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Good Debt vs. Bad Debt

By Bigg Success Staff
02-07-08

Timeless Principles

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Many of the wealthiest people in the world built their fortunes using debt. Most people who file for bankruptcy got to that point using debt.

Debt is a double-edged sword. So how do you make sure it doesn’t stab you?

When we borrow money, we trade part of our future for the present. We enjoy the benefits of spending money now, with the understanding that we have to pay it back in the future. So how can that ever be good?

What is “good” debt?
Good debt makes us money. We borrow money to buy an asset now that pays for itself. We purchase something that comes with income. We use that income to pay back the loan. It’s just a matter of time before we have a debt-free asset. We have created wealth.

What is “bad” debt?
Bad debt costs us money. When we spend borrowed money for anything that won’t pay for itself, we’re borrowing from our future to pay for our present. We will have less wealth in the future because we made this purchase.

An example of each
Sissy wants a new plasma TV. She doesn’t have the cash to buy it now. She doesn’t even need to buy it now; the TV she’s using works just fine. But her neighbor just got a new TV and she wants to one-up him! She’ll just use her credit card – after all, the minimum payment isn’t that bad.

Sassy wants a new plasma TV as well. She even has the cash to buy it, but her TV works just fine. Besides, she’s busy tending to her investments; she doesn’t watch that much TV anyway. And 150 she wants financial freedom more than the TV]. So she uses her money to buy a small rental property with three partners. The rents will cover all her costs. Before you know it, she’ll have it paid off.

Do you see the difference? Sissy is taking on debt to buy something that will only go down in value. It won’t make her money … it will cost her. Sassy is building her net worth and creating a better future for herself.

It would be one thing for Sassy to buy the TV – she has the money! Sissy is just subjecting herself to have to continue slaving away for every dollar.

Can good debt turn bad?
There are some inherent assumptions in Sassy’s situation. You need to carefully consider your specific opportunity before you sign on the dotted line.

Ask yourself, “What if?” In order for it to truly be good debt, you have to be able to withstand some unexpected events. For instance, what if you can’t keep the property fully occupied? What if you have extended periods of time without a renter? What if you have a major repair? And on and on.

What’s your contingency plan?
Now that you’ve considered what could go wrong, determine what you would do if that happened. You may establish a cash reserve upfront to cover lengthy vacancies, major repairs, and the like. You may set money aside each month as the rent comes in for these types of things.

Whatever you do, expect the unexpected by planning for it in advance. That way, when something happens, you’ll know how to respond quickly.

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CYA: Does It Pay?

You’ve probably encountered people who never take responsibility for ANYTHING. That’s what sparked today’s blog –

Does it pay to shift the blame?

On the show, Mary-Lynn said that she believes it DOES pay.

She said she is not a blame-shifter herself, but she has worked with them. In her experience, they often get away with it. Sometimes they even get rewarded with promotions or a better job!

George retorted that it may work short-term, but it DOES NOT pay in the long run. He talked about a manager he had who never accepted responsibility. He knew that meant one of two things – either she wasn’t doing anything, or she was passing the buck. So he fired her.

It hurts morale when employees see people getting away with not accepting responsibility. George said he learned this lesson the hard way – after firing an employee, another employee asked why it took him so long!

As an employee, you don’t have many options when you’re working with a blame-shifter. However, there is one thing you can do – document, document, document. You don’t want to get blamed for THEIR mistakes.

However, as a leader, you can create a culture where it’s okay to accept blame. That’s important because your employees are often afraid of the consequences of owning up to their mistakes.

So focus on fixing the problem, not the blame.

To rephrase an old saying, “It’s amazing how much gets accomplished when no one cares who gets the blame.”

In our society today, we seem to do the opposite – we rush to find SOMEBODY to blame, rather than fixing the problem. Mary-Lynn said that’s why it pays to be a blame-shifter.

George said he remembered an employee who always blamed something or someone. George told him that he had a lot of potential. He wouldn’t get fired for making a mistake, but he was going to get fired if he didn’t start taking responsibility.

