Using Small Actions Every Day to Win Big In Life with Jose Gonzalez

In this episode I had the pleasure of talking with my friend Jose Gonzalez about the book The Slight Edge, by Jeff Olson. In our conversation we discuss what the slight edge is and how you can use it to reach your goals. This is one of the most motivating books I’ve ever read. I’m so thankful that Jose shared this book with me. If you get a chance, I highly recommend reading this book. I know that it will inspire you just like it did for me.

Here are a few topics that we discuss:
1. What the slight edge is.
2. How it can reshape your life.
3. Why it’s important to make the slight edge a habit.
4. How attitude plays into the slight edge and to your overall success in life.
5. 3 steps to reach your dreams.

Things You Must Know Before Getting a Home Loan

As someone who has experience in the lending industry, I want to share some helpful tips that can set someone up for success when it comes to getting a home loan.

1. Know what your lender needs to start the preapproval process and the loan process. Your lender should provide you with a checklist of items that you need to gather and bring to the lender in order to start either of these two processes. If they don’t give you a checklist, then ask for one, even if that means the lender needs to hand write each item down for you. For a preapproval, most lenders are going to ask for a loan application, authorization for release of credit information, income verification, asset verification, and identification. After you have the preapproval the key item that your lender needs to start the loan is going to be the Purchase and Sale Agreement also known as the PSA. Your lender is also going to ask you who you want to use for your homeowner’s insurance and who you want to use for your title company, if it’s not already listed on the PSA. There will be several other questions your lender should ask you too, such as if you want escrows collected, which is the property taxes, homeowner’s insurance, and PMI (if applicable).

2. Know when you get to lock in the rate. Different lenders lock in the rate at different times. Some lenders lock in the rate at the time that you get a preapproval. Some lenders lock in the rate at the time that you apply for the loan. Other lenders might lock in the rate at the time the loan is approved by the underwriter. Also, know the length of time the rate is locked in.

3. Plan to have an in-depth conversation with your lender about what you want to do and your particular situation. There could be things that your lender needs to know about you in order to avoid time consuming mistakes later. For example, are you currently going through a divorce? Is a trust going to be involved with the purchase? Where are the funds for the down payment coming from? Where are you looking for a home? What type of home are you looking for? These are examples of things that you need to discuss with your lender before making an offer on a home. You need to be open and honest with your lender so they can make sure that any issues are addressed in the beginning of the loan process and don’t cause problems later.

4. If you know that you’re going to be looking to buy a home in a few months then get prequalified. The prequalification is a little different for different lenders. Most times what prequalification means is that you talk to your potential lender about where you’re at with your gross monthly income, monthly liabilities, and funds available for down payment and closing costs. With this information, your prospective lender can determine your housing ratio and debt ratio and will then be able to tell you approximately how much you could qualify for without needing to pull your credit. This is usually more of a simple, non-formal, conversation. Once the lender knows your financial situation, they can give you a loan estimate, which will show you approximately how much closing costs are going to be, how much you will need to bring in at closing for your down payment, what your loan payment is, and what your estimated property taxes, homeowner’s insurance and if applicable, PMI is going to be.

5. Be prepared financially before you get a home loan. One aspect of being prepared is to pay off as much debt as you can prior to applying for a home loan. Payoff and close credit cards, pay off the last little bit of that car loan, and get rid of as much debt as possible. There are several reasons that I suggest doing this. The first reason why I suggest this is buying a home with a lot of other debt is going to stress you financially. And I don’t want anyone to be in this kind position. I’ve heard over and over that the number one reason for divorce is money problems. If you want to stay out of money problems don’t get yourself into more debt than you can handle. The second reason I suggest paying off as much debt as you can prior to buying a house is because I’ve seen time and time again people not be able to qualify for the loan they needed to buy the house they wanted. In most cases that I have witnessed this, the borrower had recently purchased a new vehicle and had a huge car payment. The car payment pushed their debt ratio too high to qualify for the loan. In these cases the borrower had to pass up buying the home they wanted and put home buying on hold while they paid down debt. So, let me repeat myself, don’t put yourself in a poor financial position by taking on too much debt! Another way to be prepared is make sure that you have an emergency fund of 3 to 6 months of expenses in a savings account prior to getting a home loan. This, again, is to make sure you have a financial buffer incase of unexpected expense, which, if you’re buying a home, I can guarantee you, you’re going to have plenty of these. And keep in mind that your emergency funds should be different than you down payment funds. In other words, don’t wipe out your emergency funds to use as your down payment on your home.

6. Know what PMI is, if it applies to you, and when it will go away. PMI stands for private mortgage insurance. It’s basically an insurance that is paid by the borrower, typically on a monthly basis, that protects the lender in case of default on the loan. PMI is usually required on loans where the borrower is putting less than 20% down. Most of the time PMI goes away once the LTV reaches 80%. LTV means loan-to-value, in other words, the ratio of loan amount to the original value of the home. This value could either be the appraised value or the sales price. The lender typically goes with whichever of these two values is lower. Also, an option that might be availed to you is getting a new appraisal and then basing the LTV off of the new appraisal in lieu of the old value. A borrower would do this because the new appraisal could value the home much higher than the old value. Make sure to ask a lot of questions to your lender if PMI applies to you so that you know the exact details.

