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Entries for the ‘Finance Concepts’ Category

Economic Terms You Need to Know When Investing

The health of the economy is directly proportional to your investments. If the economy is doing good, then chances are your investments will also earn good. However, if the economy is experiencing a downturn, then definitely, your investments too are affected. Since the US has the largest economy in the world, most people watch its economy as it may have a domino effect to smaller economies most especially for countries whose main clients for their export products is the US market. According

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Debt Consolidation: Consolidating Your Debt Payment

Having lots of debts is different to manage. You may need to track down all debts from one creditor to another including interest expenses and late payment charges. One solution to handling multiple debts is through debt consolidation. Debt consolidation entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan. More often, debt consolidation involves a secured loan

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What are Forward Contracts?

In this article, I will introduce a financial derivative called Forward Contracts. What are forward contracts? Forward contracts are used by companies to take advantage of a speculation. A forward contract is an agreement between two parties to buy or sell a specific asset at a certain future time for a certain price agreed today. It costs nothing to enter a forward contract. The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell

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What is Variable Life Insurance?

First of all, why are you buying life insurance? The basic rationale for life insurance is to replace your income in the event that you die unexpectedly. Your insurance policy then is supposed to “buy” your dependents’ time to replace the income they had depended on you. Strictly speaking, life insurance is primarily for protection, not an investment or a savings plan. However, today’s insurance companies offer products with savings plans and investment features. These

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How FED Controls Money Supply

The Federal Reserve of the US, or simply FED, is the most powerful banking institution in the world. It controls the banking and economic system of the most powerful country in the world - United States of America. In 1913, the US Congress established the FED. The Fed, although the central bank of the United States, is not really one bank. It consists of twelve regional banks, so that no one region of the country can unfairly gain an economic advantage. The Fed is run by a seven-member team

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Financial Ratios You Need to Know When Buying a Business

If you want to become educated on business matters, then one of the things that you should know is the financial statement of companies. You need to know how to read numbers because numbers don’t lie. Financial statements are the health check up of businesses. Just like humans, businesses can be subject of certain “diseases” that you should know before it’s too late. Here are some of the financial ratios that you should know to examine the health of a business. This

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What Caused the Great Depression?

We’ve talked about the current recession before and we know that the main thing that triggered it is the subprime mortgage crisis which originated from several investment banks. But what about a more severe economic downturn called depression? According to Wikipedia: In economics, depression involves sustained, long-term downturn economic activity. While recession is seen as a part of a normal business cycle, depression is a sustained recession. It is characterized by abnormal increase

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How to Fight Inflation

Inflation is one of the reasons why do you need to invest your money. In economics, we have known inflation as the general increase in prices of commodities. The higher the inflation, the lesser the value of our money. Inflation degrades the value of our money. Your money last year cannot buy the same amount of goods now. WHAT CAUSES INFLATION TO INCREASE? Increase in oil prices. Oil is a very important commodity in the world because it is one of the raw materials of every company used to

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Good Debt vs. Bad Debt

Debt has always been considered as a liability. Yes, in most cases, debt is a liability because it is money owed to someone else. One classic example of a liability is a credit card debt. When you use a credit card, you’re taking a loan from the bank or company that issued the card. With that loan come interest payments. You generally do not pay interest for the first credit card cycle (usually a month), but any amount not completely paid off after that first cycle is subject to interest.

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Preparing Your Personal Financial Statement

In order for you to know where you want to go, you must first know where you are currently. To reach your financial goal, the first thing you must do is figure out where you are. For if you don’t know where you are, you can’t expect to get where you want to go. Knowing where you are means taking an honest inventory of your financial situation—filling out a financial statement—and taking a good hard look at the results. This may sound difficult, and maybe even a bit scary, but it’s a

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Opportunity Cost Analysis

Opportunity cost analysis is one of the main foundations used in making financial decisions. In strict accounting terms, opportunity cost is not really a cost or an expense. However, it maybe relevant in making decisions with financial repercussions. Wikipedia says that opportunity cost has been described as expressing the basic relationship between scarcity and choice. When you are torn between making decisions with mutually exclusive results, then one benefit should be sacrificed and

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Why do you need to borrow money?

Well, aside from the obvious reason that you need it, whether for capital or other expenses; borrowing money can help you to manage your finances if you know how to leverage debt. That is to know the difference between good debt vs. bad debt. In this article, I will expound more on the idea of debt leveraging by using other people’s money instead of yours. Good debt makes the rich gets richer. There are very few entrepreneurs who did not borrow money to grow their business. If you can

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Lessons from Economic Recession

We are all experiencing economic recession. There are low demands of products as consumers cut spending. Companies cut costs thereby closing some of their plant operations and laying off thousand of is workforce. What lessons have you learned so far in this economic recession? What are the things will you do just in case another deep recession comes into our economy in the near future? It is better to be prepared and arm yourself with a weapon to survive an economic crisis. Save for the

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Why do companies declare bankruptcy?

Recently, with the onset of the global financial crisis, there has been an increase in the number of companies declaring bankruptcies. But why do companies declare bankruptcy? What causes these companies to declare bankruptcy? As a research analyst of Chapter 11 bankruptcy filings, I’ve been involved in various Chapter 11 bankruptcy cases. And during the past reports that I’ve made, here are some of the reasons why do companies declare bankruptcies: Liquidity. Because of low

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