Tag: Spending

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Wealth Building Wednesday – Debt Management Strategies

Wealth Building Wednesday – Debt Management Strategies on Clint’s YouTube Channel.

Hey everyone, Clint here, bringing you this week’s episode of Wealth Building Wednesday, with some practical advice on managing debt. Here’s some quick tips on what works and what doesn’t in the realm of debt.

Good vs. Bad Debt: First things first, not all debt is created equal. There’s the kind that’s working for you, like investments in real estate that bring in more than they take out. Robert Kiyosaki likes to promote good debt as debt used to purchase assets. He describes assets as anything that brings you a return.

Then there’s the kind we’d rather avoid—high-interest culprits like credit card debts. It’s OK to have and use credit cards, but not to carry a balance on them. You should pay them off every month either when they are due or before they are due to ensure you don’t pay interest. This is a good strategy if you don’t have a balance or have paid off your balance. If you already have a balance on your credit card(s), see below how to eliminate them.

Mortgages can be a smart play if you’re investing in your future home, as long as you maintain the home and can expect decent appreciation. Even then, it will depend on what your interest rate is. If it is low, as in less than 5%, you may not want to pay off your mortgage, unless you would feel better not owing anything on your home.

Student loans are a mixed bag depending on what you’re aiming for career-wise, what type of loans you have, and again, what the interest rates are. Students should be informed on the expected ROI of their chosen degree program. The same degree program at different schools can range from a moderately positive ROI (165% or so) at one school to an extremely negative ROI (-450% or so) for a music education degree. This information was found here when researching in-state music education undergraduate degrees in Louisiana for my oldest daughter. The fact that Northwestern State University had the highest ROI for that degree and the largest amount of scholarships offered between, she will wind up with an almost infinite return for her degree.

Tackling the Debt Dilemma: We’ve touched on strategies like the debt avalanche and snowball methods before—both solid tactics depending on whether you want to hit the high-interest debts first or knock out smaller debts for quick wins. The goal? Eliminate your bad debt so you’re not bleeding money on interest and can focus on growing your wealth.

Why It Matters: Let’s be real…debt can be a drag on your financial journey, especially if it’s the kind that doesn’t give back. Shaking off that debt means more freedom to invest in your future, and that’s what we’re all about here.

Eliminating your debt will give you options…and thee who hath the most options, wins!

Got a question or a thought to share? Leave a comment or shoot me an email; I’m here to help or dig deeper if needed. And hey, if you found this chat helpful, why not share it with a friend?

Clint C. Galliano, a native of Lafourche Parish, has lived in the Houma-Thibodaux area for over 36 years and is currently a REALTOR® with Keller Williams Realty Bayou Partners in Houma, La. He has been involved with real estate investing since 2017 and hosts the local Real Estate Investment Association. Real Estate is his passion. Clint previously worked in drilling fluids and drilling fluids automation for 28 years. He lives in Bayou Blue with his wife and two daughters.

Clint C. Galliano, REALTOR®
985.647.4479
clint.galliano@kw.com
Licensed by the Louisiana Real Estate Commission
Keller Williams Realty Bayou Partners
985.262.4400
307 Bayou Gardens Blvd
Houma, La 70364
Each Office is Independently Owned & Operated

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Mastering Budgeting: The Key to Wealth Building Success

http://clintcgallianorealtor.com

Join us for an in-depth look at budgeting and its vital role in wealth building. Learn practical tips and strategies to take control of your finances and maximize your wealth potential.

Why Budgeting Is Essential for Wealth Building

 Budgeting is not just about managing your expenses; it’s a strategic tool for achieving financial freedom and realizing your long-term goals. By carefully allocating your resources and making informed financial decisions, you can build a solid foundation for wealth creation.

The Power of Smart and Flexible Planning

 Effective budgeting is not about penny-pinching or living a restrictive lifestyle. It’s about smart, flexible planning that empowers you to optimize your spending, prioritize saving, and make informed investment choices. We’ll explore real-world examples of how strategic budgeting can lead to significant wealth accumulation.

