Is There Such Thing as Good Debt?

There are some people that really do not like any sort of debt. They feel like no one should borrow …

There are some people that really do not like any sort of debt. They feel like no one should borrow at all and that debt is a scary thing. It is understandable that some people will have this attitude but in contrast there are people the believe in a thing called ‘good debt’. They believe that some sorts of borrowing are useful and good and therefore not all debt is bad. It is worth thinking about some examples of what is considered to be good debt so that you can think about what your opinion is on it.

Student Loan

The student loan is a way that people can borrow money to cover course fees and living expenses for going to university. This is considered to be a good loan for several reasons. Firstly, it will allow you to get a qualification which should lead to a better paid job and that will allow to earn more. Secondly you only pay back in small instalments that you can afford. They are taken through your tax code and it is means tested so if you do not earn enough money, you will not have to make the repayments. After thirty years, the loan is written off by the government. This means that you may never have to repay it all and some people do not repay any of it. As long as you complete the course, get a good level of qualification in a subject that leads to a career that pays well and potentially have a good increasing pay scale, then it will be well worthwhile getting the loan.

Mortgages are a great example of what is considered “Good Debt”.

Mortgage

A mortgage is a specific loan that is used to pay for a home. This is the way that most people will be able to afford to buy a home of their own. There are advantages in owning a home, in that you will no longer have to pay rent and once you have paid off the mortgage you will have nothing to pay on a regular monthly basis apart form buildings insurance. You will have to pay for any repaired, renovations and redecoration though, but these could be a lot cheaper than you will pay out in rent, depending on the condition of the house. You would need to make sure that you got a survey and checked this out before you bought it and some insurance might cover some repair work as well.

Some other loans

If you are borrowing money for a purpose that will improve things for you, then this can be considered to be a good loan. However, you also need to make sure that you can afford the repayments. This is really important factor and if you struggle and get extra charges as a result then this make sit bad debt rather than good. It is also wise to compare loan types and make sure that you have the best loan for the job as well as one that offers good value for money. This means that you will need to do research to find out what is available and think about what you feel will suit your needs the best. It is not always easy working out whether something is good or bad debt. However, it is wise to think about how the item you are buying with the loan will benefit you financially. If borrowing money will improve your finances in the future then it is potentially a good loan. But you need to be sure and be confident that you can repay the loan. Of course, it is always a risk but if you do your best to minimise that risk then you will be doing your best to protect yourself from it.

Should I give my Children Pocket Money?

It can seem obvious to parents that they should give their children pocket money. This is because most parents do …

It can seem obvious to parents that they should give their children pocket money. This is because most parents do this and so you might just feel that you need to. However, is this a good reason and should you even bother at all?

Advantages

Children will put pressure on their parents to give them pocket money and some families will even fall out over it. This means that you might think that it is something that you should do in order to make sure that you have a good relationship with them. You might also think that you should give them money so that they have something to spend when they go out with their friends, especially if their friends end up paying for things for them otherwise. 

If children have money it is an opportunity for you to give them a lesson in have to budget, save and spend. If they have a savings account then they can put all or some of it in there. They can also save up money to buy more expensive things. It can be great to explain to them about the advantages of saving their money and saving up for items. Also explain that they might want to save up for things in the short-term, for example save up to buy a video game, or for the long term and save up for university.

Disadvantages

If you give your children pocket money it means that you will have to find that money from somewhere. This could be difficult if you have a tight budget and already struggle to buy everything that you need. In fact, in this situation you may need to not give them anything, especially if you have to go into debt to give them the money.

Sometimes giving children money can also give them a bad attitude towards money. They feel that they can get money regularly without really doing a lot. If they think their parents are a source of money then they may keep asking them for more and more. This might even lead into adulthood and they might get to the point where they cannot manage without it. They may rely on parental handouts so much that when they stop getting them, they have no idea how to manage on their own.

