Tag Archives: opportunity

R.E. Strategies: Investing Debt Free Vs. Leveraging Properties

When making financial plans there are two basic schools of thought to get your information from. One group says that debt is bad, and that you should limit or eliminate all debt as soon as possible. The other group argues that getting rid of consumer debt is wise, but that borrowing money to buy investment properties or start businesses can be a smart investment.

Who do you listen to? The answer is that it depends. For example let’s look at the debt approach.

If your strategy is to purchase single family homes at favorable mortgage terms, receive monthly cashflow, grow equity and increase the value of the property over time then this strategy may work. However the alternative, no-debt strategy would leave you saving up and purchasing the whole investment with cash. Sound difficult? You bet!

So which strategy is better? Well that depends on which provides a better, risk-reward ratio. The following are a few risks we should be aware of when investing in real estate: Law suit risk, credit risk(that we won’t be able to pay the mortgage, thus losing the property), cashflow risk (that costs will rise to the point where we don’t receive adequate cashflow). These are just a few risks.

Of these three risks, which ones are effected by taking out a loan? Credit risk and cashflow risk are both effected. Credit risk isn’t even a concern with the no-debt approach(because there’s no mortgage) and cashflow risk increases with the debt approach because there’s increased monthly expenses in the form of loan payments.

A different risk we haven’t discussed yet is the risk of loss of capital. For example let’s say you make the investment in a limited liability entity and are thus only able to lose the money you have into the deal. With the all-cash approach your risk is much higher than the debt approach.

Overall the risks of using debt are slightly higher. However in terms of returns the returns can potentially be much higher than if you only use cash. In addition, purchasing a property with cash takes longer to save up for , lengthening the time it takes to make the original investment in the first place.

So which is better? It all comes down to if you are willing to take slightly more risks to potentially make much more ROI. As long as you are sure to never borrow more than 80% of the value of a property, the debt approach will usually work slightly better. Lastly, the most important takeaway is that simply investing is the most important step. So stop waiting and start taking steps towards financial freedom today!

Should You Work on a Tip-based Salary or Hourly?

Do you value security or potential of higher income? That is essentially what it comes down to. Over the last few years I have had the opportunity to work in both the back (the grill line) and the front (as a host and busser) of the restaurant. I’ve had the opportunity to work at higher end restaurants (a sushi restaurant) with positive work atmospheres as well as lower-priced restaurants (Cracker Barrel) with slight less positive work environments.

Which is better?

To me clearly the former. However often because of connections, resume or simply location, starting at a higher end restaurant isn’t always an option. Although to be clear, higher end doesn’t always mean more positive work environment.

So back to the original question, which is better, to work at a tip-based job or something more stable like an hourly job?

If you believe in your abilities to work hard, be personable, sell to customers, and meet the basic requirements of your job, then the tip-based job will pay you much more over the long-term. However if you aren’t sure of you skills then working an hourly job can be better.

There are 2 keys that you need to follow when working a commissioned job verses a regular job:

1) How much you make is ultimately up to you (and the overall business of the restaurant)

Taking responsibility for every aspect of your job, especially when you get paid via tips, is crucial to making money. If you don’t acknowledge and adapt to weaknesses, mistakes and challenges along the way, you won’t be able to make the money you are probably aiming for.

2) Communicate with your supervisor as well as your fellow employees

Without communication, especially when the restaurant is busy, you risk losing your income, confidence, and sanity all at once. When things get busy, it can be especially easy to slack off when it comes to taking to the people around you. However when this happens items get dropped, customers, employees and managers get pissed, and you usually don’t get the type of tip you were striving for.

Ultimately I recommend getting a tip-based job over an hourly job simply for the reason that it can challenge you more and usually brings in more income.

 

3 Ways to Limit Your Spending and Pursue Your Financial Goals

Most people who grew up middle class know the value of cutting spending. In fact, when you’re starting out in either business or with your personal finances, the only way to move up financially is to take control of spending.

Because of this fact, I want to cover three of the simplest ways I have cut spending in my personal life and ways you can implement these techniques in your own life.

Prioritizing expenses

This by far is the most direct way to begin controlling your spending. As soon as you have a clear vision and are able to align your purchases with your values, your financial journey becomes a lot clearer.

It takes about 20 minutes or less. Take a sheet of paper or a document on your computer. Write out the major categories: taxes, necessary expenses(food, shelter, transportation, insurance), optional expenses/fun (toys, sports cars, Netflix subscription, tv, hobbies etc…), and giving. Now you have the list of types of expenses, begin prioritizing areas or particular expenses that you value more than others. For example, would you rather have a Netflix subscription or put that extra money towards a long-term objective like retirement?

