Great Entrepreneurs Suck At Investing

by David@MoneyNing.com · 20 comments

Entrepreneurs sucks at investing

I really have a great appreciate for entrepreneurs. In fact, I work for one who’ve managed to built a 30 million dollar company from scratch in a short couple years with no funding. However, I was speaking with my boss the other day and I realized that many of the same traits that make entrepreneurs great actually keeps them from being a great investor. Let’s talk about these in more detail.

Optimism
Every entrepreneur is optimistic about the future. In a business environment, it is so important to think about the potential rewards because optimism is the only motivation tool at his/her disposal to weather the tough times.

An investor though should not be optimistic. The best investors are the ones that worry about the potential downside all the time. The number one objective of an investor should be to not lose money and the only way to do so is to assess the risk of the portfolio constantly.

Convicted in the Decision
In order to be successful, the entrepreneur has to be convicted in the decisions that are made. This is the only way to be able to lead other people to follow and execute his/her direction with confidence.

In an investing environment, being too convicted is going to hurt an investor. It’s good to make decisions, but if it doesn’t turn out the way we though it will, we shouldn’t convince ourselves that it was the right direction going forward.

Aggressive
Entrepreneurs are aggressive. There is no doubt that successful entrepreneurs made big bets at some point in their lives. Many entrepreneurs start off by leaving a good paying job and risking it all for something they truly believe in. Some fail, some succeed but they go with the mantra of “no guts, no glory”.

Never Give Up
Entrepreneurs never take no for an answer and they never give up. The only reason why my boss is successful is because he never gives up. There are business relationships that he saved because he never, ever gave up on winning the customer back. In a business world, this is one of the most admirable trait to have.

Investors better give up when things turn the other way. A famous quote related to this is “It’s not what you don’t know that hurts you the most, it’s the things you know for sure that turns out to be completely wrong that hurt you the most”. If an investment turns south, admit defeat and get out of it immediately.

Conclusion
I’m glad that there are many professionals that help these successful entrepreneurs handle their finances because it would otherwise distract them from doing what they do best – build their business.

I feel like I need to somehow separate investing and business before I can be successful in both. I’m a pretty good investor so far, so it will be interesting for me to see how I can become a successful business person also.

Drowning in Debt? Don’t Make This Credit Card Mistake

by David@MoneyNing.com · 16 comments

People who find themselves in credit card debt may take serious measures to prevent balances from creeping higher. Often this includes transferring large balances from older, high interest credit cards to a brand new credit card with a 0% or very low introductory interest rate.

To remove the possibility of ever using the original card with the big, bad interest rate, one may make the mistake of closing down the higher interest credit card(s) and just sticking with the new card.

While shifting the debt load to save interest is often a wise decision (provided you actually have a plan to pay off the majority of the balance within the introductory period), closing the original card is not. Here’s why:

Credit History
Even if it’s bad history, you don’t want to make it disappear. If you held a job for 10 years, even if you got fired, the work experience is relevant and valuable on your resume. You wouldn’t want to remove it from your resume, it could hurt your eligibility or attractiveness for future jobs.

Same goes for credit accounts – even if they have stains on the record, the record is still valuable.

Debt to Credit Ratio
Older accounts often have higher credit limits than new cards. Credit lenders will look at your debt to credit ratio (% of your total credit you are using) to assess your risk and what interest rate they should charge you. Closing an old account with a high limit can have a dramatic impact on your debt to credit ratio.

For example, if you “max out” a $15,000 limit on Credit Card A, your debt to credit (not counting other forms of credit) would be 100%. You are using 100% of your credit available.

You open Credit Card B with a low introductory rate and a limit of $15,000. You transfer $15,000 from A to B, and you have $15K to $30K debt to credit, or 50%.

Close Credit Card A and you’re back to 100% debt to credit.

Just Chop ‘Em Up
Instead of closing your credit card account, leave it open, and cut up your credit card. Don’t use the new card until it’s fully paid down, and keep reading MoneyNing to stay motivated on frugal living and debt freedom.

Reduce the Chances of Money Conflicts With Our Families

by David@MoneyNing.com · 15 comments

relationship

Families are great. They are the first ones to come help, and the last ones to leave us when we are in trouble. When we were young, we lived with our families, and we start our very own later on in our lives.

Families however, make money matters even more complicated. Let’s face it, money is important to us, and anything important can potentially create conflicts. Most people enjoy a very good relationship with their families because there is no money conflicts; for others, money (or the lack of) can become a sticky subject.

Most people believe that the lack of money creates conflicts, but having money is just as troublesome. When parents have money, sometimes their children will try to fight for the inheritance, directly or indirectly. This is one of those unfortunate events that we all dislike when we hear it, but we see people do this time and time again. Another example is when our family members are in trouble and we become the “defacto” go to person for free loans.

So, if having money and not having money both creates conflicts, what should we do?