You may think that a way around this is to get the children to earn the money that you give them by doing household chores. Many children will then refuse to do anything in the house unless they get paid for it. This can mean that when they have their own house, they will not want to do any of the cleaning or other chores because they are not getting paid to do so. It is important that they know that grown ups do not get paid for doing household chores and so they need to learn to do them regardless of being paid.

It can therefore be difficult to find a balance. How do you make sure that your children learn to manage money but they do not think that they will only work if they get paid for it? Perhaps limited money to gifts for birthday and Christmas could help. You could also make them do certain chores to earn their money but only on condition they do other chores when asked as well. It gets harder to negotiate about this when they are teenagers, so establish habits when they are younger and they will get used to things being done in a particular way. Explain everything too, why you are doing things in a certain way and this should help too.

Is it Worth Having a Holiday considering the Cost?

There are many people that have a holiday each year or every few years. Some people have them even more …

There are many people that have a holiday each year or every few years. Some people have them even more often. However, there are many people who do wonder whether having the holiday is worth the cost. Holidays do cost a lot of money and so it is worth considering whether it is worth spending this much money on a holiday when you might feel that it is just too expensive. It is well worth thinking about this decision and there are different aspects that you should consider.

Benefits of a holiday to you and the family

If you have a family, then you will be considering them as well as you when you are thinking about planning a holiday. You will need to think about whether they want or need one and why as well as whether this is the case for you. A holiday can provide an opportunity to get away form work and family life, it can therefore reduce stress for those people that find this stressful. It is also a chance to do things that you might not normally have the opportunities to do. It will also allow you to visit new places and to bond as a family. It can give the children some good memories as well.

However, there are people that find holidays more stressful. They find it difficult to manage when they are in a strange place, not knowing their way around and not having the facilities they would normally have. Children may not like being away from their computers and they may get bored, especially if the weather is not good. Families may not get on that well and they may find it hard having to be together for this time.

Alternatives to a holiday

Some people choose to not go away on holiday. They stay at home and have some relaxing time off work there instead. They might feel that they can really relax in their own home and having their hobbies close to them and being able to just enjoy their own luxuries suits them well.

Some people might decide to go on day trips locally. To visit local attractions, perhaps that they do not normally have the time to visit. They might enjoy some local walks, visiting local museums, galleries and other attractions. Even having the opportunity for a picnic in the park, a visit to the local library or a walk around the town could be something that they do not normally do.

Cost

Having day trips can cost money but often a holiday away will be more. Of course, there are different costs depending on what type of holiday you take. If you go to a local camp site and already have all of the camping equipment then this will be relatively cheap compared with a few weeks in Australia. It is wise to investigate the costs of different options as then you will be able to choose what you will be able to afford. It is good to think about whether you will be happy with something really cheap or whether you will be better off waiting to have something more expensive. This will very much depend on your expectations for a holiday and what you think will work for you.

Ways to raise the money

Once you have given some thought to what sort of holiday you want, you will have a better idea of how much money it will cost you. You will then need to think about how you are going to get the money. You need to consider whether you are going to try to save up for the holiday, borrow the money or use money that you already have. There are obviously advantages and disadvantages of each. Borrowing will cost more and you will need to make sure you can manage the repayments. If you save up you will have to wait for the holiday but it will cost you less. If you use your savings, you will need to save up again but you will need to holiday right away.

Should I get Contents Insurance?

Insuring our possessions is not something that we are required to do but there are a lot of people that …

Insuring our possessions is not something that we are required to do but there are a lot of people that do insure them. If you are not sure whether you want to do this then it is worth thinking about the advantages and disadvantages of doing so and this should help you to decide whether it will be a good idea for you to do it or not.

Advantages

If your possessions get destroyed in ruined then having insurance can help to cover the cost of replacing them. It will often cover for fire, theft, flooding and you can even opt for accidental damage cover as well. You will pay a premium each year or month and then if you need to, you can make a claim for the cost of repairing or replacing items. Insurance differs, so you will have to check what you will be specifically covered for. For example, you will normally have to pay the first bit of money towards the cost of the replacement or repair and this is an amount that will vary between insurers and you may even have some say in how much you want to pay, with a higher amount lowering your premium. Some might include accidental damage but some may have it as an extra that you have to pay more for. Some may include items when they are taken outside of the home and some may cover really expensive collectables.

