Well, It's certainly been awhile. I did plan on taking a couple of weeks break over Christmas, but things get busy, habits get broken, and here we are again, off my posting target! Oh well. These things happen.
I wanted to talk a little bit about motivation today. It's something that I've had to really work on lately. You see, it's very easy to be motivated at the start of a venture: everything is new and exciting. All the talk is positive, there are all sorts of nifty projections that show how much money you'll make. Obstacles seem trivial and far off. In short, it seems like nothing can go wrong. Just follow the plan, and away you go.
Unfortunately, life doesn't often work that way, and neither does business. Sure, things start off ok, and the first time you hit a bump, it's no big deal. The next bump still isn't too bad. But by the 5th or 6th bump, when things are starting to look like they might not stay together, and you're wondering just what you've gotten yourself into, it gets a little harder to stay positive. In fact, most of us by this point are using words that would make our mothers ashamed of us and generally making fools of ourselves by snapping at every little thing.
Hey, it happens. It sucks. But that's when you need to keep at it the most. One of the biggest mistakes you can make is to quit now. Assuming you've done your research ahead of time and come up with a solid plan, this is no time to be bailing out. Sure, it will likely be a long time yet before you see any results (maybe weeks, months or even years), but as soon as you quit, that's it. You're done, and you will never see success.
So, how do you stay motivated? I think it is a little different for everybody. For me, when I hit this point, it's time to go back and look at my goals. Why am I doing this in the first place? What is the purpose of this business venture? Do I really want to succeed? I don't always feel any better, but that's how I regain my focus, and then it's time to push ahead. Yes, it's hard, yes, I want to quit. But I'm focused, and I'm staying on target. Eventually, I'll hit a few little gold nuggets along the way, and things will be great again. I know if I stick with my plan, I will see success. I always have, and there's no real reason to believe that I ever won't.
Stay focused. Stay motivated. You'll make it.
Dad
Thursday, January 14, 2010
Monday, December 14, 2009
Internet Marketing Basics
Recently I have been looking into Internet Marketing, and have found some interesting things. It seems that there are all sorts of people out there that actually make a living off of the internet. And they don't even have their own products to sell. How is this possible? Through something called Affiliate Marketing.
What is Affiliate Marketing, you ask? Think of it like being a car salesman (minus the slimy part). You didn't make the car, you don't service the car, you just sell the car. Apparently, there are hundreds and thousands of different products out there that all have affiliate marketing programs. Basically, they pay you to sell their product. It's nothing new or crazy, it's been going on for years (think Avon and Tupperware). The difference is, there aren't a lot of people earning full time incomes selling Tupperware.
You can be an affiliate for Toys R Us, Credit Card companies, vacation companies, etc, etc, etc. There are physical products you can sell, and informational products you can sell. There are even some websites set up specifically for affiliate marketing (clickbank.com and commissionjunction.com are two of them). All you have to do is get people to buy the products. While the mechanics of it are a little more involved than that, the basic concept is simple.
It seems that it is a lot of work (link building, writting articles, etc) but can be very worth it in the end if you're able to make a go of it. While not for everyone, I definately recommend looking into it. If you would like more information, feel free to send me an email.
Dad
What is Affiliate Marketing, you ask? Think of it like being a car salesman (minus the slimy part). You didn't make the car, you don't service the car, you just sell the car. Apparently, there are hundreds and thousands of different products out there that all have affiliate marketing programs. Basically, they pay you to sell their product. It's nothing new or crazy, it's been going on for years (think Avon and Tupperware). The difference is, there aren't a lot of people earning full time incomes selling Tupperware.
You can be an affiliate for Toys R Us, Credit Card companies, vacation companies, etc, etc, etc. There are physical products you can sell, and informational products you can sell. There are even some websites set up specifically for affiliate marketing (clickbank.com and commissionjunction.com are two of them). All you have to do is get people to buy the products. While the mechanics of it are a little more involved than that, the basic concept is simple.
