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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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These Forgotten Costs Often Sink Us

sunken_boat We try not to make financial decisions in a vacuum. We strive to factor in all the relevant pieces before making a major purchase. But there are some costs that we often fail to factor in that can make a significant difference.

We often fail to factor in future flows of money.

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We expect a certain percentage pay raise. So we spend money as if it has already happened. It’s especially important in times like these that we don’t spend money before we know we have it.

Another thing we often do is count on a bonus. If it doesn’t materialize, we’re in trouble as we learned from Clark Griswold in Christmas Vacation. We sure don’t want our brother tying up our boss!

What about increased insurance costs? Is it likely that you’ll pay more for health insurance next year? How about insurance for your house or car? Insurance costs can rise significantly from year to year.

Do you have a variable rate mortgage? Have you considered a projected increase in the rate and the associated increase in your mortgage payment?

Have you thought about what might happen with recurring expenses? Cable bills, power bills, and water bills all seem to rise from year to year.

Affording it now isn’t good enough

You may finance a major purchase. Sure it’s only $100 a month. You can cover it now. But if it stretches your budget to its limit, it’s likely you won’t be able to cover it next year. You’ll start sinking and soon end up underwater, in a financial sense. You’ll run out of money before you run out of month!

It’s important to have a safety net – spending less than what you make each month.

A tool businesses use

We often don’t think about it this way, but we all run an organization – our households. Just like any organization, we have inflows and outflows of money.

Reasonably sophisticated business people work from a budget. Yes, the “b” word. Many people do treat budgets like a dirty word. But they’re a great tool.

And they’re especially important if you don’t have any money left over at the end of the month. It’s important to understand why. You can use Quicken, Excel or any number of ways to create your budget.

Many business people don’t just budget for one year. They look at projections over three years or more. These budgets don’t have to be elaborate – just plot out your main sources of inflows and outflows.

The power of the tool

Once you have a budget set up, you can look at “what if” scenarios. For example, what if:

  • you don’t get a pay raise
  • you (or your spouse) lose a job
  • the cost of health insurance (or any other cost) rises more than you expect?
  • you make this major purchase?

When you create a budget, you’re applying Stephen Covey’s “begin with the end in mind” and “put first things first” (from The 7 Habits of Highly Effective People) to your finances. You’re considering all your costs – both now and in the future. Then you can see the impact of major purchases on your overall finances so you make the best decision going forward.

You can run your finances intentionally, rather than ad hoc. You can prepare for contingencies so you survive no matter what. Then you can shift your focus to thriving!

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Thanks for stopping by today. Next time, we’ll discuss how assumptions we make about time leave us overextended. Until then, here’s to your bigg success!

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Direct link to The Bigg Success Show audio file:
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Plant the Seed This Spring for Your Bigg Success

spring_crops

It’s the first day of spring! Before long, farmers will be planting. That got us thinking – just like a farmer, we have to plant in order to harvest.

If we want an output, we need an input. To produce a result, we have to take action. We can’t control the result, but we can control our activity.

So focus on planting, not the plant!

3 steps to planting the seed
We’re going to work backwards from the final input to the initial activity.

#3 – Plant
Unless you actually plant the seed, you won’t have anything to harvest. You have to follow through on everything that led to this step. Focus on activities that will yield the best result.

#2 – Prepare to plant
To be ready to plant, gather the needed resources together. For the farmer, that means buying the seed, getting the fertilizer, and preparing the ground for planting.

For the rest of us, it depends on your situation. You may need to do some research, prepare collateral materials (e.g. resume, business plan), make a prospect list, find potential strategic partners, or design promotional material.

These are just a few of examples. Preparing takes time and effort, but you have to do it or you won’t be ready for Step 3.

#1 – Plan to plant
If a farmer waits until the first day of spring to start planning for the upcoming season, he’ll have an uphill battle. That’s the reason we counted backwards (in addition to showing you that we could)! 

Think who, what, when, and where. And make sure you know the “why” for each of those! And also think about “what if”.

So thinking like a farmer: Who’s going to plant what crop? Where and when will it be planted?

For those of us who don’t farm, think back to Step 2 for an example. We said you may have to do some research. Are you going to do it yourself? Could you pay to have it done? In either case, what research do you need? Where will you find it (or the person who will do it)? When will the research need to be done?

A Bigg Success story
We crank out five shows / blogs and a newsletter every week. That’s our end result. As long as we focused only on the result, we struggled. Then we put into practice what we’re preaching here!

First
, we plan our work. We now use a production schedule that maps out what needs to be accomplished every DAY, not every WEEK. That’s made a huge difference.

