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Don’t Show Me the Money

wallet The List Universe recently published their list of ten lost rules of etiquette. The one that really got our attention was their #1 reason – talking about money and possessions.

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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

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marylynnI 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.

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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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georgeI 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!

___

Get the tips and tools you need to be a BIGG success!
Subscribe to the Bigg Success Weekly – it’s FREE!

___

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)

Don't Show Me the Money

wallet The List Universe recently published their list of ten lost rules of etiquette. The one that really got our attention was their #1 reason – talking about money and possessions.

___

___

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

___

marylynnI 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

___

georgeI 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!

___

Get the tips and tools you need to be a BIGG success!
Subscribe to the Bigg Success Weekly – it’s FREE!

___

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)

Deep in Debt? Take These Drastic Steps

pennies We’ve heard a lot of discussion about the toxic assets held by our financial institutions. Here’s what hasn’t been explicitly stated too often – in order for these financial institutions to have toxic assets, many of us must be carrying toxic debt.

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We’ve seen government at all levels, corporations, and yes, individuals borrow more and more money over the past few years. Many people now have this sinking feeling that they will never get out from under it all.

So today we want to talk about what to do if you have that feeling.

The King and Queen of Personal Finance

Cash is king again and credit score is queen. In the coming years, people with cash and a good credit score will have more options, be able to take advantage of more opportunities, and will experience less stress. Isn’t that a nice place to be?

A Timeless Principle Makes a Comeback

It requires discipline. It’s amazing how we can rationalize our purchasing decisions. If I can’t afford to buy it now without credit, why would I think that I can afford to pay for it later along with an exorbitant interest rate?

So we need to pay cash or don’t buy at all. Eliminate purchases on credit, even ones that promise “no interest, no payments” for some period of time. Of course, if you already have the money, and you’re just using their money, and you need the item … really need it … then go ahead and enjoy!

Two Important Financial Moves

Perhaps more so than at any time in our lives, we need to build up our emergency reserves. Financial planners have been saying it all along, for the most part. Many of us weren’t listening. Keep six to twelve months of living expenses in a readily-accessible reserve account just in case you need it.

Pay off almost all of your debt. You may not pay off your mortgage. You may even keep a car loan for a time. Get rid of all other debt; it’s robbing you of your future.

Then you’ll be ready to start looking for the tremendous opportunities that will be available to anyone with cash to invest.

Drastic Steps to Dispose of Toxic Debt

Drastic times call for drastic measures. These steps will not be easy. In fact, they will be uncomfortable at best. However, if you’re feeling overwhelmed by all of your debt, they are necessary.

Sit down and logically determine how quickly you could get out of debt, given the two exceptions we noted above. If it’s more than five years, even after considering the steps we’re about to outline, it’s probably best to seek professional help. Here are the steps:

Sell assets

Look around for anything that you don’t need, never needed, don’t use, or never used. Get rid of it and use the money to build up your cash reserves and/or pay off debt.

Get a second income

Get a part-time job or find a way to make some spare money. Even if it’s only $300, $400, or $500 a month, plowing this money into paying off high-interest debt will pay you bigg dividends in the future. This doesn’t have to be something to do forever, just do it until you get your financial situation shored up.

Cut back on contributions to your retirement plan

We always hesitate to suggest this because you’re robbing your future. Talk to your financial planner before you take this drastic step. But even with an employee match, it may be better to pay off high-cost debt. You may earn 30% by paying off a credit card, for example, and give yourself more room to maneuver through tough times and unexpected events.

Reduce housing costs

With the price of houses down in many markets and the continued lack of buyer demand, now probably isn’t the time to consider downsizing. However, analyze your specific situation because you might be surprised.

Another option might be to rent part of your home. Or find other ways to cut costs on your existing house. For example, property tax assessments will be going out in January. Check your assessment and the price of houses that have sold nearby to see if you can protest the value you’re being charged for.

