houseGet the best terms and rates for your new home with a mortgage broker. But before you hire the services of one, here are the things you need to know.

If you are considering buying a home at a certain location, a mortgage broker is one of the best persons to help you out. They are knowledgeable about mortgage loan terms and can help you shop around for the best terms and rates. After all, a mortgage is a lifetime commitment. It’s a house that you will be paying for the rest of your life. So it only makes sense to take some time to think about what your mortgage broker can do for you and who you’re going to hire to take care of your mortgage.

So what other things do you need to consider before getting help from a mortgage broker? Here are just some of the things that we can think of.

Customer service

Your broker may be scary good at what he does but if he doesn’t have the heart, then every encounter with him will be a pain in the neck. It’s just not worth your money.

While looking around for mortgage brokers, you should not only consider competence but also customer service. Ask for referral from friends or better yet, look for reviews online. The internet can illuminate you on a lot of things about a product or a service.

remortgage house loanRisk tolerance

Mortgage is a long-term commitment so you need to consider how risky you want to get. In this case, you don’t want to get too risky. A mortgage broker will be able to help you mitigate any risk by getting you the best deal possible. They have access to a network of lenders which means that, from experience, they know which ones are good and which ones are not. Having a mortgage broker around also keeps you away from lenders with terms that could get you back years after you’ve already committed to the mortgage.

References

Mortgage brokers get a bad rap due to some who don’t act on their customer’s best interest. While snakes can’t be avoided in the industry, there are still a good number of professional mortgage brokers who are highly knowledgeable and have a genuine interest in helping clients get the best deal their money can afford.

It’s not always easy to judge a person’s character based on reviews but you can always look for references. Ask for references from your broker. Interview the people he has worked with before. If you like what you hear, go ahead and hire them but if not, you can always look around for another one.

What they can do for you

Before hiring a mortgage broker, you need to know what they can do for you first. A good mortgage broker in Central Coast, for example, will act in your name as your representative. They will handle all the paperwork and show you complete documents and reports needed for you to make a decision. Should anything happen to the prospective properties, they should inform you right away. They should be able to do follow ups regarding the current offerings from your potential lenders and once you have settled for a deal, they should also be able to explain to you the breakdown of the actual mortgage.

It sounds like a lot of work but it will pay off in the long run. Every monthly mortgage payment from then on will be a good reminder of the time you made a sound decision of hiring a professional to help you choose the best mortgage deal.

Did you have other thoughts about what one needs to consider when getting help from a mortgage broker? Let us know in the comments.

 

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wholesale clothingDo you feel your household income needs supplementing with another income stream? Have you always enjoyed fashion and wondered if selling from a range of wholesale clothing is a viable business to run?

Starting your own business can seem daunting, especially if you assume that you have to give up your job and run the gauntlet of not knowing how you will pay the mortgage or rent this month. Selling clothes online, either via your own website or online auction sites is a possibility that could reap financial reward.

Many people enjoy a substantial additional income stream by selling clothes online but like all businesses, you get out what you put in. With a lucrative market a few clicks away, just how do you go about setting up a home retail empire?

#1 Know your product

First and foremost is understanding your product. We all wear clothes thus we assume that we know clothing. But then there is fashion, on-trend items, colours and patterns, cuts of fabric, fabric types, as well as certain styles worn by some customers but not others, age, gender and budgets to consider.

Knowing your market niche is essential and how the wholesale clothing you select fits with this niche.

#2 Know your customer

The first point is tied closely to the second point and that is knowing your customer.

Who are you aiming your home fashion business at? Is it easy to wear, fashionable items for women aged 30 or are you appealing to the student population? Where are your customers? How do you reach them? These are questions that you need to be able to confidently answer.

The basis of any successful business whether it pays the mortgage or you are just dabbling is knowing that you have a market and how to sell to your customers.

For example, busy mums looking for smart casual wear will want a website that is quick and easy to use. The photos are clear, the descriptions good, the price reasonable and no hidden extra costs or extortionate postage and packaging charges.

#3 Branding

This all sounds like it is getting a little serious for a home business that just wants to sell the off cardigan or two to add an extra stream of income to the household. But small gestures and changes can rocket your business from ‘dabbling’ to a successful business.