It seems that it is a lot of work (link building, writting articles, etc) but can be very worth it in the end if you're able to make a go of it. While not for everyone, I definately recommend looking into it. If you would like more information, feel free to send me an email.
Dad
Sunday, December 6, 2009
Must be Doing Something Right
The other day my 5 year old daughter was "helping" me shovel the driveway of one of my customers. As we were working, she said to me: "Daddy, I know a way that you can make money. In the summer, you can mow people's lawns for money." Those few little words made me very happy. Who to teach their children good things? Who doesn't want them to learn those things? Obviously, she has been learning well, and I hope that as she grows, she will continue to learn good business principles.
As for me, I am still learning. One of the things that I am finding that I am very fascinated with is marketing. The ability to tell people about your product and convince them to buy it, all without meeting them (for the most part). I don't remember the number off hand, but people are bombarded with an enormous amount of advertisements every day. How can you get yourself to stand out from the crowd? How can you be noticed?
I'm still not really sure all of the details, but one thing that I am learning, is that people don't want to be bothered, especially with things they don't care about. That is why it is so vitally important to understand your target audience. Many entrepreneurs, when asked who their target market is, will respond with "Anyone who will buy something from me!" While that sounds great on the surface, here is why that is one of the most terrible and damaging attittude you can have towards marketing.
Let's say you are an automobile manufacturer. Let's say you're GM. Let's say you're trying to sell your brand new and improved Buick Century. In this example, you have only two advertising options. One is in a magazine about iPods, the other is in a magazine about retirement planning. Do you advertise in both then, to maximize your exposure? I realize this is an obvious example, but clearly, someone reading an iPod magazine is very unlikely to have any interest in a Buick. They are driving a Honda Civic or a Toyota Prius. They are more likely a youthful crowd that wants a small, efficient vehicle. Would you spend $10,000 for a magazine ad targeted at this group for your Buick? What about the retirement planning magazine? I would bet that the people reading that are a little older and more conservative. They want a bigger vehicle that is comfortable with a few luxuries but that won't break the bank. Perhaps they might be a better choice to try and reach? It seems so simple and obvious, but I see these kinds of things all the time.
What about those annoying jingles you always hear? The other day my daughter came home from a friend's birthday party with a pack of Juicy Fruit. As soon as I saw it, I started signing the Juicy Fruit song: "Juicy Fruit, it's gonna move ya!" Amazing advertising, right? Well, I'm not sure about everyone else, but I know for sure that I have never had any Juicy Fruit before.
These days, it is so vitaly important that you reach the right audience with an effective advertisement. Advertising can be very expensive, but I like to look at it like an investment. If you do your research and make sure you are reaching your target market, you can be sure that your advertising dollars are being well spent and are bringing you in money instead of just inserting silly jingles into people's heads.
Juicy fruit, the taste, the taste the taste is gonna move ya...
Dad
As for me, I am still learning. One of the things that I am finding that I am very fascinated with is marketing. The ability to tell people about your product and convince them to buy it, all without meeting them (for the most part). I don't remember the number off hand, but people are bombarded with an enormous amount of advertisements every day. How can you get yourself to stand out from the crowd? How can you be noticed?
I'm still not really sure all of the details, but one thing that I am learning, is that people don't want to be bothered, especially with things they don't care about. That is why it is so vitally important to understand your target audience. Many entrepreneurs, when asked who their target market is, will respond with "Anyone who will buy something from me!" While that sounds great on the surface, here is why that is one of the most terrible and damaging attittude you can have towards marketing.
