Debt

Do These 6 Things Differently than Others if You Want to Get Ahead Financially

Do you ever wonder what the difference is between those who get ahead and those who are constantly struggling? There is a pattern of actions that are taken repeatedly by those who get ahead, while the opposite is true of those who struggle.

Action #1: Delayed Gratification

The financial impact of delaying gratification for future success is astounding. The best example is an expensive car or high-end home. These things are great, but if you know that you will be stretched to purchase them, then give it some time before doing so. Once your finances enable you to comfortably purchase these items then go for it if it fits into your overall financial goals.

Action #2: Seek Advice from the Right People and Listen to Them

It is always a good idea to seek the advice of those we trust, but they must also have competence to provide you with the proper advice. Do not ask your brother in law that has declared bankruptcy twice and is reckless with money for financial advice. On second thought, you may want to ask for his advice and do the exact opposite! Also, seek the advice of a qualified professional or successful mentor who has relevant experience.

Another, related aspect of seeking advice knowing who is trying to work with you and who is working against you. Don’t beat up the people that are on your side and don’t let the bad fruits in the gate.

Action #3: Save and Invest Constantly

Even a small amount of saving/investing can add up over time. Also, investing does not have to only be in the stock market, but can consist of growing your business to make it more valuable, purchasing rental properties, investing in or purchasing other businesses, etc.

Action #4: Be Cautious When Incurring Debt

Debt has its proper place, but it is misused quite often. Many of us are lured into large, unnecessary purchases or poor investments because we can finance them over. Even if the debt is helpful for the production of income, it still may not be the best course of action. Debt also makes us lazy, meaning that it is easy for us to make decisions without really thinking them through fully.

Action #5: Have Endurance

Don’t give up too easily. It may take several tries to get where you want to go, but you need to keep on getting back up when you falter. Yes, it hurts when you get derailed, financially or otherwise, as life happens, but keep on moving forward.

Action #6: Don’t Make Decisions Based Solely on Emotions

Just because someone made you angry doesn’t mean that you need to let them go. Can you imagine telling off your boss (very bad move), or firing a key employee or vendor because you overreacted to a non-fatal mistake that they made? Trust me, you will suffer financially for this.

To Sum it Up

Did you notice that most of the above are based upon emotions and relationships? Healthy emotions and relationships will help you to be get ahead and make the journey more pleasant, while knee-jerk reactions, seeking instant gratification, and unhealthy relationships will create a roadblock to getting ahead.

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Why You Shouldn’t Sell Your First Home

The common scenario is this: purchase a small, starter home and then move after 5 to 10 years into another, much larger home. But is this a prudent move or are there other options?

There is one, largely overlooked option, that can have a great financial impact on your finances. The option is to move and then rent out your existing home. There are times when this makes sense, and other times when it doesn’t.

Makes sense: It makes sense to rent our your first home if the following are true:

  1. You have the funds for a down payment on a new home or you can access the equity of your home without getting too deep into debt. A combination of the two may be used also.
  2. The expected rent is greater than the expected expenses
  3. It will be easy to find a renter
  4. There is a strong possibility of continued appreciation of your first home
  5. You do not mind being a landlord
  6. You have a small cushion for times of vacancy, and are in a strong position financially

Doesn’t make sense: It doesn’t make sense to rent out your first home if the following are true:

  1. You do not have the funds for a down payment on a new home
  2. There is not much equity in your old home
  3. The expected rent is less than the expected expenses
  4. It will be difficult to find a renter
  5. The expected appreciation is either very low or the first home may depreciate
  6. You do not want to be a landlord. However, I challenge this assumption, because there are always things that you do not want to do but should do them anyway.
  7. Your financial situation is in turmoil

What’s interesting to note is that most people who sell their homes do not think of how much the transaction costs can be, especially as a percentage of the selling price or equity, until they are in the sales process. I do not mean that costs are hidden, but the costs are not factored into the equation when wanting to sell a house. Additionally, when you sell your first home, you most likely have to repair several items that can costs thousands of dollars that you do not realize the benefit of.

If you want to get ahead financially, you usually have to not do what everyone else is doing and take prudent chances. Part of prudence is to look at the worst case scenario. If the worst case scenario is that renting your first home has become a nightmare, then just sell it and move on.

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Which Type of Business is the Best One to Own?

Which type of business is the best one to own? The short answer is one that makes money, but the long answer is that it should have all or some of the following characteristics:

Simple product or service: The more complex the product or service you are offering, the harder it is to operate your business. For example, it is much more difficult to train someone to be a management consultant than a server at a restaurant, although some restaurateurs might think otherwise.

