November 17th, 2008 — Book Review, Debt, Diversification, Income Streams, Leverage
Douglas Andrew’s book reads like a rejected first draft of Rich Dad, Poor Dad and right off the bat, it’s kitschy premise (ripped right from the above book) falls more than a little flat. In order to illustrate his points, the author relies on his sons and their imaginary friends – and the discussions they might have about finances. We’ll leave that whole imaginary friend thing alone – that’s just too easy, and focus on the advice that is tossed around.
From the start, with the title, you’ll think you’ve got your hands on a great blueprint that will have your financial future secured by the time you hit thirty. Well, unfortunately, that’s just not the case. There is some really great advice for those that are just starting out, but unless you are completely new to financial planning, the book will most likely fall short of your expectations. It certainly fell short of mine.
This is the perfect book if you want to get into real estate investment – since this appears to be the only way that the author believes you can make a million by the time you hit thirty. Obviously, the book was written before the housing crash and did not take into account the current state of the market. Many people that delved too deeply have ended up financially ruined thanks to similar advice.
Whenever you try to create multiple streams of income, the key to their success is diversity. Just ask the people who sunk all of their cash into real estate. Right about now, they’re probably wishing they had spread out their investments a little more. The basic premise is that you need to purchase first a home of your own, second a vacation property and then buy more rental properties.
The main problem is the age group we’re talking about here. Most twenty year olds are not ready for the responsibilities of owning more than one home – heck, most are strapped enough as it is with an apartment. There is a lot of responsibility that comes with owning your own home, and unless you’ve got a solid job, trying to keep up on property taxes and insurance for that many properties is going to be a stretch, especially since the first two really won’t be earning any money.
It gets even worse however. Although the author is a proponent of using debt leverage to make more money, he recommends frequent refinancing of your homes. Again, this advice really wasn’t well thought out given the state of the housing market right now. In addition, constant refinancing will not do your credit history much good and you’ll end up with far too much risk in my opinion and far too little return.
If you read the book with the right mindset, there is some good advice mixed in with the bad. Granted, hindsight is always twenty-twenty, but smart investors know that good markets never stay good forever and he could have done more to address how to handle down markets.
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November 10th, 2008 — Debt, Diversification, Financial Security, Income Streams, Leverage, Money, Personal Finance
If you’re currently living paycheck to paycheck, or you would just like to have a little more financial security, the key is creating alternative forms of income. While to many people this means getting a second job, there are actually easier ways that you can start bringing in more money every month without having to do all of that work. One of the best ways to get started immediately is by leveraging your debt to create multiple streams of alternative income.
Now wait just a second - isn’t debt a bad thing? Well, in the hands of those that don’t know how to manage it, yes, debt can be a bad thing. However, when used correctly and for the right purpose, debt is the key towards obtaining a strong financial future. We’re not saying run out and run up all of your credit cards on stuff you don’t need and hope you’re going to get rich. That’s never going to happen.
What we are saying is that by leveraging your debt properly you can easily start making more money right away. So, let’s look at it this way. You can use debt to get that stereo you always wanted, but other than providing you with some entertainment, it’s not really going to be directly responsible for bringing in any money. It’s a dead end purchase when you get down to the heart of the matter.
Now, instead of spending $5000 on a new stereo, let’s say you get a loan for that amount. You then take that money and invest it into a new stock or a business opportunity that has a high likelihood of great returns. In a few months, that loan you got for $5000 has produced more than $15,000 in alternative income. That’s three times the amount of your original investment, and it’s only going to keep bringing money in. That’s a whole lot better than your stereo could ever do for you.
By managing debt correctly and using it to purchase smart investments or opportunities, you’re leveraging it to help create more income for you. That is not to say that there are not some risks in using your debt this way. It’s never a good idea to go into debt for something that is not going to pay off. You’ll want to take your time and carefully invest that money so that it will provide you with alternative income.
In order to make more money, you’re going to have to get more money. Now, most of us just don’t have a lot of free cash lying around the house. You can spend years saving up money to start producing alternative income, but it’s a lot quicker to get a jumpstart by leveraging debt. You just need to make sure that you’re being careful and that the opportunities you’re interested in will pay off. There is always risk involved when you’re creating alternative income streams, but it can pay off in the future.
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November 10th, 2008 — Debt, Leverage, Money, Personal Finance, Stocks, Wealth
If you’ve ever had a chance to invest in a great stock but didn’t have enough money put aside to take advantage of the opportunity, you know too well the agony of defeat. Most of us are under the impression that it takes money in the bank to start investing. If you’re not financially stable or independently wealthy, that means that you’re going to have to watch a lot of opportunities pass you by. Or does it?