7. Ask your lender what the fees are for additional payments to principal or paying off your loan. You don’t want a lender who is going to charge you a fee every time you make an additional payment to principal. I recommend paying off your home as fast as you reasonably can. Paying off your mortgage early can help you to put more money away for retirement and education costs for your children. If you want a really great system for paying off your mortgage early you should check out the Speedpay Strategy that I created to help people pay off their mortgages faster.

The views, thoughts, and opinions expressed in the author’s blog, podcast, posts, and other media belong solely to the author, and not necessarily to the author’s employers, affiliated organizations, associates, clients, or any other group or individual.

7 Money Mistakes to Avoid with Bill Spring

Bill Spring and I layout 7 money mistakes to avoid AND… we even include an 8th bonus mistake at the end of the podcast, which in my opinion, is the biggest mistake a person can make financially. These mistakes are the big ones!!! If you want to be intentional about building wealth, then you need to be intentional about avoiding these mistakes. Getting caught up in these mistakes can literally destroy you financially. All of these items are big mistakes but are not listed in any particular order.

Here are the top 7 money mistakes to avoid: 

1. Taking on too much debt. Examples: Buying too much house: This means that the loan is way too much for a person to afford. Dave Ramsey recommends no more than 25% of your take home pay go towards your total housing payment which includes taxes, insurance, principal and interest. Buying too much car: In other words, buying a car you can’t afford. People too often buy new cars that they shouldn’t and have a hefty car payment every month that takes away from their ability to contribute to investments. Misuse of credit cards: Racking up debt on your credit card and then just making the minimum payment can cost you big bucks. According to Creditcards.com the average national credit card interest rate that you’ll pay is 16.15 percent. Yikes!!!

2. Unable to say no to friends and family that ask you for money. An example of this could be a mom who is kept broke because her adult son is mooching off of her. The mom feels obligated to support her son and the son is taking advantage of this. The mom needs to establish boundaries to eliminate the son’s dependence. It’s not wrong to help those in need, I encourage doing so, but don’t let giving get out of control and be aware when giving becomes enabling.

3. Taking on unnecessary risk. An example of this could be someone that does not have life insurance, health insurance, or disability insurance. The old saying “expect the unexpected” can really help you to avoid costly issues. Also, if you have a family or someone in your life that is dependent on you, you need to get life insurance. Sometimes employers provide these types of insurance. If your employer does then you need to make sure that the coverage is adequate for your family’s potential needs.

4. Not investing in a retirement. This is especially true if your employer offers a matching program. For example, if your employer matches up to 3% of your gross annual income. If you’re not making contributions to a retirement program, then you need to do so immediately.

5. Not having an emergency fund. I’m sure everyone has experienced an unanticipated expense. It could be a medical expense, a vehicle expense, or a housing expense. It could be anything! You need to have an emergency fund to protect yourself against unforeseen expenses. The biggest reason to do this is because you’re going to have to borrow the money, like put it on a credit card, in order to pay the unexpected expense. If that happens, you could be paying 16.15% interest! For your emergency fund you should have 3 to 6 months of expenses saved up.

6. Not considering opportunity cost. When you spend your money on something, you’re not able to spend it on something else. What does that translate to? It means when you blow your money on that third pair of running shoes (that you really don’t need) you’re giving up the opportunity to invest that money and earn a return.

7. Thinking that money is a mathematical problem and not a behavior problem. Let me repeat that… Thinking that money is a mathematical problem and not a behavior problem… This sounds illogical but it’s very true. Poor money habits are behavioral problems. In other words, being financially healthy means being disciplined with your money.

If you’re looking for financial help, reach out to a financial coach – like myself, take a Financial Peace University class, or look into the financial classes offered by your local Love INC organization.

Pay Off Your Mortgage Faster with The Speedpay Strategy

I’m excited to tell you guys about a helpful tool called the Speedpay Strategy. It helps you to layout a plan for making additional payments to principle on your mortgage (or really any kind of loan). Its purpose is to help you pay off your mortgage faster than if you just made the minimum payment. Let’s take a look at what this tool is, when you should use it and what you should do before you use it.

Download the Speedpay Strategy in Excel.

What exactly is the Speedpay Strategy and how does it work? It’s a payment plan that uses increasing payments to principal that are based off of customized data that you input into the Speedpay Strategy Excel Worksheet. The Speedpay Strategy creates a schedule where each year the amount of what you pay directly to principal increase by a percentage of the original principal and interest payment. This allows you to anticipate how much faster your mortgage will be paid off and how much your monthly payment will need to be in order to reach your desired payoff date.

Why use increasing payments? One of the best parts about the Speedpay Strategy is the increasing payments. The reason this is a nice feature is because a person’s income tends to rise over time. Think about it, for most people, they will likely make more money next year than they did this year. So, it only makes sense to increase your mortgage payment, if you have a little more income, in order to pay your mortgage off faster.

I created a template for the Speedpay Strategy using Microsoft Excel and this template is available for free download on my website, buildwithkeegan.com. You can find it in the “Success Tools” section. As a side note, feel free to customize the Speedpay Strategy Template to fit your specific needs. To use the template from my website you don’t need to be a wiz at Microsoft Excel. First, simply download the template from my website and open the file. Please note, you will need the program Microsoft Excel in order to use the template. Second, enter in your loan information in the yellow boxes at the top left part of the screen. In this section, you will need to enter your original loan amount, which is the amount of loan that you started with when you either bought your home or when you refinanced. The next amount you need to enter is the current principal balance of your home loan. You can find this amount by either looking online, if you have online access to your mortgage, or by simply looking at the most recent mortgage statement available. Then, enter the amount of the original term. The original term is the number of months that you had at the beginning of the loan to pay back your loan. For instance, if you had a thirty year loan then the original term would be 360 months. Next, input the interest rate on your loan and the principal and interest payment amount of your loan. As side note, if you have a mortgage that requires bimonthly or biweekly payments then feel free to modify the Speedpay Strategy Template to accommodate your situation.

