November 21st, 2008 — Debt, Leverage, Money, Personal Finance, Stocks, Wealth
How many stories have we all heard about the entrepreneur that came to America with five cents and turned it into an empire? It’s stories like this that make us long for a piece of that American dream. We all wish that we could turn our nickels into big money, but most of us don’t know how to do it. The secret is using debt wisely to leverage more income producing streams. No one can turn five cents into five million dollars overnight, but by taking chances and finding ways to use debt smartly, you can become financially independent, just like the entrepreneurs of old.
The thread that binds all of these success stories together is that somewhere along the way, these entrepreneurs had to go into debt to make more money. Unless you’re Rumplestiltskin and know a way to spin straw into gold, you’re going to have to start taking chances. While it’s perfectly acceptable to put money aside every month or even put it into an interest bearing account, you’re going to nickel and dime yourself for years. You might be able to put aside a nice little nest egg, but what if you want to become really wealthy?
In order to accomplish that, you’re going to have to extend what you already have. It’s pretty frustrating to look at your checkbook and see the cold hard truth that your dreams of wealth are not panning out. It’s even tougher to spot a great opportunity, like a hot stock, and not have enough money to take advantage of it. However, there are ways that you can take advantage of that opportunity, even if you don’t have a lot of money in the bank.
Let’s say that you have the chance to purchase some shares right now. You don’t have the money on hand, but instead of giving up, you go to the bank and you get a loan for the money you need. You buy those shares and in five years, they’ve returned 500% of your initial investment. If you hadn’t taken that risk of going into a small amount of debt, you never would have been able to reap those rewards. Instead, you’d be muttering into your coffee as the news comes in on how well that stock you could have had is doing.
While most of us think of the word debt and blanch, when used properly and managed well, it is the key to becoming wealthy. Do you think billionaires spend their own money when they want to buy a new building? No, that would be silly. They put together a plan and get financing to pay for it. Then, when the rents for the building come in, they pay off that loan and go find another property. That is leveraging debt at its finest. You’ve got to have money to make money and unless you’ve already got it, you’re going to need to go into debt, at least at first, to make those big dreams a reality.
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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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October 3rd, 2008 — Banking, Book Review, Budget, Mortgage, Personal Finance, loans
When it comes to a trusted source for financial news and information, it’s hard to beat the Wall Street Journal. They have introduced a line of guidebooks on many financial topics, but for this review we’ll be taking a look at their Personal Finance guidebook. While it may be a little simplistic for the financial whiz, it is certainly a must-read for those that are still struggling with their personal finance issues, or just starting out in the world.
It should be noted that there is a companion book to this title, called the The Wall Street Journal. Personal Finance Workbook
. We highly recommend purchasing both since you will be able to implement the advice of one by using the other. Both are incredibly useful, especially if you are looking for ways to get your finances on track. The guidebook is brief, coming in at right around 200 pages, but there is a lot of information packed in there.
The book starts out with the utter basics, such as managing a checkbook, but for a lot of people, this is truly necessary advice. While this is aimed at beginners, even experts might be able to spot a few common mistakes that they are guilty of making when it comes to handling checkbooks and savings accounts.
Once this section is thoroughly covered, the book goes on to help the reader start a money management plan. This is basically a budget, and again, even though the advice is simple, it is very solid and for many, very necessary. The basics of budgeting are completely explained and there is some great real world advice for those looking to get their finances and their spending under control.
How to get a good mortgage and auto loan are also some very good topics that round out the book nicely. Basically, this is a book that is designed to help the average consumer learn more about how finances work and how to implement good practices to ensure that you won’t be spending your golden years flipping burgers.
The workbook however is even better and gives you a way to create an exact plan for your future. Both contain calculation examples and tips on how to figure out whether renting is best for you, how much house you can afford, how to save money on life insurance and many other important topics. The section on investment risk, allocation and how to find out how much money you need for retirement are particularly helpful.
While these two books may be a little too basic for experts, they are absolutely vital for the rest of us. Even if you have already heard the advice before, and there is probably a good chance that you have, the author does a great job of presenting it in such a way that it seems much easier to follow and implement the advice. We highly recommend this title to anyone interested in learning more about personal finance and how to manage their money.
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September 29th, 2008 — Goal, Money, Personal Finance, bad debt, credit score
In our last post, we covered how to begin the process of restoring your FICO score, as well as how changes can affect this score. Now that you are ready to begin, there are a few steps that you will need to take. Many of these steps require diligence on your part and a little hard work. However, they can result not only in a higher FICO score, but also lower interest rates on loans, and a higher chance of getting approved for loans in the future. It is definitely worth the effort, since higher FICO scores can actually help you save money over the long term. So, let’s get started.
Since collections have one of the biggest impacts on a FICO score, let’s start there. If you do have any current collections on your credit report, you will need to work to get those removed. Before you open your checkbook, there are a few options that you should consider. First, remember that collection agencies purchase bad debt from original lenders at a fraction of the cost. This means that any money they receive is pure profit.
This also means that are usually willing to work out a settlement with you. This may not always be the case, but it is definitely worth a try. The first step to take is to send out what is called a Pay for Delete letter, or PFD. This is basically telling the collection agency that you will pay the debt, but only if they agree, in writing, to delete the record from your credit report. Do not take any further action on the matter until they have agreed to this in writing. Send your PFD letter certified so that you have a record of when it was received.
