# Tag Info

275

In my opinion the ability to have wealth comes down to one thing: Behavior. For many it is a tough pill to swallow, but once a person realizes that they have control over their financial future they can then act accordingly. However, many are stuck blaming some bogey man to retain the ability to behave how they wish. There are countless examples of people ...

254

It all comes down to 2 things: Financial illiteracy Insufficient initial capital For the first point, a very low number of people even possess basic knowledge of finance. If you don't know any better and learning basic economic concepts is disregarded throughout your upbringing (be it in education or parenting), then it's highly unlikely for you to ...

218

It starts to make more sense when you consider a pool of borrowers rather than an individual. For example, consider a pool of 100 borrowers with a 1 in 100 chance of default, if they all borrow \$1,000 for 1 year at 10% APR, you can expect to receive ~\$100 interest x 99 borrowers = \$9,900 minus the \$1,000 from the defaulter. Leaving you with about \$8,900 in "...

185

Because people are Risk Averse. Suppose that you own an asset worth \$10,000 to you. Suppose that each year, the asset has 1% chance of being stolen (or completely broken). The expected value is 99% x 10,000 + 1% x \$0 = \$9,900. This is the average outcome if you do not buy insurance. Now consider two mutually exclusive outcomes: 99% chance of keeping \$...

181

Do I make money in the stock market from other people losing money? Not normally.* The stock market as a whole, on average, increases in value over time. So if we make the claim that the market is a zero-sum game, and you only make money if other people lose money, that idea is not sustainable. There aren't that many people that would keep investing in ...

144

Because you have to be rich to get rich! Let's set up a model calculation. (don´t get hung up on these numbers - do your own calculations with your own goals and premises!) I define be rich as owning \$1 million Average return on your funds 7% Say from age 0-10 you get some money from your family, because you are lucky, and your parents put it an an ...

109

Because “rich” is a result of an uneven distribution of wealth. Last I researched, the total US wealth divided by the total population resulted in \$160K/person. \$320K/couple is not rich. The median wealth number is far lower than this to offset those with millions, and of course, billions. This is how we get to the articles that mention how the top few ...

104

I don't understand is it possible to buy stock at higher price than current price? This is a very common misunderstanding. Stocks do not have a "current price" that you can buy them for. Any "stock price" that you see quoted is not like a price in a store that means you can buy at that price. Instead, a "stock price" only tells you at what price the stock ...

98

The day trader in the article was engaging in short selling. Short selling is a technique used to profit when a stock goes down. The investor borrows shares of a stock from someone else and sells them. After the stock price goes down, the investor buys the shares back and returns them, pocketing the difference. As the day trader in the article found out, ...

98

This is an interesting question. Many people would tell you to pay the highest interest rate loan first. There are many others who would tell you to pay off the smallest balance loan first. In your hypothetical situation, both groups of people would tell you to pay on Loan #2 first. But you are proposing to pay off Loan #1 first, which is the loan that ...

97

The company got its money for those shares when it issued them. When they're subsequently sold (assuming it's not the company doing the buying or selling), that sale doesn't change the company's bank account balance -- the proceeds from the sale (minus commissions) go directly from buyer to seller.

81

Mainly because they can. Yes, there is a cost for banks to execute such transactions, and yes, there is a cost to cover the implied risks, but it is far from 3 or 4%. There are banks that charge a flat rate of less than 30\$ (and no percentage), so for larger amounts, it is worth shopping around. Note that for smaller amounts, which are the majority of ...

81

Rent is not a debt because you have not borrowed any money from the landlord. Your current month's rent is a (very) short term liability, as are other payments for services rendered (like utility bills and maid service). Future rent obligated by a lease agreement can also be considered a liability, or you can consider the cost of breaking the lease to be a ...

80

The bank only cares about getting paid the owed amount as quickly as possible. Anything more than that the bank has to give to the owners whose property they're auctioning. Also, a house that could sell for \$250k on the open market if the sellers wanted to sell and move out might be worth a lot less if the sellers don't want to move, might refuse to leave ...

79

Discussions around expected values and risk premiums are very useful, but there's another thing to consider: cash flow. Some individuals have high value assets that are vital to them, such as transportation or housing. The cost of replacing these assets is prohibitive to them: their cashflow means that their rate of saving is too low to accrue a fund ...

