BIGG success is life on your own terms. Our focus today is on money, one of the five elements of BIGG success.
Specifically, we want to talk about an asset that is particularly valuable now. Yet it doesn’t show up on your Balance Sheet. It’s your credit rating, or credit score.
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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.
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?
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!
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 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:
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 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.
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.
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.
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.
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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Next time, we’ll discuss the “must-haves” for your productivity tool kit. Until then, here’s to your bigg success!
Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00246-102008.mp3
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Bigg Challenge
One of our listeners, Randy, is considering making paying his mortgage every two weeks instead of every month so he can pay it off faster. He wants to know if this is a good idea..
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Bigg Advice
We can’t give you a direct answer, Randy, but we will give you nine questions that will help you determine if you should make the extra payments.
#1 – Do you have any other debt?
Chances are your mortgage is the cheapest debt you’ll ever find, after taxes are considered. So if that’s the case, you should pay off your other debt first.
#2 – Do you have an emergency cash reserve?
The general wisdom among financial planners is that you should have somewhere between three months to a year of living expenses in an account that’s readily available.
#3 – How good is your credit rating?
The better your credit rating, the better chance you have to borrow in the future at a reasonable cost should the need arise. When you make extra payments, you’re essentially investing in an illiquid asset. So if your credit score needs some improvement, work on that first.
#4 – How do you feel about debt?
Some people don’t like having any debt at all. If you’re one of them, and if you’re happy with the answer to the first three questions, then make extra payments!
#5 – What’s your interest rate?
This question gets you ready to determine your best financial move. There are two things you need to know:
Multiply your interest rate by (1 – your marginal tax rate) to get your after-tax cost of interest.
#6 – How disciplined are you?
If you’re likely to just spend the extra money if you don’t make extra mortgage payments, then by all means just make extra payments. If you’re disciplined
(or 686 set it up so you don’t have to be]), then you’re ready for the next question.
#7 – When do you plan to retire?
In general, the longer you have until you retire, the more aggressive you can be. So if you plan to retire in a relatively short time, lean toward extra payments. If you have a relatively long time before you retire, you’re probably better off investing.
#8 – What could you earn if you didn’t pay off your mortgage early?
You figured out your after-tax interest cost in Question 5. That’s your cost of money. Now you’re going to look at how much you can make from your investments. That’s your projected return. If the return on your portfolio is greater than your cost of money, that’s a sign you shouldn’t make extra payments on your mortgage.
#9 – Will your current portfolio support your desired lifestyle?
If you already have enough money to keep you happy for the rest of your life, why do anything risky? Just pay off your mortgage and reduce your risk even more.
We’ve offered some general advice here. Find a certified financial planner or CPA to help you with your specific situation.
| Want to read more? Here are the 310 9 questions you should ask before paying off your mortgage] in more detail. |
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Our bigg quote today comes from Walter Savage Landor:
But you shouldn’t pay down your principal unless it’s in your best interest.
Next time, we’ll share a love story with lessons. Until then, here’s to your bigg success!
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By Bigg Success Staff
04-30-08
Bigg Success in Business
Most businesses need some outside financing to succeed. Yet attracting capital isn’t always easy to do. Money people – angel investors, bankers, venture capitalists – bet on jockeys, not horses. They bet on you, not your business.
That’s not to say that you don’t need a good business idea to attract outside funding. Great managers in troubled industries usually lose the fight. Good managers in great businesses will probably do just fine.
So financiers definitely do consider the “horse” as well.
However, all else equal, it’s the “jockey” that wins the race. So they ultimately put their money behind you.
What’s your track record?
Ideally, you’re seeking financing because your business is already successful and you need money to take it to the next level. If that’s not the case, don’t despair. If you’ve successfully run a similar business before, your odds are still good. It’s also important to maintain a good credit score.
How will you handle adversity?
Your financiers will be trying to determine how you will respond during the inevitable tough times. They want to know that you will work with them, not keep them at bay. Discuss how you overcame past hurdles to put their mind at ease.
Can they work with you?
This is the ultimate question. They want to feel like the chemistry with you is good. You will listen when they offer advice. You will cooperate with all reasonable requests. You will care for your interests by watching out for theirs.
Hear today's lesson and laugh on The Bigg Success Show.
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