Leveraging Technology for Personalized Budgeting

 Discover the benefits of using advanced tools such as Rocket Money, Pocket Guard, or Every Dollar for personalized expense tracking and budget management. We’ll highlight how these innovative platforms can help you identify opportunities for savings and align your financial journey with your lifestyle.

The Importance of Flexibility in Budgeting

 We’ll delve into the significance of incorporating flexibility into your budget to prevent overspending and ensure a balanced financial approach. Learn how to avoid the pitfalls of tight budgets that may lead to impulsive splurges, and find out how to maintain a healthy balance between disciplined saving and guilt-free indulgence.

Mindful Spending and Consistent Saving

 Budgeting isn’t just about restricting yourself; it’s about enhancing your life by cultivating mindful spending habits and maintaining a consistent saving regimen. We’ll provide practical tips for integrating budgeting into your daily life and maximizing its positive impact on your long-term financial well-being.

Engage and Transform with Debt Management

 Get ready for our next episode, where we’ll tackle the complexities of debt management and help you transform daunting numbers into manageable financial milestones. Don’t miss this opportunity to gain valuable insights into effectively managing and overcoming debt.

Conclusion:

In conclusion, mastering the art of budgeting is the cornerstone of wealth building. Incorporating smart, flexible planning, leveraging innovative tools, and maintaining a balanced approach are key to achieving long-term financial prosperity.

Join us next week for an insightful exploration of debt management.

Remember, your active engagement and feedback are invaluable to our journey towards financial empowerment.

Clint C. Galliano, REALTOR®
985.647.4479
clint.galliano@kw.com
Licensed by the Louisiana Real Estate Commission
Keller Williams Realty Bayou Partners
985.262.4400
307 Bayou Gardens Blvd
Houma, La 70364
Each Office is Independently Owned & Operated

Clint C. Galliano, a native of Lafourche Parish, has lived in the Houma-Thibodaux area for over 36 years and is currently a REALTOR® with Keller Williams Realty Bayou Partners in Houma, La. He has been involved with real estate investing since 2017 and hosts the local Real Estate Investment Association. Real Estate is his passion. Clint previously worked in drilling fluids and drilling fluids automation for 28 years. He lives in Bayou Blue with his wife and two daughters.

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Personal Finance – How NOT To Spend Your Money

Welcome back!

This week I am going to go over how NOT to spend your money. There are lots of good things to spend money on, but I continually observe people spending money so they can feel like they are keeping up with the Joneses or because they “deserve” it. And avoid misunderstanding, I am not advocating frugality, just better decision-making when spending money.

 

Everyday Observations

 

Bad spending habits observed recently:

Withdraw money from an old 401k account to go on vacation

Spending money to set up a business, but with no initial business activity

 

Early 401k Withdrawal

If you have money in an old 401k, use it for the intended purpose: Savings for retirement! It is understandable if you have a hardship and need the money to help deal with that, but just pulling the money out to go on vacation is a bit ridiculous. In addition to diminishing the amount of money to be available at retirement, you also have to pay a penalty on the money you withdraw, in addition to taxes at your current rate.

 

401kEarlyWithdrawal
Amount needed to withdraw from old 401k to get $8000 for a vacation.

 

As an example, assuming a 24% tax bracket, if you want to use $8000 to go on vacation, you will need to pull out almost $13,000 to cover the $1,290 penalty and approximately $3,097 of taxes to end up with $8000 to go on vacation.

Not only do you lose 34% off of the top of your money, you also loose any additional earnings by not having that total amount of money still invested.

 

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Setting Up a Business Entity with no Business Activity

I understand the desire to get out of the rat race, to start your own business, and not have to work for someone else. I am right there with you! But take a practical approach. Take a practical approach. I see people starting up LLC entities, putting up websites, and paying for business infrastructure before they have any business activity. That is definitely putting the cart before the horse. If you spend that money, but do nothing in the way of generating business, then that is a wasted expense.

You would do better spending money on actual business-generating activities than paying for infrastructure before you need it.

 

Suggestions

 

Vacations

Plan your vacation as inexpensively as possible. Don’t skimp, just don’t pay $1200 a night for a room when you can rent a whole condominium or home for $110 per night in the same area.

