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What the Car You Drive Says About You

porsche_cake.jpg It’s not what you make that really counts; it’s how much you keep. We base that on studies that show how millionaires became millionaires. Sure, they’re always trying to earn more, but they really watch what they spend. That’s one of their secrets to success in many cases.

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Only you know your terms

We were recently at a birthday party for our friend, Tim. His wife had a really cool cake for him. It’s the picture you see with this post.

We were talking with Tim about his Porsche. He’s one of our regulars here at BIGG Success and he commented about how we’re always talking about frugality. A Porsche may not be consistent with that mindset.

But BIGG success is life on your own terms. If your terms include having a Porsche parked in the garage, then more power to you!

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georgeThat’s one of the things we love about our definition of bigg success – it’s not judgmental. I can’t tell you what’s best for you. Just like you don’t know what’s right for me. Heck, sometimes I don’t even know what’s right for me!

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marylynnThat’s the beauty of life on your own terms. When you’re living it, you don’t judge other people because you think, “Oh, that’s life on their own terms.”

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We try to report what works – what research shows helps you get to that next level of success in your life. But we can’t tell anyone what the right choice is for them. You decide because you’re the one who lives with it.

We hope we provide some additional insight to help you with your decisions, but ultimately you’re the entrepreneur of your life. You’re in charge.

Your car is an expression

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Is Your Project Worth Your Money?

money If you’re like most bigg goal-getters, you have a lot of ideas. But how do you know which ones you should invest in? That’s what we want to talk about today – project selection.

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This process can be used for so many things. You could use it to decide if you should start a business. It would help figure out if you should expand your existing business. You could even use it to determine if it’s worth going back and getting more education.

To get started, you’ll need to make some projections, using assumptions, about the expected income and expenses of your project. The process itself is a science but the assumptions are definitely an art. It requires that you use your own judgment and the only way to learn how to do it is by doing it.

So let’s look at the two most common ways to determine if a project is worth doing.

Payback period

As its name implies, this method simply looks at how quickly you get your investment back. So if you invest $100 now and earn $25 the first year and $75 the second year, you have a two-year payback.

Payback is commonly used because it’s so simple. But think about it … it ignores all the money you could make after the payback period. And that can really skew your investing decisions. You choose projects that return your investment quickly and neglect projects that may offer greater potential but more patience. 

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Discounted cash flow (DCF)

Fortunately, there is a better way to calculate the worth of a project. With this method, you explicitly recognize that a dollar today is worth more than a dollar tomorrow. However, a dollar tomorrow is still worth something which isn’t recognized by the payback method.

It’s called discounted cash flow because we look at all of our expected cash flows and determine how much they’re worth right now by discounting them back to today. That is called the “net present value” (NPV).

Calculating the NPV is a four step process:

  • Determine how much you will invest by year.
    Usually most of your investment in a new project is made upfront (and probably in the first year). But if your project requires that you make an investment over a few years, you’ll want to account for that.
  • Estimate how much income this project will generate by year.
    Obviously, you don’t want to take on a project if it doesn’t increase your income. So look at how much you think you will make with this project and compare that to how much you think you plan to make without it. That’s your increased income from the project.
  • Decide upon your opportunity cost.
    Here’s where it gets a little tricky. Consider where you could invest your money if you didn’t invest it in this project. Weigh in how certain you are about your projections.
    For example, if you determined your project was no more risky than investing in Certificates of Deposit at a FDIC-insured bank, you could use the interest paid on those accounts as your opportunity cost.

Most projects aren’t that certain so your rate will usually be higher than that. Just remember – the less certain you are about your incremental income, the higher your opportunity cost.

  • Run the numbers in Microsoft Excel (or your favorite spreadsheet program) using the formula:

NPV formula

Example – Should I get certified?

We’ll offer an example so you can see this concept in action. Let’s say you want to go back to school to get certified. It costs $2,000 for the certification program. You expect to make an additional $2,000 a year if you do it. You plan to retire in three years so the increased income won’t benefit you for too long. You’ve looked at other opportunities and determined that you need to earn at least 6% on your money.

We see that your payback period is one year. That’s how long it will take to pay you back the money you invested.

Using DCF, your NPV is $3,157 as shown in this screenshot from Microsoft Excel:

Microsoft Excel set up screen shot

To get that, use Excel’s “Insert Function” command:

Microsoft Excel insert formula command screen shot

With DCF, the rule is: If NPV > $0, then invest in the project. After all, your expected return exceeds your expected cost. So in this case, your NPV is over $3,000. Therefore, you should go for it! 

If you want to know what your annual return is, just change the opportunity cost field in your spreadsheet until your NPV equals $0. In this case, your annual return is 83% over the life of the project.

In general, pick the projects with the highest NPV until you run out of money to invest. However, there is one important variable we failed to account for in this calculation – your time. We’ll discuss that tomorrow.

Thanks so much for stopping in to read our post today. Until next time, here’s to your bigg success!

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Is Your Project Worth Your Time?

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(Image in today's post by monetary 3D 2)

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Business Owners Must Be Duplicitous

By Bigg Success Staff
06-05-08

Bigg Success in Business

growing 

You may get conflicting messages about being in business. You hear that you need to be passionate about what you do. You’re also told to approach every business decision rationally.

So which is it – love or logic?

Love
As an entrepreneur, you need to love what you do. If you don’t love it, you won’t be able to make it through the inevitable tough times. So get into a business about which you have a passion.

  • Then take pride in your accomplishments. Celebrate them like you’ve just won the Super Bowl. Be human in defeat. Learn from it and then move on. Practice the 24-hour rule – give yourself 24-hours to enjoy victory or recover from a loss. Then move on.
  • Be stubborn about what matters. There are things that are important to your success. They are your core values and purpose. Don’t ever agree to compromise on the things that are important, but be quick to concede if a better idea comes along that’s not in conflict with these core values and your purpose.
  • Finally, don’t fear the fear. As a business owner, you will face fearful times. That’s okay. Successful entrepreneurs have faced the same fears; they just overcame them. You’ll need to do the same. Press on.

Logic
Emotion clouds your judgment. You have to get beyond your emotions in order to succeed in business. You have to be calculating, weighing the pros and cons of a given strategy against your goals and the pressures of the market.

  • Separate your ego from your business. Entrepreneurs often get in trouble when they start creating monuments to themselves with the resources of their businesses. Don’t make that mistake! Every business decision should move you one step closer to your dream life.
  • Admit your mistakes. If you don’t admit them, you’ll never learn from them. Unsuccessful business owners often devote even more resources trying to turn a bad decision into a good one. It rarely works. Admit your mistake and move on.
  • Aim before you fire. This is one of the best ways to make sure you’re not acting emotionally. Get ready … aim … fire. Business owners who fail often get caught up in the moment and forget this crucial step.
  • Focus on results. Measure everything you accomplish against your goals. Have you exceeded them or fallen short? Why? Answering those questions along the way will take you a long way toward the success of which you dream.


Example

An example of love and logic at play is to remember why you got into business in the first place. You had a goal in mind. You had a plan on how to achieve it. Along the way, you gained new insight and information. You changed your plan, but the goal is still the same. You’re practicing love and logic at the same time!

The bottom line is that it pays to be emotional and unemotional at the same time about your business … be irrationally rational!

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

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(Image by eocs)