November 20th, 2008 — Debt, Money, Personal Finance, bad debt, credit cards
The average American is currently carrying at least some form of debt, even if it is small. We live in a society where overspending is common and credit card debt has become a right of passage. In many cases, you need to be in debt in order to start building your credit history. Without this, it is hard to get a house or even a car. But the question is – how much debt is too much?
When you are first starting out, you may have a lot of student loans and this further compounds the problem. Ideally, the average person should limit their debt to three times their currently monthly salary. However, this may not be possible in many situations. There are some things that we cannot help but go into debt for, such as a car or school, but there are certain kinds of debt that you can avoid.
The key is figuring out the difference between good debt and bad debt. Good debt is hard to have too much of in most cases, especially if you are putting it to work for you. Bad debt is very easy to rack up, and can be hard to pay off. This should be the smallest part of your debts. So, what is good debt and what is bad debt?
Good debt is money that you spend on something that will give you some sort of return. For example, your student loans are good debt, since they were used to further your education and help you earn a larger salary. A car loan straddles the fence, but it is a necessity, so for the sake of argument, we’ll put this in the good debt column. A home loan is also a good debt as long as you do not overbuy.
Bad debt is debt that does nothing but cost you money. Credit card debt is the best example of this, especially when your cards are used to purchase non essentials. You can look at bad debt as something that will never have any sort of return. A $400 shirt may look nice, but it’s never going to do anything but cost you more money, ie: dry cleaning. In fact, there’s a huge risk that it will even end up being ruined and all that money will go out the door.
It is also important to remove emotional attachment from the concept of bad debt. It is easy to say, but I love that shirt and I wear it all the time. The bottom line is, it is doing nothing for your bottom line, and as such, it is bad debt.
Good debt also includes what is known as leveraged debt. This is a type of debt that you use to create another income stream. Examples of this include investments or dividends that are constantly paying you back. This kind of debt is very good indeed and will only serve to enrich you. While you should never get in over your head with any kind of debt, good debt is a lot easier to handle.
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November 15th, 2008 — Budget, Debt, Investing, Leverage, Personal Finance
If you want to start making money, you’ve got to stop looking at your finances like a regular person and start treating your checkbook like you work for the bank. This is the key towards successful management of your finances and will help you grow your current income and create more streams of income at the same time. By getting the right mindset in place, you can easily start making more money and get on the road to financial independence.
In the event that you’re not good with managing your own money, it’s definitely time to take a crash course in good debt management principles. Remember, you’re going to need a little bit of debt to build up your credit and if you want to get ahead and make more money, you’re going to need to leverage that debt properly. The first place to start is to make a budget and force yourself to keep it. Put aside enough money every month to pay your bills so that you can keep your finances running smoothly.
A banker looks at things a bit differently than the average person. They are all about returns – and making more money. Bankers want money to go to work instead of sitting there collecting dust. If you want to start managing your money effectively, you’re going to need to adopt this mindset. Instead of thinking, “cool, I’ve got an extra $500 I can blow,” start thinking, “How am I going to invest that $500 so it becomes $1000?”
After all, who wants to settle for a little money, when you could be making a lot of money? The next step towards thinking like a banker is understanding risk. All banks take risks every single day and while some are more conservative, other recognize that in some cases, big risks have big payoffs. The key is knowing how to read an opportunity and knowing how to take advantage of it.
Let’s say that you’ve got a chance to get in on a stock that is bargain basement priced, but has the potential to quickly take off. You don’t have a lot of spare cash on hand. In this situation, a banker would go to the board and get a loan in order to get in on the opportunity. You need to do the same thing. Once you’ve determined how risky the investment is, and come to the conclusion that if it does fail you won’t be ruined, go out and get that loan to take advantage of it!
Bankers also know that the bottom line is essential. They don’t run around overspending your money, so why should you? Never get into debt over your head and curb your spending habits so that they’re in line with your income, not your desires. By thinking like a banker, you’ll be able to turn your finances around and start seeing some amazing returns in a very short time. Give it a try and see what kind of a difference it makes.
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November 12th, 2008 — Diversification, Financial Security, Income Streams, Investing, Money, Personal Finance, accountant
The average person usually tries to struggle with their finances year after year and only visits an accountant a few days before their taxes are due. By this point, it’s up to the accountant to try to piece everything together and they won’t be able to offer much help when it comes to managing your money. The fact is, most of us could use the help of an accountant or a financial planner. The question is – do you NEED one?
Let’s take a look at a few scenarios that answer this question. Accountants and financial planners definitely serve a purpose but they may not be necessary if you already have a good grasp of solid financial techniques. But, before we go any further, let’s get to the scenarios.
Scenario #1 –
You’re just starting out on your own. By this point in your life, you’ve got a new job, a boat load of student loans and your whole life is years away, right? Wrong! If you don’t have a basic grasp of good financial practices, this is the worst time of your life to sit idly by. An accountant or a financial planner is incredibly helpful during this stage in your life and can start you on the path towards financial independence. If you have trouble balancing a checkbook let alone planning for the future, there really is no question – you need an accountant.