Carry snacks and drinks with you so you don’t have to pay $4-$5 a person for snacks and $3-$4 per person for drinks. No need to carry enough for the whole day, but if you can save $28-$36 for one round of snacks & drinks a day, that cuts your total expense.

Save money until you have enough to go on vacation.

 

Businesses

Start your business on minimal infrastructure. Start conducting business now, then add infrastructure as you really need it.

Have a detailed realistic business plan. Plan out costs, expenses, margin, target audience, etc. Know these things before starting your business, much less spending money on infrastructure.

Hopefully these suggestions helped you out. Please comment here with any questions or suggestions regarding tips, tricks, and ideas for judicious spending.

 

And, as always, let me know what you think in the comments. Ask questions, tell your story.

 

 

 

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Personal Improvement – Books That Have Influenced Me Recently

BookList
Books That Influenced Me

 

I would like to know more about my readers. If you could spare about 2 minutes of your time,  please take a survey to tell me what you like about the blog. Just click here to take the survey.

 

Welcome back to another installment of Things I Think About! This week I am going to go over a few books that I have read recently that have had an impact. While some of them cover a mix of topics, to me, they mostly fall into one topic. Because of this, I will break them out by topic and detail the crossover topics, and why I feel that way, for each book I also have them listed separately on my Recommended Books page, HERE.

 

Business

The E Myth Revisited by Michael Gerber

This book speaks to my soul! I “read” the Audible version, (as I do most books due to my 3-hour plus daily commute), recorded by Michael Gerber himself. This book details why a lot of “Entrepreneurs” find themselves overworked, underpaid, and without the ability to grow. It is an interleaved mix of example stories with lessons explaining about each story. The main focus of the book is to explain why developing processes and systems for operating your business will allow you to employ other people to work IN the business so you can work ON the business.

 

The 4-Hour Workweek by Tim Ferriss

A young Tim Ferriss relates how he figured out how to not be locked into common misconception of the American Dream…go to school, get a good job, work like a slave for 20-30-40 years, then retire at an age where there is a good chance that you will have trouble enjoying life. In the 4-Hour Workweek, he details the concepts of mini-retirements, becoming effective and efficient in whatever you do for work, and ideas for small businesses that require little to no maintenance to support you on an ongoing basis.

Granted, as even pointed out in the book, the goal is not to be able to lay on the beach drinking mai tais, it is to free you up to do the things you want to do, including world travel, learning languages, and/or working with non-profit organizations.

This book also qualifies as a personal Improvement book, because a lot of the recommendations for efficiency and effectiveness while working have helped me to reduce a lot of stress at my main job.

 

Rich Dad’s Cash Flow Quadrant by Robert Kyosaki

This book breaks out the different classifications of people earning money. ESBI stands for Employees, someone who works for someone else to make money, Self-Employed, a person working for themselves to make money, Business Owners, owning a business & employing other people, and Investors, those who employ their capital to buy assets. It promotes the idea to be either a business owner or, ultimately, an investor, as this usually provides the best returns on time & money.

 

Personal Improvement

The Obstacle is the Way by Ryan Holiday

Ryan Holiday is a devoted Stoic. He has multiple books and a website dedicated to Stoicism. This book is kind of a manual for achievement. I really enjoy it because it basically lays out my philosophy on life. The short version is “Do what you can to change the things you don’t like in your life…Ignore the things you can’t change.” The Obstacle is the Way takes it a step further in that it guides you to figure out how to change either the situation or your thinking about the “things you can’t change”.

 

Rich Dad, Poor Dad by Robert Kyosaki

Robert Kyosaki tells the story of how he grew up a poor kid, but due to the tutelage of a friend’s father, learned to become a businessman. The book is a simple read but puts forth important concepts…assets are only assets if they will make you money, don’t spend foolishly, and educate yourself to grow. There is also a good bit of advice on real estate investment as a vehicle to become wealthy.

 

Principles by Ray Dalio

Ray Dalio is one of the richest men in the world and got that way by building one of the top hedge fund management companies, Bridgewater Associates. In Principles, he relates his lis life and how he got to where he is, developing his principles for business and personal life as an operating system along the way. This is another Audible entry where the author reads the book to you. It works.

