What Is Personal Income Statement ?

What to know about inflation.

 

What Is Inflation?

Inflation reduces the purchasing power of money (purchasing power, the quantity of goods bought by an amount of money).

 Inflation reduces the purchasing power of money in a growing economy by triggering rising prices of consumer goods and services.

`A slow and steady rising of prices caused by an inflation rate of at about 2% is okay. But when the rate rises faster, sometimes to double digits, then it can have a negative impact on personal financial management.

For instance, as a consumer, you would be time consuming to compare and determine best prices to get goods and services at a given moment.

How is inflation measured?

Inflation is measured by using the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCI) tools. 

The Consumer Price Index tracks prices for individual goods and services which households are buying. 

The Personal Consumption Expenditures, PCE, tracks changes in prices of consumer goods and services which businesses are selling.

The CPI reports a higher inflation rate than PCE but the PCE is considered the more reliable indicator.

What are the types of inflation?

The three main types of inflation are the demand-pull inflation, the cost-push inflation,    and the built-in-inflation.

The demand-pull-inflation is an economic situation where the demand for goods and services drive up their prices. Consumer demand pulls up prices when quantity supplied falls below quantity demanded. 

The cost-push-inflation occurs at the peak of demand-pull-inflation. It is an economic situation where increase in costs of raw materials is transferred to final consumers through increase in retail prices. 

The built-in-inflation occurs as a result of increase in wages or salaries and increase in prices of consumer goods and services. The consequence of demand-pull-inflation and cost-push-inflation, which is, increase in prices, affect all consumers including workers. To continue to afford basic goods and services, these workers are going to ask for a pay raise. When this request is granted, a built-in-inflation occurs.  

As a consumer, what should you do during inflation?

Have a good budget and stick to it. Your budget should include provisions for timely settlement of debts and investments in commodities, gold, silver, equities and real estate.

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What is the difference between break-even analysis and payback period in terms of cashflow?

 First, what is cash flow>

Cash flow is defined as an increase or decrease in an amount of cash.

And what is cash?

Cash is defined as ‘cash held  in hand’ and any deposits repayable on demand with banks and any other qualifying financial institution, less overdrafts from a bank and any qualifying institution, repayable on demand. 

What then is the difference between break- even analysis and payback period on the basis of cash flow?

The term break-even analysis as commonly used, does not capture the true meaning of the interrelationships it explores. Break-even analysis is not only concerned with the level of activity which produces the break-even point (where neither profit nor loss is produced). It is more concerned with how costs and profits behave at other levels. This is why the alternative term. Cost-volume-profit (c-v-p) is often used. 

Break-even analysis or c-v-p analysis is relied upon for short term planning and decision making. It uses principles of marginal costing to explore relationships that exist among costs, small changes in output levels, revenue and profit.

The application of break-even analysis depends on some basic assumptions. Some of them include;

There will be no uncertainty,

All costs can be accurately resolved into fixed and variable costs,

Fixed costs will remain constant and variable costs will vary proportionately with activity,

Volume is the only factor that affects costs and revenues

No stock level changes or that stocks are valued at marginal cost only and,

That break-even analysis relates to a single product or constant sales mix.

How can break-even (c-v-p) be analyzed by formula?

Break-even point (in units) = fixed costs/contribution per unit   (contribution = selling price – marginal cost),

Break-even point ($ sales) = fixed costs/contribution per unit x sales price/unit.

What is payback?

Payback as an investment appraisal technique, is defined as the time required for the cash inflows from a capital investment project to equal the cash outflows.

Payback is a method used to reduce risks and uncertainties associated with a project. The usual decision rule is to accept the project with the shortest payback period.

In applying a payback time limit, either a project in addition to paying back within a certain time limit should show a positive net present value (NPV) from its net cash flows. Or a project is expected to pay back in discounted cash flows within a certain time period.

Payback is the most popular project appraisal technique because it is simple to calculate and understand. It other advantages include;

 it favors quick return projects and thus, minimizes time related risks and,

Its objectivity (it uses project cash flows instead of accounting profits).

However, payback analysis is not a measure of the overall worth of a project.

House rich (asset rich), cash poor? What should you do?

