Dan Schwabel interviews Robert Kiyosaki on Entrepreneurship
For most people, each and every day involves some type of financial decision. So how do you feel about your financial decision-making skills?
If you think you are making sound choices, ask yourself this: Have you weighed the consequences of your choices against their apparent benefits?
In many cases, the answer is no.
Let’s take a look at six common financial choices that sound like smart moves, but could leave you scratching your head wondering where you went wrong.
1. Applying for a Line of Credit
Advantages: Starting a line of credit will diversify your credit sources, which is good news for your credit score. It also allows you to access funds you may need for large purchases, like buying a car, without having to scramble to arrange the funds when you decide to buy.
Consequences: A line of credit is too often treated like free money. In many cases, such easy access to funds leads borrowers to rack up consumer debt for things they don’t really need. And there’s nothing free about this cash injection: borrowers have to make minimum payments on the line’s outstanding balance. In addition, a balance will limit borrowing power on other loans, such as a mortgage.
2. Withdrawing From Your 401(k) or Retirement Savings to Pay Down Debt
Advantages: If you have a big debt to pay off, you may choose to either put off contributing to a retirement or savings fund, or to withdraw money from an existing fund. The upside to this is that paying down debt is a good thing, and the sooner it is paid off, the greater the savings in interest expenses for the borrower.
Consequences: By withdrawing funds set aside for retirement, you are robbing yourself of the benefits of compounding. Also, pulling the money out of your savings could leave you in a very bad position should something unexpected, like a job loss, happen.
The earlier you start saving, the more money you will be able to accumulate for retirement. If properly invested, money saved now is almost always better than more money saved later.
3. Choosing Only the Safest Investing Vehicles
Advantages: If you invest in risk-free or nearly risk-free vehicles, the risk of losing your hard-earned cash is extremely low. This can be a viable option, especially if you are nearing retirement.
Downside: However, you are again missing out on the opportunity to have your money work for you. Take into consideration your age and stage of life when deciding your risk level.
Although everyone’s risk tolerance is different, generally speaking, the younger you are, the riskier you can afford to be. This is because you have the time to make up any losses, and also because the higher risk may be warranted because it helps combat the effects of inflation on your portfolio’s gains.
The closer you are to retirement (or to whatever goal you are saving for) the more conservative you should be in order to protect your investment.
4. Avoiding Debt Altogether
Advantages: “Debt free”. It sounds good, doesn’t it? And it can be. Living debt-free is a wonderful goal and is more achievable than you might think.
Downside: However, debt can also be a tool. If, in your quest to remain debt free, you are turning down “good debt”, that is, debt that allows you to leverage your investments, you are doing yourself a disservice. Examples of good debt include taking out a mortgage to buy a house.
This is because houses and property tend to appreciate over time, and owning your home can lower your living expenses compared to renting. Another example would be taking out a student loan for post-secondary education. While student debt can be a huge responsibility, it is also an investment in yourself that boosts your potential earning power.
5. Cutting Your Variable Spending
Advantages: If you are looking to cut your spending, this suggests that you have a budget to modify. That’s great! Often variable expenses (expenses that are not fixed, such as entertainment, dining out and personal spending) are out of line with the amount we earn. An honest appraisal of where your money is going is a great step to getting your budget in fighting shape.
Downside: This seemingly great idea is only great if you include the second part of it: sticking to your new budget. Unrealistic expectations, or treating your budget goals as “guidelines” rather than rules, could leave you spending more than ever.
6. Paying Off a Major Loan in One Payment
Advantages: You’ve been working hard and saving – smart! Before your loans start accumulating interest, or even if they have, you decide to pay them off in one payment. That’s a wonderful accomplishment that will save you months’, or years’ worth of interest.
Downside: If you choose this route, make sure you take a look at your interest rate. Some loans have such a low interest rate that you’d be better off putting your money in a savings account that earns you a higher return and paying off your debt monthly.
Keep in mind this is only a good idea if 1) your savings interest rate is higher than your debt interest rate and 2) you are disciplined enough to pay the debt off on time, every month, and not to spend your hard-earned cash on luxuries instead.
The bonus? Responsibly paying off monthly debt helps you to establish a good credit history. This is especially helpful if you don’t have a credit history (or you are trying to rebuild a bad one).
There’s nothing worse than making a choice you thought was conscientious only to find out it had hidden consequences. Make sure you do your homework and your financial situation will be the best it can be.
Here is the original:
6 Financial Moves That Sound Good — but Aren’t
SEARCH ENGINE KEYWORD RESULTS :
A lot of Americans aren’t going to have enough money to retire on. That is just a un happy reality of these times. Instead of bemoaning that reality (and the unfairness of it all) the best thing someone who hopes to have a healthy retirement can do is simply make sure they aren’t the typical American. We must take actions to assure they will have enough income to enjoy their life and pay their bills, as well as those increasing medical bills.
