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9 Questions to Answer Before You Make Extra Mortgage Payments

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..

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:

  • the interest rate on your mortgage
  • your tax bracket (i.e. how much you’ll pay in taxes on your next dollar of income, that’s called your marginal tax rate).

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 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
9 questions you should ask before paying off your mortgage
in more detail.

Our bigg quote today comes from Walter Savage Landor:

“We talk on principle, but we act on interest.”

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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Don’t Fear the Banker!

A lot of us are very uncomfortable talking about money, whether that means negotiating your salary, asking for a sale, or asking for a loan. So the thought of going to the bank to get a loan can be very intimidating.

The loan process seems somewhat mysterious. Wouldn’t it by nice to know where bankers are coming from? Then you would be better positioned to get the money you need.

3 things to understand about your banker

#1 – Banks can’t afford to lose money.
A lot of people don’t realize that banks operate on relatively thin profit margins. So, contrary to popular belief, they don’t make that much money on every loan.

The biggest question every banker has when looking at every loan proposal is …

Will we get paid back?

They’re more concerned about the return OF their investment than the return ON their investment. That comes later.

#2 – Banks don’t fund start-ups.

This is perhaps one of the biggest misperceptions in the business world. People think the bank is the best place to go for money they need to start a business.

To which we say, reread our first point! Bankers are relatively risk averse for the reasons stated above and more. So banks don’t tend to lend money to new, unproven firms.

You might be saying, “But I know people who got money to start their business from a bank.” Here’s the distinction – the bank wasn’t loaning money to their BUSINESS; they loaned them money as individuals FOR their business. If you look deeper, you’ll find that, in almost every case, they secured the loan with equity in their house or some other asset.

#3 – Banks need to lend money.
That’s their business. So if you need money, and you can prove that you can pay it back, and you have some assets to secure the loan, go to the bank with confidence!

Your bank is just like your favorite video store.
Video stores rent DVDs for a fee. Banks rent money for a fee. So going to the bank is just like renting a movie. You have to return the movie and pay a fee. And hey, unlike video stores, bankers don’t charge their fees upfront!

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Our bigg quote today is by the great Stephen Covey:

“Seek first to understand, then to be understood.”

Understand your banker’s needs so you stand to get your money needs. 

Next time, we’ll discuss how to offer criticism without being critical. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

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Related posts 

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Don't Fear the Banker!

A lot of us are very uncomfortable talking about money, whether that means negotiating your salary, asking for a sale, or asking for a loan. So the thought of going to the bank to get a loan can be very intimidating.

The loan process seems somewhat mysterious. Wouldn’t it by nice to know where bankers are coming from? Then you would be better positioned to get the money you need.

3 things to understand about your banker

#1 – Banks can’t afford to lose money.
A lot of people don’t realize that banks operate on relatively thin profit margins. So, contrary to popular belief, they don’t make that much money on every loan.

The biggest question every banker has when looking at every loan proposal is …

Will we get paid back?

They’re more concerned about the return OF their investment than the return ON their investment. That comes later.

#2 – Banks don’t fund start-ups.

This is perhaps one of the biggest misperceptions in the business world. People think the bank is the best place to go for money they need to start a business.

To which we say, reread our first point! Bankers are relatively risk averse for the reasons stated above and more. So banks don’t tend to lend money to new, unproven firms.

You might be saying, “But I know people who got money to start their business from a bank.” Here’s the distinction – the bank wasn’t loaning money to their BUSINESS; they loaned them money as individuals FOR their business. If you look deeper, you’ll find that, in almost every case, they secured the loan with equity in their house or some other asset.

#3 – Banks need to lend money.
That’s their business. So if you need money, and you can prove that you can pay it back, and you have some assets to secure the loan, go to the bank with confidence!

Your bank is just like your favorite video store.
Video stores rent DVDs for a fee. Banks rent money for a fee. So going to the bank is just like renting a movie. You have to return the movie and pay a fee. And hey, unlike video stores, bankers don’t charge their fees upfront!

Click on our Comment link below to share your thoughts on today's post
Click on the Share This button below to Digg, Stumble, Mixx more

Our bigg quote today is by the great Stephen Covey:

“Seek first to understand, then to be understood.”

Understand your banker’s needs so you stand to get your money needs. 