79

It means the number is negative. It's an alternate way of showing negative numbers versus prefacing with a negative sign (-) In some cases, a negative value also has a different name. For example you'll often see Net Profit (Loss) : (10,000) Where the parentheses means that it was a loss and not a profit. Mathematically it's the same as a "negative ...

79

There are two ways to improve your personal finances: Make more money Spend less money That's literally the secret. To afford the car, you either need more income, or lower expenses. Don't fret, though. It's good that you are learning this lesson early in life because a lot of people live paycheck-to-paycheck their entire lives without realizing that some ...

68

Here's some tenets I follow when helping others: Don't support bad habits Don't give money to someone to pay gambling debts, or to pay rent because they've spent all of their money on less important things (drugs, alcohol, electronics, etc.) Give them what they need, not what they ask for I do this a lot with "panhandlers" that solicit me in a ...

66

I’m sorry to hear about your situation. There are a couple of issues at play. Parents are responsible financially for their kids until they turn 18. They are required to provide food, shelter, and clothing for you, and if you cause damages to someone, they are required to pay it. There are two results of this that affect your situation. First, it is not ...

64

Many services are available to people who are wealthy enough to use private banks. The linked Wikipedia article says: ...banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager. Having cash ...

62

First of all, "rich" is not an absolute term, but relative. Compared to people a thousand years ago, we are all fabulously rich - we possess invaluable boons such as modern medicine, electricity, cars, industrial machines, the internet, advanced education, and so on. Actually, even within our time, even the poor people in first world countries are rich ...

59

It's not that their ability to pay increases with higher interest rates, it's that the lender is compensated for taking on additional risk. If I lend you money, and have some concern (not a lot, but some) that you won't be able to pay me back, I'm going to charge a higher interest rate, so that I get more return on my money sooner. Note that a difference ...

58

Out-of-the-money options close to expiration often have no bids. If no one is willing to pay even \$0.01 for them, you will have to let them expire worthless. Your loss essentially already happened when the underlying failed to surpass your strike; you would at best be fighting to salvage pennies now.

55

It doesn't literally involve astrology or tea leaf reading... While some people swear by it, technical analysis is often derided as pseudoscience, similar to astrology or tea leaf reading. As it's relatively common, knowing the basic concepts gives you an idea what other market participants might be thinking, especially with regard to support/resistance ...

54

I think you are missing something about how stocks work. I myself was confused about this for a long time, and so I think I know where you are coming from. Most of the time when investors buy and sell stock the company is not a party to the transaction. To understand how this can be, lets reduce it to a simple example with two investors: Imagine you need \$...

51

It is not your job to assist others financially, in a way that rewards good habits. It is not your job to train them in good financial habits. And even if you did try, more than likely, you're not going to change any bad habits that they have picked up over a lifetime. With that said, for 12+ years I have been contributing to the support of a cousin whose ...

50

\$160 a month is less than \$40 a week (except in February when it can be exactly \$40 a week). At the Ohio minimum wage of \$8.55 an hour, you should have something like \$8 an hour left after FICA taxes (and not pay income tax until working more than twenty hours a week). That's only five hours a week. Five hours is a single shift, not even a full day (eight ...

50

The total balance is irrelevant. Try thinking about the interest in terms of each dollar borrowed. Just using simple interest, each dollar borrowed at 1.69% costs you \$0.0169 for the year. Each dollar you borrow at 3.6% costs you \$0.036 for the year. The difference between those (0.036 - 0.0169 = 0.0191) is how much you'd save in a year for each dollar of ...

46

Two reasons are typically cited (I've heard these from Dave Ramsey): Generally you get a little better rate on a 15-year loan than a 30-year loan, so equal rates at 15 and 30 years is (typically) a false comparison. It's less risk for a bank when there's a shorter term. If you've got these side-by-side, I'd suggest looking for a better lender for the 15-...

46

why don't they just say "The numbers below include fees" or "don't include"?! Because these are accounting documents, and the terms accountants use are "gross" and "net". Think, for example, of your paycheck. Your gross pay is your rate multiplied by hours (plus bonuses, etc). Your pay net taxes is what you get after taxes are deducted. Your net pay is ...

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