Second, we prepare every day. What will we talk / write about? Do we have the information or do we need to get it? Where will we get it? Then we gather the required materials. Now we’re ready for the final step.

Third, we do it. Otherwise, you wouldn’t be reading this blog!

The Bigg Goal-Getters Workbook is a great tool for implementing this process. It’s FREE when you subscribe to our FREE newsletter The Bigg Success Weekly!

Our bigg quote today is by William Arthur Ward:

“Faith sees a beautiful blossom in a bulb, a lovely garden in a seed, and a giant oak in an acorn.”

So remember, actions produce results. Belief produces actions.

Next time, we’ll discuss seven ways to tap into your creative side. Until then, here’s to your bigg success!

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The Marshmallow Test

The Marshmallow Experiment was conducted in the 1960s by Walther Mischel at Stanford University. It was popularized by Daniel Goleman, perhaps best known for his books Emotional Intelligence and Social Intelligence.

The test
The researchers gathered a group of four-year olds in a room. A researcher set a marshmallow in front of each kid. The kids were told that the researcher needed to run an errand. If the kid didn’t eat the marshmallow before the researcher got back, the kid would be given a second marshmallow. However, if the kid ate the marshmallow, he or she would not get another one.

Picture yourself at four-years old.
Could you have resisted that tasty marshmallow?

Some ate their marshmallow before the researcher even got out of the room! Others seem to have no problem not resisting the temptation. Some turned their back on the marshmallow. Others sang a song or distracted themselves in other ways. One kid reportedly even licked the table around the marshmallow!

The reward for waiting was pretty good – a 100 percent increase in marshmallows! Interestingly enough, ALL the kids expected a second marshmallow – even the kids who ate theirs!

The follow-up
The researchers tracked these kids in the subsequent years. They surveyed their parents and their teachers. They found that, in general, the kids who had been able to resist the marshmallows were better adjusted and more dependable.

They were more competent socially and more self-assertive. They were able to cope with frustration and stress much better. They embraced challenges rather than seeing them as a huge obstacle. They also scored 210 points higher on their SAT exams.

So what’s your marshmallow?
We’ve all heard about rock-n-rollers who came to fame and fortune early. They make a lot of money; then blow it all. They think it will always be there.

Some time later, we hear they’re out touring again, because they’re out of money. They have to start over because they don’t have any marshmallows left. Obviously we’re stereotyping rock-n-rollers … they haven’t all fallen into this trap.

Here’s the ironic thing — by resisting that treat now, you can have more later! Here are some thoughts to help you get the most marshmallows.

#1 – Keep your eye on the final prize.
Focus on what you ultimately want, not your marshmallows. What’s your dream life? Keep that in front of you. You’ll resist the marshmallows now so you get more later.

#2 – Find techniques that work for you.
Just like with the kids, we each need to find what works best for us. For example, you may find that paying yourself first helps you resist your marshmallows. Many people have found that as long as they don’t see the money, they don’t miss it.

Other people won’t buy anything unless they have the cash to pay for it. This simple requirement helps them resist many marshmallows.

Mary-Lynn shared her technique – she focuses on her needs, rather than her wants. She’s ready for a new smart phone. She wants an iPhone, but she’ll get a phone that’s a couple of hundred dollars less. It suits her needs just fine.

 

How do you resist the marshmallows in your life? Leave us a comment.

#3 – Reward yourself when you reach a desired goal.
A couple of days ago, we talked about The Stairway To Success. We discussed the steps that will get you to the top of your stairway. When you reach a desired goal – reward yourself.

Don’t overdo it – you do want to enjoy a marshmallow now and then … just don’t get so full that you can’t make it up the stairs!

 

Get our FREE Bigg Goal-Setters Workbook.

It’s a great tool to help you set your marshmallow marks – those points where you give yourself a treat! Just sign up for the Bigg Success Weekly newsletter – It’s FREE, too!

Our Bigg Quote today is by the great Brian Tracy:

“The ability to discipline yourself to delay gratification
in the short term in order to enjoy greater rewards in the
long term is the indispensable pre-requisite for success.”

So plan your life and live your plan …. and go ahead, have a marshmallow now and then!

Next time, we’ll answer a question from one of our listeners who wants to know if he should count on his employer’s counter offer.

In the meantime, we’re off for a cup of hot chocolate … topped with marshmallows, of course! Until then, here’s to your bigg success!