Cut transportation costs

Could you get by with one less car? Could you take advantage of public transportation? Could you car pool? All of these ways put money in your pocket that can be used to build up cash and pay off debt. 

Stretch your dollars

We’ve covered the bigg ones, but it’s also important to look at all your other discretionary expenses. Many people have already cut back on dining out. Go even further – buy fewer prepared foods and cook meals yourself. Sure it will take more time, but it will save you money that can be used for stockpiling cash and knocking down debt.

Look for your recurring expenses – cable bills, cell phone bills, and everything else. Is there a way to make cuts?

Strive to stretch every penny you can out of every dollar you bring in so you get back on your feet and on track to being a bigg success!

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Get the tips and tools you need to be a BIGG success!
Subscribe to the Bigg Success Weekly – it’s FREE!

___

Next time, we’ll discuss the “must-haves” for your productivity tool kit. 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/00246-102008.mp3

Related posts

Squirrels, Nuts and Business Cycles

6 Easy Steps To Financial Freedom

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

(Image by sufinawaz)

Are You Throwing Money Away by Owning Your Home?

toss_moneyWe all know that the three essentials for living are food, clothing, and shelter. We definitely rent our food. Do we rent or own our clothing? Hmmm.

Part of the American dream is to own your own home. And there are good reasons to do so. For instance, a Federal Reserve study[pdf] shows that the average family that owns a home has a net worth of nearly $625,000 while families who rent have a net worth of just a little over $54,000.

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Homeowners on the move

We’ve seen an interesting statistic bantered about, but we haven’t been able to pin down a reliable source. If this statistic is true, American homeowners move once every five years or so, on average.

So we thought we’d consider what that does to the buy vs. rent equation. We’ll use some averages and national statistics to create an example. However, what really matters is your own situation and your local real estate market. Only you, working with your financial advisors, can determine what’s in your best interest.

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marylynn When I was younger, one of my bosses in radio told me that I was just throwing away money by renting. I remember thinking that it made sense. I’d reached an age where maybe I should consider buying. So I did. As often happens in the radio business, less than a year later, I lost my gig. So I had to sell my house to move to a different market. I lost a lot of money by buying. If only I had had a crystal ball!

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Putting buy vs. rent to the test

We created a fictional purchase to see if we would be better off renting or owning a house for five years. We assumed that:

  • We put 20% down (approximately $63,000).
  • We financed the rest with a 30-year mortgage
  • The interest rate would be 6.50%, slightly above the current rate.
  • Our house would appreciate 4% per year, slightly below the recent average.
  • Property taxes would cost us 1% of the value of the home.
  • Insurance would run 0.50% of the value of the home. (Renters and homeowners have to insure the contents. We have the added burden of insuring the building.)
  • Repairs & maintenance would consume 1.50% of the value of the home.

Over the first five years, 83% of our total mortgage payments would go for interest. In other words, for the most part, we’ve traded renting property for renting money. If the interest rate is higher, the portion that would go to interest would also be higher. Of course, the reverse is also true.

During this period, we would pay $2,171 per month as “rental costs” for our home. We call them rental costs because they have no value once they’re paid. They only allow us to keep owning. So if we could rent a similar property for less than this, we would be better off renting instead of buying.

Of course, if we had made a down payment of less than $63,000, our cost would go up because we would be paying even more interest.

Where’s the break-even?

We also looked at how it would take before we would break-even. After all, it costs money to sell a house. We would have to pay commissions to our realtor, closing costs, and the like. We assumed these costs would total 8% of the selling price.

Given our assumptions, we looked at what would happen if we sold after one year. Our house would now be worth $326,560. From that, we would pay $26,125 in selling costs. After a year, our mortgage balance would be $248,392.

So we would be able to take out $52,043 in cash. But remember, we invested $63,000. So we lose about $11,000 if we sell after one year.

But that’s not the whole story …

We haven’t yet considered the opportunity cost of tying up that $63,000 in a house. Because if we didn’t invest it in this house, we could have invested in something else. We assumed we could have earned 6% by investing in some portfolio of financial assets.

