December 3rd, 2008 — Debt, Dividends, Leverage, Personal Finance
When most of us hear the word dividends, we think about the easy life, of lying around on the beach while earning an insane amount of money. The cold hard truth is a lot less pretty. Dividends can pay, but unless you’ve got a lot of money invested, your returns are going to be pretty small. Let’s take a cold hard look at dividends as well as some alternatives that can help you achieve your goals in less time.
First off, dividends are a very nice little income. But, it’s important to emphasize that “little.” If you’re planning to retire and live off them, you’re going to need to have a very large fund or you’re going to have to really cut costs. Look at this way. Let’s say you have a divided that returns 2% interest. In order to make a measly $12k a year, you’re going to have to invest more than $500k. Not many people can live on $12k a year, no matter where they are from.
While it certainly is possible to find higher paying dividends, the vast majority are in this range. So, unless you’re sitting on a $500k nest egg, you’re going to need to come up with another way to secure your financial future. One of the best ways to do this is to leverage your debt.
But wait, isn’t debt a hideous thing that should be avoided at all costs? Well, in the strictest sense of the term, and using the traditional logic, yes, debt is not a good thing at all. But, let’s look at it in a different light. There is such a thing as good debt, debt that actually works for you instead of running you into the ground. It’s time to rethink what you already know about debt and get ready to change your perceptions.
Bad debt is debt that you rack up buying inconsequential things. You get used to having nice things and you keep buying, even if you don’t really need anything. Before long, you’re in over your head and you’ve got nothing to show for all of that debt. This is the most common kind of debt and the reason that it has earned such a bad reputation.
Now, let’s look at good debt. Good debt is money that you spend that will create returns for you. By using debt to make smart investments instead of silly purchases, you can start creating multiple streams of income. This is a lot better than buying stuff that you don’t even need. One of the most common types of good debt is a mortgage. Most of us don’t have the resources to go out and buy a house with cash, we need to go into debt to get it. But, it’s incredibly worthwhile and usually necessary.
Good debt can be leveraged in many different ways. You can use it to purchase investments and bonds that will help you secure your current income. You can use it to take advantage of new opportunities that will create solid streams of income. In a nutshell, good debt works for you by allowing you to start investing in your future.
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December 3rd, 2008 — Debt, Income Streams, Investing, Personal Finance, bad debt, good debt
While most of us get the general principle that we need to go into debt if we want to build up our credit, it’s tough to know exactly how far you should go. When you’re first starting out, it’s all too easy to get buried in bad debts that run into tens of thousands of dollars and it can take years to undo the damage that has been done. However, there are some simple rules of thumb that you can follow to help you determine how much debt you can safely use and what you’ll need to avoid in order to stay on top.
First, it’s important to understand the difference between bad debt and good debt. Yes, there actually is “good” debt, but you’ll need to be smart about your choices. Good debt is debt that can be leveraged to create income for you. Bad debt is the kind of debt that happens when you overspend on frivolous things that won’t make any sort of return. It’s perfectly fine to go into good debt, and in fact, most of the world’s millionaires have used this very technique to get where they are today.
Why is there such a disparity between these millionaires and the average American that’s trying to figure out how to make ends meet? The key is in how they use their debts. While there are exceptions to the rule, most business people don’t run out and blow a loan on the latest this or that. They use that loan to make an investment to create another stream of steady income. Over time, you can build up multiple income streams using this technique and you can end up making more money with these than you can with your old job.
The average American however may not know this. They’ve been trained to overspend, to run out and blow their paychecks on the latest clothes or electronics. All the time they’re spending, the interest rate charges are piling up and they’re getting deeper and deeper into debt. At the end of the day, a shirt may look nice, but it’s certainly not going to secure your future.
So, how do you know how much debt you can comfortably go into? If you’ve already established that your going to use that money wisely on new opportunities to create more income, you’ve got a little more wiggle room. It’s a good rule of thumb to use your salary as a guide as to how much debt you can comfortably handle. At first, try not to exceed three months of your current salary. This will help you learn the ropes and you won’t have the risks of getting in over your head.
As you start to make money from your multiple streams of income, you can invest this back into making more money or you can just pay off the old loan and get a new one to keep the process going. Never go into debt for the wrong reasons – and never let your debt get out of control.
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November 26th, 2008 — Debt, Personal Finance, bad debt, credit cards, loans
If you’re swimming in a sea of debt and trying to figure out how to keep your head above the water, one of the easiest ways is to consolidate. However, the actual process of consolidation can be confusing and it is all too easy to make mistakes that will end up costing you both now, and in the long term. If you are ready to reduce your bad debt, here are some great debt consolidation tips to get you started.
