We’re going to take a little different tack today than we have with the last two shows. We’re going to talk about two specific things we need to know when it comes to arithmetic.

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These two things both involve our personal finances. That’s why they’re so important.

The power of compounding money

The first one is compounding. This can be a little complex so we’ll offer an example that’s so simple we won’t even need a calculator!

2 + 2 + 2 = 6. 2 x 2 x 2 = 8.

If we add two together three times, we get six. If we multiply two by itself three times, we get eight.

That’s the power of multiplication. And money multiplies if you manage it properly.

Stuffing it in your mattress

That’s just numbers. Let’s apply it to money to make it more tangible.

Let’s say you have $2. You stuff it in your mattress. Next year, you get another $2 and put it in the same mattress. The year after that, you do the same. Now you have $6 in your mattress.

But you haven’t earned any money on your money.

Investing it

Let’s assume that you could double your money every year. Now understand that we’re just doing this for the purpose of illustration.

We don’t know of anything you can invest in and double your money every year. If there was such an investment, it would likely involve taking a whole lot of risk.

So you start with the same $2 that you did before. Only now you invest it and earn 100% on your money each year. Instead of $6, you would end up with $8.

And you only invested $2 one time!

If you invested all $6 at the times suggested above, you would have $14 at the end of the period.

That’s the power of compounding interest. It’s how interest works for you.

But it’s a two-edged sword. It can also work against you. We’ll talk about that more in just a minute.

Building Net Worth

The second thing to understand about arithmetic is the basic accounting equation:

Assets – Liabilities = Net Worth.

Of course, our goal is to increase our Net Worth. If we understand this basic equation, we can quickly see there are only two ways to do that.

We increase Assets faster than Liabilities

We decrease Liabilities faster than our Assets are decreasing

Let’s look at the extremes to keep it simple:

• If we increase our Assets without increasing our Liabilities, our Net Worth increases.

• If we decrease our Liabilities without decreasing our Assets, our Net Worth increases.

A painful vacation

Let’s get away from words and look at something tangible. Let’s say you borrow money to go on a vacation.

You don’t increase Assets at all but your Liabilities increase. So your Net Worth goes down. You lose financially. You may reap psychic returns but that’s a different post!

It’s the pain we talked about earlier. You have to pay for the vacation over time. You also have to pay interest on the money you borrowed. This is a situation where compounding works against you.

So what’s the key?

Find ways to increase Assets without taking on more Liabilities or invest in Assets that earn a return higher than the cost of your debt.

Money multiplies if you manage it right. That’s a path to bigg success!

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Thank you so much for checking in with us today.

We’ve talked about the 3 R’s we learned in school. Please join us next time when we begin talking about the 3 R’s of bigg success. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00463-081909.mp3

Related posts

Finding The "Good" In Good-Bye

[cref 1920]

Financial freedom … can you imagine it? To use the lingo from our last couple of posts, it means freedom from money worries or, even better, freedom to choose how we spend and live.

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Financial freedom is just one piece

We’ve defined bigg success as life on your own terms. There are five elements of bigg success – money, time, growth, work and play. Bigg success comes faster when these five elements work in synergy; that’s part of the bigg idea behind bigg success.

So while financial freedom is a worthy goal, be sure you’re looking at it as part of the bigg picture. What does life on your own terms mean to you? Only you know the answer that’s best for you.

Framing financial freedom

You are the entrepreneur of your own life. As the entrepreneur, you need to understand the two basic financial statements: your Income Statement and Balance Sheet.

The Income Statement shows how much money you brought in the front door and how much money went out the back door. Financial freedom means more income and less costs.

The Balance Sheet shows how much you own (your Assets) and how much you owe (your Liabilities). Financial freedom means more Assets and less Liabilities.

6 ways to define financial freedom

• Debt free

There are variations of this. You may consider yourself free if you don’t carry a credit card balance forward from month to month. Other people want everything paid off except their house. For some, they want no debt period.

You focus on the Liabilities side of the Balance Sheet with this path. You want to minimize what you owe. Better yet, owe nothing.

• Low standard of living

Some people take this to an extreme, but they’re the only ones who have to be happy with it. This is a very simple, yet proven path. Focus on spending less so you’re free to spend the excess money however you want.