He became one of George’s top managers. That won’t work with all employees, but it will work with the ones you want to keep.

Admit your mistakes
Lead by example – when your employees see you admitting mistakes, they’ll feel safe doing the same.

Distribute the credit liberally and focus the blame conservatively. Give more credit to your team; accept more blame yourself. You’ll win the hearts and minds of your team when you do this.

How to get away with shifting the blame
George said that there was one way you might get away with always shifting the blame.

Be a moving target.

If you’re constantly moving from job to job, company to company, place to place, you might get away with it in the long run. But do you really want to live that life – always looking over your shoulder, always worrying that you’ll be found out?

Mary-Lynn responded that blame-shifters do move – and it’s usually UP – to a better job!

What do you think? Does CYA pay?

Our bigg quote today is by the great writer, Oscar Wilde.

“It’s not whether you win or lose; it’s how you place the blame.”

 
In the game of life, great teams experience the thrill of victory and the agony of defeat together, not as individuals.

Next time, we’ll discuss what you can learn from jugglers. Until then, here’s to your bigg success!

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How To Get Your Customers To Finance Your Business

By Bigg Success Staff
01-18-08 

Bigg on Small Business

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You either treasure your customers or you go out of business. Ultimately, customers pay your bills, one transaction at a time. In addition to that, customers can finance your business.

Of course, all industries have standard protocols within which you must remain. Or do you? What if you thought creatively? What if you could find a way to win customers and get funding for your business at the same time?

Look at related industries for ideas. Do they follow the same practices as yours? Talk to your customers. What would entice them to consider a creative payment arrangement?

It may be that the customer helps finance your business by the strength of their credit and the commitments they have given you. You don’t care where the money comes from … as long as it comes!

4 ways customers can get you money fast, even if you have bad credit.

#1 – Customer deposits
Wouldn’t it be nice if your customers paid you in advance? Many businesses operate under this model, if you think about it! Even if only a portion of your revenue is prepaid, wouldn’t it make a huge difference to your cash flow?

A marina owner we know employs this concept. One of his primary sources of revenue is dock rentals. He offers his customers a huge discount if they pay for their entire year’s rental a year ahead. Most of his customers take advantage of this offer. He never worries about cash flow.

#2 – Purchase order financing
What if the customer isn’t willing to pay in advance? You may still be able to get funded upfront by using their purchase order as collateral. This won’t work for just any customer – they need to be a company with good credit. 

To turn this pre-receivable into funding, your purchase order must pass two tests. First, it must be non-cancelable and verifiable. Second, you need a gross profit margin of at least 20 percent.

This is not cheap financing – expect a discount between four and seven percent of the purchase order amount. However, isn’t 93% of an order better than no order at all?

You’ll need to pay your purchase order financier off once the order turns from a pre-receivable to a receivable. That’s where the next source comes in.

#3 – Factoring
If you accept credit cards, you’re familiar with the concept of factoring. You get paid now by a financier who gets paid by your mutual customer later. Factoring is only slightly different. 

Factoring can work in a number of ways – let’s assume that you want to completely outsource your credit and collection process. This is expensive money, but you don’t have to worry about payment. The factor takes care of it! You’ll need customers with good credit ratings.

Depending on a number of factors, expect a discount between one and fifteen percent of the invoice amount. Sounds expensive, doesn’t it? However, you won’t wait for your money. You don’t need a credit and collections department. You won’t write off any bad debt. Is it starting to sound reasonable?

#4 – Strategic partnering
What if your customer became your partner? This arrangement has worked for a lot of businesses. Be careful because your relationships with other customers may be affected.

We know a man who owned a specialty printing company. His largest customer was a fundraising company – they sold goods through organizations wanting to raise money. His customer wanted to offer a new product that required special equipment. He negotiated for them to pay for the equipment in exchange for a royalty on all sales produced by that equipment.

The customer effectively got a rebate on all their purchases of that product. Plus, a participation in sales from the machine they bought. The owner had a whole new profit center, with no financial risk.