The best way to avoid becoming one of these Americans who end up working at some remedial job through their so-called Golden Years, according to Robert Kiyosoki, author of the “Rich Dad Poor Dad” book series, is to buy investment property.
Investing in real estate is a wonderful way for people to prepare for retirement because it supplies a great benefit called “passive income”. After someone has laid the ground work, passive income keeps coming in without a lot of effort. A laborer gets compensated only for the hours he puts in. A real estate investor, after setting up his system, gets paid for keeping it running. And keeping it running, if he been wise about it, will involve paying his team to do the job of inspecting them every now and then.
A great thing about passive income (such as from investments) is, the more time the real estate investor holds them, the more ROI they should make for her, with less and less work on the investor’s part. It’s the closest thing to the “Holy Grail” of the world of money.
It sounds attractive, but we shouldn’t just take the plunge. And even though it is completely learnable, there’s quite a bit to learn when one is thinking about buying investment property – things like comprehending P&L statements and real estate law. The biggest concept to learn, however, is one’s own limitations. The individual who understands where to find the knowledge he wants is far better off than the individual who remembers tons of facts and formulas around in her memory.
In the book “Cash Flow Quadrant,” Robert Kiyosaki advises potential investors to increase their cashflow in addition to their knowledge. He writes of developing a business system that can be set up and left alone, freeing the investor to move to the next step instead of investing all her time working in her business. The next step involves continuing the real estate education and start to look around for specialists to employ and investment properties to buy.
Robert Kiyosaki also talks about this change as transitioning from one part of the cash-flow-quadrant to the next. He emphasizes that, the 1st step someone needs to take toward transforming her life is altering the thinking process. If someone adjusts the way he/she processes the thought of money, then he/she will wind up in a better position to change his relationship with it.
The way someone thinks determines the actions they take throughout the day, and those actions determine their success. The primary benefit of reading books like Robert Kiyosaki’s “Rich Dad, Poor Dad” series – brings you closer to new ways of thinking about stuff. When investors see how easy it is to develop new skills and acquire better knowledge, they are virtually unstoppable.
Read the original post:
Investment In Property Can Help You Retire
Dozens of banks have failed this year. What do you need to know if yours is next?
The number of bank failures has reached 115 since January — more than four times the total for 2008 and the most since the savings and loan crisis in 1992. And most experts expect problems caused by unpaid loans to force many more closures in the coming years, mostly among small, community-based banks.
Banks are typically shut down late Friday afternoon. That gives the Federal Deposit Insurance Corp. time over the weekend to handle the shutdown, which most often involves transferring deposits to another bank that is taking over the failed institution. The first sign of failure consumers see may be a closure notice on the bank’s door.
The impact of the bank failures on consumers has been minimal, but rumors about what can happen are rampant. The FDIC has also warned of dozens of scams that try to take advantage of consumers who don’t understand the process.
So what do bank customers need to know, in case their bank goes under?
Here are some questions and answers.
Q: Why would a bank be closed by regulators?
A: State or federal regulators can decide to close a bank if it is in danger of being unable to meet its obligations to depositors and others — basically, if it looks like it’s going to run out of money.
Most of the banks closed in the past year have suffered because the housing crisis and the recession have led consumers and businesses to stop paying off mortgages, credit cards and other loans. Banks must set aside money to cover such losses, and they become unstable if these reserves fall.
Q: How does a customer know if a bank is covered by FDIC insurance?
A: Banks usually have a sign on the door with the FDIC logo, and also frequently use the logo on account statements and other correspondence.
The FDIC has a tool called “Bank Find” on its Web site, http://www.fdic.gov, where a customer can enter a bank name and address to make sure it is insured. Internet-based banks are eligible for FDIC insurance, and are listed on the Web site as well.
Q: What exactly does the FDIC insure?
A: The FDIC covers money deposited in savings accounts, checking accounts and certificates of deposit up to $250,000. But that limit can apply to the same person in several different ownership categories, like single, joint, held-in-trust and retirement accounts.
So, for example, if a woman has two savings accounts totaling $200,000 in her own name, plus two joint accounts that each have $100,000, plus two accounts with $75,000 held in trust for her children, and a $90,000 IRA, all of these deposits would be covered because no one ownership category tops the limit.
Q: What doesn’t the FDIC insure?
A: Money in mutual funds, annuities, stocks, bonds or other investment products is not covered, even if those investments were bought through an insured bank.
The contents of a safe deposit box are also not FDIC insured, but may be covered through a homeowner’s or renter’s insurance policy.
When a bank fails, in most cases, the bank that takes over will keep branches operating and allow access to safe deposit boxes. If no other bank acquires the failed bank, the FDIC will send a letter to boxholders with instructions for removing their property.
Q: How long does it take for the FDIC to pay people back?
A: In most cases, another bank takes over the closed bank’s deposits, and ATM cards, debit cards and checks continue to work until the new bank transitions customers to its systems.