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The Stairway To Success

Climbing The Stairway To Success

Today, we’ll discuss how to reach your goals, step-by-step. We toyed with calling this blog the “Stairway to Heaven”, but we’re Bigg Success, not Bigg Heaven!

On the show, Mary-Lynn told an amusing story from her radio dj days about locking herself out of her building while “Stairway to Heaven” was playing. Listen to the show to hear it! Click on the play button above (just click the arrow), or, if you are viewing this in a reader, just click the mp3 button or link.

Picture this … you’re in a 100-story building. You’re at the bottom of a stairway, but you can see all the way to the top.

Can you jump to the top?
Superman could leap over tall buildings in a single bound, but that’s a cartoon!

Could you jump up even one flight of stairs?
Even Michael Jordan couldn’t do that, not even with a running start!

Could you take one step?
You can handle that!

Now how about a second?
Of course.

Your success is like this stairwell. You can’t jump to it – you get there step-by-step. Let’s look at three mistakes people make when setting their goals and then we’ll offer three tips to get to the top of your stairway to success.

3 mistakes people make when setting their goals

Mistake #1: Trying to jump to the top.
People want instant success. Get rich quick. It’s nearly impossible. Ask almost any successful person. They started at the bottom and worked their way up.

Mistake #2: More than one building.
You see people who climb a stairway in this building. Then they climb a stairway in another building. They climb a lot of stairs, but they never get past the second floor of any building!

Mistake #3: Never stopping to rest.
You need to refresh yourself – give yourself a little treat. Don’t be so eager to get to the top that you never reward yourself for the progress that you’ve made. If you don’t rest occasionally, you’ll wear yourself out.

3 tips to get to the top of your stairwell

Tip #1: Find your building and the stairway in it that leads to the top.
The building is your dream … your passion. The stairway is your action plan – all the steps it will take. You need long-term goals. That’s why it’s important to have one building and one stairway. Everything you’re doing should lead to the top.

Tip #2: Set medium-term and short-term goals.
Medium-term goals are represented by a flight of stairs. Short-term goals are each step.
By focusing on these achievable goals, you aren’t intimidated by the long-term goals. They keep you from giving up and going to another building, because you’re seeing progress toward your long-term goals.

Long-term goals give you direction. Medium-
and short-term goals show your progress.

Tip #3: Give yourself a treat.
You may or may not do this with each step, but you better do it with each flight of stairs! Enjoy your accomplishment! Give yourself a reward … something you really want …like an extra day off, a weekend away, or a cool new gadget.

So you’re climbing YOUR stairway to success … to YOUR bigg dream. That motivates you, BUT you also reward yourself for your progress. That keeps you motivated!

The Bigg Goal-Setters Workbook is a great tool to help you define your long-term goals. Step 2 is what we’re talking about here in this blog. The Workbook is FREE when you subscribe to our FREE newsletter.

Our Bigg Quote today is by Mabel Newcomber.

“It is more important to know where you are going than to get there quickly.”

So climb your stairway to success step-by-step to your bigg dream. What may seem impossible now …  becomes probable with every step you take.

How do you reward yourself when you achieve a goal? Share with us by leaving a comment.

Next time, we’ll discuss some recent research on customer trust and how you can capitalize on it. Until then, here’s to your bigg success!

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Collective Wisdom

By Bigg Success Staff
08-07-08

Career Builders

pm411_logo One great way to build team spirit is to get everyone involved in sharing their knowledge. We’re familiar with user-generated content, in the form of wikis and comments. Why not create an e-mail newsletter that allows anyone on your team to contribute?

Daniel Hintzhsche, a Technical Editor in Microsoft’s Office User Assistance group, had such an idea. He writes about how he started his department’s internal newsletter.

It’s a great post, ripe with tips on how a newsletter could help your organization, how to get newsletter started, tools you can use to create and distribute your newsletter, and how to encourage contributions.

Just be careful – Daniel suggested this idea and now he is Editor-in-Chief. Now that’s taking one for the team!

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

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Put Your Inbox on Steroids

By Bigg Success Staff
06-25-08

Leading-Edge Application

sandy 

Would you like your own personal e-mail assistant?

I Want Sandy!

Would you like help managing all the mundane details?

I Want Sandy!

Would you help remember important meetings?

I Want Sandy!

I Want Sandy! is a great way to remember all the details so your mind can be free to focus on what’s important. From appointments to birthdays to yoga class to zebra fish feedings. And everything in between.

And it’s FREE! Check it out today!

You can get an e-mail with your schedule for the day.

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

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Are Face-to-Face Meetings a Thing of the Past?