Tracking Expenses

After prioritizing expenses and seeing where you want to be with your spending, you can see where you actually are. This is a major step in establishing and contemplating where you currently are.

Making a Shopping List

After deciding your priorities, tracking your past spending, and setting your trajectory, the last and final step is to make specific spending lists, also called shopping lists. “Why would I write stuff down,” you might ask, “when I know exactly what I want?” The reason for this is because making a list can limit your spending to only things on the list.

An example of this is once I was shopping to buy things for college and as soon as I got to the store I began buying things I thought I needed. The truth was there were a few things on the list that I actually didn’t need. It taught me a lesson: going in with a list is a positive step towards controlling spending.

Ultimately spending money and controlling your expenses doesn’t have to be a boring exercise. In fact, in time as your budget and income expand, you should be able to have a little fun with your spending.

Two Twenty-minute Tasks That Will Boost Your Financial Confidence

Most of the financially successful people we read about in magazines, books or see on social media are often portrayed as charismatic, energized, stage magnets. While a lot of them share many of these characters, what these men and women share more than any other trait is confidence. How did they get this confidence?

Confidence is often portrayed as something you can act or be or do. But while you certainly can “be more confident” simply trying to act this way won’t create the lasting change you’re looking for. When trying to build more personal confidence in yourself you have to be drawing this confidence from somewhere.

For example, while hosting at a sushi restaurant I have often heard fellow employees give me advice to “be more confident.” While I was certainly able to heed their advice and stand up straighter and with more confidence for short periods of time, I never was quite able to stick with it long term.

However the days I found it easy to be confident were the days I was diligently working, succeeding in customer service, and completing restaurant tasks with excellence. In a lot of ways it was a self-feeding cycle. I’d begin my shift with energy and confidence in my abilities and as the shift progressed my confidence would be reinforced by continuous action.

In our financial lives as well confidence can’t come from self-talk alone. Your mind has to feel both the emotional side as well as the logical side telling you to be confident. When you know that you are working hard, and have a plan it becomes easier for your emotional mind to reconcile the feeling of confidence with the logical one. Here are two major tasks you can do that each take about twenty minutes to complete:

1. Make a general (very rough) outline of where you want to be financially.

This doesn’t have to be complicated or long. Just take a piece of scrap paper out or grab your tablet and start brainstorming what kinds of things you really want to get out of your financially life over your lifetime. This task isn’t a one time event. You should be reinforcing this plan as well as refining the details of it, over the course of your life.

However this first basic exercise should catch the gist of where you’d like to be in the next year or two to help you get where you want to be with your long-term goals (5, 10 or more years down the road).

Organize your finances to see where you are

This step is just to catch a brief overview of where you money stands at this point. Get out your bank statements, look at your investment accounts, estimate the rough value of your home and the mortgage you have on it. Once you know your assets, liabilities, and the rough monthly budget you take in (income) and the expense you take out (expenses) you’ll have a very general picture of where you are.

These two, first steps alone will give you a sense of clarity about what really matters to you and where you are financially, thus what is needed to get you to the next step.

3 Things I learned Getting Ready for College

While not everyone goes to college, the tendency of young people to choose this path is getting more and more prominent. As the undergraduate degree becomes more common the costs have gone up significantly. I am attending a private College called Cornerstone University in Grand Rapids MI.

Here are some things I learned as I prepared for this journey:

1. College Is Expensive

While I certainly have been given much in life (including amazing parents, a healthy body, and uplifting friends) free college is not one of them. Paying for college is the largest expense most young people face heading into adulthood. Tackling massive or even moderate debt down the road can take tremendous time and energy.

My parents, as many readers may know, are currently involved in missions work in Zambia, Africa. Because of this tight situation financially and their belief that it is my responsibility to pay for school (which I happen to believe with), I have taken it upon myself to pay for school debt free.

The cost to attend college is going to run about $13K per year for me. While this is definitely a lot more than some state schools in which the student receive some sort of financial assistance, there are many schools out there that cost tremendously more. I plan on working both during the summer and during the semester to pay for this expense.

2. The most important things are getting the degree and meeting people

Even more crucial in college than grades or extra credit is the people you meet (connections) and the degree you get (credentials). Coming out of college which will matter more, the fact that you have a bachelor’s degree in business administration, or the fact that you got amazing grades? The degree, in my mind is much more of a stand out feature than the grades themselves.

I truly believe that from a financial perspective, grades are less important than the experience you gain and the credentials and knowledge you acquire. While grades are certainly helpful to have, they shouldn’t be the end destination of every college senior.