Let's say you are an automobile manufacturer. Let's say you're GM. Let's say you're trying to sell your brand new and improved Buick Century. In this example, you have only two advertising options. One is in a magazine about iPods, the other is in a magazine about retirement planning. Do you advertise in both then, to maximize your exposure? I realize this is an obvious example, but clearly, someone reading an iPod magazine is very unlikely to have any interest in a Buick. They are driving a Honda Civic or a Toyota Prius. They are more likely a youthful crowd that wants a small, efficient vehicle. Would you spend $10,000 for a magazine ad targeted at this group for your Buick? What about the retirement planning magazine? I would bet that the people reading that are a little older and more conservative. They want a bigger vehicle that is comfortable with a few luxuries but that won't break the bank. Perhaps they might be a better choice to try and reach? It seems so simple and obvious, but I see these kinds of things all the time.
What about those annoying jingles you always hear? The other day my daughter came home from a friend's birthday party with a pack of Juicy Fruit. As soon as I saw it, I started signing the Juicy Fruit song: "Juicy Fruit, it's gonna move ya!" Amazing advertising, right? Well, I'm not sure about everyone else, but I know for sure that I have never had any Juicy Fruit before.
These days, it is so vitaly important that you reach the right audience with an effective advertisement. Advertising can be very expensive, but I like to look at it like an investment. If you do your research and make sure you are reaching your target market, you can be sure that your advertising dollars are being well spent and are bringing you in money instead of just inserting silly jingles into people's heads.
Juicy fruit, the taste, the taste the taste is gonna move ya...
Dad
Sunday, November 29, 2009
Let's talk Realtors
I'd like to spend some time this week talking about Realtors. I'm sure we are all very familiar with Realtors; they're the ones all over the bus stops that someone drew a funny mustache on. Most of you reading this have probably had direct dealings with a Realtor at one point or another.
There are Realtors, and there are Real Estate Agents. This may be different in the US, but in Canada, there is a difference between the two. Both are licensed to sell Real Estate, however, Realtors must subscribe to the Realtor code of ethics. I won't delve into that here, suffice it to say that Realtors are held to a much stricter code. If you would like to learn more about that, there is an excellent article on the subject here: http://homebuying.about.com/od/realestateagents/qt/RealtorvsAgent.htm . Just know that there is a difference, and all things being equal, a Realtor is potentially slightly safer than a Real Estate Agent.
So, the big question is: how can a Realtor make me rich? Don't they charge great big fees to sell my house? They certainly do, and in my opinion they are worth every penny. If you are trying to sell a property or even a business, they will work extremely hard for you and get you far greater exposure than you can on your own (especially in Canada with the MLS system).
Where I think they really shine though, is when you are buying an investment property. When you hire a Realtor to help you find and buy a property, you are hiring the services of someone who will scour the listings for properties that match your criteria, someone who knows the market and what the prices should be, someone who is an excellent negotiator and can easily save you thousands of dollars (mine saved me $14,000 on my last purchase - I was prepared to pay the asking price), someone that can put you in touch with other needed services (lawyers, mortgage brokers, locksmiths, electricians, etc, etc, etc). The best part of all of this, however, is that you don't pay them a single cent, the seller pays. You can argue all you like that the seller will just charge more for the house, but the fact is, the house is worth what the market says it's worth.
I can tell you from experience, it is very hard finding good investment properties that will make you money. Instead of trying to find them yourself, why not send your Realtor out there to find them for you? You still make the final decision on whether to buy it or not, and when you do, and you're ready to go, send your Realtor in to do all the dirty work. Talk about leveraging someone else's time!
Hats off to all of you Realtors out there and the valuable service you provide. Keep making us richer!
Dad
There are Realtors, and there are Real Estate Agents. This may be different in the US, but in Canada, there is a difference between the two. Both are licensed to sell Real Estate, however, Realtors must subscribe to the Realtor code of ethics. I won't delve into that here, suffice it to say that Realtors are held to a much stricter code. If you would like to learn more about that, there is an excellent article on the subject here: http://homebuying.about.com/od/realestateagents/qt/RealtorvsAgent.htm . Just know that there is a difference, and all things being equal, a Realtor is potentially slightly safer than a Real Estate Agent.