 

Real Estate Investing

Long Distance Real Estate Investing by David Greene

While I don’t invest in real estate outside of my back yard, (for now), this book is incredibly useful as a guide of how to do things. The methodologies and techniques laid out here will work even in a local market. It’s a mix of strategies, tools, and tips to be successful.

 

The Book on Rental Property Investing by Brandon Turner

This book is a thorough primer for anyone wanting to get into rental properties as an investment. It covers everything from finding properties to rehab tips and beyond.

 

The Book on Managing Rental Properties by Brandon Turner and Heather Turner

Hmmm…the title sounds a bit familiar…YES! This is the follow-up book to The Book on Rental Property Investing. It picks up where the previous book left off and takes a deeper dive into what you need to do to manage properties successfully.

 

Loopholes of Real Estate Investing by Garrett Sutton, Rich Dad Advisor

Another Audible author read, Loopholes covers the benefits of and hazards to watch out for when investing in real estate. I have probably listened to this book at least 6 times…right up there with the 4-Hour Workweek and The E Myth revisited. Lots of great advice.

 

And, as always, let me know what you think in the comments. Ask questions, tell your story.

 

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Personal Improvement – How Do You Spend Your Time?

This week I am going to talk about how you send you time and how it affects progress towards goals. This is a topic that keeps coming up (for me) from various sources and every time it does, I get more of an urge to discuss this topic here. So…here we go.
“How do you spend your time?”
Ask that question of a hundred different people and you are likely to get a hundred different answers. Some people may list every detail, others may just give a twenty-thousand-foot overview.
  • Successful people have goals.
  • Successful people have a plan to reach those goals.
  • Successful people follow a process and their processes are habits.

 

Observations of Others
In a recent blog post, Dave Van Horn talks about a speaker at a recent investing summit who asked the question “What would you do if you were a billionaire?”
The answers were some form of the three below:
  • “I would travel more.”
  • “I would focus on my passion.”
  • “I would give to charity.”

 

Dave then goes on to point out that “billionaire” status is not needed to achieve these goals, as evidenced by the speaker, (not a billionaire), only that you budget your time as you do your money to its best possible use. Don’t waste your time doing things that won’t move you forward. You can pay someone to take care of that for you if your time would be better spent being effective.
He then relates how Tony Robbins asks similar questions:
  • What is an extraordinary life for you? – Hopefully this is something that you can achieve in the next six to twelve months.
  • What is preventing this from happening already? – What story do you give as an excuse for not having achieved it already?
  • What needs to change now? – This brings it back to taking action.

 

This may sound familiar. It is similar to what I outlined in how to resolve overspending.

 

Once you have set a goal, identified what is stopping you from achieving that goal, and put a plan in place to change things your goal, things may still not happen perfectly.

Life will always throw you curveballs. Our initial reaction is to get emotional and point to all the reasons why we are failures. We can come up with lots of feelings on the subject, but in reality, over the long term, they don’t make much of a difference in the long run. Life goes on.
The way we can get through this is to put it in perspective. Learn from failure. Defeat your emotions with logic. What important things are you missing because you choose to worry versus logically evaluating the facts? Just because you are in control of your emotions does not mean you don’t feel them, just that you are taking care of business so you can deal with your emotions at an appropriate time.
By thinking clearly rather than getting caught up in emotions, General Eisenhower, in WW2, was able to determine a way to defeat the German Blitzkrieg, a battlefield strategy that involved throwing everything they had at the allied forces in a single attack. It was scary and worked in lots of battles, with allied forces so surprised, shocked, and overwhelmed by the speed and ferocity of the attack, that they just gave up.
General Eisenhower realized that the Germans were putting everything they had into the attack, leaving their flanks and rear unprotected. His approach let the Germans attack, but held groups back to flank the German attack, thus surrounding & defeating them.
Here are some quotes that reflect this approach that I find helpful:

“What doesn’t kill you, only makes you stronger!” – Jean-Baptiste Emmanuel Zorg (Antagonist from The Fifth Element)

 He wasn’t the originator but is as good an attribution as any. This means that you learn from your mistakes. Dealing with difficulty helps you to become more resilient, more anti-fragile.

