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 Is A Good Personal Financial Budget?

 Do you have a budget? Is it designed to help you grow?

A budget is your quantitative plan. It is a collection of the things you want to spend money on and where the money is going to come from. It is a simply a collection of your future revenues and expenditures.

Having a budget is an indication of an intention to avoid running into financial distress and focus on financial growth. Growth is a product of a good budget. What is a good personal budget?

This is how a good personal budget should look like;

A. Income: It must show your expected annual income. The annual income should be broken down to a monthly income by dividing the annual income by 12 months. And the monthly income further broken down to a weekly income by dividing each monthly income by 4 weeks.

Your income is your is your net revenue. That is, it is what is left of your revenue after taxes, interests and all other deductibles are removed.

B. Allocation of your weekly income. It is very important to always allocate your weekly income among your basic needs and set aside a portion as your weekly saving.

For instance, you may allocate your weekly income to the following needs and saving with their corresponding percentages;

1. Shelter- Accomodation- 20%

2. Food -  20%

3. Clothing - 5%

4, Communications- 5%

5. Continuous Learning- 20%

6. Savings-- 30%

At this point, it is important to remind you that this is a personal budget that is focused on personal financial growth. This is the reason learning and savings take 50%. Of the budget.

The next important item that must make a good personal budget is how you intend to allocate your saving.

C. Allocation of savings. You may;

1. Invest 30% of your savings. 

60% of which may be in ventures with a short term returns on investment (within 12 months) and 40% of the 30% set aside for investment may be invested in ventures with long term returns (more than 12 months).

 2. Set aside 30% of your savings towards getting a personal home. Remember, your saving is a portion of your weekly income not spent. So the 30% saved towards a personal home is accumulated over time till it could buy a personal home. Or, till it could be used as a counter fund to buy a personal home. 

3. Set aside 25% of your savings towards other things like a car and house stuff.

4. Reinvest 15% of your savings. This is absolutely important in order to maintain and progressively enlarge the cycle of growth.

Please let us know what your personal budget looks like and what is missing in the one above. Use the comment section.

Thank you.