Branding is when you make something look extra brilliant. Big names do it all the time. Look at the well-known soft drink, Coca Cola. Using the same colour palette throughout its product in the range, the same style of writing etc. When you buy their drink, you know you are getting a great product.

And when people buy from you, you want them to have a great product and a great experience. Giving your home business a name is a start, and choose colours that appeal to your customers. Make sure the photos you take of your clothing shows them off to the best of their ability – a crumpled shirt will not sell as well as one that is ironed and displayed nicely.

Think carefully too about how you package your items. There is something appealing about receiving a parcel but imagine your customer’s delight when they open the package to fine their £10 cardigan wrapped in tissue paper and matching ribbon.

#4 The bottom line

The whole point of running any business is to make a profit. When you have bought wholesale clothing, photographed it, sold it online, paid fees for website, auction sites, payment processing, postage and packaging, you need to come out with a clear profit.

Clearly, the more cash you can keep in your pocket, the better but over pricing is not the way to go as this moves your product from one market niche to a different ball game altogether. Work out how much items are to buy at cost, and price out all the other costs you pay to be confident you are not making a loss.

#5 Marketing & promotion

With great excitement you have ordered wholesale clothing, opened an auction site and possibly created your own ecommerce site too. Now what?

Unfortunately, customers don’t automatically come tripping to your door. You need to let them know you are there and then you need to entice them. There are all kinds of marketing ways to do this and social media is one way of attracting attention.

Offline marketing can prove fruitful too but with a consistent effort, your home business selling wholesale clothing can be a gold mine.

Eles Clothing is an online wholesale clothing company who supply sole traders and larger businesses too. Supporting smaller retail and fashion businesses is key which is why they have a no minimum order value. With end of season items from many high street retailers, Eles Clothing have a vast range of items. 

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Opportunity fundWith the price of gold sitting so high, the time has never been better for turning unwanted jewellery into well-needed cash. There are a few tips to bear in mind to getting the very best price possible. Knowing the golden rules of selling gold will help to ensure you get every cent of your items worth.

TIP 1: UNDERSTAND HOW GOLD BUYERS OPERATE

Individuals rarely sell gold and give little thought to the actual value of the gold they are selling. Basic research about how gold buying and selling works makes a world of difference in regards to finding an honest dealer, spotting scams and getting the best price.

SPOT PRICE

 Gold is a precious commodity that is traded globally every day and the finance segment of the nightly news always mentions the price of gold in dollar amounts per ounce. This price is known as the ‘spot price’.

GOLD PURITY

In order to make an accurate valuation of your gold the buyer must determine its purity and weight. The terms 24 ct, 18 ct, 9 ct relate to gold’s carats and the higher the number, the more pure and valuable the gold. 1 gram of 9 ct gold is worth roughly half the price of 1 gram of 24 ct gold.

There are various ways gold buyers test the purity of gold, mostly with acid or with a special x-ray machine. Jewellery marks or impressions are often inaccurate and many items are just gold plated and not pure gold. Not all that glitters is actually gold!

WEIGHED BY THE GRAM

Once the purity is determined, the item is weighed in grams and checked against the gold spot price of the day. No gold buyer can ever match the exact spot price because they need to run a profitable business and cover all their expenses such as employee, refinery, transportation, insurance and other costs that a one-time seller never considers.

WHAT IS A FAIR PRICE?

When looking to get cash for gold in Melbourne you will find wide ranging offers but most buyers will never tell you how they calculate the price in relation to the spot price of gold. Some unscrupulous buyers only offer 20%-30% of the spot price while others offer between 60%-80% percent per gram or even higher. This is why it is crucial to shop around for the best price when selling your gold.

 

TIP 2: ALWAYS SHOP AROUND FOR THE BEST PRICE

 The best gold buyers are those who advertise their price up front without anything to hide. Many gold buyers who advertise ‘highest prices paid’ use high pressure sales tactics, have no intention of paying fair prices and can never match the ethics and reputation of a trustworthy pawn shop in Melbourne that operates with transparency.

