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The Trap That Keeps You from being Financially Free

money_trapYou’re probably familiar with the old saying, “Be careful what you wish for because you might just get it.”

Bigg success is life on your own terms. The terms we use to define our bigg success are incredibly important.

When we get what we wished for, it better be what we really wanted!

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For example, we may seek financial security. How do you define financial security? Is that what you really want? Or is there a better term for what you seek? Are your actions consistent with your definition?

These are a few of the questions you might ask about a term which is a goal.

Financial security

Financial security means safety. You have a refuge from any storm. This is the reason a lot of people like having a regular job. They feel like it gives them some sense of security.

We often confuse financial security with financial stability. One of the reasons we like that job is it provides a steady income. That’s not security; it’s stability.

This highlights the importance of understanding what a term really means to you.

Does a job or a career offer you financial security? We think it doesn’t.

You have to create financial security for yourself. But that’s just the first level. You may really want more than just safety.

Financial independence

You may seek financial independence. You want to be self-reliant. You don’t want to depend on anyone or anything to meet your financial needs.

You’re able to live a comfortable life. You may have a job but you also have investments or other sources of income in case something happens with your career.

Financial freedom

The next step up is financial freedom. You’re free to live the life you really want to live. Your income exceeds your lifestyle costs by a significant margin.

The trap that keeps people from financial freedom

Randy Jones, author of a book we highly recommend to you, The Richest Man in Town, wrote about the trap that keeps many people from reaching financial freedom on his blog a while back. He said:

A stable salary can be addictive: like a drug, it feels good, helps you cope with the ups and downs of life, and it is very hard to give up. But dependence on a salary is a major impediment to becoming the richest person in town. The regular fix of a paycheck from the other guy makes you risk-averse, and the ability to take risks is one of the qualities that defines an RMIT.”

So if you want to be free from money worries, you have to take risks. Risk is the opposite of security. But you have to take those risks to reach the level of financial freedom.

And by our definitions, a person who reaches the level of financial freedom is also financially secure … and then some.

No job can make you financially secure. No business can do it. No investment can do it. You have to do it by putting all the pieces together.

It starts by defining bigg success and then going for it!

You’ve heard our terms for money. What are your terms?

Share that by leaving a comment below, e-mailing us at bigginfo@biggsuccess.com or calling us at 888.455.BIGG (2444).

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Thanks so much for the gift of your time today. Please join us next time when we talk about an old-fashioned tool that increases your productivity. Until then, here’s to your bigg success!

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Money Tips if You Do Not Have a Steady Income

life on your own termsBigg success is life on your own terms. We talked all about that last week in a series of five posts where we painted the bigg picture.

Now we want to get into the nitty-gritty. What keeps us from living our lives on our own terms?

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The challenge of irregular inflows

One of those things is not having enough money – one of the five elements of bigg success – when we need it. It’s one thing if you have a regular salary. However, a lot of people don’t have a steady income. It fluctuates from month-to-month.

What if you’re a salesperson working on straight commission?

What if you own your own business and don’t draw a regular paycheck? You may be a freelancer or a solo entrepreneur. You may be in business and have employees. You not only feel responsible for putting food on your table, you also have a group of people to whom you feel responsible.

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georgeI certainly can relate to this subject, having been a business owner for pretty much all of my adult life. Come to think of it, before I went into business for myself, I worked on commission as a sales person so I’ve seen both sides of it.

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marylynn
Of course, with George, I now am a business owner too.

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george
Welcome to the club, Mary-Lynn!

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marylynnWe have a couple of businesses in their early stages. I left a job in the corporate world with a regular paycheck, but I sure understand now what it’s like not to have that. I know I’m not alone. A number of people in our community have mentioned this as a major challenge to living their lives on their own terms.

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So what can you do if your income fluctuates from month-to-month?

Understand your cycles

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georgeOne thing that I found is that I had to understand my cycles. I’ve struggled with this one. When I wasn’t busy, I’d spend time and money promoting and prospecting. Then I would get too busy – I don’t have time to promote and prospect. So I stopped doing it. The thing I knew, I wasn’t busy again and the cycle would start over!

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If you can be consistent with your most important activities – those things that generate the most income for you – you may be able to smooth out your inflows.

You might even find that you can hire an assistant to perform some of these activities for you. You spend a little money now to save you time and make you money a little later.

What if you can’t afford to hire someone to help you? Then you’ll have to invest the time yourself. When you find yourself in your next “up” cycle – you’re too busy to spend time on crucial prospecting and promotional activities – take a look at it again to see if it makes sense.

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marylynnAnother thing I’ve found is that I can be more consistent if I carve up my activities into smaller chunks. For example, I may send out five e-mails every day of the week instead of thinking that I need to send out 25 e-mails. If you don’t have the time to do that, start with three e-mails a day.

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Stabilize your outflows

Risk is often measured by volatility. So by definition, if we have irregular inflows, we are taking more risk. Because of that, we should strive for less risk in our outflows.

