Sometimes more difficult than coming up with a business plan or idea for your small business, is obtaining the funding necessary to get your business up and running. Getting your business off the ground is the first hurdle, but even after the initial investment the capital required to keep your business running usually requires some time. Thankfully, today’s technology and resources allows for some creative ways to raise capital for your small business that does not require a traditional loan from a bank. [Read more...]
Oh no here come the financial concepts, time to clear the cob webs we are going to talk about derivatives. Want to sound smart at work today, drop the word derivative in some random sentences and wait for the looks you get.
This is how my wife fell in love with me. Except this was back in college and I was a Chemistry major at the time. I started dropping some names of the elements off the periodic table and the rest is history.
What is a derivative?
What does the word mean, let’s take the root, derive. Derive means to have origins in something else. The lakes name was derived from ancient Mayan mythology. With that said the derivative in the financial market is a security whose underlying asset determines the price. Fluctuations in the value of the underlying asset (stock, bonds, currencies, market indexes) determine the price of the derivative. You are betting whether you believe the price of the underlying asset will increase in price or decrease in price by a certain amount over a certain period of time. Generally speaking, a derivative is often very risky; if you are risk adverse you may want to proceed with caution.
Why derivatives and how are derivatives used?
The question is why not, they are used for speculative purposes; remember the name of the game is managing risk. Remember the other day when you were reading my article about Beta? Alright go take a look, I will wait for you! We are using the derivatives as a hedging maneuver to reduce the risk of our portfolio.
Types of Derivatives
The list is quite long for the list of derivatives; I could go on for weeks explaining all of these. Common types of derivative contracts are: forwards, futures, options, warrants, swaps which then is broken out into interest rate and currency swap. The title of the article is one of the varieties of the options.
Example of Derivatives
If you are still following along let’s take a look at an example: British company buying shares of (TTaTM) This That and The MBA off the NYSE using a stack of Benjamin Franklin’s! This company is exposed to fluctuations in exchange rates between the nations. To try to minimize the impact (hedge) of these flucations the British company would purchase currency futures. This is a maneuver to lock in a particular exchange rate for any potential sale of the underlying stock of TTaTM, and the currency conversion back into Euros, the currency to which the British company prepares its financial statements. That scenario we minimized the currency exchange rate fluctuations, if the British company wanted to invest in my company without the options contract they would be exposed to the volatility of my stock along with the volatility of the exchange rates.
Any questions class? What do you think? I know we are Personal Finance bloggers, but has anyone had the privilege of working with options contracts? Care to share a story or two?
PHOTO BY: fanz
While not directly related to personal finance, it can have big implications on your job search should you burn the bridges behind you. Let’s face it if you are looking for work and there are burnt bridges out there it can make it a little more difficult and that my friend will affect your finances…badabing! Let me share with you a little story of something that happened at work this past week.
Jerry was a happy employee of my company (1),his boss left the company to go work elsewhere. His boss contacts Jerry and recruits him to work there with him. Jerry obliges and accepts the job to work with his new boss at company (2). Jerry turns in his resignation and a competitor entered our market and Jerry is approached by company (3). Jerry decides after going back and forth with wage increases between company (2) & (3), that company (3) is the way to go. Jerry burned 2 bridges in this scenario.
Jerry burned his bridge at my company by leaving to go work with his former boss whom had recruited him and he also burned the bridge at his bosses company. Jerry leveraged companies 2 and 3 to increase his rate of pay for his own benefit. Jerry was pretty selfish.
I think that if Jerry had any kind of ethics when he put in his resignation to our company and notified company 2 that he had accepted the job, he should have upheld that allegiance and gone to work there. For that I cannot respect him as a professional in the industry that we work. Pretty stupid for Jerry considering the census for the area is less than 100,000.
I understand why he did it he wanted to go with a company who he saw was moving into the area and he would get to develop that market. I also appreciate the fact that he wanted to make the most money for his family.
Well I have news for him; he is a middle aged man and likely may change jobs again. This area is small and it could very well impact his future employment in this industry. So with that, the best of luck to you Jerry!!!!
You never want to burn a bridge that you don’t have to, sure we all have changed jobs at one time or another but you want to go out on your former employer’s good graces. Chances are that you will cross paths with your former employer at some point.