There is a way that you can start taking those opportunities by the horns right now, before you have money put aside. Debt leveraging, when used properly, is an incredibly powerful tool that can really make the difference in your financial future. In most of us however the word debt conjures up some pretty unpleasant images. We’re all trained to think that debt is bad, that debt will ruin you and that debt should be avoided at all costs.
What if you were to change your way of thinking and embrace the fact that debt can be a very powerful tool? What if you stopped thinking of debt in only one light and realized that there are many different kinds of debt? We’re not here to tell you to run out and buy everything your heart desires, racking up all sorts of debt. That is why debt has such a bad reputation. The temptation to buy things we don’t need or can’t afford is pretty strong and millions of people end up falling into debt traps every single year.
That is mainly because they don’t use debt to make money. They use it to spend money and end up in way over their head. Instead of looking at debt in the traditional manner, we want you to start realizing that debt has the potential to change your future. You can use debt to start making those smart investments and start reaping their benefits right now.
Let’s say that you have the chance to purchase ten shares of a stock with your own money in the bank. It does well and you get a nice little payday. Wouldn’t it have been nicer to purchase ten thousand shares and retire? By getting a loan to purchase those ten thousand shares, you could have made more than enough to cover the costs of that loan and still retire. You can keep thinking small and making little returns here and there, but over time, they’re going to get eaten up.
If you want to make it big, you’re going to have to start leveraging debt in a smart way. We’re not saying get a loan and blow it on a non-performing risky stock. We’re saying, find the opportunities, research them and when you’re sure you’ve got a winner on your hands, go all in. Don’t waste your time with a few shares here or there. Get that loan, use options, and/or margin your portfolio to get more shares and get the benefits that debt leveraging can bring.
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October 23rd, 2008 — Income Streams, Money, Personal Finance, Wealth, career
No matter how much money you make, for many people, it’s never quite enough. In order to get ahead, you’ll need to find a way to keep your finances growing. There are many different ways that you can grow your income, both actively and passively, and over time, these small streams can converge into a river that will help you stay solvent and perhaps even well heeled, long into the future. Let’s look at just a few ways to keep your finances growing.
1. Focusing on your job.
If you are due for a raise, don’t be shy about asking for it. However, instead of immediately spending more, take that extra money and either invest it or put it into a high yield savings account. If you don’t make enough at your current job to stay afloat every month, don’t wait to start exploring your other options. Money isn’t everything, but you do need to make enough to pay your bills and to ensure your financial future. Consider applying for a better paying job if you don’t think your chances for advancement are good.
2. Set up multiple streams of income - active.
These are income streams that may require a little work, but will usually pay off, especially in the future. Whether you decide to open up your own business on the side, or you invest in real estate, these income streams can help you build up a nice little nest egg that will keep paying off for you as long as you keep that income stream active. For those that don’t have a lot of time, passive streams may be more ideal, which we will cover next.
3. Set up multiple streams of income - passive.
Passive income streams work for those that need extra money but are already well tied up with work or home life and don’t have the time to actively focus on building their income. Examples of passive income include an annuity or an investment that requires a small amount of work at first, and then no additional work over time. It is a very good idea to have both active and passive income streams to maximize your earning potential.
4. Stop overspending.
One of the easiest ways to free up additional income is simply to curtail your spending habits within reason. That’s not to say that you have to become frugal, but if you do spend more than you earn, it’s safe to say you won’t be in a very good financial position. Keep track of how much you make and how much you spend and make sure that they are all in order.
You don’t have to be rich now to become rich later. However, you do have to make that effort to start developing more avenues of money if you do want to better your position in the future. Don’t rely on winning the lottery as a retirement plan - take the steps you need to take now, before it is too late.
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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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October 16th, 2008 — Financial Security, Goal, Money, Personal Finance, Wealth
Now that the Olympics are over, many people have been inspired to try harder, to live their dreams and to focus on their futures. These same feelings and motivation can be carried over to your financial life as well. There is no better time than right now to get your personal finances in order, and sometimes, looking at them in a different light can be very beneficial.
While you may not be able to win a gold medal for the best balanced checkbook, by looking at financial security as a race to glory, you may be able to reshape your financial outlook. In fact, you can even get some inspiration for developing a financial plan right from some of these Olympic events.
The key is figuring out whether you want to go for the gold, or whether you are happy to settle for silver, bronze, or even not placing at all. By developing a winning mindset, you can greatly impact your financial future. Sometimes, all it takes is looking at your personal finances a bit differently to get a better outcome. Let’s start with determining what “going for the gold” means to you.