Obviously, this path focuses on the Expense side of your Income Statement. “Low” is a relative term; it means low relative to your Income.

• High salary

Conversely, you can focus on making a lot of money. Make a lot more than you spend and you’ll feel free financially.

We called it “salary” but it can be active income from any source – commissions, business ownership and the like. Obviously, we’re on the Income side of the Income Statement here.

• Cash in the bank

If you have an amount equal to three to twelve months of living expenses in the bank, you may feel a sense of financial freedom. It doesn’t have to literally be “in the bank.” For example, you may have the money invested in a money market mutual fund.

This is a Balance Sheet strategy focusing on Assets, specifically Cash and Cash Equivalents.

• Retirement nest egg

Here you get that sense of financial freedom by having enough money stored up to allow you to live comfortably, without working, for the rest of your life. Your focus is on building up the Asset side of your Balance Sheet. Unlike our third definition, this path is about building passive income from these Assets.

• Wealth-creation

For some people, financial freedom means being wealthy enough to buy anything they want. There are a lot of degrees here. “Everything you want” doesn’t have to mean a jet or a yacht, but it can if that’s what you really want!

This is a complex path. You’ll probably need to manage both sides of the Income Statement and the Balance Sheet. You may not try to minimize Liabilities; instead, you’ll focus on having Liabilities that have paid for Assets that make you money.

It’s important to define financial freedom so you can determine your goals. With your goals in mind, you can develop strategies to achieve them. That leads to bigg success!

What does financial freedom mean to you?

Share that with us by leaving a comment below, calling us at 888.455.BIGG (2444) or e-mailing us at bigginfo@biggsuccess.com.

We’re so thankful that you took the time to read our post today!

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Please join us next time as we wrap up this series on freedom. We’ll talk about being a free agent. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00429-070209.mp3

Related posts

Three Levels of Freedom – Part 1

Three Levels of Freedom – Part 2

Three Levels of Freedom – Part 3

(Image in today's post by svilen001)

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When it comes to money, the author says that a gentleman would never:

• Borrow from a lady

• Borrow from a man without collateral and a plan to pay it back quickly

• Discuss money

• Discuss his possessions or their cost

• Name drop about his rich friends

___

I think the idea that a gentleman never borrowed money from a lady shows that we are living in different times. Many women are financially independent today and willing to be angel investors. It’s when you don’t pay someone back, male or female, that it becomes rude.

___

Money talks. Should you listen?

Why do we feel the need to talk about, or show off, what we have? We all know people – be it co-workers, family members or friends – who like to talk about how much they make or how much something cost. We really liked the author’s final quote: “There was once a day that we did not try to keep up with the Joneses – because we didn’t know what the Joneses had and no one knew what we had.”

Materially possessed

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I recently saw a picture of people standing line. It made me think of the pictures we saw from the Great Depression. Back then, people stood in line to get a little soup or bread. The picture I saw recently showed people waiting in line to buy a Blackberry Storm!

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Why is it so important to have the newest phone? Because we get our identity from our possessions.

We’re not saying that it’s bad to be an early adopter; we need them. The question is, and only you can answer it, “Is it best for you to be an early adopter?”

It may be. Your career may require you to have the newest phone. That’s a good reason. However, buying one just to be able to show it off to our friends … not such a good reason.

Just say “No”

It’s not a good reason because it leads to an ongoing problem. If that’s really the reason we’re doing it, we’re going to have to keep buying over and over again.

It becomes like a drug and we need our fix.

“I want it. I want it now. I want people to know I have it.”

A void check

After we admit that we’re doing this, we have to ask ourselves why – what’s the underlying reason? You see, we buy because of how we feel about ourselves.

We’re spending money to fill an emotional void.

We’re showing off our latest acquisition to cover up our real feelings. When we do this, we just create a bigger problem.

Getting it in balance

That problem is – we end up with a weak balance sheet. We want a lot of assets and few liabilities. The result of our spending is few real assets and a lot of liabilities.

Millionaires do the opposite. They focus on building up their balance sheets by buying assets with real value and keeping their debt relatively low. That’s not determined by how much we make or what we buy. It’s based on how much we save and invest intentionally.

Shhh … be very, very quiet!

We do that quietly. Perhaps nobody knows but us! But that’s the beautiful thing about it – we know!