If you do not believe that the debt from the collection agency is legitimate, you can send them what is called a Debt Verification letter. This is a request that will ask the collection agency to provide you with proof that you did indeed open the account and that you are responsible for it. The more detailed questions you ask in your debt verification letter, the higher your chances are of having them remove the debt since it will require a good deal of legwork on their part.
A DV letter will give the collection agency 30 days to respond to your inquiry. Again, you will need to send this letter certified so that you have proof of when the collections agency received it. They will have thirty days to respond from the date that they got your letter. If after that time period has elapsed, you have not heard back (you will need to wait around a total of 45 days from the day you mail your letter to allow time for the mail) you can contact the credit reporting bureaus to have them remove the entry from your report.
There are also a few other ways that you can restore your FICO score, which we will cover in final part of this post.
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August 27th, 2008 — Long Term, Money, Personal Finance, insurance
Most of us look at insurance premiums as a big drain on our finances. Insurance policies do not come cheap, but they may be essential. In many ways, you can look at insurance as a way of avoiding financial failure in the years to come. While you can’t buy a policy to protect your checkbook, you can invest in insurance that will protect you and your money should an emergency occur. Let’s take a look at how various insurance policies can impact your financial future.
Health Insurance –
This is one of the most expensive forms of insurance, and if you’re generally pretty healthy, it can seem like a waste of money. But, look at it this way – let’s say that you are injured off of the job (where you would not be eligible for worker’s comp.) It is a serious injury and you’re unable to work for two months. In addition to missing that salary, you’ll also have to pay for all of your hospital bills. An unexpected illness or injury is one of the number one causes of bankruptcy. If you had an insurance policy, you would not have to worry as much about those bills and your financial burden would be smaller.
Business Insurance –
If you are running your own small business and you do not have business insurance, you are setting yourself up for failure. This is especially the case if you do business with the public or create products that are sold to the public. There is always a chance that someone will be injured and they may sue your company. It is entirely possible to lose everything you own very quickly in this situation.
Errors and Omission insurance is also vital, and often overlooked, for business owners. Anytime you are providing information to the public, you are at risk for giving advice that may not be used properly. In today’s litigious atmosphere, you really cannot have too much insurance if you have your own business.
Car Insurance –
This is usually required by states, but it can seem like a bit of overkill, especially if you’re paying a lot on your premiums. But, once again, if you imagine what could happen, it’s easy to see why this insurance is so important.
Let’s say that you only have a liability policy, which is generally accepted as the minimum requirement by most states. You’ve got one car, and it is not paid off. The car is wrecked, and although you were not at fault, the insurance will only pay for the damage you caused, and not the damage on your car. Suddenly, you’re stuck with still making car payments, even though the car has been totaled. Since it was your only car, you’ve got to go out and finance another. It’s easy to see how that could be disastrous for most people.
Insurance may be expensive, but only when you don’t have the right outlook. When you consider how much protection it provides to your financial interests, it is well worth the money.
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August 20th, 2008 — Debt, Income Streams, Money, Personal Finance, bad debt, credit cards, credit score
No matter how wealthy or poor you are, there are financial traps that are waiting to disrupt your lives. Many people end up finding out too late that they are in the depths of one and it is nearly impossible to get out. However, there are specific steps that you can take to ensure that you don’t fall into one of these financial traps. We’ll cover the three most common traps and the steps you can take to avoid them.
1. Maxing out far too many credit cards.
When you’re first starting out, you get one card and soon the offers come in for more. Before you know it, you’ve got five credit cards and you’re dealing with a lot of temptation. One of the worst financial traps that you can fall into is accepting all of these cards and then maxing every single one out. This can have a terrible effect on your credit rating.
How to Avoid This: You really only need one or two credit cards at most, perhaps one department store card and one gas card. Anything over that is superfluous. When you open these cards, the key is not to look at the available balance on the card, but the available balance in your checkbook. Control your spending and pay them off each month.
2. Spending more than you earn.
Many of us don’t actually realize that we’re doing this, but it is one of the number one problems facing Americans today. Through credit card purchases, homes, cars and other material goods, we end up far into debt before we even realize that anything went wrong.
How to Avoid This: Use the old rule of thumb when calculating what you need to buy. For example, for a house, you should multiply your current monthly salary by three. That will be your price range. For everything else, set a budget and stick to it. It’s not always easy, but you’ll feel a lot better when you have money to spare at the end of every month.
3. Relying on one source of income.
Too many Americans are living paycheck to paycheck and this spells big economic trouble. Whether it’s due to overspending or just a salary that is too low, this is a bad situation for anyone to be in. If you lose your job, everything else goes down hill very quickly.
How to Avoid This: Find ways to either increase your monthly income, by getting a raise or a better paying job, or start creating more than one stream of income. This is ideal and will provide you with the most financial freedom. Whether it is through a side business, your own company or investment returns, a secondary or tertiary stream of income will ensure that you are free from the shackles of your regular paycheck.
All three of these financial traps have a lot in common. They are all related to the amount of money you have coming in, versus the amount going out. Remember, the key to financial freedom is more than one form of income and never spending more than you make.
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