By Bigg Success Staff
06-19-08

Career Builders

face_to_face

We live in a socially connected world. We develop and maintain relationships electronically. LinkedIn. FaceBook. Twitter. And hundreds of more ways to meet and greet people online.

We send text messages, instant messages, chat online or e-mail back and forth. These forms of communication have reduced the number of phone calls in which we engage.

And face time … well, it’s not gone the way of the dinosaur, but who really needs to meet face-to-face?

We all do!

All of the communication tools at our disposal are valuable. However, nothing can replace in-person conversations for richness. We can build higher quality relationships faster when we meet face-to-face.

When we meet in-person, we can see the whole conversation. Body language, facial expressions, vocal inflections. We get the entire dynamic.

We don’t have access to those things when our conversation is electronic. We even miss a lot of it with a phone call. Nothing replaces meeting in-person.

Of course, many of our conversations can be handled with the new methods of communication. But don’t be shy about meeting in person when the situation calls for it. You’ll probably find that you accomplish more than you can with any other means.

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

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Success Building Blocks: Friendship

By Bigg Success Staff
06-15-08

Timeless Principles

pyramid_of_success

John Wooden was arguably the best coach in the history of college basketball. His contributions to success literature, though, possibly exceed his accomplishments on the court. He developed the Pyramid of Success, a wonderful tool to succeed bigg in any endeavor you choose.

So far, we’ve looked at his two cornerstones — Industriousness and Enthusiasm. This week, we’ll look at one of the three blocks that form the foundation between these two cornerstones.

Friendship
You must build on a solid foundation if you want a building to last. The same can be said for success in life – if you want long-term success, you have to build on the basics.

Friendship is one of the key blocks upon which to build success. It all comes down to people. What you know matters. Who you know matters just as much. However, how the people you know think of you matters more than anything.

People like to help people they like. If you like people, people will like you. We’re not talking about a superficial, “what’s in it for me” attitude. We mean a genuine care and concern for others.

If you take care of others, they’ll take care of you. When you give of yourself, when you provide genuine help to people, you’ll get far more in return than you can ever give.

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

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Network Your Way to the Movers and Shakers

By Bigg Success Staff
05-21-08

Personal Branding

indy_race 

Why are race car drivers able to drive so fast? Because they’re all professionals who have been trained to drive their cars that way. So they can pretty much count on every other driver to behave in a certain way.

If you want to move up fast in your career, you need to learn how other people rose to their position. The best way to do that is to get to know them so you can find out first hand how they did it.

So how do you get to know these movers and shakers? Network your way to them!

How do you do that? Here’s a six-step plan to meet the right people.

#1 – Who are they?
You may know this already. If you don’t, it’s the first thing you’ll want to do – determine who you should get to know. Who has succeeded at what you want to do? Who are the people at the top of your chosen craft?

#2 – Do some research
What can you learn about the person you want to meet? What has been written about them? Have they written anything about themselves? What is their particular area of expertise? What are their concerns about the industry? Where do they see the opportunities? What are their strategies? How did they get where they are?

The internet is a wonderful tool for finding the answers to these questions. But don’t stop there – check out trade magazines and other industry sources that may not be fully archived on line.

#3 – Who do you know who knows them?
Once again, the internet comes into play. Are they on any social media sites? If so, do you have any common connections? If this doesn’t work, ask the people you know. Be patient and keep networking.

#4 – Ask for an introduction

Once you find someone who knows them, ask them to introduce you to the person you want to meet. This can be done in any number of ways, but most likely it will be in some form of electronic communication. Of course, if you can meet them in person (e.g. at a conference), that’s even better.

Bonus tip #1: Industry functions are a great way to meet movers and shakers. They’re leading discussions or are participating on panels about the important issues faced by your industry. Approach them after the session and exchange business cards.

#5 – Follow-up

Now you’re ready to contact them. Here’s what you want to do with this initial communication …

Ask them a good question.

Make it a question about something in which you know they’re interested. Ask for their advice. Keep it short. Make sure it doesn’t require a lengthy answer, but does beg for something more than a “yes” or “no”. By doing this, you start a conversation that can be ongoing.

#6 – Impress them
When they respond to you, the most important thing you can do is to thank them for their help. Then give it some time and report back on what you’ve learned by taking their advice or studying the issue you questioned some more.

Once again, keep it short. And ask them another question to keep building the relationship.

Bonus tip #2: If there is something you learn they’re interested in
(e.g. their hobby) and you find an interesting article, pass it on to them.
And keep it at that … no business on this go-around.

Want to be a mover and shaker? Then get to know the movers and shakers in your field.

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

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