Disadvantages

Insurance costs money. You will be paying out each month or year andso you will need to make sure that you can afford it. Although it can be useful and offer peace of mind, you may never make a claim on it. This means that you will be paying out all of that money without ever getting anything back. You may think that it is worth it, but you may feel that it is something that you just cannot afford.

If you do make a claim on the insurance, then your premium will go up. You will have to pay more money each month or year because you are seen as a higher risk to insure. It is assumed that if you make a claim, then that increases the chances that you will claim again so you are charged more. Also, the insurance company will want to make back some of the money they paid out to you when you claimed.

Some people will pay a lot more than others for insurance. This is partly to do with the area that they live. If they are considered to being in a property that is at high risk of flooding, being burgled etc then the premium will be a lot higher. This can feel unfair and it can mean that you may not even be able to afford the insurance premium at all. It could work out a lot cheaper to save the amount of money each month that you would be paying in a premium. Then if you need to replace or repair something then you could use the money you have saved. This is risky of course, as you may not save up enough money by the time you need to make a claim and then you could struggle. For example, if your possessions are all stolen when you have only made a couple of payments, then you will not have enough to pay to replace them. So, you will need to calculate whether you feel it is worth paying the premium or taking the risk. It is a very individual decision depending on how much of a risk taker you tend to be.

What is the Difference Between Fixed and Variable Mortgages?

Mortgages can be very confusing and many people use a financial advisor to help them when they are picking one, …

Mortgages can be very confusing and many people use a financial advisor to help them when they are picking one, especially for the first time. The advisor can also explain to them all about mortgages and the differences between them and this will help them to know what is the best option for them, However, you may not be able to afford a financial advisor or perhaps would rather do the research yourself. If this is the case then it is a good idea to get a basic understanding to build on. One good place to start is to understand the differences between fixed and variable rate mortgages.

Fixed rate mortgages

A fixed rate mortgage will usually have an interest rate fixed for a certain period of time. This could be a year, a few years or possibly five years. It is unlikely to be longer than that. The interest rate tends to be higher than the variable rate as the lender wants to cover the risk that the interest rates might increase.  However, they will be the same for the time stated, which means that you will be able to know exactly how much you will pay every month. If the rate falls, then you will not be able to take advantage of it as you will be tied into the fixed rate, however, if it rises you will be protected from that rise and not have to pay extra. If your mortgage costs are high and you are already concerned about affording them, it can be wise to protect yourself from rises in interest rates by fixing the amount that you are paying and this will enable you to not have to worry about taking any risks in that the amount you are paying will not go up. Some fixed rate mortgages will tie you in though. This means that you will not be able to swap to a different lender, or if you do there will be a big fee and even if you change to a difference type of mortgage offered by the same lender they may still charge you a fee. Sometimes the fee is extremely high and it could be wise to look into these before you take out the mortgage as they will vary between lenders.

Variable rate mortgages

A variable rate mortgage will change. This means that you will find that mortgage interest rate will change. It is likely that it will go up when the base rate goes up. The base rate is the rate that the Bank of England sets which is they rate that they lend at. They lend to banks and building societies so they will put your rates up as result. Most variable rates will go up at this time, but the lender can actually put the variable rates up at any time, so they may choose to do it even if there is not a base rate rise. If the rates go down, the rates you pay may not necessarily go down as a result. If your lender wants to be competitive and other lenders are putting their rates down then yours may be more likely to go down but there is no guarantee unless you have a tracker mortgage. A tracker will track the base rate and so the rates will change immediately that the base rate changes. This means that if the rates go down then you will start paying less. However, if the rates go up, you will start paying more. That is a risk, but it is unlikely a lender will not put their rates up when the base rate goes up. It is worth noting though, that a tracker mortgage will not just be the base rate that you pay, but you will usually pay a percentage on interest plus the base rate. You will need to look and decide whether you think this offers good value or not.