So, the big question is: how can a Realtor make me rich? Don't they charge great big fees to sell my house? They certainly do, and in my opinion they are worth every penny. If you are trying to sell a property or even a business, they will work extremely hard for you and get you far greater exposure than you can on your own (especially in Canada with the MLS system).
Where I think they really shine though, is when you are buying an investment property. When you hire a Realtor to help you find and buy a property, you are hiring the services of someone who will scour the listings for properties that match your criteria, someone who knows the market and what the prices should be, someone who is an excellent negotiator and can easily save you thousands of dollars (mine saved me $14,000 on my last purchase - I was prepared to pay the asking price), someone that can put you in touch with other needed services (lawyers, mortgage brokers, locksmiths, electricians, etc, etc, etc). The best part of all of this, however, is that you don't pay them a single cent, the seller pays. You can argue all you like that the seller will just charge more for the house, but the fact is, the house is worth what the market says it's worth.
I can tell you from experience, it is very hard finding good investment properties that will make you money. Instead of trying to find them yourself, why not send your Realtor out there to find them for you? You still make the final decision on whether to buy it or not, and when you do, and you're ready to go, send your Realtor in to do all the dirty work. Talk about leveraging someone else's time!
Hats off to all of you Realtors out there and the valuable service you provide. Keep making us richer!
Dad
Sunday, November 22, 2009
Real Estate, Business, and Investing
I've been reading a fair bit lately about what I'll call the "Three main ways to make money besides working for someone else", which are real estate, business, and investing, and I've found something interesting. If you talk to a real estate guy, you will hear something like this: "My parents bought their house in 1963 for $10,000 and now, in 2009, it is worth $500,000. Where else can you find returns like this?"
If you talk to a business guy, you will hear something like this: "I started a business with nothing but a bucket of nails and a hammer, now I run the largest construction company in town. Where else can you find returns like this?"
If you talk to an investor guy, you will hear something like this: "I bought stocks in Microsoft when it was still worth $1/share, then I sold it a few years later after it had split several times for $40/share. Where else can you find returns like this?"
Of course, everyone loves his/her field the best. But who is right? Donald Trump is certainly not doing too bad with real estate. I think Bill Gates has the business thing down pat. And I don't think anyone would argue that Warren Buffet is doing fairly well in the investing world.
So, it seems to me, that they are all right. So the question becomes, what are you interested in? All three of these vehicles to wealth have their own pros and cons. They each seem to suit a different personality type a little better. For example, if you hate people, you might want to consider getting in to investing. But really, they all can work to generate a lot of wealth for you if you know how to harness them.
It seems to me that the key really seems to be leverage. What is leverage? To a cave-man, it's putting a stick under a rock to pry it out of the way. To us savy internet types, leverage is taking advantage of someone else's time or money to make more money for ourself.
Example #1 (no leverage): Work 40 hours/week @ $20/hour. Gross profit = $800
Example #2 (leverage someone else's time): Pay 4 people $20/hour to work 40 hours/week. Each person can produce $40 of product or service/hour. Total paid to people = $3200. Gross profit = $6400 Net Profit = $3200
Example #2 seems a little more attractive, does it not? At the end of 1 week, you made 4 times as much money. This is an example of leverage someone else's time. You can get far more done if you hire other people to do it.
How about other people's money?
Example #1 (no leverage): Buy an investment property for $200,000 cash, no mortgage. Hold it for 5 years, sell it for $250,000. Gross profit=$50,000. Return on investment = 25%
Example #2 (leverage someone else's money): Buy the same property worth $200,000, but only put $25,000 down and get a mortgage for the rest. Hold it for the same 5 years and sell for the same $250,000. Gross profit still = $50,000 But Return on Investment = 200%. If you had $200,000, you could potentially buy 8 properties instead of just one and make $400,000 in 5 years instead of just $50,000.
It seems to me, whether you want to be a real estate mogul, a business guru, or an investment tycoon, you can make large sums of money, as long as you learn to use leverage.