Once you’ve entered in your loan information, it’s time for the fun part! Enter in the percentage amount by which you would like your principle payment to increase each year. You can adjust this percentage up or down to meet your level of financial capabilities. You can also adjust this percentage to show you how long it will take to pay your loan off in a given amount of time. For example, say you want to pay your home loan off in 10 years. You would simply input different percentages until the loan balance is paid off within the 10 years as shown on the amortization schedule within the Speedpay Strategy Template. You can tell when the loan is paid off by looking at the “Loan Balance” column. When the loan balance hits negative and it is red, you know the loan is paid off.

If you want to put a little extra money to go to just the principal in addition to the Speedpay percentage then you can add that in the Speedpay Boost box. Whatever amount you enter will be added to the monthly principal payment amount for the entire life of the loan. For example, let’s say that you get a home loan and you know, right when you get the loan, that you want to put an extra 50 bucks towards the principal each month. Well then, you would enter the $50 in the Speedpay Boost box and this will show you paying $50 per month, every month, for the life of the loan, to just the principal.

Once you get all of the numbers entered into the Speedpay Strategy Template play with the Speedpay percentage and the Speedpay Boost amounts until you achieve a payment amount and a loan payoff date that you are comfortable with.

Next, let’s look at some recommendations on when you should use and should not use the Speedpay Strategy.

First, if you do not yet have an emergency fund of 3 to 6 months, you need to establish this prior to making additional payments towards your home loan. An emergency fund is crucial to keeping you from falling into high interest consumer debt. Most people who are living paycheck to paycheck use a credit cards, personal loans, and payday loans, in case of an emergency. This is a big mistake. In lieu of using short-term debt for an emergency, build up an emergency fund so you can pay cash for an emergency if you need to.

My second recommendation is that you eliminate any other consumer debt before using the Speedpay Strategy. After you’ve eliminated your consumer debt then you can start making additional payments to the principle on your mortgage. I recommend doing this because the rate on other credit items such as: credit cards, car payments, student loans, etc. typically have a higher interest rate than home mortgages.

My third recommendation is that you make sure to contribute to your retirement plan prior to making additional payments to your home loan principal. If you can contribute to your retirement plan and afterwards you still have room in your budget then great, do the Speedpay Strategy. If you are not contributing to your retirement plan, then you need to do this before starting the Speedpay Strategy.

Lastly, if you expect to live in your home for less than two years I suggest putting the Speedpay Strategy on hold while you put away money for the down payment, closing costs and moving costs on your next home.

Achieving Maximum Performance with Dary Reed

Dary Reed is a Personal Effectiveness Coach and the founder of Assets LLC. His goal is “to help individuals operate in a culture of high performance by teaching intrinsic behavioral skills that direct ones path to elevated levels of success.” Dary shared a tremendous amount of success wisdom with me and I felt very fortunate to have him on the show. If you’re someone who wants to achieve your maximum performance in whatever you’re doing, this podcast episode is for you!

Here are just a few of the nuggets of wisdom that Dary shares:

  • “Once you can say that ‘failure is my leverage for effectiveness’ and truly believe that in your heart, then failure doesn’t frighten you anymore.”
  • “When I learn to be comfortable with being uncomfortable, when I embrace the suck, however you want to phrase it, you know, that’s really where I learn and where I grow.”
  • “Everything of high level quality is practiced, drilled, and rehearsed, which is discipline”
  • “Discipline establishes patterns and patterns establish effectiveness. You can’t have random effectiveness.”
  • “You don’t learn on the mountain tops, you learn down in the valleys.”

Dary’s words of wisdom in this podcast will help you:

  • Learn how fear destroys our success and how to overcome it.
  • Learn the importance of discipline while achieving success in your life.
  • Embrace the tough parts of your life as a way to learn, grow, and become better than you were yesterday.
  • Become a better leader both in business and in life.
  • Learn how to achieve on a whole new level.

Dary’s Contact Information: 

Life Insurance 101 with Steve Wagar

I recently had the pleasure of talking with Steve Wagar, Financial Representative with Northwestern Mutual, about life insurance and the benefits that life insurance provides. He offered some really great insight that you should listen to if you’ve been considering protecting your family by getting life insurance.

If you would like to talk to Steve about life insurance or other financial topics here is his contact info:
Steven M Wagar | Financial Representative
117 East Yakima Ave.
Yakima, WA 98901
P: 509-457-1660 | F: 509-248-3552
E: steve.m.wagar@nm.com   Website: www.stevemwagar.nm.com

Points Steve made from the interview:
• Life insurance is a contract between you and the insurer that, if premiums are paid, and the policy is in-force, meaning in effect, when the insured party passes away, a benefit is to be paid to the beneficiary.

