have one of the products for completely depends on your bank, ranging from 1 year to a lifetime product offered by some providers.

If you’re thinking you don’t have either of these products, you may be on the standard default option product issued by your bank. This is usually the rate you roll on to after your fixed or variable rate ends (and if you don’t arrange a new one), it is usually much higher than the other products available and most people see their payment increase once and completely forget about it. If this sounds familiar, check with your bank immediately because you have the potential to save yourself €100’s per month!

Overpayment

One of the most valuable tips we can give you is to make the occasional overpayment on your mortgage, it has the potential to save you a colossal amount of interest over the term of your mortgage. Money Saving Expert has a fantastic overpayment calculator you can use to test the impact of making an overpayment, we’ll add an example below for you.

Let’s say you have a mortgage of €100,000 on a repayment basis with a 35 year term at 3.5% interest. Each month, you give the bank €413 which pays back the principal and interest. Let’s also say that from your investment portfolio, you are generating a very realistic minimum figure of €100 per month in interest for yourself. You then decide to put this €100 to use and make a regular overpayment each month on your mortgage, this is what happens:

  • Overpaying would save you €25,594 in interest alone
  • You will pay off your mortgage in full 10 years and 11 months earlier than originally planned

mortgage-debt-over-time

Wow! For some, that means retiring from work over a decade earlier and having a nice amount of savings each month to spend on whatever you want. Go ahead, test it yourself and play around with the figures.

Remember, this is all realistically possible by generating a cash flow from your investments and setting yourself a goal.

Now you know

Hopefully this guide will be of use to anyone who has a mortgage or is looking to get one in the near future, make sure to read over these points a few times and take it all in, it could save you €€€’s.

If you would like us to write a guide on another financial topic, let us know at investor@bondora.com

5 ways to increase your income today

We’re going to make a prediction that the majority of people reading this have no more than 2 sources of income, namely from employment and your investment portfolio. Have you ever considered yourself as an entrepreneur? The English Oxford dictionary defines an entrepreneur as “A person who sets up a business or businesses, taking on financial risks in the hope of profit”. The part of that definition that sings to us is the first half, and the good news is that you don’t need to start a multi-national corporation or an innovative tech company to create an alternative income source for yourself.

One of the most important rules any seasoned investor will tell you is to diversify, diversify, diversify to manage your risk. It’s the same with your income. With all of your commitments, family and future goals on the line, should you really only rely on the money you receive from your day job to support that? Other than the obvious benefits of having more money in your pocket, an alternative income stream can act as an insurance policy in case your employer makes some unexpected changes. And if you think you’ve got even a little bit of an entrepreneurial spirit in you, you can do it for the outright fun.

Let’s talk about 5 alternative income sources you can get started with today.

jump-high-sunset

Side hustle

What are you good at? What do your friends and family come to you for when they need a favour? What has been a lifelong hobby of yours? The truth is, most people don’t realise they have something unique to offer and will cross off the possibility of a side hustle almost immediately. You might be a fantastic swimmer; adults and children alike both want to learn how to swim and you could be the person that leads a class to help them once a week. Or maybe you have more technical skills than most, we’re sure if you walk down the high street in your local town you will find some independent businesses in need of a website, social media presence and help with SEO. If you love to paint, try selling some of your beloved pieces of art online. There are literally 100’s of side hustles you can start up today with little to no cash required.

paint-in-public-hipsterilly

Affiliate Programmes

Since the dot com boom, millions of people all over the world have started blogging about a variety of different topics and industries. In finance, some make a comfortable living by blogging about their experiences in investing in different types of assets and platforms. Most companies have what is called an Affiliate Program, which compensates people for referring others to their business whether it’s through a blog or even just to your friends and family. This is the same for most industries including fashion, transport and accommodation to name a few.

increase income streams

Sell your stuff

Introverts might shudder at this, but fear not. Traditionally people went to markets, festivals and events to set up a stall and sell a variety of things to those in attendance. Thankfully, a few bright sparks had the idea of setting up companies like Ebay, Shpock, Gumtree and Osta to sell anything from the comfort of your home. Take a look around your house this weekend, are you going to hold on to that smoothie maker you’ve never used for the next 10 years or sell it to get some cash?

yard-sale-sign

Sharing economy

Airbnb, Uber, Task Rabbit, you’ve heard of them all. Despite this, most of us stay on the consumer side of the transaction and let’s face it, they are great services. It’s a great opportunity for anyone with their own place to become a host, even if it’s once in a while when you’re planning a weekend away. Business Insider has compiled a list of 25 places you need to visit in 2018, do you live in one of these places? If so, then this year might be a great time to start and capitalize on a growing number of tourists in your area. With companies like Uber and Taxify, you could try working only the busy periods like Saturday nights or the morning rush hour to make the most of your time.

taxi-strike

Invest

We expect most of our readers to already be doing this, but it’s worth mentioning. Whether it’s in P2P, real estate, stocks or something else, generating a monthly income from your investments is a very real possibility that you should take advantage of. Recently, we wrote a post on how this is possible in the miracle that is compound interest and the importance of setting goals in achieving financial freedom.