Scenario #2 –
You want to get into investing, but you’re really not sure how to get started. Many people make the mistake of hooking up with a broker that may not have their best interests in mind. You would be better served by visiting a financial planner or an accountant that specializes in handling investments to get an idea of where you need to start and where you want to end up in a few years. By taking the right step at this juncture in your life you can save yourself a lot of heartache and financial woes.
Scenario #3 –
You already have multiple streams of income coming in and you’re pretty much a whiz at finances. In this case, you may not need an accountant, since you’re already capable of handling most things. However, you may want to seek out a financial planner to determine whether or not you’re missing out on some opportunities that could increase your wealth further. If you have not yet diversified, this is a very important step to take. We still recommend using a certified accountant for tax preparation, even if you are a whiz at finances, simply because they have more experience in handling the complex US tax code.
Scenario #4 –
Finance???? I’m lucky to have money by the end of the month! If you’re just getting by, you may not be able to afford an accountant just yet, but you definitely need some help. Your best bet is to visit your local library and start reading everything you can about the art of managing your money. This will help you start out on the right path until you can afford to get an accountant to help you.
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September 19th, 2008 — Book Review, Money, Personal Finance, Wealth
There are so many personal finance books out there and most seem to fall into one of two categories – Get rich insanely quick or get frugal to turn your life around. For those of us that want a more solid and easy to accomplish means of developing a personal fortune, there are not a lot of options. However, The Quiet Millionaire showed a lot of promise when we first spotted it and we were truly surprised by this book.
Unlike the aforementioned books, the main premise of this one is that the average person can become a millionaire, and it won’t take hot stock picks or living a life eating out of dented cans. Rather, the author, a personal and business finance expert, asserts that by making the right choices and avoiding common traps, anyone can become a millionaire.
While we are not quite sure that this is entirely possible, there are many cases on record of janitors that socked away millions and people you’d never expect that are worth more than half the town. How do they do it? This book gives you the blue prints you need to become a quiet millionaire in your own right. Even if you don’t quite make it, you’ll still be better off financially after employing this sound techniques.
The author focuses on the seven major problems that can prevent you from becoming wealthy, and then supplies advice on how to beat these problems and secure your future. From uncontrolled spending to handling life altering events, this book contains the information you need to know to get control of your finances.
He really focused on the importance of cash flow, and having more than one income if at all possible. He details investments that are lower in risk, but provide a steady stream of income that will keep adding up. The section on tax advice was worth the cost of the entire book and there are tips in here that every single person can begin implementing to save a lot of money every year on taxes alone.
This book is not fluffy, and it is not for those that want to “get rich quick.” It is for those that are interested in substantial, real world financial advice that will pay off.
By far, this is one of the best books on personal finance that we have ever read. Instead of focusing on hot topics that sell books but rarely satisfy the reader, the author did a great job of presenting a common sense plan to amassing your own fortune. We found every piece of advice in this book to be sound and highly recommend it to anyone. From the teen just starting to manage their finances to the retiree, this book contains vital information that can change your financial outlook. We highly recommend it and hope that more people will take the time to implement these principles in their lives. Chances are, they’ll be richer for it.
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August 6th, 2008 — Diversification, Financial Security, Income Streams, Investing, Long Term, Money, Personal Finance, Standard of Living, passive income, retirement
One of the hottest concepts right now is the premise of creating multiple streams of income. While everyone wouldn’t mind making a little extra cash, there are even more benefits that can be reaped from having more than one source of income. Let’s go over just a few of them.
1. Help save for retirement.
The average person needs to have more than $500k put aside for their retirement in order to live in comfort and without worries. Unless you have a job that pays incredibly well, this is going to be a pretty daunting task. You cannot rely on social security payments to secure your future. Whether you’re 25 or 55, it is never too early or to late to put aside money for your retirement. Unless the thought of working until you drop dead appeals to you, you’re going to have to find ways to supplement your current income.
Multiple income streams can be incredibly beneficial not only for retirement planning, but later in life. Smart investments will continue to reap rewards for many years to come and you’ll have that nice supplemental income that will make your life easier far past the retirement age. A good concept to try to is put all of your multiple income streams into a high interest account to make even more money for your future.
2. Layoffs and downsizings happen every day.
No matter how secure you think your job is, there are still chances that you could get laid off. There are very few guaranteed jobs in this world that provide lifelong security. If you are relying solely on the income for your job to pay your bills and make ends meet, you are literally one paycheck away from financial ruin.
It’s a stark reality that all of us face. However, if you have multiple streams of income coming in, you won’t have to worry so much. You’ll have a cushion that will tide you over if you do get laid off or lose your job. In some cases, lucrative streams may even replace the need for your job entirely.
3. Accidents happen.
Even if you have insurance – what would happen if you were injured today and no longer able to work. Could you pay your bills? This happens to thousands of people every year and they risk losing their homes, bankruptcy proceedings and worse. By having that extra cushion with several different streams of income, you are reducing your reliance and making sure that no matter what happens, you’ll be ready to face it.
If you don’t have health insurance, it’s even more vital to have steady streams of income coming in each month. You may be the picture of health right now, but what if you get hit by a bus on the way to work tomorrow? Unless you have thousands of dollars in savings, the answer isn’t pretty. Even if you do have a savings account do you really want to use it for that? What will happen when it runs out? The best kind of insurance you can have is a steady stream of extra income.
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