“I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain.” – Frank Herbert, from the book Dune. 

 It is OK to be scared, but don’t run from it. Face your fears. Once you face your fears, they have little power over you.

“Our actions may be impeded, but there can be no impeding our intentions or dispositions. Because we can accommodate and adapt. The mind adapts and converts to its own purposes the obstacle to our acting. The impediment to action advances action. What stands in the way becomes the way. – Marcus Aurelius – Holiday, Ryan. The Obstacle Is the Way: The Timeless Art of Turning Trials into Triumph (p. 1). Penguin Publishing Group. Kindle Edition.


This is similar to the “What doesn’t kill you” quote but goes a little deeper and touches on something that doesn’t seem common these days…the idea that by facing hardship, you grow. In fact, it is the reason for the title of Ryan’s book, “The Obstacle is the way”.

Do the uncomfortable things, if it will further your goals.
Grow from those experiences, so that next time, you either know how to handle it already, or if it is a big issue, avoid it altogether.
Learn from mistakes.
Budget your time.
Budget your money.
Grow, as a person and as a leader.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
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Business Finance – Understanding Cash Flow

An infographic representation of Cash Flow.

 

Today I want to go over Cash Flow and why it is critical to business finance.
There are four basic reporting metrics for business finance:
  • Balance Sheet – Statement of financial position, reporting a company’s assets, liabilities, and owners’ equity at a given point in time.
  • Income Statement – Statement of revenue and expense or profit & loss.
  • Equity Statement – Statement of changes in equity or retained earnings.
  • Cash Flow Statement – Statement of a company’s cash inflows and outflows during a given period of time.

 

I will cover the first three in more detail with later posts because I want to talk about Cash Flow and the Cash Flow statement.

 

Cash Flow
Cash Flow is the total amount of money coming into a business (revenue, income, investments, loans, etc.) and the total amount of money going out of a business (bills, expenses, wages, capital purchases, etc.) over a given period of time. It can be a year, a quarter, a month, or any time period you want to look at. For my purposes, monthly reporting is preferred, as it coincides with other regular monthly financial reports.
Doesn’t the profit & loss report show you the same information?
While reporting similar information, Cash Flow & Profit & Loss Reports serve different purposes. The Cash Flow report gives you an understanding of how you are bringing money into your business and how you are spending it while the P & L report shows you revenue earned and expenses paid.
OK, that still sounds similar, you say.
It may be easier to understand if you look at it from the perspective of different accounting methods. Businesses use either the Cash Basis or the Accrual Basis methods.

“Cash basis – Revenue is recorded when cash is received from customers, and expenses are recorded when cash is paid to suppliers and employees.

 

Accrual basis – Revenue is recorded when earned and expenses are recorded when consumed.”

If you are operating on the Cash Basis method, your revenue and expenses are recorded into your accounting system when they occur. In this case, your P & L and Cash Flow Reports should show almost the same information for a given period, with minor differences like loan principle repayments not showing up on a P & L.
In the case of the Accrual Method, you might earn revenue in a given month, but you won’t see the money from it until the invoice gets paid, which may be a month down the line. As for expenses, you may be paying for supplies immediately, but can’t show them on the P & L until the revenue is earned. So, you are potentially paying for supplies in one month, showing revenue in the next month, and not actually getting paid until the third month.  In this scenario, the P & L would show the expense & revenue in the second month, but the Cash Flow would show the outflow of the expense in the first month, no activity (with respect to the subject order) in the second month, and would show the revenue inflow (invoice being paid) in the third month.
Because of this, you should be looking at both reports to better understand what is going on in the business.
Why is Cash Flow important?
 
To be a successful business, you want to have positive cash flow…that means that you have more money coming in every month than you are paying out in expenses, wages, and bills. This seems like a “DUH!!!” statement, but without looking at both your P & L AND Cash Flow reports, it would be hard to make sure you are able to bring in more cash than pay out in expenses.
Without regularly reviewing the Cash Flow statement, you might think you are breaking even or close to it, until you realize that your bank account has steadily been dropping and you really were not even close to breaking even.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
If you like my posts, please share them with others and subscribe to this blog.
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Personal Finance: Saving Money Versus Saving Money Versus Saving Money

Saving Money…Maybe you should think of it as Rescuing Your Money!