So look to your customers if you need money for your business. You might get paid even before you make the sale!

How have your customers financed your business? Share your bigg ideas with us!

Hear today's lesson and laugh on The Bigg Success Show. 

(Image of money rose by kissthis, CC 2.0)

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6 Easy Steps To Financial Freedom

By Bigg Success Staff
01-17-08

Bigg On Money

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It’s easier than you might think to accumulate a nest egg. However, it’s becomes more difficult every day. That’s because time is on your side, when it comes to money.

Let’s say you want at least $1 million when you retire at 65. We know … you want to retire earlier than that. We’re glad to hear it! But keep reading our example so you understand the point. It’s important!

At 25, all you need to do is invest $10 a day to reach that goal. If you wait ten years to start, you’ll have to set aside $22 a day. So our point is …

Start today!

Here’s how to retire earlier – if you’re 25 and you want to retire at 55, just find $22 a day to invest. But no matter how old you are, get started right away!

In the above example, we assumed you could earn 8 percent on your investments. If you can earn more, you could retire earlier. But be careful – increased returns usually carry higher risks.

Before we get started on the steps, there’s one thing we want to talk about. It’s important that you have a well-defined goal. For example, our goal above was to accumulate $1 million.

Want some help writing a well-defined goal?

Our Bigg Goal-Setters Workbook is your answer!
It’s FREE when you subscribe to our FREE newsletter

At Bigg Success, we think about this way –

Your money makes money so you don’t have to.
Then you’re free to do what you want.

How much will that take for you? That’s your goal! Now, let’s talk about the six steps to get there.

#1 – Automatically pay yourself first.
Many people are confused by this concept. Of course, you pay yourself first, right? After all, your money is yours to do with as you please. However, they miss the point – at the end of the month, they have nothing left! Pay for your future just like you pay for every other bill.

Set up an automatic deduction from your paycheck or your bank account. People report that if they don’t see the money, they don’t miss it! This is the most critical step because it gets everything started. Don’t stop until you reach your goal.

#2 – Purchase with purpose.
We all make many spending choices every day. Do you really need that plasma TV now, or could you wait awhile? If you don’t have the cash, don’t spend it. Also, look at the annual effect of your daily decisions (e.g. coffee or lunch out every day).

Can you find a way to save an extra $10 every day? As we’ve already seen, that can turn into $1 million in 40 years. As you see your accounts grow, you’ll be inspired to keep going.

Keep your financial goals fixed clearly in your mind. 11 Picture yourself free of all financial worries]. That helps you make the best choices today. See our blog on 150] for more tips.

#3 – Own your own home.
We can make a good case for renting. Research shows that you’re better off “renting and investing” than owning your own home. However, most renters never get to the second half of that phrase.

That’s one of the reasons why the net worth of homeowners is so much greater than that of renters. Owning your own home forces you to save money. It’s very much related to the first step.

Don’t be “house-poor” – it’s not that good of an investment! Find a house that meets your needs. You can always trade up when you don’t have to worry about money anymore!

#4 – Pay off debt.
You’ve probably heard people say, “I want to buy a house because renting is just throwing money away.” Why are we so opposed to “throwing money away” to our landlord, but we think nothing of throwing it away to our banker or credit card company?

After all, the interest they charge is a rental fee on the money you’re using. There’s no difference! So pay off your debt so you stop paying interest.

Start with one obligation, like the one with the highest interest rate. Pay it off. Take the payment you’ve been making on that and add it to another one. Pay that one off. Eventually you’re debt-free! Don’t stop! Keep making those payments – to yourself! It will jump start your future! That’s another secret to reaching your goal early!

#5 – Invest wisely.
A lot of people don’t accept enough risk. If you invest too conservatively, it’s hard to reach your goal. There’s a basic financial principle – increased risk deserves increased rewards.

But here’s the secret – time takes away much of the risk. If you’re investing money that you don’t need for five years your risk is generally less than if you need it in one year.