Hooray for other people's money and time!
Dad
If you talk to a business guy, you will hear something like this: "I started a business with nothing but a bucket of nails and a hammer, now I run the largest construction company in town. Where else can you find returns like this?"
If you talk to an investor guy, you will hear something like this: "I bought stocks in Microsoft when it was still worth $1/share, then I sold it a few years later after it had split several times for $40/share. Where else can you find returns like this?"
Of course, everyone loves his/her field the best. But who is right? Donald Trump is certainly not doing too bad with real estate. I think Bill Gates has the business thing down pat. And I don't think anyone would argue that Warren Buffet is doing fairly well in the investing world.
So, it seems to me, that they are all right. So the question becomes, what are you interested in? All three of these vehicles to wealth have their own pros and cons. They each seem to suit a different personality type a little better. For example, if you hate people, you might want to consider getting in to investing. But really, they all can work to generate a lot of wealth for you if you know how to harness them.
It seems to me that the key really seems to be leverage. What is leverage? To a cave-man, it's putting a stick under a rock to pry it out of the way. To us savy internet types, leverage is taking advantage of someone else's time or money to make more money for ourself.
Example #1 (no leverage): Work 40 hours/week @ $20/hour. Gross profit = $800
Example #2 (leverage someone else's time): Pay 4 people $20/hour to work 40 hours/week. Each person can produce $40 of product or service/hour. Total paid to people = $3200. Gross profit = $6400 Net Profit = $3200
Example #2 seems a little more attractive, does it not? At the end of 1 week, you made 4 times as much money. This is an example of leverage someone else's time. You can get far more done if you hire other people to do it.
How about other people's money?
Example #1 (no leverage): Buy an investment property for $200,000 cash, no mortgage. Hold it for 5 years, sell it for $250,000. Gross profit=$50,000. Return on investment = 25%
Example #2 (leverage someone else's money): Buy the same property worth $200,000, but only put $25,000 down and get a mortgage for the rest. Hold it for the same 5 years and sell for the same $250,000. Gross profit still = $50,000 But Return on Investment = 200%. If you had $200,000, you could potentially buy 8 properties instead of just one and make $400,000 in 5 years instead of just $50,000.
It seems to me, whether you want to be a real estate mogul, a business guru, or an investment tycoon, you can make large sums of money, as long as you learn to use leverage.
Hooray for other people's money and time!
Dad
Sunday, November 15, 2009
I missed the boat
Well...whoops. I guess I've missed the regularity boat. I won't make excuses, but I will say, twice a week seems to be a little much, so I'm going to pare down to posting every Sunday night. Or, at least, trying to post every Sunday night.
I'd like to comment tonight on the value of working for free, and just how big of a payback you can get from it. I've mentioned that I've managed to secure myself a mentor who is a few steps ahead of me. It really was a simple thing to do, but it required a big leap on my part. He owns a retail store and I have done some electrical work for him in the past. So far we have traded work for merchandise, which has worked very well for both of us.
This time though, he had the fairly large job of replacing all of the lights in his store. When he asked me to do the job, he was intending again to trade for merchandise or pay me cash. My business partner and I, however, had previously discussed that he would be a very valuable mentor to us, and so I offered to do the work for free, in exchange for him being our mentor. It was a big leap for me to offer that, as the work would have been worth a large sum, and I also had to take a week off of my own job in order to do it. But I made the offer, and he very gratefully accepted. I have now finished the work and have acquired a very valuable mentor. He is eager to help us out, and in fact, already has given us a ton of advice. He has told me that he may be willing to invest with us if we had the right deal, and while I prefer to keep him as a mentor, that is a huge offer in itself. I have just finished working with him installing the lights this past week, and in that week I have learned a huge amount of very valuable information. He has experience, he has education, and he seems very impressed with us. He has the potential of saving us years of learning and mistakes. Besides that, he has referred me to another job that is also worth a large sum of money, as well as pointing me in the direction that I need to be taking my business ventures. I can take a business deal to him and he will tell me if it is good or not.
