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
Sunday, November 29, 2009
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
Wednesday, October 28, 2009
Virtual Assistants
Well, here I am just squeaking past my self-appointed deadline. The nifty auto-post feature didn't help either. I guess you have to write the post first before it will publish it.
I thought I would talk a little about a very cool discovery I have made. So many times I have had a small task to complete that was simply beyond my means to do well. I struggled and struggled until I was finally able to eek out a barely passable sample of whatever it was I needed to produce. Had I known about Virtual Assistants, I could have saved myself hours and hours for just a few dollars. Have you ever needed to design a website? Translate a document? Stuff 10,000 envelopes? Whether it is beyond your skill, or you just don't have time, a Virtual Assistant can do it for you. It's like having a part-time employee that you only have to pay when you need them.
Basically, a Virtual Assistant is a freelance (fill-in-the-blank) that will work on a job-by-job basis. You might need to design a database, or write up a legal document, or just type up some notes. Whatever it is, I think you could find someone to do it. This allows you to free up your time for more important things, like growing your business. I have found a few different Virtual Assistant websites, but the one I have found that I like the most is www.elance.com. It is basically a big job board. If you are looking for someone to do work, you post what you need done and the freelancers will bid on your job. You then pick the one you like the most. If you are looking for work, you can sign up, create a profile, and start bidding on jobs that people post. This is amazing for all those stay-at-home moms that need to bring in a little extra income, or for students, or just anyone that needs or wants a bit of extra money.
Check it out when you have the chance. Whether you need something done or you need a job, you can't go wrong!
Dad
I thought I would talk a little about a very cool discovery I have made. So many times I have had a small task to complete that was simply beyond my means to do well. I struggled and struggled until I was finally able to eek out a barely passable sample of whatever it was I needed to produce. Had I known about Virtual Assistants, I could have saved myself hours and hours for just a few dollars. Have you ever needed to design a website? Translate a document? Stuff 10,000 envelopes? Whether it is beyond your skill, or you just don't have time, a Virtual Assistant can do it for you. It's like having a part-time employee that you only have to pay when you need them.
Basically, a Virtual Assistant is a freelance (fill-in-the-blank) that will work on a job-by-job basis. You might need to design a database, or write up a legal document, or just type up some notes. Whatever it is, I think you could find someone to do it. This allows you to free up your time for more important things, like growing your business. I have found a few different Virtual Assistant websites, but the one I have found that I like the most is www.elance.com. It is basically a big job board. If you are looking for someone to do work, you post what you need done and the freelancers will bid on your job. You then pick the one you like the most. If you are looking for work, you can sign up, create a profile, and start bidding on jobs that people post. This is amazing for all those stay-at-home moms that need to bring in a little extra income, or for students, or just anyone that needs or wants a bit of extra money.
Check it out when you have the chance. Whether you need something done or you need a job, you can't go wrong!
Dad
Sunday, October 25, 2009
Stay regular...with your blogging, I mean
All of the "Blogging tips" websites say that it is important to be regular with your blogging. Don't just post here and there and everywhere (sort of like I've been doing). I've decided it would be nice if I could have a post every Sunday night and every Wednesday. That seemed like it might be a pain until I discovered that nifty little option that allows me to write a post whenever I want and have it publish at a scheduled time. Handy.
So, let's talk a little bit about mentors. First off, what is a mentor? Dictionary.com says it is:
So, a mentor is a counselor/teacher, or supporter. In a business context, a mentor is someone who has been where you want to go, and is willing to help you get there as well. This may or may not be in exchange for something of value. A lot of people just want to help others out, and expect nothing in return. Some people want to see some initiative before offering assistance. Some hold courses and charge money for their mentoring services. Either way, I think having a mentor is something that can prove invaluable to your growth.
Where do I find a mentor? Well, I hate to sound simplistic, but just think of what it is you want to do, find someone who is doing it, and talk to them. Offer them your services for free, befriend them, whatever. If your lifelong dream is to open a flower shop, go to a flower shop. Get to know the owner. Maybe offer to work for a couple of hours for free in exchange for advice. Maybe take him/her out for lunch and pick his/her brains. It might be a little scary, you might have to get outside of your comfort zone, but that's the only way you are going to grow.
Let me tell you how I have managed to find a valuable mentor, and hopefully that will inspire you to do the same. As it mentions in my profile, I am currently working as an electrician. I have a friend who owns a store that I have done work for in the past. Up until now, I have have traded my services for some of his merchandise. This has worked well, but I recently got to thinking. This individual started a successful landscaping company and sold it for a large sum of money. This individual is currently running a successful business. This individual has been where I am trying to go, and could provide a lot of valuable insight. So, awhile ago he asked me if I could help him replace all of the lights in his store. He has some really old lights that suck up a lot of power. They cost him a lot of money, and half of them don't work. At first, we had talked about doing some more trading. But then I decided to do something crazy. I told him I would do it for free. All I wanted in exchange was some mentorship. I told him of my business plans and what I hope to do, and he agreed that he knew quite a bit about those things. He seemed quite impressed by my offer, and is more than willing to help out. There was even some hints at possible partnership. I know that nothing is written in stone, and I don't like to be presumptuous or jump to conclusions, but either way, I see nothing but good coming from this. My business partner and I will be meeting with him this week to go over what I have so far and I am very excited at what he has to teach us.