 

TIP 3: CHECK THE REPUTATION AND HISTORY OF THE SELLER  

An established business depends on word of mouth, repeat customers and maintaining a great reputation. Look for positive feedback on their store website and speak to the owner on the phone if possible. Are they helpful, friendly and professional? Trust your instincts.

Fly-by-night operators only care about short-term profits. They never offer the best prices or service and should be avoided at all costs. Only sell your gold to a business that has stood the test of time and has a solid reputation.

Using these simple tips will help you get the best price possible and ensure your gold selling experience is a positive, pleasant and profitable one.

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 lightbulb momentFrom the use of energy-efficient compressor head pumps to changing employee practices, there are many ways in which the average business can go about saving energy. Doing so is good for the environment and also a great way to keep overheads to a minimum.

Some of the most effective ways to reduce your business’s energy usage, cutting both your bills and the size of your carbon footprint, include:

Energy-efficient compressor head pumps and similar solutions

Your business premises are likely to make use of at least one pump, whether it’s a compressor head, single head pump or an other type. It is quite likely that there will be more than one pump. The most common examples are circulator pumps in central heating systems and pumps of various types that are used to boost water pressure.

These pumps serve important purposes; however, by their nature, they can be relatively energy-intensive. Switching to the most energy-efficient models and ensuring that you do not use pumps that provide more power than you reasonably need for the application in question can potentially save your business significant amounts of energy.

Change your energy practices

Some of the major business energy suppliers have recently been stressing the value of changing employee energy practices in saving businesses money on their energy bills. Changing practices is often overlooked when compared with changing to more energy-efficient equipment and appliances, but both can be extremely valuable in reducing energy usage.

light bulb momentEnsuring lights, computers, monitors and other items of electrical equipment are turned off when the office is not in use can save an organisation significant amounts of energy and noticeably cut bills. For computers and similar appliances, this means turning them off fully and not just putting them on standby.

Turning the heating down by just a single degree can see savings of up to 10% in associated energy usage. On the subject of heating, double glazing and improved building insulation can also significantly cut wasted energy and reduce the portion of your bill associated with keeping the office warm.

Water usage

Water usage is another factor that is often underappreciated in terms of the role it can play in inflating your bills. Water wastage is often significant in both businesses and households, which is reflected in the resulting water bills. Furthermore, when the water in question is hot water, this also pushes up your gas bill as a result of the energy taken to heat the water.

Being wise in water usage and encouraging employees not to be wasteful, such as always ensuring that taps are turned off fully, can go a long way. Urinals can also be a particular culprit when it comes to wasting water. You should ensure they are not flushing themselves overnight when they are not actually in use, with devices that prevent unnecessary urinal flushing paying for themselves within months.

Maintenance

Keeping your building in good condition can be a very useful way to save energy. Draughty windows and doors, or ones that do not properly keep out the cold, can cause significant heat loss and require more energy to be expended on heating to maintain comfortable temperatures.

Leaking pipes and dripping taps can waste significant amounts of water over time and, if these form part of the hot water system, can also lead to energy wastage. Keeping on top of such repairs can help to reduce your bills noticeably, with the repair costs often cheaper than they would be if the problem is left and allowed to worsen.

 

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MISYS3-MOBILEPAYMENTEarlier this April, electronics giant Samsung announced a new partnership with leading POS (Point of Service) manufacturers in an effort to “accelerate mobile payment adoption” among consumers in the US and across the world.

Teaming up with the likes of Verifone, PAX Technology, Equinox, USA ePay and others, the company’s renewed focus on mobile payments looks likely to further secure their status as leaders in the field, with Samsung Pay already being used by over ninety percent of leading retailers in the US, as well as the majority of small, local businesses that accept mobile payments.

Yet even without Samsung’s commitment to accelerating adoption, mobile payments have already catapulted their way from a niche audience to one of the most widely used payment methods, with many experts predicting that in the next few years, platforms like Samsung Pay will outrank chip and pin technology, and even good old fashioned cash, as the default way most of us pay for goods and services.

