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Entrepreneuring Your Personal Finances

Written on September 22, 2009 by George Krueger & Mary-Lynn Foster in Money

personal_finance Bigg success is life on your own terms. You are the entrepreneur of your life. Entrepreneurs look at the world through a different lens than do large company CEOs.

For example, large companies and small companies use different financial models. Large companies generally have the ability to raise large amounts of money when they need it.

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For small companies, it’s much more difficult. So it’s more critical for small business owners to watch their cash flow. For us as individuals, our financial model is much closer to the entrepreneur’s.

The two decisions

There are two types of decisions which we must think about: investing decisions and financing decisions.

For large companies, these two types of decisions are independent. They decide what they will invest in. They determine how they will finance their firm.

In an entrepreneurial firm and for us as individuals, these decisions are interdependent. We invest in the things we can finance. It could be a new business or a piece of real estate. But it could also include a new car or a new house.

If we have an idea for a project, we first must either have the needed financial resources already available or we have to sell someone on funding it.

If neither of those is true – if we don’t have the money or we can’t sell someone on funding it, we can’t do the project.

Now let’s look at four ways to think entrepreneurially about your personal finances:

Bootstrap
Entrepreneurs understand that they have limited resources. They recognize it, but still make the most of what they already have. You can carry that same attitude into your personal finances.

Retain earnings
This is what we call it when a business saves money. Pre-fund your projects when possible. If you know that you need financing to make an investment, why not finance it yourself? That’s financial freedom.

If cash is king, reserve borrowing capability is queen.
Protect and preserve both your credit rating and your credit capacity. Then you’ll have the ability to fund your bigg opportunity when you see it.

Create value with your projects
Simply stated, Value = Cash Flow ÷ Cost of Capital.
Entrepreneurs must understand that capital comes with a cost. It may mean giving up a stake in the company. It may mean sharing the money with partners or bankers. In all cases, it requires a reasonable return on the money invested.

As an individual, your capital comes with a cost as well. You have to share some of the money you will make in the future with your funders. So just like an entrepreneur, you need to understand if the benefit you will receive from the project makes it worth the money you’re investing.

To determine this, look at the incremental cash flow from any project you consider. If the return on your investment exceeds the cost of the capital needed to fund it, you should do the project and vice versa.

Let’s say you have an old car that’s requiring a lot of repairs. You see that you can save money if you buy a newer car and pay interest. That’s a project that’s worth doing.

Smart entrepreneurs and wealthy people look at every cash outlay as an investment. They want to make sure they’re getting enough value out of the investment to make it worthwhile.

Now that value may be somewhat fuzzy – like it makes you happier or adds to your sense of well-being. In any case, thinking entrepreneurially about your money leads to bigg success.

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Thank you so much for reading our post today. Please join us next time when we’ll talk about the long and winding road to bigg success. Until then, here’s to your bigg success!

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Freedom Or Security – Which Do You Choose?

(Image in today's post by srbichara)

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Making Change Count

Written on March 3, 2009 by George Krueger & Mary-Lynn Foster in Financial Freedom, Money

piggy_bank Last time, we talked about the lost art of making change. As we prepared for that show, we remembered another little tidbit about change:

You can save your change for a change.

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Listen while you read! Hear George & Mary-Lynn discuss today's topic on The Bigg Success Show. Click the purple player: Play Now | Play in Popup | Download

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If you find that you’re running out of money before the month runs out, this is one of the easiest ways to get started saving. Give yourself an allowance. Pay for everything with that cash. At the end of the day, put all of your change in a jar or a piggy bank.

Did you ever have one of those cool banks where you get to see the coin going down into the bank? It made saving fun and is a great way to encourage kids to save. Or adults for that matter … why should the kids have all the fun?

It’s amazing how much you can save with this simple little technique. Ever so often, say at the end of the month, go to the bank and deposit your change. Once you get your money in a savings account at a bank, you can start earning interest on it. Your money making money on your money … that’s what you want.

The five little piggy banks

Richard Jenkins, editor-in-chief of MSN Money and author of A simpler way to save: the 60% solution, has an outstanding idea:

Spend sixty percent of all you make!

We know what you’re thinking – you’re having a tough time getting by on 100 percent. It’s ludicrous to think anyone could get by on only sixty percent!

But hear us out. You just might like this program …

Set up five piggy banks (or envelopes, accounts, or any other way that works for you). The key thing is to segment your money right upfront. Here’s what the five piggy banks are for:

Piggy Bank #1 – This little piggy stays home. This piggy bank gets sixty percent of your gross income. You’ll use it to buy the basics – things like food, clothing, household expenses, taxes, insurance, donations, and the like.

Piggy Bank #2 – This little piggy goes to the market. This piggy bank gets ten percent of your gross income to invest in long-term assets, like the stock market. Most likely, your investment vehicle will be a tax-advantaged account, like a 401(k) through your employer.

Piggy Bank #3 – This little piggy gets the beef. Set aside ten percent in this piggy bank to beef up your long-term savings even more. You’ll also invest this in long-term assets, but you’ll want to maintain enough liquidity so the money is available for an extreme emergency.

Piggy Bank #4 – This little piggy gets none. The ten percent that goes into this account is for irregular expenses. So you won’t get any long-term benefit from this piggy bank. What you will get is the ability to pay for large expenses upfront instead of with a credit card. So from this account, you’ll pay for your vacations, major repairs, replacement of appliances, gifts and the like.

Piggy Bank #5 – This little piggy cries “Wee, wee, wee” all the way home!
This ten percent is your fun money. It’s your reward for setting aside the money in the other piggy banks the way you planned to.

Think about it this way – If you meet your goals, you get to spend an extra ten percent!

Managing your finances with these five little piggy banks will help you live bigg now and retire bigg later!

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Thanks so much for reading our post today. Join us next time as we wrap up this series. We’ll discuss making change work. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes.

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Direct link to The Bigg Success Show audio file:
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(Image in today's post by woodsy)