There are three basic types of life insurance: Term, Whole life, and Universal Life.
Term insurance is great for covering a need for a specific period of time, like 10, 20 years or longer. Generally, it is the lowest price of the three types and allows families with any income to protect themselves.
Whole Life insurance is an insurance that is with you until the day you pass away, not for a specific time. It also can be a tax-deferred cash accumulation vehicle. Whole Life insurance has a bad reputation, given by a few people who have used it in a manner it was not intended for. If you buy a quality whole life insurance product from a quality company, it can be a worry-free asset down the road that can serve a lot of purposes. Here, it pays to do some research about the insurance company’s performance.
Universal Life policies are a sort of hybrid policy between Whole Life and Term insurance. They have flexible premiums, but not the guarantees of traditional whole life insurance. They work like Whole Life insurance policies, but can have certain pitfalls if not designed and executed properly. In other words, they require more maintenance generally, than traditional Whole Life policies.

• One of the most common questions I hear about life insurance is: If someone has a good chunk of money saved up, can this suffice as a “self insured” policy? Steve answered this question by asking another question:

“Do you think someone with a $300,000 house that is paid off, meaning they own it outright, would have home owner’s insurance still, just in case it was destroyed somehow?”

Questions to ask if you’re looking for life insurance:                                           • The best way to find a financial representative that you can trust will do what’s right for you, is to talk to those you love, respect, and trust yourself and ask them who they go through. If someone you know has had a very positive experience, and has trusted their representative, that is probably a good sign!
• What are the financial strength ratings of the company or companies you represent? Ultimately, when it becomes time to submit a claim for life insurance, you want a company that will be there, do the right thing, and be able to pay the claim. Look for companies with high financial strength ratings.
• Ask if these companies do financial planning as well. Life insurance is not usually a standalone product; it is something we use as part of a larger financial plan in order to insure your family’s financial security are met no matter the things life throws at us.
• Ask if the company the representative works with is a mutual company. Mutual companies by definition have no stock holders, only policy owners. So as someone who owns a policy with these companies, if a dividend is paid, it is paid to those who have policies with the company, not an outside stock holder. What this translates to, is the mutual company then has an incentive to perform well for those people who own the company, those who actually own policies with them. Historically mutual companies have provided life insurance at a lower cost than stock companies.
• Ask if the representative has professional distinctions pertaining to life insurance and financial planning, such as a CLU, ChFC, CFP, or are working towards such designations. Having these designations, or having a mentor of the representative holding these designations, shows that the representative has gone above and beyond to learn the ins and outs of life insurance to best provide for your needs.

Decluttering Your Life

  1. There are several benefits of decluttering such as reducing clutter stress, being more productive, having more time to do what we want, and keeping more of your money.
  2. Prioritize the things you need to declutter. Start with the most important areas of your life.
  3. Get rid the things you don’t use or won’t use often. Organize the things that you want to keep.
  4. Make thoughtful purchases in the future. Don’t allow yourself to re-clutter your life!

Hey guys! What are the benefits of decluttering your life? What does decluttering look like and how do we do it? These are the questions that I am going to answer in this blog post.

We live a very blessed life. We have access to so many things and sometimes we fill our lives with too many of these things. Every once in a while we need to stop and assess the stuff that we’ve allowed in our lives and see what we can take out in order to make more room for things that matter. This means that sometimes in life, less is more. The less we fill our lives with junk the more time, money, and better health we’ll have. When we have more time, money, and better health we can focus more on doing the things that we really want to do and the things that will help us to reach our goals. Decluttering can be thought of as a type of investing. The time we invest into decluttering is going to be rewarded by the many benefits that decluttering offers. Also, by being intentional about avoiding clutter we can avoid the negative side effects that clutter has on our lives.

I can think of at least 3 main areas of life that we can declutter: things, time, and finances. Let’s take a look at how decluttering can be beneficial in these different areas.

Benefits of decluttering:

  1. Decluttering gives you more space and less stress. When I have a cluttered space the clutter makes the space feel cramped. I’m not someone who is claustrophobic but I would definitely say that I much rather be in a room that is clean and organized than a room that is jam packed full of stuff. A room full of stuff (like the current condition of my messy basement) makes me feel uncomfortable and adds more stress to my life. Decluttering can make you feel less stressed. Recently I walked into my garage that I’m moving into and I have tools that need to be cleaned, boxes of stuff that needs to be organized, shelves stacked with things that need to be organized, and I tell you what, I didn’t even know where to start. I asked myself, “Should I start cleaning tools, organizing shelves, or do one of the other millions things with all of this stuff?” I felt a little overwhelmed by all the stuff and it was easy to see that all this stuff was adding to my stress.
  2. Another benefit is that decluttering can help you to be more productive which ultimately can save you time. Think of a workstation area, maybe at work, maybe in your garage, maybe in a craft room, or maybe in your home office. If your work space is clean and organized than it’s going to be easier to find things and to get things done. This is going to make you much more productive.
  3. Having less stuff saves you money. When you spend less money buying stuff that you don’t need you have more money to put towards your goals like saving for retirement, your child’s education, or your down payment on your next home. Also, by not having as much stuff you’re not going to spend as much money maintaining things. The fact is that owning stuff costs money. Is that something that you thought of when you purchased the last big tick item? If you’re like me, probably not. I was just focused on how bad I wanted it. So, keep that in mind the next time you’re on the fence about buying something. Is it something that you’re willing to pay to maintain and store?

The benefits from decluttering go on and on. We can clearly see through these examples that decluttering has obvious benefits. The next question I want to answer is “How do we be intentional about decluttering and make sure that we’re not cluttering our lives even more in the future?”