It was hard look at the possible money/trades I could have received instead for doing the work (easily worth $1500-$2000) and turn them down, but I don't think I can put a value on the kind of things he can teach us. Bottom line: if you can find a mentor, DO IT! They've done what you're trying to do. They know the pitfalls, they know the challenges, they know how to avoid them. They can take years off of your learning curve. How can you say no to that?
Dad
So, let's talk a little bit about mentors. First off, what is a mentor? Dictionary.com says it is:
| 1. | a wise and trusted counselor or teacher. |
| 2. | an influential senior sponsor or supporter. |
Where do I find a mentor? Well, I hate to sound simplistic, but just think of what it is you want to do, find someone who is doing it, and talk to them. Offer them your services for free, befriend them, whatever. If your lifelong dream is to open a flower shop, go to a flower shop. Get to know the owner. Maybe offer to work for a couple of hours for free in exchange for advice. Maybe take him/her out for lunch and pick his/her brains. It might be a little scary, you might have to get outside of your comfort zone, but that's the only way you are going to grow.
Let me tell you how I have managed to find a valuable mentor, and hopefully that will inspire you to do the same. As it mentions in my profile, I am currently working as an electrician. I have a friend who owns a store that I have done work for in the past. Up until now, I have have traded my services for some of his merchandise. This has worked well, but I recently got to thinking. This individual started a successful landscaping company and sold it for a large sum of money. This individual is currently running a successful business. This individual has been where I am trying to go, and could provide a lot of valuable insight. So, awhile ago he asked me if I could help him replace all of the lights in his store. He has some really old lights that suck up a lot of power. They cost him a lot of money, and half of them don't work. At first, we had talked about doing some more trading. But then I decided to do something crazy. I told him I would do it for free. All I wanted in exchange was some mentorship. I told him of my business plans and what I hope to do, and he agreed that he knew quite a bit about those things. He seemed quite impressed by my offer, and is more than willing to help out. There was even some hints at possible partnership. I know that nothing is written in stone, and I don't like to be presumptuous or jump to conclusions, but either way, I see nothing but good coming from this. My business partner and I will be meeting with him this week to go over what I have so far and I am very excited at what he has to teach us.
It was hard look at the possible money/trades I could have received instead for doing the work (easily worth $1500-$2000) and turn them down, but I don't think I can put a value on the kind of things he can teach us. Bottom line: if you can find a mentor, DO IT! They've done what you're trying to do. They know the pitfalls, they know the challenges, they know how to avoid them. They can take years off of your learning curve. How can you say no to that?
Dad
Tuesday, October 20, 2009
Assets and Liabilities
First off, I'd just like to announce that we have our first ever snow clearing customer. I'm very excited. It's not much, but it's a start. I'm hoping we can add a couple more before winter really gets going. I've put a lot of work into this business and have been pretty much eating and sleeping it since the start of September trying to get it going in time, so it's nice to start to see some payout.
Now that's out of the way...The next lesson that I would like to pass on that I have learned is one that is very basic, yet so very, very important. It is something that many people are confused about, and once you have learned it, it will make a world of difference to you.
Assets and Liabilities...what are they? Well, we all learn when we go to get a bank loan that assets are things like houses, cars, and mutual funds, and liabilities are things like debt. Unfortunately, that is not exactly the truth. If you look up the word asset in the dictionary, you will get a definition that supports the standard definition of the word "asset": an item of value owned. Likewise the word liability: something for which one is liable.
To all of us middle class and poor people, these definitions of the words "asset" and "liability" are sufficient. It is all we really need to know. To get a loan, you need an "asset" to back it up, like a house or cash. If you have too much "liability", you won't get a loan. That's about as much experience as most of us will ever have with the words.
To rich people, however, these words have a much more useful meaning. It is very simple, but has a profound significance. An asset is anything that I own that puts money in my pocket. A liability is anything that takes money out of my pockets. Why does this difference matter? Because what most people assume to be their biggest asset, their house, is actually their biggest liability. I don't know about any of you, but my house does not make me any money at all. In fact, it costs me money. A lot of money. It is a liability, not an asset. An example of an asset that I own is my yard care business. It puts money in my pocket (or will soon, anyway).