 

This week I am going to cover saving money. There are many differing thoughts about this topic these days, some of which have valid points. I will also lay out my thoughts on the idea.
Saving Money – Why Should You?
Why should you save money? You can save money for an emergency. You can save money for to buy something special. You can save money for a dream vacation. You can save money for retirement. Your reasons are valid for you.
Tim Ferriss advises that you set dreamlines…goals you want to achieve and figure out how much it will cost, both per month and one-time charges, so you can figure out how to get your retirement now rather than delaying and saving for “one day”. There is also this whole part about coming up with a muse, or business idea that will provide the extra income to cover the costs of achieving that mini-retirement. The other thing is that they should be frequent.
Robert Kiyosaki says “Savers are Losers!”. His reasoning is that no matter how you are saving money, be it in a bank, in a Certificate of Deposit (CD), or in a pickle jar buried in the back yard, you are losing money, at least at this point in time, because of monetary inflation.

“MonetaryInflation is an increase in the money supply which generally results in priceinflation.  This acts as a “hidden tax”on the consumers in that country and is the primary cause of price inflation.Monetary inflation is commonly referred to as the government “printingmoney” although the actual process is a bit more complex than just cranking upthe printing presses but the effects are essentially the same.As the money supply increases the currency loses its purchasing powerand the price of goods and services increases.”

Why under the mattress, In a savings account, or In a Certificate of Deposit Costs You Money
 
Currently the rate of inflation is approximately 2%. Based on the definition above, that means that your money loses 2% of its purchasing power. If your savings account is paying 0.25% interest rate, your money in that account is losing 1.75% with this rate of inflation. If your CD is paying 0.3%, you are losing 1.7%. And if you have it in a pickle jar, you are losing the full 2.0% of purchasing power by not doing anything with it.
Ultimately, as far as I am concerned, instead of just saving money, put your money to work in an investment that will earn you more than the rate of inflation. Historically, the S&P 500 has provided positive returns over the long term, but in some years, like 2008, it had a negative 37% yield.
Overall, accounting for inflation, the market seems to average about a 7% return, but you will be advised to leave your money in the market and let things work themselves out. We have money in the market in the form of traditional & Roth IRAs, regular managed investments, my 401k, and various individual stocks that I play with (not very much).
I, personally, don’t want to devote my time to attempt to master the market.
Why you should make your money work for you
We also are investing in real estate. So far, those investments are working out to about a 9% return. Real estate has many options from flipping, to buy and hold (rentals), to lending, to investing in notes (becoming the mortgage holder for other borrowers). As stated before, BiggerPockets is the best free education on real estate investing you can find.
Additionally, we invested in a high-end door manufacturing business. It is not currently providing a return on investment, but it is improving and still self-sustaining, in addition to providing me and my fellow investors with some of the best business management lessons we have ever run across.
The bottom line, make your money work. To paraphrase the old adage, if your money is not moving forward, it’s falling behind.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
If you like my posts, please share them with others and subscribe to this blog.
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Personal Finance: What is an Asset?

 