Prioritize: The first step to decluttering is to prioritize. It’s impossible to declutter every aspect of your life all at the same time so you need to prioritize the areas that are going to make the most impact and benefit you the most. In the area of things, what things in your life need the most attention? Has your cluttered garage been weighing on you? Do you really need to clean your home office so you can be more productive which will allow you to spend more time with the family? What priorities do you have in the area of finances? Do you have a credit card that you don’t use but is still open? What things can you declutter that will give you more time to do the things you want?

Organize: The second step to decluttering is organizing. Organizing is the nemesis of clutter. The more organized you are the less effect clutter is going to have on you.

The first step of organizing in any aspect of your life is to get rid of the stuff that you’re not using. If you have a bunch of stuff that you don’t even use anymore then it’s time to get rid of it. In regards to your finances, do you have a reoccurring charge for a membership that you’re not using anymore? Then it’s time to get rid of it. Are you spending time doing something that doesn’t bring you or your family happiness that you can stop doing? It’s time to get rid of it. Eliminate anything and everything you can. Sell it, give it away, recycle it, or throw it in the garbage. It’s time to clean up and declutter your life. Let’s look at what organizing looks like in different aspects of your life.

Organizing your stuff: After you’ve rid yourself of the stuff that you don’t use anymore its time to organize what’s left. Make the things you use most often the easiest to access. Store the things that you don’t use often somewhere out of the way. The idea is to keep your space clean but at the same time you want your stuff easy to find when you need it. Get the family involved when you can so that everyone knows where stuff is and so that everyone has time spent keeping the house clean and organized. That way they’ll appreciate it more.

Organizing your time: Decluttering your time can be difficult. If you’re like me you sometimes probably feel like you say yes to way too many things and before you know it, you feel too busy to do anything. That seems silly to say but that’s the way it feels at times. I’ve heard it said that you shouldn’t do more than 3 big things at a time outside of your family time. This means, for example, that if you work full time that would be one, if you also volunteer throughout the week that would be two, if you have a big project a home that you’re working on that would be three. Life will be filled full of the little things but when it comes to the big stuff don’t overextend yourself.

Organizing your wealth: This is where it actually pays to be organized. Have a garage sale to turn that stuff into cash. A garage sale or selling your stuff on Craigslist can be a great way to both declutter and put more money in your bank account. Garage sales can be a painful but a good learning experience which is that stuff usually goes down in value. Like, way down. Buying a bunch of stuff is going to get you nowhere but broke. Another way to organize your wealth is to use autopay if you can. For example, using autopay to pay your electric bill, or your internet bill, or your mortgage can save you time each month.  Also, I recommend setting up auto-contributions to your investment accounts. The less time I have to spend keeping up on my finances the better in my mind and using some autopay and auto-contribute features is one way I can make sure I’m reaching my wealth building goals. Another money saving anti-clutter technique is to rent instead of buy. For example, if you need a specific tool for a home project consider renting it or borrowing it from a friend in lieu of buying it. This could save you a lot of money. For more peace of mind and to reduce the risk of financial fraud you should considering closing bank and credit accounts that you don’t use anymore. If you have several checking accounts or savings accounts I recommend consolidating them. I have only one checking account and one savings account. These two accounts are the only bank accounts that I have open for myself. I have seen people that have checking accounts at 3 different banks. This is absurd to me and I have no idea how they keep all of their accounts straight.

Minimize: The final step to decluttering is to minimize the stuff that you put in your life by being very selective about what you allow in your life. To help you avoid re-cluttering your life be intentional about not allowing more unnecessary stuff in your life. When you’re surfing Amazon next time, before you hit the “Add to Cart” button, ask yourself, “Do I really need this?” You probably don’t. Remember, a dollar saved is a dollar earned. The more you save now from not buying junk allows you to keep more of your money and reach your financial goals faster.

Managing and Reducing Debt

  • Debt can be disastrous for your finances.
  • It can increase risk which can cause stress and worry in your life.
  • Minimizing and eliminating debt can create more monthly cash flow and therefore financial freedom.
  • Create a plan to minimize debt by clearly identifying your debt.
  • Create a monthly budget to see opportunities for cutting expenses and figuring out how much debt you can pay off each month.
  • A wealth builder does not use debt or uses debt to at a bare minimum.
  • As a wealth builder, your end goal should be to become someone who is collecting interest not paying interest.

When most people hear the word debt the first thing they think of is something that is probably negative. Maybe it’s just me, but when I hear the word debt the feelings that I get are similar to those feelings that I get when I hear my dentist tell me I have a cavity, or the feeling I get when I’m washing my car and notice I have a door ding. These feelings don’t feel good and could be considered a little painful. However, I can’t be too negative towards debt because there have been times throughout my life that I’ve used debt for something that was good. For example, when I was young there would have been almost no way for me to buy a car without the help from my dad. Through the financial help from my dad I was able to get a vehicle, which allowed me to get to a job, which allowed me to make money. Had the vehicle not been in place, the job wouldn’t have been either. Not that it was impossible to get a job without getting a car, it’s just that riding a bike an hour each way to and from the job would have taken a level of ambition that was way greater than where my 16 year-old self was at. I’m sure that many people have found themselves in the situation of needing a loan to buy a car. So, it’s easy to see how debt can be helpful. In another example of debt used in a good way was when I decided to build a house at the age of 26. There was no way I had enough money to even come close to completing the house with the savings that I had at the time. However, there was a bank that, surprisingly enough, was willing to give me a construction loan to build the house. Through this example we can see that debt gives people the ability to buy a home. This can be a good thing!