Next time, we’ll discuss how to offer criticism without being critical. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Related posts 

How To Become A Millionaire

Good Debt vs. Bad Debt

How To Get Your Customers To Finance Your Business

5 Places to Find Cash for Your Business Today

I Have An Idea For A Business! Now What?

Lessons Learned From A Bankrupt Business Owner

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From Refund to Riches: How to Turn a $2,300 Refund into $723,000!

With tax day upon us here in the United States, a lot of people will get a refund soon. So today, we’ll discuss how to turn that refund into riches.

But this blog is really about “found” money – money you weren’t expecting. The average refund last year (paid in 2007 from 2006 tax returns) was $2,287, according to the IRS.

That’s a nice down payment on a plasma TV!

That’s what a lot of people do – spend their refunds on things that won’t be worth much in a few years.

Instead of that, you could save and invest it. But isn’t that’s boring?

Boring can be exciting when your money starts to compound!

How to turn your $2,300 refund into $643,000!

Say you’re 25 years old and you get a $2,300 refund every year until you retire at 65. We’ll assume that you earn 8% on that money, which may be a little conservative depending on what you invest in.

Under these assumptions, that $2,300 a year invested will turn into a nest egg of over $643,000 when you retire!

Now is that boring?

Age makes a difference. Take the previous example for a 35-year old. Your nest egg is still significant – it’s over $281,000. But by waiting just ten years to start, it will be less than half as much!

But even then, you still create a nest egg of nearly $300,000.

2 ways it can be even better

#1 – Quit loaning the government money at 0%.
That’s what you’re doing when you get a refund – you’re getting your money back, but you don’t earn any interest on it while they hold it. So redo your W-4 so you only withhold what you expect to owe.

Then you won’t get a refund, but you’ll have more money in every paycheck. But here’s the key:

You have to be disciplined enough to invest that money!

Let’s say you do that – Invest your refund check this year, adjust your W-4, and then invest the extra money that shows up in your paycheck. You’re that 25-year old we talked about earlier. Only now …

… you’ll have over $723,000, instead of $643,000. It makes an $80,000 difference!

Doesn’t that open your eyes about the “cost” of a refund?

#2 – Pay off debt that’s costing you more than 8%.

We assumed an 8% return. If you have any debt that’s costing you more than 8%, pay it off first and your returns will be even higher! Once your debt is paid off, start investing to build your nest egg.

Jake’s Take – Top 5 signs that you hired the wrong accountant

#5 – He insists on filling out your return using only Roman Numerals.

#4 – He offers to help you boost your deductions by renting you his wife and kids.

#3 – He spends most of your consultation looking nervous and asking if you're wearing a wire.
 
#2 – He does all his calculations on an Etch-a-Sketch.
 
#1 – His client list includes Leona Helmsley, John Gotti, and the Unibomber.

Our bigg quote today is a Proverb.

“Money grows on the tree of patience.”

So do you want to watch your new plasma TV or do you want to watch your money grow? The choice is yours!

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Next time, we’ll discuss why being imperfect is perfect. Until then, here’s to your bigg success! 

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Recession Progression

Pretend that we could eat as much as you want, of whatever you want, whenever you want, with no consequences. What would a lot of people do?

Probably eat a lot of their favorite foods!

Of course, in the real world, we know that if we do that for any period of time, we’ll have to go on a diet.

That’s what a recession is – the economy going on a diet.

It’s just the business cycle. Things go well. People get over-exuberant. Too much debt. Bad investments. Then a recession gets rid of the excesses. It’s part of the evolutionary process.

So today, we want to discuss how to survive and thrive in a recession.

How to survive a recession

  • Develop a contingency plan.
  • Start by asking yourself, “What if …?”

    What if you get laid off?
    What if you have to work longer hours because other people got laid off?
    What if your time gets cut back?
    What if your benefits get cut?
    What if your business takes a hit?

    You know your situation. Think about the most likely scenarios and develop a plan for them. Then, do what you can now.

    For example, why put off updating your resume until you need it? Do it now! Most people wait until they need it. You’ll be a step ahead.

  • Watch your spending
  • Businesses cut spending to get through a recession. We should take a clue. Try to avoid making long-term commitments. In times of uncertainty, wait until you’re more certain before making major purchases.

  • Don’t panic.
  • Resist the urge to drastically change your retirement plan and other long-term investments. You need to look at the specifics of your situation. However, as a general rule, if you won’t need the money for five or more years, you should probably stay the course. Historically, that’s been the best thing to do.