1. Avoid paid services.
We can’t stress enough that anyone who expects you to pay extra money to have your debts consolidated should be avoided at all costs. Many of these services are actually quite expensive and their results are quite low. There are numerous non-profit debt consolidation services out there that won’t charge you a dime to help you with your debt. These services are a much better solution and can actually be more effective at reducing your overall debt load.
2. Think before getting a consolidation loan.
It’s natural to just go to your bank and sign up for a loan in order to pay off all of your debts. However, you’ll need to carefully read the terms of the loan and do a little thinking before jumping to this conclusion. Depending on the terms, you could end up spending more on interest and it may take you even longer to get out of debt. For example, the payments on a long term debt consolidation loan may be lower, but over time, you’ll be spending thousands extra on interest payments.
3. Read card transfer deals carefully.
Another common solution for many when consolidating their debts is to simply transfer all of their high balances into one card. This is usually done during a zero percent interest offer. However, you will need to carefully read the terms on these offers before you take advantage of them. Many will have stipulations that transferred balances are not eligible for no interest, while others will increase your interest rate ten fold after six months. Always read the fine print and do some calculations to see if you really will be saving money.
When it comes to consolidating your debt, you’ve got to think long and hard about the choices you make. Yes, it is vital to pay off that bad debt and start freeing up your income so that it can work for you, but jumping to the wrong conclusion may have lasting consequences. Try to look at several avenues for debt consolidation before you jump and get the help of a trusted financial advisor to help you along the way.
If you are careful and practice smart debt consolidation techniques, chances are you’ll be able to pay off that debt in much less time and you’ll be saving money, now and in the future. Take the time to go through your options carefully and you’ll find that debt consolidation is much easier and much less expensive over the long term.
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November 24th, 2008 — Bankruptcy, Debt, Personal Finance, Stocks, credit score
This really sounds like the ultimate oxymoron, but one of the best ways to get out of debt is to go a little bit further in. What’s that? First, to help this make more sense, let’s clarify – if you need to get out of bad debt, going into good debt will help you pay off those credit cards and make more money. It’s important to understand that there is a huge difference between good debt and bad debt. Going into good debt has some risks, but when managed correctly, you can end up making enough money to quit your job, pay off your bills and save for retirement.
Let’s take a look at one example of how going into good debt can get you out of bad debt. For this example, let’s say that we have a person who has $10,000 in credit card debt. They’re overextended with too many cards and paying way too much interest. It’s getting harder and harder to make those monthly minimum payments and it seems as though it will take decades to get out of this mess.
Instead of declaring bankruptcy and just giving up, let’s say that this person goes and gets a loan for $2000. Since their credit is still pretty much intact, this isn’t an issue. They take than $2000 and invest it into ten shares of a stock that sold for $200 a piece. Within the first month, the price of that stock triples. They now have $6000 and it’s only been one month. They take $2000 out of that amount to pay off the loan, and are left with $4000.
Over the next month, the stock once again goes up. That $4000 is now $8000. The person cashes out the stock, pays down their credit cards and is left with a manageable $2000 in debt. Why not pay it all off? The secret to great credit is leaving some debt that you continue to make payments on – this builds up your credit score. In two months, the person was able to go from $10000 in debt to paying off all but a small portion of it.
Compare that to getting a consolidation loan. In two months, the person would not have made a dent in what they owed. If the stock market isn’t your thing however, there are many other ways that you can use good debt as leverage to create multiple streams of income. Whether you deposit it in a high interest bank, buy a CD or purchase a rental property, a leveraged loan can help you get out of debt much faster than a consolidation loan.
The key is picking the right opportunities and managing your money. Once you’ve paid down your bad debt, keep using good debt to create more income streams. This is the secret that thousands of millionaires use every year to keep bringing in tons of cash and it will work the same for you.
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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 19th, 2008 — Diversification, Income Streams, Money, Personal Finance
Every single one of us would be thrilled to have more money coming into our homes every month. If you’re relying on one or two paychecks as the primary earnings for your income, you can relate that it’s pretty tough to get ahead. Everyday expenses chip away at our standard incomes and unless you manage to get a big promotion, chances are you’re going to be treading water for a long time to come.
How about, instead of just your regular paycheck, you were able to have several different income streams every month? That sounds pretty good, right? The main problem for many people is that they don’t have enough money to make new money. That old adage is more true than ever and if you don’t happen to be independently wealthy, it can seem as though you’re never going to break that cycle of living paycheck to paycheck and get ahead.