The next evolution in mobile financial management

Along with Apple expanding their own Apple Pay into international markets, and several other major tech firms breaking into the market, the move to a mobile payment society is expected to come within the next decade, something some see as the next evolution in using smartphones to manage our finances.

Again, growing from a relatively small audience to the most prominent method of managing core banking services, mobile banking software was used to move £2.9 billion a week in 2015, a figure which has grown steadily over the past several years, including a .9 increase alone from 2014.

Challenges ahead

Not that the industry didn’t have its challenges. Much like in the mobile payments market, those responsible for creating mobile banking systems had a steep hill to climb in order for digital banking to overtake traditional core banking methods, much of it relating to mass adoption of smartphones themselves. Starting off with just a handful of apps, mobile banking was only able to really take off once more and more consumers were equipped with the technology to use it.

Back in the world of mobile payments, brands like Samsung and Apple are facing similar challenges. As with banking, payments’ biggest growth period will come when users upgrade from older smartphone model and move towards those capable of supporting the latest technology required to make digital payment a success.

Getting merchants on board

Unlike the typical mobile banking solution however, payments have another challenge ahead if they’re to finally succeed in becoming the default method of financial transactions. That challenge is simple: convince more merchants -particularly small business- to come on board.

In 2015, finance provider CAN Capital conducted a survey which revealed that as many as 87% of small business owners questioned were not currently accepting mobile payments.

Whilst that figure is likely to have decreased somewhat in the last year, it still provides a hurdle for Apple, Samsung and their contemporaries that they’re aiming to overcome by espousing the tangible benefits of accepting mobile payments over traditional debit and credit cards.

For one thing, there’s the cost. Whilst accepting mobile does require some initial investment, the overall costs are typically much lower than the often expensive handling fees charged by credit companies, making them a viable alternative to chip and pin for small business owners who need to keep overheads low whilst still keeping up with modern tech.

The advantages for business owners don’t end there either. One of the driving factors in mobile’s increasing popularity over the recent years has been the ability of big name brands like Starbucks using the technology involved to offer discounts and reward loyalty, something the company reports has led to mobile payments accounting for 30% of their business in North America.

Quicker, simpler, more secure

Meanwhile, Apple, Samsung et al have already taken their cues from mobile banking software providers in making much of mobile’s biggest -and perhaps most important- benefit to customers and merchants alike, namely that using a smartphone is often quicker, simpler, and certainly more secure than using a card, or in most cases even cash.

It’s these benefits that have already helped mobile payments make huge strides in taking over traditional payment methods, and -if the experts are correct- will ultimately see Samsung’s dreams of ‘accelerated mobile payment adoption’ become a reality sooner, rather than later.

 

Have you used Apple-Pay or other mobile payment technology?

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Many people are critical of debt, but taking out a loan can actually be a financially positive thing in the right circumstances. A loan can be a great tool to get back on track on your journey towards wealth. Keep reading to learn how to use a loan for your ultimate financial benefit.

 

Using credit cardsConsolidation Existing Debt

If you have a lot of debt it’s likely you are struggling to keep up with all the repayments, even paying the minimum payments. This can be very stressful and can have knock-on effects in all areas of your life. If you are financially stressed, you may struggle to concentrate at work or the stress could result in your body getting run down and ill. Taking out a consolidation loan can help bring some control back because your monthly payments are reduced. This is possible because the new loan will likely have a longer pay-off period. This is not the ultimate solution to the debt, but it buys more time to turn things around. The interest rate could be lower too, especially if the loan is replacing credit card debts. A consolation loan is like a rubber ring for someone in the sea. It doesn’t bring them safely to shore but it buys valuable time and stops them panicking quite so much, providing some perspective and temporary relief. When you’re not panicking and stressing you can work out a plan, and you can keep the lights on at home and food on the table. You can get loans from banks like Secure Trust Bank, Credit unions (in the US) or Building Societies (in the UK).