Recurring and/or predictable revenue: Subscription-based services receive recurring payments on a monthly, quarterly, or annual basis, which tend to be highly predictable. A project-based business performs a service, gets paid, and has to find another customer, whereas, a subscription-based business may have no known end date or automatic renewals. A perfect example is a software company, but another example is a landscaper. A landscaper may not be thought of as a subscription-based business, but it actually is.

Cash in before cash out: Selling a product or service and then waiting to get paid can drain your cash resources, especially if you are growing. Ideally, you want to operate a business that receives cash up front and then pays expenses.

Low capital investment: If you need to invest large amounts of cash upfront for improvements and equipment then it creates a hurdle to overcome. This is especially true if you do not have a lot of cash and are using debt because the debt payments act as a handicap to your success. On the other hand, if you just need to rent a small office to start your therapy practice, then the risk is much lower.

Economic profits: Did you know that many small businesses do not produce much of an economic profit? For example, if you start your own medical practice and then make as much as you did as an employee then there is no economic profit. Although, you do have to give it a few years to determine this.

Easily scalable: This means that you can easily duplicate your success by either opening more locations or growing your operations easily without relying on the owner exclusively. A perfect example is a franchise, which has a blueprint to run the business smoothly. A bad example is a niche-consultant who works one on one with clients.

The interesting fact to note is that almost any business can modify its strategy to have the desirable traits above. The complex can simplify their offerings, services or products can be made recurring, and profits can be grown to more desirable levels.

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5 Practical, Passive Money Making Ideas

There are many ways to make money that do not involve a lot of ongoing effort, and they are actually practical. Some are easier to implement than others, but all virtually require work up front to get your activity off the ground. Here are five:

Rental investments: Thousands of books have been written on this subject, but I’ll summarize the secret to making money on this one in one paragraph. The work comes before purchasing the property. First, estimate the lowest expected amount of rental income per month, less at least one month to two months of vacancies per year. Next, calculate all of the costs of owning the property, including mortgage payments, property taxes, insurance, repairs, etc. If your cash expenses are greater than the expected rent then do not buy the property. If the opposite is true then consider purchasing the property as long as the income and appreciation potential are profitable. One paragraph books about real estate investing do not sell too well.

Lending to a business: If you have extra cash, then consider lending to a small business. Just make sure to think somewhat like a banker and understand the risks and rewards. Make sure you have an attorney draft the agreements, prepare all of the filings, etc., to reduce your risk in the case of disputes or default.

Invest in a business: Invest in a business to eventually receive dividends, distributions, or a payout upon sale. Just as in lending to a business, make sure to understand what you are getting into, ie, perform your due diligence, and see your accountant and attorney.

Sell a digital product/course/e-book: Unless you are tech savvy, it may be easier to hire a consultant to set up a website for you to sell a digital product. The product can be about virtually anything, but a good place to start is to offer a digital product based upon your specific expertise and knowledge.

Referral commissions: Usually this one applies to an existing business owner, but the idea is to refer your customers to another vendor for either a product or service, and then receive a commission for it. The amount of effort expended is very minimal, but the commissions can be a good source of profits for your business. The caveat is to always make sure that you abide by all legal requirements for receiving commissions.

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An Alternative to Setting Goals

Setting goals can become very frustrating and produce anxiety when we realize that they aren’t being achieved. Should you set goals that are very likely to happen or goals that are very difficult to reach? What if you miss your goal by a minor amount or the outcome was good, but not what you expected? Alternatively, there is a much less stressful, and possibly more effective alternative to setting goals and achieving your desired outcomes.

The truth about goal setting: The truth is that they are all guesses, estimates, arbitrary, and do not tell the whole story of what you are trying to accomplish. Ironically, you may achieve a better outcome than your goal, but still fail to achieve that goal because you didn’t make the numbers. For example, if you want to lose 20 pounds, but only lose 15 pounds because you also gained lean muscle mass, then you just failed at your goal. You may be healthier, are in better shape, look better, and are stronger, but according to your goal, you just lost. This doesn’t make sense, does it?

Think about the general direction you want to move towards: Do you want to lose weight, make more money, or save more money? Know the direction that you want to go in, but do not specify an exact number. However, it is still important for you to take measurements before, during, and at the end of the year.

Form habits: Goals are not accomplished without actions, which is why your energy should focus on your habits. If you want to lose weight, then start exercising on a daily basis, even if just for 20 minutes a day. If you want to increase sales, then spend 30 minutes a day on marketing activities. Devise a plan of which actions you need to take and then keep repeating them until you build momentum and start seeing results. Tweak as necessary.