However, there is a very smart way that absolutely everyone can use to start making more money. While most of us are familiar with how debt works, it has gained a pretty bad reputation. We tend to look at debt as though it is an evil thing, and something that should be avoided at all costs. While this is true to some extent, especially if you are using your debt in the wrong way, there is a form of debt that is actually quite beneficial.
Good debt is debt that you leverage to create something. Bad debt is money you spend on credit for things that are completely useless. Let’s look at this way. You can go into debt to invest in a business or a stock, and then have it return your original investment ten fold, or you can go into debt to buy a flat screen television that is never going to do anything more than provide entertainment and collect dust. This is the main difference between bad and good debt.
Debt, when managed properly, is the key for many of us that want to make more money. Even the richest people on earth had to start somewhere. The best stories of the self made entrepreneurs always include the part where they had to get a loan, either from the bank or a friend, to invest in something they believed in. Years later that debt paid off big time in the form of millions of dollars. This exact same technique will work for anyone, provided you make smart investments and don’t overextend yourself initially.
To recap, debt is not necessarily the root of all evils, unless it is improperly managed. If you’re using debt to buy things you really don’t need, then yes, it’s going to be a problem if you overspend. However, if you are leveraging that debt into investments and opportunities that will create new streams of income, you are getting the benefits that so many entrepreneurs have already reaped to get where they are today.
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November 18th, 2008 — Debt, Diversification, Financial Security, Income Streams, Leverage, Money, Personal Finance, Stocks, credit cards
Many of us have the wrong idea when it comes to debt. After years of being told that it is a bad thing and should be avoided, most of us never want to get into the problem of having to deal with debt. Millions more are in over their heads with bad debt and facing the consequences. However, there are ways that you can actually use debt to improve your credit.
The is a good kind of debt that everyone can use. This is the kind of debt that you use to secure your future, not the purchase of something you really don’t need. Instead of going into hock over the latest and greatest gadgets, you can go into debt as a way of leveraging it to create more money and thereby, improving your overall credit rating.
Let’s go back to when you first tried to get your credit cards. It was probably pretty frustrating, since you have to have a little debt if you’re going to get any new company to give you a chance. You’ve got to have a track record so that the company feels secure lending you more money. This is the best lesson you can have when it comes to debt. A little debt, properly managed, improves your credit rating. Bad debt, improperly managed will ruin it.
In order to make more money, you’re going to have to spend more. This doesn’t mean blowing your money on useless things. This means spending money on stocks or new opportunities that are going to pay off in the future. Since most of us don’t have a lot of excess cash buried in the back yard, this means that we’re going to have to go into debt to start making more money.
If there is one thing that most self starter stories have in common, it’s the fact that in order to get their big break, the entrepreneur had to get a loan from the bank or even a friend. They had to go into debt in order to be successful. Even if you’re dealing with your personal finances, you’ve got to look at them as though you are a business. You need to make those smart decisions that will create more income for you both now and in the future.
The proper use and leveraging of debt can turn you into a millionaire. It probably won’t happen overnight, unless you luck upon a stellar opportunity, but with time and patience, that leverage debt is going to return much more to you than any gadget ever could. It’s going to return your financial future and it will look a lot better than you ever though possible.
Debt doesn’t have to be bad, but it does need to be managed properly. Before you get involved in using debt for new opportunities, it is a good idea to make sure that you have at least a working knowledge of good financial practices.
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November 18th, 2008 — Budget, Debt, Diversification, Leverage, Money, Wealth, bad debt, good debt
On the surface, this seems like an oxymoron. How could you possibly use debt to create more money? It actually isn’t an oxymoron, but you’re going to need to change your perception of debt and classify into two different categories for this to make sense. There are many ways that going into debt can actually end up securing your future, just as there are many ways that going into debt will ruin your future. Let’s look at both to discover how to turn your debt into wealth.
First, let’s discuss the kind of debt that you are probably most familiar with. Bad debt is the kind of debt that most of us get into after overspending on things that we really don’t need. It’s easy to get caught up in commercialism and want to have all the things that we think we deserve. Many of try to live like millionaires on a small percentage of their budget. With poor management, debt quickly grows out of control and before long, we find out that we are in way over our heads. Bad debt is very common, especially among people who are just starting out and have yet to learn this very valuable lesson.
The second kind of debt is much different. This is the kind of debt that you use to invest in something. The first kind of good debt you’ll probably get into is your home. While it really doesn’t have many measurable returns, unless the property value increases, it does have emotional returns and serves as a good lesson in how using debt can help you get better off in the long run. Think of this as an introduction in how to use debt to grow wealth.
There are many ways that you can leverage your debt to start creating alternative streams of income. For example, let’s say that you are living paycheck to paycheck and you have the opportunity to invest in a stock that is destined for greatness. You may have a couple of bucks put aside, but it’s barely enough to buy one share. You can let this opportunity pass you by, or you can leverage debt to help you take advantage of this future stream of income.