Don’t put all your eggs in one basket. The easiest way to do this is to invest in a no-load mutual fund balanced for people in your age bracket. Don’t touch this money until you’ve reached your goal.

#6 – Prepare for the unexpected.
Here’s what you can expect – you will face some obstacles on the way to your financial freedom. Prepare for them. Make sure you’re insured properly, including disability insurance.

Stash away an emergency cash reserve. Most experts recommend that you have three to six months of living expenses in an account for unexpected events. If you have equity in your own home, you may be able to establish a home equity line-of-credit to cover these emergencies. Then you can invest the money you have kept in reserve.

You won’t get rich quick with these six steps. However, they will put you on the road to financial freedom. Enjoy the trip!

Hear today's lesson and laugh on The Bigg Success Show. 

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Getting The Credit You Deserve

We’re not talking about credit cards here! We’ll discuss a somewhat common problem – what to do when you’re doing most of the work, but getting very little credit.      

Vicki e-mailed us with a bigg challenge – she recently worked on a major project at work. It was a bigg success – okay, she didn’t say that, but we couldn’t resist! Management is thrilled. Her problem – her supervisor is taking all the credit. Vicki wants to know what to do to get the recognition she deserves.

Here’s what we recommend to Vicki:
Put it in perspective
Don’t forget the old saying: It’s amazing how much gets accomplished when no one cares who gets the credit. The fact is you know that you worked on this project and that it was very successful. Enjoy it! You helped your company … you contributed.

Ask yourself if you’re inflating your role? Sometimes we give ourselves more credit than we deserve, especially on successful projects. Make sure that’s not the case. However, from reading Vicki’s e-mail, it doesn’t appear that’s the situation here.

We live in a highly competitive world. You’re a hard worker. You’ve been a part of a successful campaign. Strive to get the credit you deserve. That helps your standing in your company. It 129 makes your job more secure.]

If you don’t promote yourself, no one else will.
We’re not talking about walking around telling everyone how great you are. Don’t undermine your boss. Just understand that you need to make sure you’re recognized for your contributions.

Document, document, document.
As you’re working on projects in the future, keep written notes as things progress. Give credit where credit is due for ideas, participation, and implementation. Follow up – after meetings, face-to-face conversations, and phone calls – with a written record of “your understanding” of the conversation. Get agreement on the facts from your supervisor and/or co-workers.

For the project you just completed, consider writing out your role in the project. Ask your supervisor to review it. Tell him that you recorded the details while they were fresh in your mind. You’re going to put it in your file for your next review.

Don’t just write down what you did – include what you learned. Your company provides you with opportunities for growth. Pat your company on the back for that!

One more thought on documentation – don’t forget to add this project to your resume!

Address the situation at the proper time in the proper way.
The proper time is AFTER you have documentation on your role in a project. Then, if your manager fails to give you the credit you deserve, you’re ready to address it in the proper way.

That means having a conversation, not a confrontation. You won’t accomplish anything by attacking him. Report on the situation with as little emotion as you can possibly muster. Keep this two-point outline in mind –

(1) This is what happened      (2) Here’s how it makes me feel.

You may start with a discussion of the project, what you’re most proud of, and what you learned for next time. Then, you might say something like:

“In our meeting yesterday, when this project was discussed, I don’t feel I was given the credit I deserve. It makes me feel unappreciated.”

You’re not putting your boss on the defensive by saying that. You’re simply, and properly, trying to resolve an issue.

Good luck, Vicki! Thanks for sharing your bigg challenge with us.

What’s your biggest challenge right now? E-mail it to us at bigginfo@biggsuccess.com

Do you have a suggestion for Vicki? Share it with us in the Comments below.

Our Bigg Quote today is more of a riddle …

Why is Christmas just like a day at the office? 
Because you do all the work and the fat guy with the suit gets all the credit!

You may be an elf now, but if you remember to elf-promote, you’ll be elf-satisfied!

Come back tomorrow to find out if your knowledge is a blessing or a curse. Until then, here’s to your bigg success!

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