I guess what I am trying to say, is that I just bought one of the most valuable assets available, and all it cost me was a week. If you are just starting out in business, or trying to learn a new aspect of business, there are people out there who have been where you are and who already know what you need to know. They are often willing to help. But be aware, successful people are pitched to all the time, and they are successful precisely because they don't fool around. Find someone who knows what you need, show them that you are serious, show them that you are worth their time, and you will be paid back exponentially for your efforts. Or, you could just make a few bucks and move on to the next job. The choice is yours.
Dad
I'd like to comment tonight on the value of working for free, and just how big of a payback you can get from it. I've mentioned that I've managed to secure myself a mentor who is a few steps ahead of me. It really was a simple thing to do, but it required a big leap on my part. He owns a retail store and I have done some electrical work for him in the past. So far we have traded work for merchandise, which has worked very well for both of us.
This time though, he had the fairly large job of replacing all of the lights in his store. When he asked me to do the job, he was intending again to trade for merchandise or pay me cash. My business partner and I, however, had previously discussed that he would be a very valuable mentor to us, and so I offered to do the work for free, in exchange for him being our mentor. It was a big leap for me to offer that, as the work would have been worth a large sum, and I also had to take a week off of my own job in order to do it. But I made the offer, and he very gratefully accepted. I have now finished the work and have acquired a very valuable mentor. He is eager to help us out, and in fact, already has given us a ton of advice. He has told me that he may be willing to invest with us if we had the right deal, and while I prefer to keep him as a mentor, that is a huge offer in itself. I have just finished working with him installing the lights this past week, and in that week I have learned a huge amount of very valuable information. He has experience, he has education, and he seems very impressed with us. He has the potential of saving us years of learning and mistakes. Besides that, he has referred me to another job that is also worth a large sum of money, as well as pointing me in the direction that I need to be taking my business ventures. I can take a business deal to him and he will tell me if it is good or not.
I guess what I am trying to say, is that I just bought one of the most valuable assets available, and all it cost me was a week. If you are just starting out in business, or trying to learn a new aspect of business, there are people out there who have been where you are and who already know what you need to know. They are often willing to help. But be aware, successful people are pitched to all the time, and they are successful precisely because they don't fool around. Find someone who knows what you need, show them that you are serious, show them that you are worth their time, and you will be paid back exponentially for your efforts. Or, you could just make a few bucks and move on to the next job. The choice is yours.
Dad
Sunday, November 1, 2009
Pay Yourself First
I'd like to talk a little bit about this phrase that we have all heard many, many times from many, many sources. I have been hearing this for years and years and years. I always thought I knew what it meant. It's easy, right? Just throw $50 from my paycheck into savings and away I go. Well, guess how much savings that has gotten me? Not much. There always seems to be something else that needs to be payed first. Bills, outings, whatever. Or, once the savings reaches a decent number, it is always very tempting to use it to pay off a bit of debt, or go on a holiday, or buy something I want/need.
What I've learned recently, is that I've been doing it all wrong. I'm sure you all knew this before, but here's how it should work. Let's say every 2 weeks I get paid $2000. Before I even touch any of that, I have setup automatic transfers to take some of that money away and pay me first. Let's say $75 to my RRSP (401K for you Americans), $75 to my TFSA (Roth IRA), and $50 to a high interest savings account, for a total of $200, or 10% of my net. Before I even had a chance to touch that money, it's gone. That's the easy part. Now, here's where I (and everybody else) get into trouble. Let's say my hard expenses every 2 weeks come to $1500. Mortgage/rent, taxes, utilities, groceries, insurance, car, all that stuff. But this month, my car broke down and I need to get it fixed. It costs $500. So, $2000 - $200 = $1800. $1800 - $1500 = $300 discretionary income. $300 - $500 car repair = oh wait, I'll just take that from my savings account. Now my money, my savings account, just went to pay some guy to fix my car.