In the last few months, we’ve relearned how incredibly important it is to have a financial safety net. We have to build up an emergency reserve. It’s not a sexy thing like a Blackberry Storm or a new car. It won’t get your friends excited. In fact, you probably won’t even talk about it because it’s so boring. But it sure will come in handy in the future.

You can also quietly get out of debt. We like to show off what we just bought, but we don’t talk about how we maxed out our credit card to buy it. So we put out a false identity, which doesn’t help us feel better about ourselves, because down deep we know the truth. And that truth does not set us free!

Don’t worry about what your friends and neighbors think you have. Take solace by knowing what you’re doing to have all you need and then some!

___

___

We’re grateful that you read our post today. Please check in tomorrow when we’ll talk about night moves. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00281-120808.mp3

Related posts

Your Emotions and Your Money

Squirrels, Nuts and Business Cycles

6 Easy Steps To Financial Freedom

Getting Aggressively Passive: Creating A Passive Income That Sets You Free

(Image by isouthpawi)

___

___

When it comes to money, the author says that a gentleman would never:

• Borrow from a lady

• Borrow from a man without collateral and a plan to pay it back quickly

• Discuss money

• Discuss his possessions or their cost

• Name drop about his rich friends

___

I think the idea that a gentleman never borrowed money from a lady shows that we are living in different times. Many women are financially independent today and willing to be angel investors. It’s when you don’t pay someone back, male or female, that it becomes rude.

___

Money talks. Should you listen?

Why do we feel the need to talk about, or show off, what we have? We all know people – be it co-workers, family members or friends – who like to talk about how much they make or how much something cost. We really liked the author’s final quote: “There was once a day that we did not try to keep up with the Joneses – because we didn’t know what the Joneses had and no one knew what we had.”

Materially possessed

___

I recently saw a picture of people standing line. It made me think of the pictures we saw from the Great Depression. Back then, people stood in line to get a little soup or bread. The picture I saw recently showed people waiting in line to buy a Blackberry Storm!

___

Why is it so important to have the newest phone? Because we get our identity from our possessions.

We’re not saying that it’s bad to be an early adopter; we need them. The question is, and only you can answer it, “Is it best for you to be an early adopter?”

It may be. Your career may require you to have the newest phone. That’s a good reason. However, buying one just to be able to show it off to our friends … not such a good reason.

Just say “No”

It’s not a good reason because it leads to an ongoing problem. If that’s really the reason we’re doing it, we’re going to have to keep buying over and over again.

It becomes like a drug and we need our fix.

“I want it. I want it now. I want people to know I have it.”

A void check

After we admit that we’re doing this, we have to ask ourselves why – what’s the underlying reason? You see, we buy because of how we feel about ourselves.

We’re spending money to fill an emotional void.

We’re showing off our latest acquisition to cover up our real feelings. When we do this, we just create a bigger problem.

Getting it in balance

That problem is – we end up with a weak balance sheet. We want a lot of assets and few liabilities. The result of our spending is few real assets and a lot of liabilities.

Millionaires do the opposite. They focus on building up their balance sheets by buying assets with real value and keeping their debt relatively low. That’s not determined by how much we make or what we buy. It’s based on how much we save and invest intentionally.

Shhh … be very, very quiet!

We do that quietly. Perhaps nobody knows but us! But that’s the beautiful thing about it – we know!

In the last few months, we’ve relearned how incredibly important it is to have a financial safety net. We have to build up an emergency reserve. It’s not a sexy thing like a Blackberry Storm or a new car. It won’t get your friends excited. In fact, you probably won’t even talk about it because it’s so boring. But it sure will come in handy in the future.

You can also quietly get out of debt. We like to show off what we just bought, but we don’t talk about how we maxed out our credit card to buy it. So we put out a false identity, which doesn’t help us feel better about ourselves, because down deep we know the truth. And that truth does not set us free!

Don’t worry about what your friends and neighbors think you have. Take solace by knowing what you’re doing to have all you need and then some!

___

___

We’re grateful that you read our post today. Please check in tomorrow when we’ll talk about night moves. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00281-120808.mp3

Related posts

Your Emotions and Your Money

Squirrels, Nuts and Business Cycles

6 Easy Steps To Financial Freedom

Getting Aggressively Passive: Creating A Passive Income That Sets You Free

(Image by isouthpawi)