Intensity should be based upon desired outcome: If you want to achieve dramatic results, then there should be a direct correlation between the size of the desired outcome and the amount of intensity and effort to achieve that outcome. A desire to increase sales significantly should spark you to spend more than 30 minutes a day on marketing activities, and quite possibly double or triple that.

The bottom line is to set actions instead of goals to achieve desired results.

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10 Small Improvements That Have a Big Profit Impact

Improvements do not have to take an enormous effort to make a huge impact on your profits. Sometimes it’s the small things that add up over time. Here are 10 simple improvements that can have a significant impact on your profits:

  1. Schedule work better: Are you wasting time by scheduling work poorly? For example, do you allow enough time for you or your employees to complete a project within the scheduled time? If not, then there will be too much stopping and starting which kills efficiency. Another scheduling challenge is to make sure that you do not have too little or too many staff members scheduled at the same time.
  2. Set aside time for high value activities: High value activities are not usually urgent, which makes them get pushed to the side. In order to get these items done, you need to schedule this type of activity, even if just an hour or two a week.
  3. Look at your financials: Do you look at your financials or tax return just once a year or possibly not at all? For starters, you should review your financials at least once per month to see how you are doing versus the same time last year. Your financial statements are the measurement of your business’ results, and you need to know how you are doing to make better decisions.
  4. Consistency of pay: When possible, try to keep your pay and distributions consistent, unless paying yourself a bonus or bonus distributions. This makes it easier to manage your cashflow and reduces the temptation to take too much just because you had a good month.
  5. Work less: Working crazy hours will burn you out over time and is not sustainable. Try to consistently reduce your hours over time to give yourself a breather. If you become depressed or develop a health problem, then you will not be able to work at all.
  6. Acknowledge people: Show sincere appreciate, gratitude, and respect for your employees, customers, vendors, and especially your family for bearing with you during good times and bad.
  7. List your activities for a week: Over the next week, jot down everything that you do and how long each task takes. Then, ask yourself, “Should I be doing this, should someone else be doing this, and does this even need to be done?”
  8. Pay extra towards your debts: Even a small amount will add up to quickly pay off your debts. You will save interest and eventually increase your cash flow. You’ll also think twice before incurring more debts.
  9. Contact an old customer: Is there an old customer or client that you liked to work with and have not heard from in a while? Maybe there was a misunderstanding that you can easily resolve or maybe no reason at all and they just need to be asked to come back.
  10. Use a pricing worksheet: Instead of just winging it with your pricing, why not develop a pricing chart? It will take the guess work and emotions out of pricing, which ends up causing you to undercharge.

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Are Traditional, Low-Tech Ways of Handling Your Finances Better than Modern Ways?

Electronic banking, ATM and credit cards, leasing, online shopping, installment plans and subscriptions, and anything else electronic is the way to handle your personal finances nowadays, but is this better? In some ways yes, but many ways not so much.

Transactions are too easy to make nowadays, which causes us to be more impulsive. It’s not just Amazon that makes it easy to purchase products, but even your local grocery store has online capabilities to place orders at 3:00 AM. The problem with this approach is that you do not feel, either physically or mentally, that you are making purchases, especially when using ATM and credit cards, which in turn, makes you spend more money. Traditional ways required more effort to both purchase items and to pay for them.

In the past, you had to wait until you received your bank statement in the mail to see what your bank balance was. Because of this, you were forced to record each transaction that you made in a paper check register to know what your real balance was. Most likely, you actually reconciled your checkbook to your bank statements on a monthly basis. Ironically, since it is now so easy to check balances and transfer funds, most people tend to pay less attention to the details.

Almost everything can be purchased or rented with small or no down payments and monthly payments. You can finance your iPhone and also that cute little puppy. You  can also cut your cable service to save money, but use 23 different, $9.99/month services and spend more money. It might seem minor, but it really doesn’t make sense.

Please let me know if you still save up to make substantial purchases. Substantial is relative to your situation, but most likely you will take out a loan or use a credit card. Tell your friends and family that you paid cash for your car and they will ask a lot of questions to determine your mental health. Today’s mentality is that if you want something then you should have it immediately. The tactic of delaying purchases is very effective if you want to have strong finances.

I don’t think that we need to go back to the way things were not too long ago, but we should consider combining the best of traditional ways and modern ways. Automatic savings is a perfect example of combining the new with the old. Can you think of others?

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Are You Too Financially Cautious?

Is it possible to be too financially cautious?  Cautious does not mean that you are just conservative or frugal with your money, but that you are too afraid to spend your money wisely. You may not even be aware that you are too cautious and here are some examples:

Hesitate to make the right investments: Aside from traditional investments, you may be too cautious to invest in your own education and knowledge, spend the money for new equipment and technology, marketing, or spending money on employees.