3. College Students are Still Considered “Kids”

The last thing I’ve realized is that while college students are technically considered adults, they aren’t, by the middle aged and older crowd, considered real adults. I don’t necessarily agree with this by itself, but it gets a bit annoying for me being called “college kid” when I know that my actions say anything but.

Whether you’re a freshmen entering your undergraduate studies, or a senior wrapping up the last official school of your life, remember: college isn’t the ending point, only a beginning.

4 Aspects of Creating a Financial Forcefield

Who doesn’t like defense? We always talk about it when it comes to football, politics, war and most importantly our personal health. But how often do people talk about defending their finances?

Nearly all the financial advice is geared towards offense (how to make more money and make it grow) but hardly any time is spent on defending what we have. While nothing can ever be 100% safe, there are four steps or assurances you can take that will put you in the best financial position to succeed in your financial offense.

First though, what kind of things are their to defend against? There are three main groups that can sabotage your financial future: The government, other people/businesses and yourself. The four steps I will outline address each of these potential risks…

1. Documentation

While certainly the least exciting form of protection, keeping your records organized can go very far in keeping your legal, and tax responsibilities clean and clear.

2. Legal Entity or Investment Accounts Choice

Where you keep your money can be even more important than how you invest it. Whether you’re a business looking for legal protection (deciding between an LCC or C Corp.) or you’re an individual deciding how to protect your assets against taxes (Taxable Account vs IRA vs Roth IRA), deciding where to hold your resources can become increasingly important as assets grow.

Proper Reserves

Most people in the U.S. don’t have even a couple thousand dollars in case of emergency. What kind of protection do you think they have against unforeseen financial bumps in the road? Not much. Businesses need reserves as well. Setting aside money each month in what’s called a sinking fund (an account designated for a specific purpose) is a responsible step for any business or person.

Insurance

The last of the four main lines of defense is insurance. Why isn’t insurance first on the list? Because by nature, insurance is meant to be a last resort. Using the first three steps and therefore not relying entirely on insurance is a fantastic way to secure yourself. However if all else fails insurance is a great last line of defense.

Conclusion

In each of these categories there are many specifics that I don’t have space to get into. However talking with your financial  or tax advisor about these things is certainly an overarching prerequisite to each of these forms of defense. Never take anything for granted. Finance is just as much defense as it is offense.

Can Debt Ever Be Good?

Most people have heard of Dave Ramsey. His financial advice has helped millions of people get out of debt and free up their financial inflow (their income). So is this simplistic advice the whole picture when it comes to debt?

The list of successful people who have made fortunes with debt says otherwise. When’s the last time you heard of a wealthy person who built a massive business without borrowing money in some sort of way? It’s not very common. In fact, the three richest people in the US, and the world for that matter (Jeff Bezos, Bill Gates, and Warren Buffet) have all built businesses or bought businesses that used debt regularly in their operations.

But why is Dave Ramsey so against debt? While I can’t get into his head, there are three legitimate reasons I can think of why he dislikes the idea of borrowing money entirely:

  1. Debt has to be payed back. While the future ability to pay off debt is uncertain, the requirement to pay it back is definitely certain. This represents risk.
  2. Debt gives control and responsibility of part of your financial life to someone else. While you are still responsible for taking care and utilizing whatever you purchased with the debt, you are no longer owning this thing altogether by yourself.
  3. Debt costs money and time. To borrow money it usually takes time and complications. On top of that there are costs associated with borrowing like origination fees, legal fees, and (of course) interest. While the rate of return you get on your money might be greater than the interest rate, you are involving more risk into your financial picture.

So, after close examination, do Dave Ramsey’s probable reasons and concerns for not using debt seem pretty well founded? I’ll leave that up to you. However they can be summarized in one word: Risk.

Debt represents risk. Whichever way you borrow money, whether for a home, real estate property, or college, recognize that debt is a risk that cannot be overlooked. While I believe debt cannot or should not be eliminated from our lives completely, taking a careful look at it can go a far way in eliminating pitfalls.

3 Ways to Get Your Own Cinnamon and Blueberry Financial Plan

There are a lot of ways to prepare a breakfast. Toast and jam, eggs (scrambled, sunny-sideup, over easy, etc…), milk and cereal, pancakes and syrup, bacon or sausage, yogurt with granola and fruit and then there’s oatmeal.

To be honest I’m not the most exciting person when it comes to making breakfast. I have the philosophy for myself to keep my first meal relatively healthy, to keep it simple, and to keep it consistent.

The last couple years have seen a great deal of changes in my life; I officially finished high school, got my first real job, took 3 big camping trips (2 to Canada, one to Pictured Rocks MI), had a chaotic semester (with both full-time work and full-time school), said goodbye to my family of two parents and four siblings who moved to Zambia, Africa, Visited them for 3 months, came back and took a 2300 mile road trip by myself, and now am finally beginning my first regular semester at University.