€ € € € €

If you’re serious about increasing your income, you could even try putting all of these sources together and make a significant change to your financial standing. If you’re already doing this, we’d love to hear how it’s working for you. Leave us a comment below and let us know how many alternative income sources you have.

Achieving financial freedom

This is a term that gets thrown around a lot in financial blogs, there’s no doubt that on the surface it sounds great and something that we all want to be a part of, but what does it actually mean?

financial-freedom

It’s a common misconception that to have financial freedom, you have to be the next Bill Gates. You might be surprised to know that an income of €30,250 is in the top 1% worldwide. Let that sink in for a minute.

So next time you are giving yourself a hard time for not being a billionaire, think about how you can use your existing income to set and achieve your financial goals. Below, we’ve outlined 3 example goals that will help you define what Financial Freedom means to you and how to achieve it:

1. Short term goal (3-5 years) – Using your investments to pay for that big purchase

It’s important to note firstly that you should always take a long term view with your investments, looking at a minimum of 3 years to let your money grow and for the compound interest to start to kick in. Maybe you have your eye on that new Jaguar that’s currently in production and will be released in a few years? Maybe you want to pay a nice chunk off your mortgage before your next big birthday? Or maybe you are planning to pop the question to your significant other? Whatever it is, write down your goal on a piece of paper and keep it in mind to motivate you along the way.

big purchase

2. Medium term goal (5-20 years+) – Earn the same monthly amount from your investments as you do from your work

For most this sounds like a fairy tale, can you really earn the same amount of money from your investments as you do from your work? The answer is a resounding yes. All it takes is dedication, persistence and a forward looking plan. We will talk more about how this is possible in our upcoming ‘The miracle that is compound interest’ post.

3. Long term goal (20+ years) – Having the option to work

You might love your work, and if you do then you probably have no intention of giving it up any time soon despite how much you earn from your investments. But what would be nice is if you could have the option to work or pack it all in if they’ve gone one step too far in the office and removed the coffee machine.

Stick to it

Once you set these goals, you absolutely must stick to them because you will no doubt be tempted to change them a few months down the line to make them a bit easier (It’s human nature). So, write them down and do whatever it takes to make sure they are set in stone, stick them on your mirror and tell your close ones about them.

Good luck and let us know how you get on with your goal setting at investor@bondora.com, we would love to hear from you!

No money to invest? Read our top 3 money saving tips

How many times have you heard someone say, ‘I want to start investing, but I don’t have any money’? For anyone new to investing this is a common psychological barrier that must be overcome to get started on your journey to financial freedom. We’ve put together our top 3 money saving tips to help your take that first step:

Piggy-bank-Bondora

1. Pay yourself first

Think about the first thing you do once you get paid each month, do you go out for a lavish meal? Pay your bills? Perhaps a spontaneous purchase of an ice sculpture?

The day you get paid, you should set aside a minimum of 10% of your net salary to pay yourself and use the funds for investments, then you can focus on your bills and everything else.

Once you get in to the habit of doing this, you may find that you choose to up your monthly percentage that you invest to 20%, even 30%, because it can be extremely motivating once you start to see your money work for you and generate interest.

2. Emergency fund

This is an interesting one and will be different for everyone depending on your circumstances. Some people may find it enough to have one month’s salary locked away in a savings account for a rainy day, others who are super cautious may have as much as 12 months’ salary saved.

Let me ask you this, when have you ever needed funds totaling your annual salary at short notice? Sure, your car might stop working or you might have an unexpected leak on your roof that needs repair, but think to yourself if the amount you have saved in your emergency fund is realistically necessary.

3. Be frugal

Now, we’re not saying you have to move in to your car, but how much do you really need that vente caramel cinnamon dolce latte with marshmallows and chocolate sprinkles from Starbucks every morning?

€3 every working day on a coffee works out to €60 per month, or €720 per year! Instead of going cold turkey from your morning caffeine, try making a coffee at home and take it in a thermo flask so it’s still steaming hot by the time you get to your desk. By cutting back on regular purchases like this you will see your bank balance build up in no time.

Bringing it all together

So to sum up our top money savings tips; set yourself a percentage goal each month for paying yourself first, review how realistic your emergency fund is and give Starbucks a miss. Take control of your finances and reap the rewards.

P.S. With Bondora you can invest a minimum of €1, so get started here today.