If the FDIC can’t find another bank to take over, the agency uses its insurance fund to make payouts to the failed bank’s customers. The law requires that deposits be paid out “as soon as possible” after an insured bank fails. That has typically been just a few days after the bank closes. In most of these cases, the FDIC will provide new accounts at another insured bank, but it will issue a check to each depositor if new accounts can’t be arranged.
Q: Will the FDIC contact customers of a failed bank?
A: The FDIC notifies each depositor in writing when a bank fails, using the depositor’s address on record with the bank. This notification is mailed immediately after the bank closes. The FDIC never sends e-mails directly to consumers, and has warned about numerous scams sending fraudulent e-mails that appear to be sent by the agency. The FDIC also sets up a toll-free number and a Web site for customers to access.
When the failed bank is acquired by another bank, depositors get a notice in the mail from the new bank as well, usually with the first bank statement after the takeover.
Q: What if someone “banks” at a credit union?
A: The National Credit Union Administration, a U.S. government agency, provides members of these nonprofit institutions insurance up to $250,000 through the National Credit Union Share Insurance Fund, much the way the FDIC covers bank deposits. So far this year, 19 credit unions have failed.
Like the FDIC, the NCUA will assume control over a federal credit union that is unable to continue operating on its own, if it cannot find another credit union to serve the failed institution’s members. There are a handful of state-chartered credit unions that are not covered by NCUSIF, but have their own insurance.
More here:
What to know if your bank fails
This may be a simple question for you to answer but it’s one that’s plagued me ever since I got married 22 years ago.
The real difficulty answering this question came to light when my daughter and I bought tickets to see the Dodgers who will beat the Marlins this coming Saturday . We aren’t big baseball fans….we don’t really care who wins…..but we have fun when we go out to a game. Usually, that’s only once a year at most.
This ticket purchase expedition confirmed that either my memory is fading or ticket prices have skyrocketed. I was shocked at how high the prices were for decent seats.
In any event, when my daughter and I were looking for seats and she saw how high the prices were, she asked me if we could afford it.
I must tell you that I was very happy that she even thought of asking this question. I was relieved knowing that I had raised, in effect, a ‘frugal Frankle”! A “Mini Me” if you will…..
But I digress…..
Truth be told, when my little darlin’ asked me this question, I really didn’t know how to anwer her.
I explained that we had enough money to buy tickets to the game even though they were expensive – $65 each. I explained that we had money to send her to college and we had the money for my wife and youngest daughter to visit family overseas.
But I went on to say that just because we had the money to do it, didn’t mean we could afford it.
It was at this point that my daughter started rolling her eyes – wishing she were back home watching re-runs of “Law and Order”.
Right or wrong, I saw this as a teachable moment so I forged ahead.
I told her the amount of money we need to save in order for my wife and I to retire someday. I told her how far along the path we were and what we needed to save each year in order to reach those goals. Given the recent drop in the market and how that’s impacted everyone’s income and savings…..my wife and I will both be working for quite a few years to come.
So when she asked “can we afford those tickets” the answer seemed complicated to me.
We had the cash to buy the tickets – we wouldn’t go in debt in order to see the Dodgers trounce their Floridian foes.
But could we afford to spend $130 (plus parking and refreshments) for one night on entertainment? Is it the best use of that money? Wouldn’t it be better to use that money towards our bigger goals?
It’s a tough question to answer. I’ve always focused on security – for my family and my clients. I refuse to ignore the future and just “live for today” financially. But I am trying hard not to be a slave to the future at the expense of not being present and failing to enjoy life right now.
At that point, I think my daughter wanted to change the subject. She told me she needed to go shopping for clothes. I ignored the hint, tagged along and continued our discussion.
I asked her how she decides if she can afford something or not. She told me how simple that question was to answer.
If she had the money in her pocket – she could afford it. If not, she couldn’t.
I was starting to squirm a little at that point but fortunately, she redeemed herself by continuing. She told me that if she has $30, she has to decide which was more important; two lunches out with friends or a nice outfit. (A born economist. Milton Freedman would be proud.)
I explained that her process was approriate for her but not for me or her mother. We have to think about the best use of the money and hope we make the right decision.
And that is the rub. That is the juncture where the emotions fly. The guilt. The fear. The shame.
When someone asks me if we can afford something……they might think the question is ” do we have money “. The answer could be yes. But I might be thinking the real question is ”do we have a budget for this”. Unless we agree on our terms, we’re in trouble.
If I say, “no, we can’t afford this because we don’t have a budget for it” and my family sees that we have the money,dad comes out looking like a tight wad. Then, dad defends himself, emotions start flying and it’s down hill from there.
The solution is to explain the difference between having the cash to do something and having the budget to do it. I never would have even thought about this subtle difference unless my daughter explained what she meant by being able to afford something.
I guess I should go shopping with her more often.
Excerpted from:
Can We Afford It?