Mutual respect of yourself and your employer should be taught in the grade school system. This knowledge is essential to personal relationships. We can apply this same principle to friends, family, and any other group or organization you are part of. This will make parting much easier and can only benefit you in the future.
I don’t even know why something like this needed to be posted, but sometimes the obvious needs to be pointed out, eh Jerry? Don’t be Jerry! Part with your dignity and your head high, because you never know when you may need to call upon your former employer or colleague.
Do you know any Jerry’s? Have you ever burned a bridge? Ever had to go back after you burnt a bridge to try and salvage it? Go ahead, you can share!!
PHOTO BY: Idiom Savant
Now that I have your attention, you are probably scratching your head wondering why that would be on a personal finance website. Shame on you for thinking that!! What would your mother say? The word is in the news all over the world now. That magical word is BUDGET. The congressional budget, state budget, city budget, your personal budget, budget for that trip, some websites use that as part of their web address…this budget that budget… What in the world does the word budget even mean?
According to my good friends over at Merriam Webster here are the origins of budget:
Middle English bowgette, from Middle French bougette, diminutive of bouge leather bag, from Latin bulga, of Celtic origin; akin to Middle Irish bolg bag; akin to Old English belg bag. First known use: 15th Century.
Now that I read that I can understand what the word budget means, well can’t you? Think about it, budgeting in essence is using the available resources that you currently have, you can’t spend more than you make. Well you can, but it is frowned upon. A bag holding your instrument of trade could be seen as your bank or wallet holding your cash!
Lately, the wallet and bank of mine have been near empty up until February of this year when my wife started working. She was working probably harder before; she was at home taking care of our two little kiddies. (Cheeks if you are reading this and have made it this far in the article, I love you, sorry for the shameless plug for my wife)
Here is the modern day definition from Merriam Webster:
a : a statement of the financial position of an administration for a definite period of time based on estimates of expenditures during the period and proposals for financing them
b : a plan for the coordination of resources and expenditures
c : the amount of money that is available for, required for, or assigned to a particular purpose
Taking a few moments out of your hectic routine on a monthly or bimonthly basis can help you find hidden cash flow problems (money you are spending that you may not know that you are spending) and free up some cash to throw at your retirement or any other goals you have. Budgeting also helps you to set goals and gives you a target to work to. Working day in and day out can become monotonous as the weeks and months fly by we wonder what we have accomplished looking back. Well you are in luck, we can use the budget as a tool to show what we have accomplished.
Setting a family budget doesn’t have to be elaborate or be on a fancy spreadsheet. Write it on a napkin if you wish, but make sure that you stick to it. Speaking of that my wife and I need to sit down and straighten out our finances now that we have 3 different cash flows!
PHOTO BY: darek.zon
Well here it is the Five For Friday. Another week has come and gone and we continue to pump out the articles. It has had its share of ups and downs over there past month and a half, from late nights to early mornings. A lot of great comments and plenty of feedback received via email. Thank you and keep those suggestions coming. I really appreciate it. Here is what I have been reading this past week that has really kept my interest and even provoked some commenting.
Homeownership may not be for everyone but here are some lessons learned. Take a look at what Robert at My Multiple Incomes has to say. I just found this blog this week and it is great a must read!
A great blog that looks like it started close to when I started this ole boy is Broke Elizabeth. She talks about how great it is to lose weight, but there is a cost associated with losing weight. Now you can be faced with a personal finance dilemma of having to go out and get a new wardrobe. Could definitely be a budget buster!
Cash Flow Mantra discusses his strategy of using Covered Calls as a defensive strategy to declining stock prices.
Not really on the topic of finance but we can spin it into finance because ads generate revenue. Take a look at this little rant. Some of us go to sites for the content. Turning it into a big advertisement is going to dissuade us from visiting. Take a look at this blogging rant over at Balancing Money and Life.
Sometimes you just have to bite the bullet and spend some money. Here at Budgeting in the fun stuff they spent a grand in 24 hours. At least there was a tax deduction!
Be safe this weekend and I will see you bright and early Monday morning. Or you may find me trolling your site!