That would have returned nearly $3,800. So by buying this house and selling it in a year, we would put ourselves in the hole nearly $15,000.

Even after 2 years, we’d still be about $3,500 behind, given our assumptions. Of course, one of those assumptions is that real estate prices are rising. It’s almost certain they will in the long run, but will they rise in the next year or two? They may not in some markets.

What’s the bottom-line?

We concluded that if we didn’t plan to own a house for at least two years, we’d rather rent. We also saw that the longer our holding period, the better we would do. For instance, in the last five years of the mortgage, only 15% of the mortgage payment would go to interest. It seems like buy-and-hold is rewarded in real estate investing.

How to get around it …

We have two friends who have been able to get around the short-term ownership problem. One of them is in the military, so he moves frequently. He only buys a house that he knows would make a good rental property. If he gets transferred, he hires a local property manager and rents it out. Until he decides where he wants to retire, he plans to hold a number of his houses.

Another friend doubled-down on this strategy. He moved quite frequently as he climbed the corporate ladder. Not only does he own houses in a number of cities, he bought additional rental properties, so he has a diversified portfolio across a number of cities. Now he’s retired living off the rents!

So you can get around the disadvantages of short-term ownership by having an alternative exit strategy!

Next time, we’ll discuss how a toy that you probably played with as a kid can help you manage your time. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

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Before Going into Business with Friends, Consider These 8 Scenerios

One thing people often don't think about when going into business with a friend is the relationship itself. You’re going into business as friends. You want to remain friends.

Business is full of surprises. Discuss the possible surprises upfront, before you mix friendship and business, so you can keep your relationship strong while you’re in business.

You may think your friendship is really strong … and you’re probably right. But when you go into business together, your friendship will be tested more than it ever has been before. It’s wise to prepare for it beforehand, so you already have a lot of the answers when you’re in the middle of a tough situation.

Look at it this way – a business partnership is like a marriage. You need a pre-nuptial agreement! So find a good attorney to draw up an agreement for you.

8 “What if …” scenarios to discuss with your attorney

#1 – What if the business fails?
According to statistics, if the business fails, it’s most likely that no one will be owed any money. But what if that’s not the case – what if the business does owe money? How will you resolve that?

#2 – What if it succeeds wildly?
That may not sound like a problem, but you’d be surprised. Sometimes when a business succeeds at this level, greed enters in. Then comes the power struggles. Discuss the dream scenario upfront to avoid a nightmare.

#3 – What if one of you is incapacitated?
What if one partner is no longer able to do his or her part? How will the others handle this? Will this person get bought out? Is there formula for the price? There’s a lot to think about if this unfortunate situation happens.

#4 – What if one of you dies?
Obviously this is even more extreme than the last scenario. There’s the human side – your friend has passed and you’re grieving. But you also have business to attend to; work still needs to get done.

Many of the same questions from Scenario #3 apply here. But there’s more. For example, does the deceased partner’s family now have an ownership stake? Or do you buy them out?

#5 – What happens when one of you gets married?
Or you may already be married. What say does the spouse have in the business? Can the partner’s interest be jointly owned with a spouse or do you want to restrict ownership to your original group?

#6 – What if one of you gets divorced?
The business interest may be a significant asset. You probably don’t want a former spouse having a say in your business – even as a minority stakeholder. It can really muddy the waters, as the saying goes. What restrictions will you place on ownership?

#7 – What if one of you wants out?
How will you determine a price? What kind of notice will you require? What is the process?

#8 – What if one of isn’t pulling his or her weight?
How will you determine that this is case? What can, and will, you do about it?

These aren’t pleasant things to think about, let alone talk about. However, you’re more likely to find good solutions now when you’re thinking logically than to try to work them out in the heat of the moment.

We can’t stress this enough – get a good business attorney.
Then sit down with your partners and your attorney and work through these issues. Your attorney will probably have even more situations to discuss. Work through these issues before you start – for the sake of your friendship … and your business.

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