1. Financial stability – For most people, going for the gold means being able to retire comfortably and not worry about money. In many cases, it will take an athletic-style push to get there, but with perseverance, the right training and a good effort, it can be achieved. When you look at financial stability as an event that you need to win, it may be easier to reach your long term goals.
2. The ability to buy whatever you want - For others, going for the gold may mean the ability to purchase anything their heart desires, without having to worry about it. If you are not already to that point, it will take a lot of hard work and financial effort to get there. If this is your goal however, you need to start training to make it. Decide how you will reach this point, whether it is through leveraging debt for a bigger return, or finally starting that side business you’ve always dreamt about, or any other means.
Whatever going for the gold means to you, write it down and begin to formulate how you plan to reach that goal. This will be your training program. Learn all that you can about personal finance, and take the time to be cognizant of your spending, how you budget and what paths you will be taking to get to your gold “medal.”
Just like the Olympics, going for gold financially may not be simple, but it is incredibly worthwhile. Even if you don’t have the world cheering you on, you can still reap the benefits that focusing on your finances can have for your entire future. If you want to be able to achieve those goals, it may mean going for the gold – even if that does require hard work and extra effort.
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October 9th, 2008 — Money, Personal Finance, Wealth
If you were to ask anyone on the street that question, odds are the majority would answer, “very much.” However, these same people will easily turn around and drop a small fortune on something without a second thought as to how it would return to them. Before you get started with investing, managing your money or leveraging debt, you have to ask yourself, how much does your money matter to you?
This has nothing to do with greed or the desire to live a certain lifestyle. This is more about how you feel about money, how much you appreciate it, and whether or not you respect it. There are a few questions that will help you come to an answer about where you stand with your money, and provide you with clues as to how to rewrite your financial future before it is too late.
1. What do you do with your paycheck the day you get it?
Whether you spend it all immediately, pay your bills, blow it on frivolities, or carefully save half, the way you treat your paycheck mirrors the entire way that you handle your finances. You can learn a lot about how much your money matters to you simply by paying attention to this one item.
2. How often do you buy frivolous items?
These are the little add-ons at the grocery store, the magazines you never read, the stuff you never use. How many different things do you have in your house right now that were used once, put away and forgotten? If you constantly spend your money on little things, you’ll never have enough when it comes to buying the big things. Pay attention to what you buy and ask yourself, will I still be using this in six months? If not, put it back. That’s not to say that treating yourself every once in awhile is a crime, but pay attention to just how much you spend on the little things. It may surprise you.
3. What is your immediate reaction when a friend asks you for money?
Do you immediately tense up and make excuses as to why you can’t, or do you instantly dole out however much is needed? There is nothing wrong with not lending to friends, just as there is nothing wrong with lending to them. The key is learning how to gauge that risk. If a friend is in a desperate emergency and you turn your back on them, money may actually mean too much to you. Conversely, if you hand it out for silly things, money may not mean anything. The key is to find the middle ground there, where you respect money but also manage to retain your compassion.
Money matters, whether we like it or not. You can’t really survive without out, and if you don’t have a healthy respect for it, you may end up regretting your financial decisions. Try to find that balance between frivolity and tight fisted-ness and in this middle ground, you may just find your financial freedom.
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September 23rd, 2008 — Personal Finance
Regardless of your age, position in life, or your financial goals, there are a few things that we all need to learn about personal finance. Once you have the basics down, everything else can just flow naturally. These tips are the strong foundation upon which you can build your financial future. It is never too late to learn about personal finance, and these money making tips can dramatically impact the way that you view your money.
1. Anyone can save money, regardless of how much they make.
Many of us get trapped into thinking that saving is only for the wealthy, or those who have money to spare. The whole point about saving is that it is ideal for those that don’t have a lot of money, but would like to change that.
One of the easiest and pain-free ways to save money can be implemented by anyone. Let’s say that your weekly paycheck is $538. Every week, put that $38 away. You really won’t even notice that it’s gone, and by the end of the month, you’ll have put away $152. It’s a small start, but it will get you on the right road. In a year, you will have been able to put away $1824 without even trying. Think of what you could save if you put your mind to it!
2. Budgeting means surviving on coupons and shopping at discount stores.
Budgeting gets a bad rap and many associate it with scrimping and doing without. On the contrary, budgeting is a more effective means of allowing you to do the things that you want. By keeping track of your finances and seeing where your money goes, you can better direct it in the direction that you would like.
You can look at like this: Let’s say that you spend $25 a week on coffee. You’ve been wanting to take a vacation to Hawaii for the longest time, but putting together the necessary $1200 seems impossible. By looking at your budget, you can determine how you want to spend your available cash, and you can direct your money towards your vacation, instead of on coffee that can be made for mere pennies at home. Taking a trip to Hawaii isn’t exactly depriving yourself!
