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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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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