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marylynnWe do this by keeping our standard of living relatively low. Our businesses are in their early stages. So we watch what we spend and live very frugally. For example, we watch how much we shop and go out to eat less than we did when our incomes were more regular.

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One of our newsletter subscribers, Randy, says “rowing his own boat” by working for himself are his terms for his life. He’s been on his own for about 25 years now. He’s put his two sons through college while remaining debt free. He says he did it by having a plan when his boys were just babies. That plan paid off. He just turned 50 and plans on living the way he wants from here on out.

Congratulations Randy and thanks for sharing your story with us!

Randy’s story also helps us understand a second part of stabilizing our inflows:

Be very, very careful with debt.

We have to resist the urge to pile onto our outflows by adding principal and interest payments. It puts even more pressure on our inflows and more stress on us because we have to earn even more.

What do you suggest?

Share that with us by leaving a comment below, calling us at 888.455.BIGG or sending us an e-mail at bigginfo@biggsuccess.com.

Thanks so much for checking in on us today.

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Subscribe to the Bigg Success Weekly – it’s FREE!

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One of our listeners just accepted a new management job. Join us next time when we help him with bigg challenge.

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/00361-033009.mp3

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I Just Got Laid Off – Part 1

work This is the start of a three-part series on what to do if you get laid off. On the show today, we discuss what to do today before you leave the building. Over the next couple of weeks, we’ll discuss Part 2 – what to do in the next couple of days and then move to Part 3: moving on – going for your next job. So please check back in!

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Getting laid off is one of the most stressful events anyone goes through. So before we get into details, take a deep breath. You can expect to feel a whole range of emotions, even if you weren’t completely surprised. It’s a grieving process. Psychologists have identified five stages that we go through when we lose something or someone:

  • Denial
  • Anger
  • Bargaining
  • Depression
  • Acceptance

These stages don’t necessarily happen in sequence. You may feel more than one at the same time. You may jump around. You will feel it how you feel it. What’s important is to understand what’s going on within you. It’s only natural.

Your job may have been taken from you, but your talents haven’t been

Your unique skills are still yours. You still have that great personality. You’re still an incredible person. And you know it!

With that mindset, and knowing that you will bounce back, here are some things to do, and things not to do, before you leave the building today.

Don’t burn bridges

Life is funny. Things change quickly. If you show class, it will be remembered. So filter what you say.

There may be a temptation to lash out. Resist that urge, because nothing good can come from it. Sure, you may feel better at the moment, but that feeling will quickly fade into regret. It’s much better to conduct yourself very professionally.

COBRA

You will have to decide whether or not to extend your health insurance with the company. But you have 60 days to make this decision so don’t make it today. Talk to two or three insurance brokers who sell individual insurance. In almost all cases, you will find that you can get similar coverage for less money.

If you have one or more pre-existing conditions, it might make sense to sign up through COBRA. But first, check out comparable policies with several insurance brokers and get their advice.

Your 401(k)

Here’s another decision you don’t have to make today. In fact, there really isn’t much of a time limit on making this decision. A lot of people still have money in an account through an employer they haven’t worked for in seven years!

Resist the urge to cash out. You may feel stressed about money. We’ll talk about that more in an upcoming show. The Wall Street Journal reported that 40% of workers in their 20s and 30s cashed out their 401(k) when they changed jobs. As we discussed this on a previous Bigg Success Show, this may be a costly decision.

Before you decide what to do with your 401(k), you’ll want to investigate your options. Find a plan that offers the right combination of options and low fees. One thing you should find out, when the subject of your 401(k) comes up, is if there are any exit fees. This will be useful in your decision making process.

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Your final paycheck

If you get your final check today, be sure to verify everything. For example:

  • Were you paid the correct amount for the time you’ve worked since your last check?
  • Did you get the severance pay that you should have?
  • Were you paid for the vacation days you haven’t used?
  • Is everything in accordance with your agreement with your employer?

Other issues

You may be asked to sign releases and other documents. You don’t have to sign anything right away. Read the documents carefully. If you don’t understand something, ask. If you’re not satisfied with the answer, seek professional guidance from an attorney if need be.

Reach out

Finally, if you can muster the emotional strength, reach out to the people you worked with. Make sure you have their contact information. You never know when it might come in handy.

Thanks for reading our post today. We hope you’ll check in again tomorrow. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

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Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00324-020509.mp3

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I Need Money! Should I Borrow from my Retirement Plan?

balancingWe’ve been talking about money decisions in tough times and how it may affect your 401(k). We started by looking at cashing out a 401(k), which is the absolute last resort.

Next, we looked at cutting back on 401(k) contributions. This is a much better option than cashing out, but you should try to contribute up to the limit of your employer’s matching contribution. That’s found money so you’ll be thankful you did.

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Now, we want to look at borrowing from your 401(k). The best advice we can give you on this is … don’t listen to us! Seriously, we can only talk about this in a general sense. So before you make a decision, talk with your professional financial advisor about the specifics of your situation. Then you can do what’s best for you with confidence.