House (asset) rich, cash poor is a product of you putting most of your wealth (equity) in real estate that's difficult to convert into cash. 

Investing in real estate is a good financial decision but it may constitute a problem if you don't have sufficient liquid cash in the pocket and bank to maintain your lifestyle and, pay short term debts as they mature.

Being house rich, cash poor is an uncomfortable position where the struggle to hold onto real estate would cause you to keep on postponing, enjoying the benefits of being a homeowner.

To solve this problem, you striking a balance between your real estate asset and your liquid assets (top among them is cash) is necessary. This stability would translate into having sufficient funds in your savings or checking accounts to settle current liabilities as they fall due.

Apart from cash, other highly liquid assets are stocks and bonds, but it's more complicated to convert them into cash.

How do interest rate fluctuations affect your money?

 

Why should you be bothered about nterest rates?

"Interest rates are to asset prices what gravity is to the apple. When there are low interest rates, there is a very low gravitational pull on asset prices." - Warren Buffett.

Prices of assets, cost of borrowing and rewards for savings are tied to the rise, fall and stability of interest rates.

Interest rate for borrowing (cost of borrowing) is the percentage of the loan amount. The higher this percentage is, the more the interest to be paid back in addition to the principal..

At lower interest rates, borrowing to buy big assets is more attractive than borrowing to aave. 

At lower savings rate, a percentage of savings paid into a savings account is less than at higher savings rate. So, it makes more sense to borrow to spend and buy assets rather than borrow to save and be rewarded with low interests.

At lower interest rates, spenders pay less interest and have more money to increase their spendings on consumer goods. This leads to increase in the production of goods and to the creation of more job opportunities.

Higher interest rates are going to force you, the consumer, to reduce your spending as you're going to have less money to spend. Why would you have less money to spend?

It's obvious that a higher interest rates, banks would give more stringent conditions to prospective borrowers. The result of tough requirements would produce few with the capacity to meet them. Therefore, fewer loans are going to be given

What are the most important career break reasons?

 

These reasons are, to have the time to learn the true meaning of life and enjoy its beautiful gifts, found in abundance outside the work environment.

Have you forgotten that life's pleasant and exciting surprises, are presented to travellers?

Surprises and nature's strange things told and found in books seem fictitious until they're lived and experienced. So, go ahead, take a career break and find out what life is all about.

Another reason is, so that life will not leave you behind. Life leaves behind the redundant. 

It's an ever changing dynamic world out there. Acquiring a new set of skills keeps you ahead of the game. A new set of skills can hardly be acquired without taking a career break.

"Work is a rubber ball." Gary Keller observed and continued, "If you drop it, it will bounce back. The other four balls- family, health, friends, integrity- are made of glass."

Your family is a glass ball, if you drop it, it could be irrovocably  shattered.  Sometimes to achieve a balanced life, you may need take a career break to spend quality  time with a disintegrating family and strengthen the bond.

You would also need to occasionally spend quality time with true friends to  prove their importance to you. Finding the time to be with friends could be a huge sacrifice that are greatly appreciated.

What about your health? The journey of life takes everyone to the crossroads, where it's unavoidable to take a career break from the stress of work to take care of one's mental health. Most people ignore the need to take a break and continue to work until they break down and become useless to themselves and their loved ones. 

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Work is a rubber ball. If you drop it, it will bounce back. The other four balls-- family, health, friends, integrity-- are made of glass. If you drop one of these, it will be irrevocably scuffed, nicked, perhaps even shattered. - Gary Keller

What are dividend growth stocks? Which are the best today?

"Returns matter a lot. It's our capital." — Abigail Johnson

The accumulation of wealth from investments in stocks is determined by the long run rate of return on investments.

Many investors find companies that pay regular and increasing dividends attractive. 

Investors believe that a company with a history of strong dividend growth are on the path of long term profitability and that, part of their profits, would consistently be appropriated to grow their dividend.

However, what is the primary input of the stock valuation method, investors in dividend growth stocks use to determine the best stocks to invest in? It's the dividend growth rate.

What is the dividend growth rate? 

The dividend growth rate is the percentage rate of growth that a company's stock's dividend experineces within a given period of time. It's calculated annually.

Examples of companies with dividend growth stocks for the month of February, 2023. - fool.com