With all this change I have kept my morning routine fairly consistent. I wake up early, do pushups, run, do jumping jacks, or sometimes none of them. I take a shower, read, write, and I have my oatmeal.

The same is true with my money philosophy. While I am at this early stage of my career and investing I have only a few basic tasks to put my money towards: living (food, insurance, college, etc…), generosity, savings and passive investing. My goal in this period of life isn’t to make billions or millions – my goal is to set up my future.

Just like my breakfast isn’t meant to be fancy or complicated, neither should your finances. This rings especially true for those of us who are younger. The People who end up broke are almost always those who either spend all their money trying to feel rich or spend all their money trying to get rich (fast).

To follow in the footsteps of responsible millionaires you need to keep these three ingredients in your financial life: responsible actions taken simplistically over a long period of time (consistency).

3 Things to Value More Than $1M

As the U.S. continuous its decade-long economic improvement, it’s hard for many of the younger folks to remember a time where fear was prevalent and jobs were scarce. While I was much younger in 08 and 09 I remember the feeling and conversation around money during that period.

Not only am I confident that hard times will hit the U.S. economy again, I suspect (based on history) that some sort of crash or drawback isn’t too far away. Simply looking back at the last couple decades of market crashes gives us some picture of how rare the past 10 years have been.

We’ve seen relatively low turmoil in the market, particularly stocks. Except for a few difficult weeks, the U.S. stock markets haven’t experienced a real drawback since the mortgage meltdown. But just 5 or 6 years before that the markets were down in 2002. And just two years before that the markets were down in the technology bubble of 2000.

Consistently throughout history we’ve had market crashes or corrections every six to 10 years. Here we are in 2018, with trade fears on the horizon, wondering if another crash is near. It’s been about a decade.

With all the turmoil, fear, anxiety and uncertainty in the markets, it’s very easy to become focused so much on the world of money that 1) we lose historical perspective on a potential loss, but 2) we lose life perspective on the true importance of money as it relates to our life.

Which matters more, a 50% drop in the Stockmarket (which won’t be a permanent loss unless you panic and sell) or a loss of a close loved one? While most people would value the close relationship above a temporary financial loss, it’s strange that so many of us put more energy worrying about areas of finance we can’t control and less time improving our current relationships.

Don’t get me wrong, money is important. Money has power, both in our life (to buy things and help others we care about) and in politics (to influence people), but there are three big things more important than money we can’t forget:

1) God

2) Close relationships (friends and family)

3) Health (physical and emotional)

Deepening these areas of your life both in depth (deepened commitment and improvement) and in length (time spent improving and investing in) is a great first step in not only improving these three areas but also setting yourself up to improve the 4th area: Money.

Next time you’re planning or prioritizing your life in a way that isn’t consistent with your values, remember in what order your values lie.

What Every Single Rich Person Has – And How To Get It

As the years roll by most people find that they continue to need to pay the mortgage or rent, buy food, and pay insurance. But There is a moment in everyone’s life, whether in college, after a life changes, or in old age, when the money coming in is less than the money that needs to go out.

Rich people don’t have this problem. While they certainly have their own financial problems coming in many different directions and flavors, lack of cashflow isn’t one of them.

However, no matter how much wealth, or how deep their pocket book, rich people all have one thing in common. This similarity runs through the tech titans, the real estate tycoons and the financial gurus. What is this key ingredient? Leverage.

Leverage, is actually a general term. There are many contexts in which leverage can be used and what it can mean. This kind of leverage to which I am referring is in the context of effort and resources – not necessarily debt.

In this context we use googles definition. Leverage is to: “use (something) to maximum advantage.”

You’re probably wondering what leverage has to do with Mark Cuban, Donald Bren, or Bill Gates. Mark Zuckerberg, for example, utilized the leverage of personal engagement to bring attention to his platform, in a way never seen before.

Leverage in the context of the rich is the act of utilizing resources in order to maximize and grow the results. The Rich in every industry have learned to use their effort, along with the effort of others to build great companies. Warren Buffet leveraged his money (in a non-debt way) to turn it into something bigger than he could have every achieved on his own by working a regular job.

So, how can you utilize this strategy of leverage? It starts with finding your “niche” or the thing that you believe you can provide the most value to people than any other. Pick thing one thing and begin building your skills and network in this area. As soon as you see some progress begin to leverage other people’s time, money, resources and connections in a way to build your brand.

Don’t make this one-sided. These should be give and take relationships in which you provide as much value or more to the other person. Often leverage involves borrowing each others skills in a net positive way. Begin learning about your area of interest and learn how best to use the power of leverage…