    If you need the money before that, you may want to deploy another strategy. Check with your financial planner to figure out your best option.

How to thrive in a recession

  • Take advantage of low interest rates.
  • Interest rates tend to go down during a recession. So consider refinancing your mortgage and other debt. Business owners may have prepayment penalties, but it may still make sense. In both cases, you need to analyze your specific situation.

    Let’s assume you refinance. Use what you save each month to build your passive income.

  • Keep investing in yourself
  • Once again, let’s take a clue from businesses. Businesses that thrive, after a recession, are often those that kept on investing, during the recession.

    There are a lot of opportunities once a recession ends. Position yourself to thrive – take a class, attend seminars, and go to conferences. You’ll build skills and make great contacts. One of those contacts may lead to your next bigg opportunity!

  • Look for great deals.
  • Once-in-a-lifetime opportunities may present themselves during a recession. People are often more willing to negotiate. You probably won’t find your great opportunity advertised anywhere.

    So how do you find it? Network, network, network! You’ll most likely be surprised by it, so keep your eyes and ears open. Your accidental discovery will be the result of your active searching!

Our Bigg Quote today is by an unknown author.

“A bend in the road is not the end of the road… unless you fail to make the turn.”

So keep your eyes on the road and your hands on the wheel. Be ready for detours so you don’t have to come to a screeching halt!

Next time, we’ll look at the question, “Does it pay to blame others to cover your backside?”

Until then, here’s to your bigg success!

 

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How To Become A Millionaire

By Bigg Success Staff
02-13-08

Timeless Principles

one_million_dollars_jpg

Do you want to be a millionaire?

Here’s a long-standing success formula that a lot of millionaires have followed:

Borrow a million dollars. Pay it back. You’re a millionaire!

Sounds simple, doesn’t it?

Well, you’ve probably already figured out that it’s not quite as simple as it may sound. So let’s discuss some details of how to do it.

Equity
It’s much easier to borrow money if you have “skin in the game”, as lenders often call your stake in any deal.

How much you’ll need to put in depends on a number of factors – what you plan to invest in, the market conditions at that time, the lending environment, your personal history and resources, and more.

You’ll generally need between $100,000 and $1,000,000.

You ask, “Why would I borrow $1 million if I already have $1 million?
 
We answer, “So you can have $2 million!”

Now, you object, “But I don’t have any money available.”

We answer, “Find a partner who does.”

Of course, you’ll have to share the proceeds with them. But so what – as long as you’re making progress toward your goal, why do you care?

Track record
You need a good credit rating to borrow money. These days there’s a flight to quality. The higher your credit score, the better. So if you don’t have a good credit rating, work hard to improve it. In the meantime, find a partner with a good one.

It also helps to have of past successes. Start small and begin building your track record. Or team up with someone who has a track record, but needs something you can offer.

Asset
You can’t just buy any asset – an asset that goes down in value won’t help you reach your $1 million goal. You want to buy something that will go up in value (or at the very least, hold its value).

How do you do that?

First, calculate your return. Divide the cash flow you will receive before your loan payment by the price you will pay for the asset.

Now compare that to your interest cost.

Is it greater?

If the answer is “yes”, then you may have a good investment. If the answer is “no”, you almost definitely don’t.

You’ll want to weigh in other factors, but that’s beyond the scope of this article.

Want to learn more? E-mail us at bigginfo@biggsuccess.com!

Just type “I want to be a millionaire” in the Subject line.

Customer(s)
Here’s the secret that millionaires have been using for years – they let their customers pay off their debt!

Think about it this way. Let’s say you own a duplex. You have two customers who pay their rent every month. You then pay the mortgage on the property. This continues month after month, year after year.

Before you know it, you own a duplex outright! You haven’t done anything extraordinary. You’ve just let your customers pay off your debt!

It’s not simple, but yet it is. You need some basic business skills before you start.

The reason this works is it’s a forced savings program. Your money just keeps growing year after year.

This is the timeless secret that a lot of millionaires have used to build their nest egg!

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This Little Piggy Bank

By Bigg Success Staff
02-07-08

Bigg on Money

piggy_bank

Financial planners for years have said that we should set aside ten percent of everything we make.

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

Spend 60% of all you make!

We know what you’re thinking – you just went from getting to spend 90 percent to only getting to spend 60 percent!