But, we all know there are always two sides to every coin. So, what are the reasons you wouldn’t want debt? One reason that you don’t want debt is because debt can be dangerous. I’ve seen time and time again people that take on too much debt and before they know it they’re struggling to keep up with all of the loan payments. They find themselves trying to work more hours, in order to make more money so they can stay afloat financially. They live worried lives, constantly stressed out because they don’t know if they’re going to be able to make all their payments. They live in fear of the phone ringing with the debt collector on the other end asking for their money. Taking on too much debt can be disastrous for your health, wealth, and happiness. The stress that debt can put into your life can cause your health and happiness to deteriorate.

The reason debt can be dangerous is because it increases financial risk. Let’s examine what financial risk can look like. This example is something that I’ve seen others experience in my life and I’m sure you’ve either heard of something like this happening or maybe even know someone this example has happened to. For this example I’m going to tell you a story about a guy named Bob. Say that Bob wants to get into the real estate game because he has a friend that has a friend that’s flipping homes and supposedly they’re making a bunch of money doing it. Bob has watched home renovations on HGTV so he thinks that makes him an expert remodeler. So, Bob rounds up enough money to make the minimum down payment on a fixer upper. He thinks, “Its real estate, I can’t loose!” He buys the fixer upper and start dumping his time and money into it. Ok, right there, let’s stop, take a step back and look at where Bob is financially. Bob already had one house payment and now he has another house payment. He also has a payment on a truck that he bought brand new two years ago. Bob used a majority of his savings for the down payment to buy the fixer upper so he’s been putting the cost of the home renovation on his credit cards. The credit card payments are starting to climb but Bob’s isn’t too worried because he thinks he will sell the house before the credit card payments get out of control. He thinks that he can get by making the minimum monthly payments. He’s already maxed out two credit cards and he’s close to maxing out a third one. Bob doesn’t know this yet but he’s heading right toward financial disaster. Ok, let’s continue Bob’s story. Bob get about half way done with fixing up this fixer upper and realizes that it’s taking him way longer and costing way more than he originally anticipated. Not only that, but all the work that Bob is doing on the fixer upper is taking way the overtime hours that Bob was use to getting which helped him get bigger paychecks. Bob was counting on the pay he would get from overtime hours at work to offset the added credit card payments. So, money starts to get really tight for Bob. At this point he’s exhausted all of his savings, he’s barely able to make the payments to everything he owes money on, and his fixer upper house that sounded like a great idea at the time has turned into his worst nightmare. He’s not even done with the fixer upper yet and Bob is out of money, out of credit, and Bob can’t keep up with the mountain of debt that he’s got himself into. Bob is completely burned out from working on the fixer upper nights and weekends. His marriage is struggling because he and his wife have been arguing about how they’re going to pay for all the debt that he has accumulated. He decides to sell the fixer upper as is with some of the renovations still incomplete. Bob knows that he wont get nearly what he originally thought he would get for the house by selling it as-is but he has run out of other options. After Bob pays the real estate commission, the excise taxes, and closing costs, Bob is left with just enough to pay back the loan he originally took out to buy the property. But unfortunately Bob not only lost all of his savings but now he’s left with three credit cards that are maxed out. Bob’s credit score has been destroyed because he was late a few times on the different loans that he had during the process. Ok, so Bob’s story is sad right. Here’s a guy that bets big and does so using a lot of debt. The mountain of debt that Bob accumulated basically killed his investment. Had Bob done a better job budgeting and used cash for the fixer upper he would have been able to complete the project and sold it for a profit. The moral of the story is that debt can be dangerous and by using debt it can put you at a high level of financial risk.

I am a firm believer that if you want to be a wealth builder you need to minimize your debt. A majority of the financially successful people I’ve met either rarely use debt or they don’t use debt at all. They have a paid off house, they pay cash for their cars, and they don’t have credit cards they use a debit card instead. Look, I’m not going to be naïve, I know there are sophisticated investors and wealth builders out there that very carefully use debt to their advantage. For some investors and business owners they can make money by borrowing money. However, it’s also obvious to me that far more people, in fact, I would say an overwhelming majority of people, get burned by using debt in some way. For most people, debt is more debilitating than it is something that will help you. My advice is to strive for a life free of debt. That means that you need to create a game plan to pay off the debt that you have.

The first way to manage debt is to get control of it. This means stop creating more debt and start paying off your existing debt. If you need to buy something use cash, check, or a debt card. If you don’t have the money to buy something then you need to really ask yourself if it’s something that you absolutely need. Do you need a vehicle? Yes, in our society today, in a majority of cases, people need a vehicle for them to function in the economic system that we’ve created. However, that doesn’t mean that you need a brand new vehicle with a huge monthly payment. You can get an inexpensive vehicle that will work just fine. Also, avoid credit cards. The only reason I will use a credit card is if my place of employment requires me to use it for business purposes. I will not use credit card for personal purchases. I will use my debt card for any purchases that I need to make. I don’t care what kind of miles I might be able to get or what kind of points I can earn. In my opinion credit cards are a waste of time and money. I’ve seen people destroy themselves financially because they’ve accumulated too many credit cards and I think credit cards are nothing but a trap to get people to pay a lot of interest when they get in a financial bind.