Welcome back to the Things I Think About Blog. This week I am going to talk about what assets are, with regards to personal finance.
“as·set /ˈaset/ noun
General Definition
a useful or valuable thing, person, or quality.
property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.
military equipment, such as planes, ships, communications and radar installations, employed or targeted in military operations.
Accounting definition.
Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. Examples include cash, investments, accounts receivable, inventory, supplies, land, buildings, equipment, and vehicles.”
The definition we are going to focus on is “Property owned by a person or company…”.
Depending on how you look at things, you can call almost any property an asset. But the real question is will it make you profit? Does it earn you more money than it costs to keep it or can you sell it for  more than you paid or are paying for it?
A phrase you will hear people say is that “your home is your biggest asset”. It can be, but only in specific situations. You can have a large percentage of equity in your home, meaning the difference between what you home is worth versus what you owe on it, but you will only realize that equity if you either sell the property for a gain (if it has appreciated since you bought it), or if you refinance it and harvest the equity, then use that money to invest in something that will make you profit.
While I don’t have the numbers to back it up, I would bet that a lot of people are not in that situation.
Robert Kiyosaki even goes as far as to say that your home is never an asset because it is never bringing in cash flow. He makes the case that overall, you are better off renting and letting someone else worry about repairs, taxes, homeowner’s insurance, etc.
Personally, I tend to agree with him on that front, but I feel that if your goal is to own a home, then you figure out how to make that happen. Make investments that pay for the home you want.
Stay away from buying property that does not bring you profit…like boats, RVs, ATVs, etc. You do not need to spend all kinds of money on shiny objects, especially if they will not make you a profit.
While we are talking about assets or not assets, let’s look at buying a car.
Here in the USA unless you live in a larger metropolitan area, you need a vehicle to get around.
If you are in that situation, remember this interesting statistic, that new cars lose approximately 11% of its value. or what you paid for it, as soon as you drive it off of the lot.
Let’s look at this scenario, you buy a $25,000 car and you are able to get 1.9% financing through the dealership. Taking into account the “drive-off depreciation”, your first 8 car payments will be used to pay off that depreciation. Additionally, it will take another 6 months of payments to cover the rest of the first year of depreciation for that new vehicle.
You would be much better served buying a slightly used vehicle and saving the extra costs associated with buying a new one.
Invest in things that will make you money. Invest in things that provide cash flow. Don’t speculate on appreciation.
And, as always, let me know what you think in the comments. Ask questions, tell your story.
If you like my posts, please share them with others and subscribe to this blog.
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Business Finance: Knowing Your Costs or How to Find the Break-Even Point of Your Business

 

“The break-even point (BEP) in economics, business—and specifically cost accounting—is the point at which total cost and total revenue are equal.”

This week’s topic is knowing your costs for your business or the Break-Even Point (BEP).

Before starting a business (or buying one), you should understand what your Break Even Point is. The BEP is where you have enough revenue coming in to cover all of your expenses. It means $0 in profit, but also that all expenses are covered.

Knowing what your BEP is can be beneficial in evaluating how much of your product or service you will have to sell to begin generating profit. It is always better to have this information before engaging in a business rather than trying to figure it out after you are already involved.

Direct Expenses

When determining the BEP, there are some differences between how to calculate this information for a Service Business and a Manufactured Products Business.

  • Service Businesses are fairly easy in that you only need to tally up your direct expenses. This could be done on a monthly basis, but if you have expenses that come up at different times of the year, it is easier to estimate a total annual expense and divide it by 12 to give you a monthly expense amount. (At least that is what I have found when analyzing rental properties).
  • Manufactured Products Businesses are slightly more complicated in that you need to understand what the Gross Profit (GP) on the products are. Gross Profit is the Total Sale Price minus the Cost Of Goods Sold (COGS – materials, labor to assemble). Once you know what your GP is, you will be able to calculate the BEP for the product.
Indirect Expenses

The next step is to gather all of your indirect expenses. This can include rent, utilities, sales, and distribution expenses. Anything that is not directly involved in the provision of a service or the manufacturing of a product.

Once you have all of your numbers, you can calculate your BEP.

For Service Businesses, your BEP is the sum of your direct and indirect expenses. If you bring in enough revenue to cover just those expenses, you have broken even.

For Manufactured Products Businesses, you simply divide your indirect expenses by your GP % to arrive at your BEP.

Example: Indirect Costs: $20,000; GP: 31%; $20,000/0.31= $64,516.13

As I stated above, it is a good idea to have this information before you are involved in a business. Once you understand where you stand with reference to a BEP, you can start to work on optimizing you costs & methodologies to increase efficiencies, lower costs, and lower the overall BEP for that business.

And, as always, let me know what you think in the comments. Ask questions, tell your story.

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Overspending, Why And What to Do about It

Originally posted on the Things I Think About blog on 16-Mar-2018.