What’s better – going into a little debt to reap big returns or spending the rest of your life wishing that you had the money way back when before that stock took off? Managed properly and used for the right reasons, debt is a very powerful tool. If you want to make money, you are going to have to have money. Unless you came into this world with a silver spoon and a trust fund, chances are you don’t have a lot of it just sitting around. That doesn’t mean that you can’t become wealthy.
By leveraging debt and using it well, you can easily achieve your dreams of greatness. Just make sure that you don’t overextend yourself or make bad decisions.
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November 16th, 2008 — Debt, Money, Mortgage, Personal Finance, bad debt, credit cards, good debt
When you see the word debt, undoubtedly the first thing that pops into your mind is a credit car bill or a car payment. For many, debt means a mortgage or other high dollar expenditures. However, there are two main forms of debt and they are very different from one another. You cannot paint them with the same brush since they are fundamentally different at their various cores. In order to better understand debt, let’s take a look at these types and discover how debt can actually be good for you, when managed properly.
Bad Debt – This is the kind of debt that most of us are familiar with. You start out in life with a boat load of student loans, and most likely a few credit cars. Pretty soon you’ve got a car payment and later a house payment. You’ve got all of these expenditures weighing on you and they add up very quickly. The interest payments make it hard to get ahead and before you know it, you may be in well over your head. At this point, most people strive to get out of debt anyway possible and start researching opportunities to consolidate their debts to make it easier to pay them all of.
This is referred to as bad debt because it works against you. The only exception would be a mortgage, since this is actually something that is going towards building your future. Bad debt is the kind of debt that results from overspending on things you really don’t need – things that can never provide you with any sort of return. Spend too much on these frivolous items and you’ve got quite a problem on your hands.
Good Debt – This is a completely kind of debt. Good debt is commonly referred to as leverage. This refers to the fact that you are going into debt in order to make more money for yourself in the future. Case in point, let’s say that you have the opportunity to invest in a new business. This business is forecast to produce $250k a year for the next ten years. It will cost you $25k to get in to the opportunity, but you don’t have that kind of cash just lying around.
You can get a loan for that $25k and turn it around to the tune of 10 times your original investment. This is good debt – the kind of debt that works for you. By using your debt to leverage multiple streams of income, you can have even greater results. The key is figuring out the kind of returns you want to get and how far you’re willing to leverage that debt.
In the right hands and with the right techniques, debt is a very powerful tool that can help you make more money, not less. When handled incorrectly, debt is nothing more than an albatross that will bog you down financially. Good debt is something that will free you from financial worries.
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October 20th, 2008 — Debt, Goal, Long Term, Personal Finance, good debt
While no one can look into a crystal ball and determine where they will be financially in twenty, thirty or forty years, there are some early warning signs that may indicate that the future might be a bit gloomy. The key to successfully preparing for your future is to avoid known behaviors that can be disastrous to your finances. Here are some of the warning signs that you need to look out for if you want to make sure that your financial future is safe, secure and happy.
1. How willing to go into debt are you?
There are two answers to this question, and only one of them is correct. If you are willing to use your credit card for any old thing, or you have a problem keeping your balances down, this is a sign that you may be overly willing to go into bad debt. Bad debt can take many forms, from getting a house that is too expensive to maintain, to buying a car that is over priced. Anytime you are willing to go into debt for something that will never end up paying you back, you are running a financial risk.
On the flip side of this equation, if you are willing to go into good debt, then your financial future may look quite different. Put simply, good debt is the kind of investment that will produce a return for you, whether it is in monthly payments, such as with a rental property, or long term benefits such as a regular investment. Being willing to go into good debt, and taking the time to make sure you are making a solid investment with that debt can have a very big impact on your financial future.
2. You consistently overspend.
This is a major warning sign that may indicate severe trouble in the future. If you simply cannot hold back and find yourself spending more than you earn month after month, it will add up. Whether it’s overspending on credit cards, or simply failing to notice your cash flow problem, this is a problem that has lasting consequences.
3. You have no financial goals.
This is a sign that you may not be taking your financial future as serious as you could be. Having short term and long term financial goals can help you create a better mindset about your finances. When you are working towards that goal, it’s a lot more edifying to reach it. People that take the time to actively set financial goals and actively work towards achieving them will usually have a much brighter financial future than those that do not.
Your financial future doesn’t have to be gloomy, and it doesn’t have to be set in stone. By taking the time to review your spending habits, and how you view money, you can put into action the events that will change the course of your financial future and may even fix what went wrong in your financial past.
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