But you haven’t heard the rest of the story, as Paul Harvey would say.

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 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!

Now isn’t that a better way to look at it?

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How To Make $3 Billion A Year

By Bigg Success Staff
01-23-08

Success Story

000092_money_pic

Unless you’re the Wall Street-type, you’ve probably never heard of John Paulson. You may be familiar with Henry Paulson, the United States Secretary of the Treasury. Well, they’re not related.

We’ll bet that you are familiar with the subprime mortgage mess. John knows it well. He manages his own hedge fund, which made huge bets in the subprime market last year.

In 2007, he made over $3 billion! Yes, we wrote that right. BILLION!

Gregory Zuckerman wrote an excellent article for The Wall Street Journal Online called Wall Street Trader Paulson Made Billions on Subprime. He does a fantastic job describing the details of how John made his billions. It’s definitely worth the read, particularly if you’re a serious investor.

Going against the grain
John bucked the herd mentality with his subprime bet. Most people in the business were still very upbeat about the market. John believed that he had a lot of upside potential with very little downside risk. It turns out he was right.

The biggest winners are often “contrarians”. But be careful – find ways to minimize your risk without sacrificing your reward too much.

The outsider’s perspective
John wasn’t an expert in the subprime market. They were all still highly optimistic. Because John was an outsider, he was able to see an opportunity that the insiders missed.

Usually it pays to have special insight into your market. However, sometimes insiders know too much. That’s when outsiders find opportunities because they’re looking at things with a fresh set of eyes.

Pay the price
John worked long and late, pouring over data to confirm his suspicions. He had a hunch – but he didn’t just play it. He continued looking at the evidence.

You have to pay the price if you want to make millions … or billions! Learn about the market. Look for inconsistencies. But then you have to … 

Go!
John had a bigg idea. It turns out that it was a $3 billion idea! But it’s not the idea that made him the money. He had the courage of his convictions. He took action!

This is one of the hardest parts of success. You have to put yourself out there. You have to take risk. You’ll never get anywhere until you take a step.  

Persist
John placed his bet … and he lost money! His advisors discouraged him from pressing on. They reminded him that experienced traders were still very enthusiastic about the market. John didn’t listen – he invested more!

You will face obstacles on your path to success, just like John did. If you’re confident in your idea, you have to find a way to push on. It won’t always work out …. but, you never know, you might just make $3 billion!

The rest of the story
At times during this ride, John faced so much stress that he just had to get away from it all. He went on long runs. Find a way to relieve your stress so you can keep going. Get away from it all somehow.

John started his firm with $2 million under management. Now, from his success last year, new money has poured into his firm. He is now managing $28 billion, becoming one of the world’s largest fund firms. Everybody loves a winner!

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6 Easy Steps To Financial Freedom

By Bigg Success Staff
01-17-08

Bigg On Money

dollar_sign_jpg

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. Picture yourself free of all financial worries. That helps you make the best choices today. See our blog on The Marshmallow Test 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!

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How To Get Rich

The Richest Man In Babylon

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How To Get Rich

Bigg Success Staff
01-10-08 

Timeless Principles

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Napoleon Hill, in his great book, Think & Grow Rich, describes the six steps to turn your “desires into gold.”

First:  Determine exactly how much money you want to accumulate.

Second: Determine exactly what you will do to get this money.

Third:  Establish the date by which you will do this.

Fourth:  Create a definite plan to accumulate this money.

Fifth:  Write out a clear, concise goal statement.

Sixth: Keep your goal statement at the top of your mind.

Want help writing your goal statement?
The Bigg Goal-Setters Workbook will guide you to your goals, step-by-step. You’ll end up with clear, concise goal statements and tips on how to keep them at the top of your mind. It’s FREE when you sign up for our Bigg Success Weekly newsletter It’s FREE, too!

Here’s an example:
Let’s say you want to retire in 30 years with $1 million. You find that you can expect to earn 8% per year by investing in an index mutual fund. Using your handy spreadsheet or financial calculator, you determine that you need to invest $667 each month.

Do you have $667 each month to invest? Before you answer “no,” read about The Richest Man in Babylon . Now, if the answer is still “no,” what can you do to get it? Can you cut spending somewhere? What can you do to pick up a few extra bucks?

Successful people do what unsuccessful people. If you want it badly enough, you’ll find a way!

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