Too cautious about wasting money: If you are so concerned that you will waste your resources then you will end up spending too much time trying to save a nickel, but it ends up costing you a dollar. For example, you don’t want to spend the money to keep track of your finances in QuickBooks or even Quicken for personal use, but yet you incur hundreds of dollars of insufficient funds charges each month. I have seen clients spend approximately $10,000 for insufficient funds fees.

Not taking a loan when you should: I am not an advocate of borrowing money excessively or foolishly, nor do I think that borrowing should be avoided at all times, which some pundits advocate each position strongly for. However, sometimes you need to have a line of credit to smooth out some bumps or to take advantage of low-risk opportunities that arise. Alternatively, if you pay off all of your debts too quickly then you may not have any cash available.

Time versus money: Using your time productively strongly dictates your financial success. However, if you spend your time on $10 per hour activities that drive you crazy instead of paying someone to perform them, while you can be making $200 per hour, then that is a poor use of your time and financial resources.

Money before relationships: If you are too financially cautious then you will probably never want to get married, and if you do, then you will worry about not having enough money for your children and will probably not have any.

Another way of saying financially cautious is to be penny wise and pound foolish. Don’t try to save your pennies, but make dollars!

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Are You Thankful for What You Accomplished?

Happy Thanksgiving! We should always be thankful for everything in our lives, including people, things, and accomplishments. Sometimes we take our accomplishments for granted, and it is good to examine the past to see just how far you have come. Here are some examples:

New home: Whether you just purchased your first home or moved into a more accommodating new home, this is quite an accomplishment.

Paid down debts: Did you significantly reduce your debts or pay them off? For some, if your debt levels have stabilized, this too is an accomplishment.

Started a business: Taking the leap to start a new business is exhilarating and quite an accomplishment.

Expanded your business: Did you open another location, hire additional employees, or increase your sales a sizable amount compared to the prior year? These activities all take time and energy and are a huge accomplishment.

Charitable giving: Has your charitable giving increased compared to the year before? If so, then excellent, but if it hasn’t, maybe it has increased as a percentage of your income if your income went down.

Increased your savings: Even saving just 1% more of your income than you did the prior year will have an enormous impact on your finances if you continue to do this each year.

Worked less: Are you working just a few less hours than you used to? A few less hours each week can make a big difference in your life.

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5 Habits for a Healthy Business and 3 Unhealthy Habits to Avoid

Our habits are repeated actions that we take, and have a tremendous impact on our results. Healthy habits become ingrained within us and we continue to do them with little thought or resistance over time. What are some practical, easy habits to ensure a healthy business and also the habits to avoid?

Healthy Habits:

Schedule activities: If you want important things to get done, especially non-urgent, important items, then you need to schedule them. Whether you need to schedule an activity on a daily, weekly, or monthly basis, once it is on your calendar, then the likelihood of it being completed increases significantly. Examples include setting aside time for marketing, networking, reviewing finances, and reviewing processes.

Delegate often: Do you want to get more done? The key is to delegate, but not only to delegate, but to delegate the right things and delegate to the right people. Think before performing a task that needs to be done, especially a somewhat urgent task. This can be as simple as scheduling appointments, cleaning up a mess, or communicating simple issues.

Pause before spending: Virtually every single expense can be justified and rationalized for your business or for you personally. Before committing to spending money, first pause, think about it, and answer  the following questions: can the expense be delayed without their being a negative impact, are their other options, and what would happen if I do not incur this expense?

Consult advisors regularly: Everyone should have an advisor to consult with before making major decisions. High impact decisions can include: employee management issues, loans and finances, purchasing another business, opening another location, legal matters, etc.

Measure results: This can include reviewing your financial results, effectiveness of marketing campaigns, and employee productivity. Do not make assumptions, but keep track of important metrics and review your finances. Just because you are busy does not mean that you are profitable. Look at the numbers!

Unhealthy Habits:

Impulsive decision making: Almost all important business decisions can be pondered, and do not have to be made immediately. Take your time!

Following emotions and feelings: Don’t do things just be you feel like it or because you don’t feel like it. This can include being reactive to a customer that is upset or an employee that made a mistake. Although you may feel better at the moment, it doesn’t help long-term. The same goes for how you feel. I know that I feel like playing Cooking Fever on my phone for a few hours, but if do so, then only the virtual customers in the game will be fed, while my family will be starving.

Consulting with inept people: I know this may sound harsh, but seek the advice of people who are competent to give you advice and/or thoroughly know you and your situation.

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