The second way to manage debt is to create a plan to pay off your debt as fast as possible. There are several ways to go about doing this. For example, Dave Ramsey’s program uses the “debt snowball”. The basic principle is that you list out all your debts. Dave’s plan has you list your debts out from the smallest to the largest. Some people list the debts from the highest interest rate to the lower interest rate. Do whichever way makes the most sense to you, just make sure that they’re all listed. The next step, is to focus with laser beam strength on paying down debt. Make extra payments to principle on your debt as often as you can but don’t forget to keep an emergency fund. You need to keep an emergency fund of one month’s of expenses in place throughout paying off the debt. Once all your debt except the house is paid off then build up a bigger emergency fund of at least 3 months of expenses.

If you want to get serious about paying off debt you need to create a monthly budget. The budget will help you to see things that you can cut out of your spending in order to pay off your debt faster. Your budget will also help you to better manage your cash flow (meaning you’ll make sure you don’t run out of money by the end of the month). I recommend making a zero-based budget. This means that you are telling every dollar where to go throughout the month. Every month you need to plan and you will have a plan through the use of your monthly budget.

Your goal should be to become debt free if you’re not already. Why? To avoid paying interest to other people. As a wealth builder you want to be the one collecting interest not the one that’s paying interest! By eliminating debt you are freeing up cash that can go to other things, like building your investment portfolio, traveling with your loved ones, giving to your community, or getting to do the things that you’ve always wanted to do.

The Importance of Rest

Have you ever felt like life was just go-go-go all the time and you didn’t have any time to just rest? I’ll be the first to admit that I’ve been in that boat before to the point that I just felt burned out. When you hit this burnout mark it should be a wake-up call to you that you haven’t been getting enough rest. It’s easy to keep putting more and more stuff in our lives and it can sometimes be difficult to get the amount of rest you need. Rest can come in different forms and can be applied to different areas of your life. You can have rest for your body which can help you to recuperate energy. You can have rest when it comes to building wealth which can help motivate you to continue to save and invest. You can even have rest for your mind which can help you to be in a better mood, reduce stress, and help you to feel happier.

Rest for our body is probably the first type of rest people think of when they hear someone say the word “rest”. We tend to think of going to bed for the night or kicking back in the easy chair for a catnap. This type of rest is really important for our body to recover from the energy it exerted throughout the day and to help us regain energy to use the next day. Many times when we get really busy this type of rest is one of the things that gets cut back in order to squeeze a few more activities in the 24 hours that we have. We often tell ourselves “I can just wake up a little earlier to get that thing done” or “I can just work on it tonight and go to be a little later”. When we cut back on our sleep in order to be more productive we might be getting a little more work done in the short-term but in the long-term we’re actually hurting ourselves. I’ve seen time and time again in my life and in the lives of those around me that not getting enough sleep means we’re more susceptible to getting sick. When we get sick it dramatically slows down our productivity and can erase what we gained when we were working hard while sleep deprived. Getting consistent sleep and resting our body is very important if you want to keep good health, avoid getting sick, and feel like you have the energy it takes to take on your day.

Rest from wealth building is, I’m sure, much less thought of than rest for your body. I know you probably have an eyebrow raised when I say rest from wealth building. What I mean by this is simply being able to take a break and rest from being focused on building wealth by saving up and buying something special for yourself or for you and your spouse or for your whole family. For me, I tell myself pretty often that I’m not going to buy something because it’s more important to me to save and invest so that I can have recourses to buy things later in my life. I know that by saving and investing now rather than spending all of my money will help me get to my goal of becoming financially independent. This goal is really important to me and it’s more important to me than being able to buy that next gadget or gizmo that catches my eye. However, on the other hand, it is really nice to occasionally treat myself to something special as a reward for working so hard and for doing a good job of saving and investing my money. This treat might be taking my significant other out to dinner or buying something that I really wanted for some time. Buying this treat is usually something small that won’t break the bank. In other words, resting from wealth building means being able to spend a little to make sure you remember why you’re working so hard to save.

Rest also helps us to be happier. When we sleep we rest our whole body including our mind but there’s another kind of rest where we rest in order to rest our mind. Examples of this kind of rest would be when we get to have some time just to ourselves to read a good book or sip some coffee in the morning. It could be when we get to do a hobby that we enjoy or it might mean taking the family out to the local park to enjoy a nice relaxing day having fun. Mental rest is attained when we can free ourselves from the stress that we regularly subject ourselves to. When I fill my life with too many activities I start to feel overly stressed and when I get to this point it’s a reminder to me that I need to be more intentional about creating mental rest. Sometimes when I’m really stressed I enjoy just taking about 15 minutes or so just to close my eyes, try to relax my brain, and clear out all my thoughts in order to enjoy just some silence. This, for me, helps my mind to not get overloaded and stressed out. This sounds obvious but when I’m not stressed out I’m more likely to be much happier. Therefore, if we can use rest to minimize the negative impact of stress we can become happier.

Overall rest is an exceedingly important aspect of being successful in health, wealth, and happiness. However, it’s also something that is often overlooked and not taken seriously. If you want to be all that you can make sure that you’re taking the proper time to get adequate rest.

Wealth Builder Investments 101

First, I want to start off by saying investing is something that you need to do in order to become a wealth builder. Not only that, but if you want to achieve financial independence you must have income that’s being generated from some sort of investment. So, it’s imperative to your financial goals that you find an investment that you’re comfortable with and that will generate the income you need to reach your goals. Investing can sound complicated and sometimes intimidating too. If you’re new to investing and you want a hands off approach I would suggest talking to someone in your community, such as your local financial planner, about the different investing options for you. If there isn’t a local financial professional that can help you then you can turn to the internet. There is what seems like an endless amount of information on the internet that can help you better understand your investing options. You can find different companies that offer investing accounts online and investing professionals who you can call and talk to. I highly recommend doing your research before jumping into any investment. Make sure that you understand the level of risk associated with your investment and remember that it’s ok to start small.