 

CarGetting out of Underwater Cars

Buying expensive vehicles on credit is an easy way to get into financial difficulty. A car payment can fool someone into thinking they can afford more car than they actually can. If a car loan is taking a huge bite of your monthly salary, it is also easier to get into debt with other things too. If you are struggling financially, selling that expensive car you have in your drive-way could be a great way to kickstart your new and improved financial plan. However it may be impossible to sell if you owe more than the car is currently worth. This is known as being ‘underwater’.  If you wanted to sell a car that is ‘under water’, you would need to get a loan for the difference between what you owe and what the car can be sold for. It might not sound like a very attractive prospect – being left with debt and without a car – but it’s actually a good thing because once the sale has gone through you no longer have an expensive car-payment, nor a car that is only going to go further down in value. At this point, you should buy the cheapest car possible as a temporary measure until you’re more financially secure and you can gradually move up to a better car over time, paid for with cash rather than debt.

 

cautionPaying for an emergency

In an ideal world everyone should have a rainy-day fund for financial emergencies. But sometimes, that emergency fund is not there and you need an alternative. A loan is simply renting money. Yes, it can be expensive over time, but everyone pays for things they need and want if they value them – and paying for money with money is the same thing! If you really need the money for something, then a loan has a purpose. The key thing is to be conscious of the choice, rather than ‘falling into debt’. You need to formulate a plan to pay off the debt with intention and speed. You also have the right under section 94 of the Consumer Credit Act 1974 in the UK to repay early in full or in part although you may need to pay 1 or 2 more months’ worth of interest, as stipulated in the loan agreement.

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Trading in the markets with Binary Options

by Adam on April 18, 2016

If you’ve done any investing, or even if you haven’t, you will know that the price of investments go up and down. This fluctuation is due to the willingness of investors to buy and sell at any given price.

fluctuating marketFor example, imagine you are buying oil and the current price is £100 for whatever unit you’re buying in. If you predict demand in oil to grow, then you expect the price to go up in the future to meet that demand. If others also believe this to be the case they might be willing to buy the same amount of oil for a bit more, say, £110. Over a short amount of time, the price has now already gone up. What people think collectively about a certain investment is called ‘market sentiment’. If investors hear some news that suggests the demand for oil is going to go down, or supply is going up, then they may believe the value is going to go down and therefore they may sell their investment. If lots of people start wanting to sell, then they would be willing to accept less in order to make the sale, fuelling the fall in prices. 

This is example is about one commodity, oil, but the same mechanics are in place for every investment, from the biggest companies, to the smallest little grain of wheat.

Over the long term, investors tend to make money as the value of most investments go up, but some people make money in the short term by trading – taking advantage of the volatile up and downs of the market over short time periods.

Trading in the markets with Binary Options

You don’t need a huge amount of money to trade on the fluctuations of the markets. One simple way is to use Binary options to trade price fluctuations in multiple global markets. The great thing about binary options is you know what you can win and lose – it’s not open-ended like traditional options.

Binary options are different from traditional options because they may have different payouts, fees and risks. One of the most common binary option is a “high-low” option also known as fixed-return option due to having an expiry time and date and a strike price. If a trader predicts correctly on the market’s direction and the price at the time of expiry is on the correct side of the strike price, the trader is paid a fixed return regardless of how much the market moved. Get it wrong and the investment is lost. The benefit is you always know how much you can gain or lose with each trade.

Depending on where the trader thinks the market is going, they can buy a call (predicting the market is rising), or a put (predicting the market is falling). For most high-low binary options the strike price is the current price or rate of the underlying investment, for example the FTSE 100 index or a currency pair (GDP Vs the USD for example).

bitcoinYou can take advantage of the fluctuations in the markets by using a broker like Binary Uno. Brokers make their money from the percentage discrepancy between what they pay out on winning trades and what they collect from losing trades. One of the interesting features of Binary Uno is that as well as using cash to fund your trading, you can use Bitcoin. This of course adds another dimension to your trading and investing because the price of BitCoin fluctuates.

You can read about my Bitcoin investing journey here

For long-term investors, the fluctuations in the markets can be a source of stress and it’s advisable to ignore the ups and downs as much as possible. But short term-looking investors and traders can take advantage of the ups and downs and make money, so if you want to have a go, then good luck!

 

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save early, save oftenWhen you’re paying off debt, the first and most obvious step is work out how much you owe.