This week, we are going to talk about spending, spending habits, and debt. As I related in a couple of previous posts, My History With Money, Pt. I & My History With Money, Pt. II, I had a bit of a spending problem. While the majority of my debt was from my mortgage, I was having trouble keeping up with payments and just keeping cash on hand. Hopefully, I will be able to provide you with some insight into why we spend and get into debt.

First, here are some statistics I gathered on income and spending in the US:

  • The average pre-tax income for people living in the US in 2016 was just under $75,000.

  • The average annual expenditures for people living in the US in 2016, including food, housing, transportation, discretionary spending, and insurance was slightly over $57,000.

  • Add to that, the average amount of taxes paid between local, state, and federal in US as of last year is about $10,500.

  • What you wind up with is about $8,000 a year (or $666.67 per month) of savable/investable income, based on averages.

The problem with averages is that it smooths out all of the variations in the data. In simpler terms, not everybody can recognize that excess money at the end of the year.

Here’s another bothersome statistic: 43% of Americans in the US spend more money than they make, according to the Federal Reserve.

The most common reasons people spend more than they make.

How to address the reasons listed above

If you are in the situation where you are spending more than you make and/or are in a lot of debt, the first thing to do is commit to changing your habits and then doing some things to change your situation.

Budgeting:

Be aware of what money you have coming in and what money you are spending. Break out your spending between necessities and discretionary. Necessities are electricity, water, gas, mortgage/rent, food, transportation. Discretionary spending covers items like cell phones for every member of the family, cable, internet, visits to the casino, cigarettes, beer, and similar things that are not vital to your survival.

Figure out approximately what percentage of your monthly income is needed to cover each necessity and allocate a little more than that requirement to be put aside to cover each one. I suggest putting cash into envelopes labeled for each one. By putting a little more into the envelope, that will help to cover variances in income and costs. This idea is actually based on the ideas put forth in the book Profit First by Mike Michalowicz. The book is aimed at entrepreneurs trying to get their business to a profitable state, but the principles apply to personal finance, also.

They KEY thing is to not touch the money once you put it aside unless you are paying the bill it is dedicated to.

Make sure you are also able to put aside an emergency fund. The amount should be approximately three times your monthly income/take home pay. This goes a long way towards keeping your life steady in the event of bad weather, vehicle breakdown, illness, etc.

Try to stick to only spending on necessities until you are comfortably out of debt. Then start looking for ways to invest some of your “profit” to make you more money. (Since I am not a financial advisor, I can’t offer advice on how to invest that money, but I will cover my thoughts on the matter in a future post.)

Credit cards:

Only use them if you have the money to pay for what you are purchasing and can commit yourself to not spending the cash on anything other than paying your credit card bill. If you have a balance on your credit card, don’t use it at all until the balance is paid off. Only then should you use a credit card to buy stuff.

If you already have a balance on your credit card or even multiple cards, work on paying off those balances first. There are two approaches to methodology when doing this, either start paying extra on the card with the highest interest rate and balance, if you can make yourself do that regularly without getting disappointed or pick a card with the smallest balance and pay it off first. This will give you a self-esteem boost by way of accomplishment.

DON’T PUT ANYTHING ELSE ON THAT CARD!

After the first one is paid off, take the monthly allotment of your income that was dedicated to paying off that card and start adding it to what you are paying on the next card. Keep doing that until all of your cards are paid off.

PAY OFF YOUR BALANCE EVERY MONTH!

This is crucial for not accumulating debt. It may even be better for you to have a charge card like American Express, where you are required to pay it off every month.

Don’t “float” your balance from one new card to another without paying it off. It ends badly.

Psychological Reasons for Spending

We are constantly being bombarded with advertising trying to influence us to spend money. Whether it is buy a new car, get the latest phone, or use our credit card to buy your dreams. Advertising implies that if we don’t spend, we are a lesser person. Don’t believe it!

Yes, you do need some of the things you see advertised, but you don’t need to go broke or get in debt to get it.

Buying things to feel better about yourself actually make you feel worse in the long run.

DO something to change the things in your life you don’t like. Don’t waste time worrying about the things you can’t change, because it will only make you feel worse.

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