So, let’s take a quick look at a few investments that are out there. One of the most common types of investments that are available are mutual funds. Well, what exactly is a mutual fund? According to Investopidia.com the definition of a mutual fund is, “an investment vehicle made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.” Essentially, different investors pool their money into a fund that seeks to perform a certain investment objective. There are lots of companies that offer mutual funds such as Vanguard, T. Rowe Price, and Fidelity among many, many more. Different mutual funds invest into different things. For example, a mutual fund’s goal might be to mimic the performance of the S&P 500 so it will be invested in stock of those companies that make up the S&P 500. According to statista.com there were nearly 80,000 mutual funds worldwide in 2015. The great thing about mutual funds is that they can offer diversification in a very affordable and convenient way. Some of the more diversified mutual funds could be considered “balanced”. This is where they invest in both stocks and bonds. The nice thing about having a balanced mutual fund is that it is diversified meaning it will not be highly affected if there is significant movement in one sector of the market. There are also mutual funds that only invest into stocks, other mutual funds that only invest in bonds, and some mutual funds invest in different sectors of the market. These funds tend to have less diversification than balanced funds but the good thing about these mutual funds is that they can have upside exposure to the market sector that they are concentrated in. For example, a mutual fund can be made up of sever tech stocks which would expose the mutual fund to the tech industry. Or you can have a mutual fund that can be made up of several health care stocks which would expose that mutual fund to the health care industry.

Another investment that is similar to a mutual fund is an ETF (exchange-traded fund). I kind of like to think of an ETF as being half like a mutual fund and half like a stock. The Vanguard Group defines an ETF as “A type of investment with characteristics of both mutual funds and individual stocks. ETFs are professionally managed and typically diversified, like mutual funds, but they can be bought and sold at any point during the day using straightforward or sophisticated strategies.” ETFs, like mutual funds come in all sorts of different varieties. Statista.com tells us that in 2015 there were 4,396 different ETFs worldwide and just 442 worldwide in 2005 indicating a pretty significant growth in the popularity of this investment type. The benefit of having an investment that can be bought and sold like a stock is that the transaction of buying and selling relatively fast, at least compared to buying and selling mutual funds which, from my experience, can to take a couple days for the transaction to go through. If you need the money from the proceeds of a sale in a hurry to buy another investment an ETF might be a good option for you.

Stocks and bonds are another investment vehicle. In order to trade stocks and bonds you need to open an account with a broker. This broker could be a person in your community like a broker from Edward Jones, Merrill Lynch, or a small local company. You could also use an online brokerage company like Scottrade, E*TRADE, TD Ameritrade, and many more. Buying individual bonds or stocks is nice because you can customize your investment portfolio for a certain investment strategy. Also, it’s fun to buy and sell stocks as a hobby.

If you’re a more sophisticated investor you might be someone who trades options. According to Charles Schwab & Co’s website “An option is a contract giving the owner the right, but not the obligation, to buy (in the case of calls) or sell (in the case of puts) the underlying instrument at a specified price for a specified period of time. The underlying instrument can be a stock, an exchange-traded fund (ETF) or even an index… Unlike shares of stock, an option does not represent ownership in the underlying company.” Schwab’s website also says “Options can help you protect against risk, generate income, increase profits, lower your breakeven point, reverse your strategy without selling your stock, and even potentially let you set a purchase price for a stock below its current market price.” I don’t have any experience trading with options besides the simulated option trading I’ve done on Stock Track. Even after reading and researching option trading I still find it hard to convincing myself that option trading is something that I can be successful in.

Owning real estate can also be a good investment. I’m not talking about simply owning the home that you live in I’m referring to owning real estate in order to rent or lease it out and actually make a return on your capital. Granted, your personal home can appreciate over time due to the appreciation of real estate but I would not really consider your home as the same kind of investment that I’m discussing here unless you are renting some portion of your home like if you had roommates or lived in a multi-family building. I’ve seen and worked with many people that have built much of their personal wealth through investing in residential real estate. The residential real estate, I would say, is where most people usually get their first taste of investing into real estate and I would agree that this is a good place to start. The down side with investing into real estate is that it can be extremely expensive so if you don’t have the cash reserves then you can put yourself in a very tight and financially dangerous position. The other downside with real estate is that it takes a long time to get your money back out of it if you are trying to liquidate your position, at least compared to liquidating stocks. Trying to list a house for sale, find a buyer, and finally closing on your real estate can be quite the process and take a considerable amount of time. It’s not like selling a stock where you can simply jump onto your online brokerage account hit the “sell” button and almost immediately have the funds to buy something else.

There are tons of different investments out there. The most important thing that I want you to remember is to make sure that before you buy any investment you do your homework on that investment. If you’re working with a financial planner, a broker, or a real estate agent always ask lots of questions so that you feel well educated, confident, and comfortable with the investment that you’re considering. Never just jump into an investment that you don’t know anything about and be very cautious about getting into any kind of investment with family or friends.

Well, that’s all I have for you about investments in this post. Remember that you need investments to build wealth and achieve financial independence. Happy investing and good luck!