Fixed-Income Investments

Fixed income refers to any type of investment that yields a regular (or fixed) return.

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Passive Income and Financial Freedom

Passive Income:

Passive income is a rent received on a regular basis, with little effort required to maintain it. Don't work for money, make money work for you.

Passive Income and Financial Freedom:

Passive income is our key to financial freedom. The more passive income we generate, the less dependent we are on our job. At one point, when our passive income exceeds our expenses, we can stop working anytime we want and still live the lifestyle we desire. That is financial freedom.

Passive Income Examples:

• Earnings from a business that does not require direct involvement from the owner or merchant;
• Rental from property;
• Royalties from publishing a book or from licensing a patent or other form of intellectual property;
• Earnings from internet advertisements on websites;
• Residual income, repeated regular income earned by a sales person, generated from the payment of a product or service, that must be renewed on a regular basis in order to continue receiving its benefits;
• Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income.
• Build a Web Business
• 
  

References:

• http://notbythehour.com/Websites/freelance/Files/Content/72607/notbythehour.pdf
• http://www.sugarpinerealty.com/shared/fs/0070/007000011/Cycle_of_wealth.pdf
• http://zenhabits.net/2007/06/automate-your-income-to-simplify-your-life/
• http://www.lifeoptimizer.org/2008/01/07/two-simple-but-powerful-rules-to-achieve-financial-freedom/
• http://www.thesimpledollar.com/2007/04/03/the-simple-dollar-on-passive-income/
• http://geniustypes.com/five_ways_to_create_passive_income_with_little_or_no_money/
• http://geniustypes.com/passive_income_strategies/
• http://www.moolanomy.com/348/building-diversifying-and-shifting-your-income-streams/
• http://www.stevepavlina.com/blog/2006/05/how-to-make-money-from-your-blog/
• http://www.doshdosh.com/websites-you-can-create-for-profit/
• http://www.stevepavlina.com/podcasts/Pavlina-009-Kick-Start-Your-Own-Business.mp3
• http://entrepreneurs.about.com/od/gettingstarted/a/passiveincome.htm

What is Bad Debt?

Accounts receivable that will likely remain uncollectable and will be written off.

Bad debts appear as an expense on the company's income statement, thus reducing net income.

In general, companies make an estimate of bad debt expenses that might be incurred in the current time period based on past records as part of the process of estimating earnings.

Most companies make a bad debt allowance since it is unlikely that all of their debtors will pay them in full.

http://www.investopedia.com/terms/b/baddebt.asp

http://moneyterms.co.uk/bad-debt/

What is Gross Salary?

This is the gross salary you receive for the financial year (1st April - 31st March) before any tax is deducted. It also excludes any extra payments you may receive including:

• Expense reimbursements
• Bonus payments
• Payment of working over normal hours

More:

http://en.wikipedia.org/wiki/Gross_income

Understanding How Your Net Salary is Calculated

How your Net Salary is calculated?

Net Pay = Gross Pay - NIC - Income Tax

Out of your gross salary, 2 payments will be deducted:

• Income Tax
• NIC (National Insurance Contribution): contributed by employee and employer

How Income Tax is calculated?

Based on the rates of 2009-2010:

• Earning up to £6,475: No tax! (Personal Allowance)
• Earning between £6,475 and £43,875: 20% tax
• Earning £43, 875 and above: 40% tax

How NIC is calculated?

Based on the rates of 2009-2010:

• Earning between £5,720 and £43,888: 11% (Employee Rate)
• Earning above £43,888: 1% (Employee Rate)
• Earning above £5,720): 12.8% (Employer Rate)

Example1:

So imagine your gross salary is £10,000, so your NIC would be:

Employee NIC: 11% * (£10,000 - £5,720) = £471

Employer NIC: 12.8% * (£10,000 - £5,720) = £548

Income Tax: 0 + 20% * (£43,875 - £6,475) + 40% * (£50,000 - £43,875) = £9,930

Net = £10,000 - NIC - Income Tax = £8,824

Example2:

So imagine your gross salary is £50,000, so your NIC would be:

Employee NIC: 11% * (£43,888 - £5,720) + 1% * ( £50,000 - £43,888) = £4,260

Employer NIC: 12.8% * (£50,000 - £5,720) = £5,668

Income Tax: 0 + 20% * (£43,875 - £6,475) + 40% * (£50,000 - £43,875) = £9,930

Net = £50,000 - NIC - Income Tax = £35, 810

More:

http://www.i-resign.com/uk/financialcentre/tax_calculator.asp

http://www.worksmart.org.uk/tools/tax_calc.php

White-Label Product or Service

A white label product or service is a product or service produced by one company (the producer) that other companies (the marketers) rebrand to make it appear as if they made it.

So if you just know what Companies produce what products or provide what services, you could start a business providing their products and services and just rebranded or with a different appearance. Of course you need a contract with the original producer as well.

The producer Company would often be happy to provide you this because obviously their sale and revenue will be increased.

Therefore, we now understand the concept of:

• White Label Music
• White Label Clothing
• White Label Food
• White Label Software
• White Label Seed
• ...

Nominal APR and Effective APR (EAR)

These are about how much interest you have to pay when you get a loan or overdraft:

http://en.wikipedia.org/wiki/Annual_percentage_rate

AER is a compounded interest and that's the real interest that you finally pay.

Example:

For example, imagine you have a Current Plus account from NatWest and you are allowed to have an overdraft of up to £2000. You use £1000 of your overdraft on 1/1/2009. If you don't pay anything back monthly because the AER is %19.24, according to this site, after 1 year what you have to pay back is 1,192.4 (base + base * 19.24 / 100). This amount is your new base and any further payment is calculated based on that so

If you don't pay back anything after 2 years your debt is:

1,192.4 + 1,192.4 * 19.24 / 100 = 1,421.82

After 3 years your debt is:

1,421.82 + 1,421.82 * 19.24 / 100 = 1,695.38

After 4 years your debt is:

1,695.38 + 1,695.38 * 19.24 / 100 = 2021.57

As you can see after 4 years time, your debt has been doubled. Also you have exceeded your overdraft limit, so you will be charged for that too and the debt can easy reach to a higher amount.

So, be careful of your debts and know well how they are calculated.

Bank's Profit:

On the other hand, if you have saved £1000 in your NatWest bank account and haven't touched it for 1 year, the net interest bank pays you is %0.08, according to this site, which means after 1 year you will have £1000.80.

As you can see for a £1000, Bank sells it for £194.20 a year whereas it buys it for only 80 pence; So much profit!

If you see it for longer periods the profits will be much larger.

When Government lowers the interest rate, one immediate consequence of that is that they want to help the banks make more profits essentially.

The worth of your money

Another interesting point I want to make is that Your £1000 in 2009 isn't worth the same in 2010 simply because of the inflation rate. Assuming the inflation rate is %5 per year then your £1000 in 2009 is worth £950 in 2010.

What I mean is that if you have saved money in bank hoping to get some interest then you're making your bank richer and yourself poorer.

Think more to find a better alternative.