3. Investing is for rich people.
Again, it is all too easy to put your investing off until you have money. However, without investing, you may never been in a position to have a disposable income. Anyone can start investing, regardless of how much money they have.
One of the easiest ways to get started on the page to sound investing is to find a service, such as Share Builder from ING. This service allows you to buy portions of stock and there is no minimum to invest. For example, if you have $50, and would like to invest in Google, you would buy a portion of a Google share that is worth $50. As you get more money, you can invest it or simply enjoy this as a secondary stream of income.
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September 2nd, 2008 — Money, Personal Finance, Wealth, education
One of the age old questions that many people have is whether having a good education will predispose you towards being wealthy. While there are many schools of thought on this, the general consensus is that it is easier to make more money when you have a special degree, but it’s not impossible to make money if you don’t. There is a lot of gray area in there, so let’s take a closer look at what your education can mean for your financial future.
We’ve all heard the stories of the janitors who died with a million dollars in their savings accounts, and there are plenty of real people out there that manage their finances well, regardless of how much education they have achieved. However, the majority of these people fully understand the value of a dollar, how to save and how to create multiple streams of income. If you’ve got all the right ingredients you will be able to find success, even if it does not come easily.
While it is completely possible to become inordinately wealthy without a degree, it will take more work. If you’ve got a great idea and a plan for implementation, it won’t matter how much schooling you’ve had. However, if you’re going to rely on a low income job to make you wealthy through the years, the odds are stacked against you. This is where education comes into play.
The more you’ve learned, the more you’ll earn is generally quite true. The starting salaries for college graduates are higher than the salaries for those without a formal degree. Whether this is fair or not is open to debate, but it is generally the case. So, does this mean that you have to accept this and stick with a lower pay scale? Absolutely not!
Everyone can gain more than just a higher salary by returning to school. Whether it is a training program to open up your own business, or you are going to a formal school for a degree program, getting additional education can greatly impact your chances for making more money. For those looking to end their reliance on their paycheck, a training program for a real estate license, or another skill can allow them more opportunities for making money, even with part time work.
If you are in a position right now where you cannot afford extra training, there are several options that are available. One such option is the Sallie Mae Training Loan, which is available for those that are looking at training classes that cost more than $1000. They offer 100% financing for these loans, allowing you to leverage that debt into something that will definitely pay off in the future.
Education is always important, and it comes in many different flavors. Whether you are taking a few courses here or there to stay on top of your industry, or you want to earn more money at your current job, getting additional training is always beneficial for your bottom line.
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August 8th, 2008 — Book Review, Personal Finance
Wiley Publishing has put out a series of “Little Books” but this one may be the most important. If you are looking for ways to logically increase your wealth and secure your financial future, this is definitely a great starting point that will get you going in the right direction and help you avoid some common pitfalls along the way. We appreciated the no-nonsense style of writing and found that unlike many personal finance books, this one actually contained information that anyone can use, regardless of their current financial status or their knowledge of finance in general.
If the process of finding out which companies are the best to invest is somewhere between Greek and Sanskrit for you, this book offers a true guide to figuring out on your own what you need to do. From breaking down complex investing theories, to providing you with the tools to know when a deal is a good buy and when to walk away, this book has it all. Rarely have we seen a book that worked so hard to make it easy for anyone, and we really mean anyone, to invest.
You’ll learn how to spot economic moats as well as what may appear to be a moat, but is in actuality something else. The book uses real world examples to illustrate their points, such as the failure of Pets.com, to national clothing makers that investors thought were solid, only to have their clothes end up in discount stores within a few years. This is the kind of information that you need, especially if you are not working with a broker, or if you want to try figuring out the markets on your own.
The best section was the tools for valuation, which provides investors with easy ways of figuring out whether or not a stock is a good buy. This section alone is worth the cost of the book and we walked away with information that we could put to use right away. Another must read several times is the section on knowing when to sell. Many first time investors make the mistake of bolting when they need to hold on, or holding on too long. This chapter will help them find the right balance.
Overall, we loved the book and found it to be a resource that you can turn to again and again. It was very well written and engaging, which can be difficult for a book that is about facts and figures. We also fell in love with the fact that the book did not focus on get rich quick schemes, investing in insurance policies or investing in the housing market using shady deals. Unlike many books, the advice in here is proven and it really works. When it comes to making more money, this book can definitely get you started and you’ll have the benefit of working with the same techniques that Warren Buffett has used. You really can’t get any better than that.
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