First we are taking up the revolving credit facility offered by credit cards. How many credit card holders carefully see it and know the financial consequences? May be around 50% card holders understand the implications at best. If the card holders have substantial bank deposits then theirs is considered as a faulty money management.
While bank deposits earn the depositor/ credit card holder a modest rate of 6-7% on their deposits the credit card company charges him in excess of 35% per annum on revolving credit. The best solution is break the fixed deposits and pay off the credit card dues. In fact do not ever take any card until and unless it is debited to oneâ€™s company account and specially taken for the purposes of sales promotion activities.
Now coming to equity purchases what if on the next day of your purchase the stock value comes down below the purchase price. There is no need for worry or panic. Small ups and downs on day today basis is a common feature of stocks. As an investor after making necessary study and analysis you must plan and allow a time frame for the equity to appreciate and increase in value. Ideally speaking it can be about 3 years or more but during the period you can monitor the performance of the company.
Even after careful spending you find it impossible to accumulate any wealth and bewildered what to do. One of the reasons people find it difficult to build wealth even though they believe they are no spending. This is because while they are careful about their larger expenditure they are not very diligent while making regular expenses such as buying groceries, clothes, movie tickets etc. Unfortunately if not controlled these smaller expenditures become hindrance to accumulation or building up of wealth.
Let us take the case of a consumer buying an LCD TV. He has identified 3 TVs one highly priced, the second medium priced and the third the lowest. If the consumer selects the highest priced TV thinking that it is of the best quality then he is wrong. The higher price may be on account of its brand name which offers psychological comfort to the buyer. Clearly if the consumer do not use his discretion and go for the highest priced one then he is paying more and thereby eroding part of his wealth.
When a stock is purchased the purchase price become the anchor for the investor based on the timing of the purchase. In other words the purchaser believes that the price at which he has purchased the stock is the appropriate price. The price movements alone above and below the purchase price are judged based on his price.
`This is a pre conceived notion. Just because the investor purchased the stock at a particular price it does not become the correct or accurate price for the purchase of that stock. When the investor does buy he tends to lose opportunity to grow his wealth. In this case it is possible the stock is worth buying additionally when he price falls or rises depending up on the circumstances and th companyâ€™s business prospects.