Put it all down on a piece of paper or open up up a spreadsheet in Excel or Google Sheets. You need to know where you stand, and also draw a line in sand and say to yourself: No More Debt. Otherwise you won’t make any traction as you pay down your existing debt. If your debt is increasing each month, getting to a stable position should be your first priority. Cut back your lifestyle as much as you can, and look for ways to increase your income. Getting these two variables in balance will stop your debt from getting any bigger.

That’s the first step.

If you can’t get to this first step, you might need some more serious intervention. Details of which can be found on the Government’s website

 

Next you need to get to the business of paying down your debt.

Consider Consolidation

If the interest rates on your loans are high and you have lots of different debts, it might be helpful to consolidate them into a single loan with one manageable monthly repayment from a bank or a company like Everyday Loans. This can make the loans more affordable in the short term but over the long term it could cost you more interest as the debt repayment period is often longer. However, if you promise yourself you are getting rid of this debt for good, consolidation can be really helpful in ensuring you can afford the monthly repayments and therefore will help to stop you from defaulting on your debt payments and might help you afford other important payments like rent and utilities.

ImportantMake a Plan

Whether or not you have consolidated your loans or not, next up is the work of developing a plan to pay down your debts. Always ensure you are paying minimum payments on all your debts first of all. Then focus on one particular debt and start paying it off.

Some loan providers don’t allow you to make extra payments on your debt. If this is the case then put some money aside each month into a savings account specifically for debt repayment.

Once the account has built up to the level of one of your debts you can call the loan provider and ask what the total amount needed to pay off the debt in full. There may be some extra fees like one of two month’s interest, but it is worth it. Once that debt is paid off, you will have increased how much you have in your pocket each month as you are no longer paying the minimum payment and interest. Now that one loan is paid off, start paying extra (or saving extra) to pay off the next debt until you’ve tackled them all!

Work out the best order for you

FocusThe order that you pay off your debts is up to you.

Mathematically it’s cheapest to pay off the debt with the highest interest rate first, but this can be hard psychologically if the balance is very high – you could be paying off the loan for months and not feel any progress. That’s why some advisers recommend paying off debt based on the size of the debt, smallest to largest. It might cost more overall, but you get a feeling of progress quicker as little debts are paid off.

You could also pay off the debts in a different order depending on how much you hate the debt. Maybe you want to pay off a debt to your parents first, even if it has no interest.

I’ve written a more in-depth article about how to pay off debt and the order to pay off your loans here.

In the end, the order doesn’t matter – do what works for you – the important thing is you are taking charge and improving your situation for the better!

Good luck!

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When you head off to university or college you may think your lectures will contain the most important information you need to learn for your future life.

Certainly your subject is going to be important, but living away from home for the first time will also require learning other things like cooking an edible meal and learning how to use a washing machine! (I did!)

Another important, but sometimes over-looked topic you will definitely be learning over the course of your degree is money management.

Money management is one of the most important lessons to learn when you first move out of home and get your own place away from your parents. When you first receive your student loan it may be the most you’ve ever had in your bank account, but the funds will need to last you all semester!

money making ideasIt might be boring but setting up a budget can be really helpful.

Open up a spreadsheet (Google Sheets or Excel work great) and make a list of all the things you need to spend money on. By writing things down you can see what you can and can’t afford. You don’t have to be super-specific –broad categories are fine, but update it now and then to check you’re still on track. It can actually get quite addictive and fun, (honest!), and the control will help you feel less guilty about spending money on all those nights out!

A budget is particularly important as many higher education students who are not budgeting find it difficult to manage their money because their loan and grant payments are made each term, whereas bills are often due monthly or weekly. This can often result in money running out towards the end of term.

This happened to me once or twice when I was at university. Thankfully, my kitchen cupboards were relatively full so I didn’t go hungry whilst I waited for my part-time job to pay me, but it certainly made me get more serious about money management!