Or how about I decide to buy a house and I don't quite have enough for the down payment. No problem, I have $30,000 in my retirement fund. I'll just take that out (both the US and Canadian systems allow for this without taking a tax panalty as long as it is paid back in a specified period of time) and use it on my house. The trouble is, even if I pay that back in 5 years (which is a reasonable amount of time) that one little move just cost me a LOT of money. Let's say I was 30 when I took that money out and I'm going to retire at 60. So, over those 5 years, at 8% return (the market average since Moses parted the Red Sea) my $30,000 would have grown to almost $45,000. In 30 years, it would have grown to just over $300,000. But now, because I didn't pay it back for 5 years, I only have 25 years for it to grow. That means it is now worth only $205,000. That one move cost me $95,000!! All because I didn't understand what they meant when they said to "pay yourself first".
So, what's the alternative? Well, I'll let SNL explain it: http://garritson.com/videos/pages/dontbuystuff.htm
Don't buy stuff you cannot afford. Simple. Sure, I might have to wait a couple of years to put a downpayment on that house, but that's what my high interest savings account is for. Figure out how much you'll need, when you'll need/want it, and then you know how much you have to put away every month for it. When the time comes, you will have the money.
I highly recommend reading the book "I will teach you to be rich" by Ramit Sethi. He also has a very informative blog, http://www.iwillteachyoutoberich.com/. He explains it all a lot better than I do.
Dad
What I've learned recently, is that I've been doing it all wrong. I'm sure you all knew this before, but here's how it should work. Let's say every 2 weeks I get paid $2000. Before I even touch any of that, I have setup automatic transfers to take some of that money away and pay me first. Let's say $75 to my RRSP (401K for you Americans), $75 to my TFSA (Roth IRA), and $50 to a high interest savings account, for a total of $200, or 10% of my net. Before I even had a chance to touch that money, it's gone. That's the easy part. Now, here's where I (and everybody else) get into trouble. Let's say my hard expenses every 2 weeks come to $1500. Mortgage/rent, taxes, utilities, groceries, insurance, car, all that stuff. But this month, my car broke down and I need to get it fixed. It costs $500. So, $2000 - $200 = $1800. $1800 - $1500 = $300 discretionary income. $300 - $500 car repair = oh wait, I'll just take that from my savings account. Now my money, my savings account, just went to pay some guy to fix my car.
Or how about I decide to buy a house and I don't quite have enough for the down payment. No problem, I have $30,000 in my retirement fund. I'll just take that out (both the US and Canadian systems allow for this without taking a tax panalty as long as it is paid back in a specified period of time) and use it on my house. The trouble is, even if I pay that back in 5 years (which is a reasonable amount of time) that one little move just cost me a LOT of money. Let's say I was 30 when I took that money out and I'm going to retire at 60. So, over those 5 years, at 8% return (the market average since Moses parted the Red Sea) my $30,000 would have grown to almost $45,000. In 30 years, it would have grown to just over $300,000. But now, because I didn't pay it back for 5 years, I only have 25 years for it to grow. That means it is now worth only $205,000. That one move cost me $95,000!! All because I didn't understand what they meant when they said to "pay yourself first".
So, what's the alternative? Well, I'll let SNL explain it: http://garritson.com/videos/pages/dontbuystuff.htm
Don't buy stuff you cannot afford. Simple. Sure, I might have to wait a couple of years to put a downpayment on that house, but that's what my high interest savings account is for. Figure out how much you'll need, when you'll need/want it, and then you know how much you have to put away every month for it. When the time comes, you will have the money.
I highly recommend reading the book "I will teach you to be rich" by Ramit Sethi. He also has a very informative blog, http://www.iwillteachyoutoberich.com/. He explains it all a lot better than I do.
Dad
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