There may be a better solution

Before you borrow from your 401(k), consider whether a home equity line-of-credit might be a better solution. You may already have one you can tap into. If not, consider applying for this type of loan instead of borrowing from your 401(k).

These loans are not as easy to get as they were a couple of years ago. You also won’t get as much of a line as you might have then because house values in many areas.

How much can you borrow?

If you decide a home equity line-of-credit isn’t your best bet, you can tap your 401(k) up to two times each year for money. It’s your money, so there’s you don’t need to be approved for the loan. You can borrow up to half of the vested portion of your portfolio, with a $50,000 limit.

Pay back is purgatory!

A loan from your 401(k) is a relatively inexpensive source of money. However, you’ll be paying the loan back with after-tax dollars (i.e the interest isn’t deductible). Compare that to a home equity line-of-credit, which is deductible in most cases.

In the eyes of the government, you and your 401(k) are two separate “entities”. So even though you think you’re borrowing from yourself, you’re not – you’re borrowing from your 401(k) so you have to pay it back within five years with an exception for first time homeowners who may have a longer payback term.

You can do that with each paycheck or you can do it in installments. You have to make a payment at least once every quarter. For example, if you borrowed $10,000, you would have 20 quarters to pay back the loan so you would have to pay $500 every quarter plus interest.

Of course, while you’re paying back the loan, you’ll have less money to spend every paycheck or every quarter, depending on which way you choose to pay back the loan. If things are tight now, what will they be like with even less free cash flow?

The other thing to consider about paying back your loan is that the dollars that were taken out of your portfolio are only earning whatever interest rate you’re paying. If that rate is less than what you could have earned if you kept it invested in your portfolio, you’re losing money you would have had at retirement.

No pay back is hell!

So it may be tempting to “borrow” the money and then not pay it back. In the government’s eyes, that’s the same as cashing out. So you’ll have to pay income taxes and, if you’re under 59½, you’ll also pay a 10 percent penalty. 

Analyzing the scenarios

The Center for American Progress Action Fund recently analyzed a number of scenarios [pdf]. Let’s look at the two extremes:

IF you take out a loan, pay it back with interest, and continue making your regular contributions, THEN there is almost no effect on your expected portfolio at retirement. In fact, in all the scenarios they considered under these conditions, there is less than a one percent difference in the end portfolio. Not so bad, huh?

But that ignores the fact that we’re borrowing money because we need it now. So we’re likely to cut back on our 401(k), if not stop making contributions altogether. That’s the double whammy.

IF you do that (i.e. the double whammy), THEN you can expect your savings at retirement to be as much as 22 percent less. 

What if …

Before you borrow, ask yourself some questions. For example, what if your company cuts back and you lose your job? Let’s spin it in a positive direction, what if you get a great job offer? You want to consider these scenarios as well before deciding if you want to borrow now.

Bottom line

Look for other ways to cut back on your spending. Even a little bit here and there can make a bigg difference. Consider temporarily cutting back on your contributions, but don’t dip below your employer’s match if you can possibly avoid it. Borrow if you must, but don’t cash out unless there is just no other alternative.

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Diversify, Diversify, Diversify

By Bigg Success Staff
09-26-08

Bigg Success with Money

diversify

One of the most important tenets of investing is to diversify, diversify, diversify. However, it’s a principle that’s been around for a long time – remember “don’t put all your eggs in one basket?”

By diversifying, we earn the greatest return over time with the least volatility. There are three ways to diversify your portfolio:

#1 – Diversify across asset classes
Your portfolio should include a variety of stocks, bonds, cash, real estate and more. A rule of thumb is to subtract your age from 120 to determine how much of your money should be invested in stocks (or more likely, stock mutual funds). Most of the rest should go into bonds (or bond mutual funds).

#2 – Diversify within asset classes

Within each of these asset classes, you also want to diversify. For example, you don’t want to own a single stock, or even just stocks in a single industry. You don’t even want to just own domestic stocks. Own multiple stocks in multiple industries in multiple countries.

#3 – Diversify over time
There’s one thing that’s certain about the market – it will go up and down. By investing some amount of money at regular intervals (e.g. with every paycheck), you diversify over time. This principle is known as dollar-cost averaging.

When the market is up, you’ll buy less of the same than when it’s down. So you’re buying less when prices are high and more when prices are low. Doesn’t that make sense? Isn’t that what you would like to do with anything else you purchase frequently?

Two simple solutions

One relatively easy way to diversify is through mutual funds. Pick no-load funds with low annual expenses and good performance. Diversify between stock funds and bond funds. Pick domestic funds and international funds. Then re-balance every year to keep your assets allocated properly.

An even easier way to do this is to pick a no-load mutual fund with a targeted retirement date. Then let them do all the rest. The downside is you may get a little better performance by selecting funds from more than one fund family. The upside is you have pros constantly watching over your portfolio. All you have to do is watch over the pros!

Diversification smooths out performance. When stocks go down, bonds often go up and vice versa. So you get the best possible returns without the volatility of a single class of financial assets.