Get help if you’re in trouble

If you’re encountering any financial difficulties, seek guidance as soon as possible. It’s usually easier to fix things the sooner you deal with them. You could also consider using a service like Smart-Pig for student-specific same-day loans. You can borrow up to £350 until your next UK student finance, NHS bursary or SAAS payment. The interest rate is higher than a bank overdraft, but the interest is capped, unlike other same-day loans, so it could be useful to help avoid going hungry when you need help.

autumn statementConsider how to increase your income

Getting a job is best way to top up your bank account, meet people, and gain skills. During my time at university I worked on campus asking graduates to donate to the university over the phone. I gained confidence; have hundreds of conversations with graduates about what they had done after university; raised hundreds of pounds for the university; and got paid higher than the minimum wage, which felt like an achievement at the time!

Keep your eye out for jobs on campus in the student union, or in local businesses near the university. You don’t want a job to get in the way of your studies too much but a part-time job can be great.

Think out the box too. Can you generate cash with a skill?  Perhaps you can tutor other students, or can build a website for someone, or design something? When I was at university I got a few singing gigs (yes, really!)  which supplemented my student loan and meant it wasn’t always baked beans and rice every night.

Lastly, don’t overpay income tax

You may think students don’t have to pay income tax but they do. Thankfully the personal allowance (the amount you can earn in a year without having to pay tax) is quite high: £11,000 for the 2016/17 tax year. If you are paying any income tax but haven’t earned as much as this, make sure you claim the tax back from HMRC.

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I don’t need to tell you the world is a big place. But I do need to remind you that when you are considering the makeup of your investment portfolio you need to consider where in the world your investments are, and how the location of your investments can affect the returns you may receive over time.

Saving moneyReading a lot of investment commentary coming out of America, investors in the States typically have a large proportion of their investments in the US stock market.

It is for a good reason.

The US stock market is the largest in the world and has some very strong performing companies. For an American investor they can invest exclusively in the US stock market and can build a well-diversified portfolio that is likely to perform well over the long term. Even so, many investment advisers recommend a small proportion of ‘International’ exposure for added diversification and are lured by the potential of extra returns by hoping on rapid growth in emerging markets. However, advisers often caution having too much exposure to international stocks because of the added risk of ‘currency risk’.

 What is currency risk?

Currency risk is the potential risk of loss from fluctuating foreign exchange rates when an investor has exposure to foreign currency or foreign-currency-traded investments.

For example, I’m in the UK. If I bought an American investment that traded in dollars, say $100. I would need to convert my pounds into dollars to buy the investment (currently £70).

Let’s imagine I got a great return of 100% and doubled my money, so my American investment is now worth $200. In order to cash out and spend my return I would need to sell the investment and then convert the dollars back into pounds. If the exchange rate had stayed the same, the $200 would now be worth £140 (70*2).

However, if the pound/dollar ratio had changed, my return on my investment would be different. Perhaps $200 could only buy me £60 in the future?

Currencies ‘strengthen’ and ‘weaken’ against other currencies all the time in response to economic forces.

 

This means that when you invest in stocks and shares that trade in different currencies, your portfolio not only has market risk (the company could lose value), but also you have to consider currency risk (your home currency might not be able to buy as much foreign currency as before).

british pound notesIf you are a UK investor or investor in a smaller market than the US, you do not have the luxury of avoiding currency risk as our markets are relatively small compared with America and to provide good diversification, international stocks might take up a bigger proportion of a typical investment portfolio.

Some investors mitigate perceived currency risks using financial instruments that move in the opposite direction to currency fluctuations, but this is only really worthwhile in very large portfolios with significant international exposure. For bigger investors there are also companies such as Sucden Financial who provide foreign exchange to companies needing to hedge their currency risk and to help with liquidity.

The good news is over the long term, the markets tend to self-regulate when it comes to currency fluctuations as the very presence of currency risk can create an opportunity for investors who follow the interest rates between two countries and the relationship to exchange rates. For example, if interest rates are higher in the UK, other currencies are likely to fall in value relative to the British pound as when interest rates increase in a particular country, international currencies flow into that country to take advantage of the higher yields. This pushes the value of that country’s currency higher.

Certainly the world is a big place, but we are more connected than ever before and financial ripples in one market can reach another. Understand the types and level of risk in your portfolio to be a better prepared and informed investor.

 

 

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