The reason this is so important is this: rich people buy assets. Poor and middle class people buy liabilities. That one teeny little difference makes all the difference in the world. If I am rich and I have $1000, I will buy a stock, or put it towards some real estate, or something else like that. If I am poor or middle class and I have $1000, I will buy a new TV, or go on a weekend getaway, or something like that. After awhile of buying assets, the rich person will be making money and will then have enough to buy a new TV and go on a weekend getaway, and will still have the original $1000. After awhile of buying liabilities, us poor and middle class people will have a house full of junk and a maxed out credit card.
Since learning this, I have personally committed to never buy a single thing for myself again that I don't absolutely need unless the money has come from the proceeds of an asset. I have not asked my wife and children to commit to this yet, but when I have reached that goal for myself, they will be following suit. Instead, I am taking that money and buying assets. For example, I just acquired a DNS registry website that can make me $300-$500 per month. That is an asset. I plan to acquire many more.
There are different types of assets, among them: real estate, businesses, portfolio (paper assets like stocks and bonds) and intellectual property. Look around and I guarantee you will find something that you can afford. As I mentioned in a previous post, there are plenty of opportunities out there.
I can't stress enough, stop buying liabilities! We are all doing it, and if we ever want to get ahead, we need to take that money and buy assets instead. Think of the last big ticket item you bought. I'm thinking of what I bought, and it cost $400. I had no problem spending that $400, but when thinking of investing, there was no money. Imagine if, evertime you ever bought something like a TV, car, boat, bike, etc, you had purchased an asset instead. Think how much money you've spent in the last year, and now imagine what you could have done with that money had you invested it in something. Imagine all the junk you could buy if you had $50,000 generating you $5000 every year. Double that. Triple that. It's not that hard. I am on my way. I hope to see you all when I get there.
Dad
Now that's out of the way...The next lesson that I would like to pass on that I have learned is one that is very basic, yet so very, very important. It is something that many people are confused about, and once you have learned it, it will make a world of difference to you.
Assets and Liabilities...what are they? Well, we all learn when we go to get a bank loan that assets are things like houses, cars, and mutual funds, and liabilities are things like debt. Unfortunately, that is not exactly the truth. If you look up the word asset in the dictionary, you will get a definition that supports the standard definition of the word "asset": an item of value owned. Likewise the word liability: something for which one is liable.
To all of us middle class and poor people, these definitions of the words "asset" and "liability" are sufficient. It is all we really need to know. To get a loan, you need an "asset" to back it up, like a house or cash. If you have too much "liability", you won't get a loan. That's about as much experience as most of us will ever have with the words.
To rich people, however, these words have a much more useful meaning. It is very simple, but has a profound significance. An asset is anything that I own that puts money in my pocket. A liability is anything that takes money out of my pockets. Why does this difference matter? Because what most people assume to be their biggest asset, their house, is actually their biggest liability. I don't know about any of you, but my house does not make me any money at all. In fact, it costs me money. A lot of money. It is a liability, not an asset. An example of an asset that I own is my yard care business. It puts money in my pocket (or will soon, anyway).
The reason this is so important is this: rich people buy assets. Poor and middle class people buy liabilities. That one teeny little difference makes all the difference in the world. If I am rich and I have $1000, I will buy a stock, or put it towards some real estate, or something else like that. If I am poor or middle class and I have $1000, I will buy a new TV, or go on a weekend getaway, or something like that. After awhile of buying assets, the rich person will be making money and will then have enough to buy a new TV and go on a weekend getaway, and will still have the original $1000. After awhile of buying liabilities, us poor and middle class people will have a house full of junk and a maxed out credit card.
Since learning this, I have personally committed to never buy a single thing for myself again that I don't absolutely need unless the money has come from the proceeds of an asset. I have not asked my wife and children to commit to this yet, but when I have reached that goal for myself, they will be following suit. Instead, I am taking that money and buying assets. For example, I just acquired a DNS registry website that can make me $300-$500 per month. That is an asset. I plan to acquire many more.
There are different types of assets, among them: real estate, businesses, portfolio (paper assets like stocks and bonds) and intellectual property. Look around and I guarantee you will find something that you can afford. As I mentioned in a previous post, there are plenty of opportunities out there.
I can't stress enough, stop buying liabilities! We are all doing it, and if we ever want to get ahead, we need to take that money and buy assets instead. Think of the last big ticket item you bought. I'm thinking of what I bought, and it cost $400. I had no problem spending that $400, but when thinking of investing, there was no money. Imagine if, evertime you ever bought something like a TV, car, boat, bike, etc, you had purchased an asset instead. Think how much money you've spent in the last year, and now imagine what you could have done with that money had you invested it in something. Imagine all the junk you could buy if you had $50,000 generating you $5000 every year. Double that. Triple that. It's not that hard. I am on my way. I hope to see you all when I get there.
Dad
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