Here’s what I suggest. Although we cannot eliminate conflicts completely, we can drastically reduce the possible fiction points by being able to sustain our own finances. If we cannot stop everyone else from asking us for money, at least we can stop asking others for it. This also means taking the appropriate risks with our finances, and doing our homework so we are prepared for the consequences.

For business owners, this means they expand at a controllable level. For the rest of us, this means that we be responsible and create an emergency fund. Not gambling excessively or buy a house that we never really could avoid (something far too many did the last few years) also comes to mind.

If we don’t need financial help from our family members, I bet our family life will improve too. Money matters, but family matters a great deal too. So create a happy financial situation, and relieve the potential stress it will have on our families relationships.

A Bunch of Tax Deductions That are Often Overlooked

by David@MoneyNing.com · 3 comments

I get junk emails many times a day but this list of tax deductions is quite useful so I want to share it with you. Those that haven’t filed taxes yet should take a look and see if you’ve missed anything.

  1. Any expenses paid related to charity activities. This even includes the transportation costs.
  2. Any transportation cost or lodging expenses incurred during a medical crisis
  3. Legal fees you had to pay while obtaining or collecting alimony
  4. Gambling losses can be tax deducted too. Actually, it can only be offset with the gambling gains but do not forget this.
  5. Money spent looking for a new job in your current occupation, including fees for resume preparation and hiring a headhunter are tax deductible.
  6. Contraceptives, if bought with a prescription
  7. Any commissions and closing costs when you sell a property can be deducted
  8. Seller-paid points on the purchase of a home
  9. Education expenses are tax deductible if it is required by law or your employer. Also if it is needed to maintain or improve your skills
  10. Pre-payment penalties and late fees for a mortgage

Remember to take advantage of all the tax deductions we can get by not missing any of the above.  This useful list came from JKLasser.com so thank you for sharing that with us.

Being Logical and Never Buy a House

by David@MoneyNing.com · 69 comments

rent propertyMy wife sent me a link to calculate the cost of renting vs buying a home the other day, which was basically a pitch from a home builder on why owning a home is so great. If you believe the calculations, buying our dream home will save us $1,075,638 after 30 years.

On the surface, it sounds like we’ve got to jump on this home buying bandwagon that everyone else is on. After all, who would turn down 1 million dollars of savings? Looking at it further though, and there are many flaws with the calculation.

First of all, although it has a box to put in a percentage for home value appreciation, it assumes that the property tax amount is the same for the entire 30 years. Unfortunately, this assumption is just wrong. We will probably never get a new property tax assessment every year, but we can bet that property taxes will steadily increase along with the estimated home value in the long run.

Second of all, the calculation assumes no cost associated with obtaining a loan. This is again incorrect. When a loan is made, there are upfront closing fees that just need to be paid. Some people end up taking a bigger loan to cover the closing costs but this is still money paid up front that could be earning interest in our saving accounts.

Third of all, buying a home usually accompanies a huge down payment. This is money that would otherwise be earning interest. This might sound like a small detail, but the down payment could more than double at 3% a year after 30 years.

Finally (there are more, but let’s stop here since I think we see the point), it doesn’t say anything about the higher monthly payment that we have to come up with if we decide to buy. This situation stays the same for years before rent appreciates enough to surpass it. The extra cost of owning a home for the first many years could instead be invested or saved, which would further cut into the perceived savings that the website is leading us to believe.

If we look at the calculation of owning vs renting more carefully, owning a house might actually be more expensive after 30 year if we include the extra cost of maintenance. Hopefully, no one falls for these scams.

How to Get Rich Quick

by David@MoneyNing.com · 10 comments

Everyone who is reading this because he/she wants to know how to get rich quick needs to realize that there’s no calculated way of doing so.  Every day, there are many people who all of a sudden become rich whether it’s because of the lottery or betting big on the right stock which skyrocketed.  Unfortunately for us though, these are mostly based on luck and can never be repeated systematically.

So, in order to get rich, the first thing we have to learn is be patient.  Time my friends.  That’s the only fixed variable in the get rich formula.

If we want to get rich, we first need to start saving to create a positive cash flow.  Whether it’s a dollar or a thousand dollars, we need to save as much as we can.  There will be sacrifices like not being able to buy that 50-inch LCD TV or the latest Gucci bag, but everything we buy is just an obstacle to our road of becoming rich.

Of course, the better our cash flow situation, the faster we can become rich.  However, just saving is not enough, or at least won’t be fast enough.  In order to shorten our path to the goal, we need to have compound interest work for us.  I’m sure everyone is familiar with this, so I won’t try to pitch the power of compound interest.  Just note that the higher the return, the faster we can increase our wealth.

There are tons of ways to gain interest with our money, and every way involves some risk.  The higher the risk, the bigger the potential return.  For example, online savings account is a pretty safe way to gain interest, but it only gives roughly a 3 percent APR at the time that this article is published.

A way to get higher returns with our money is through investing in stocks.  This has proven to have the highest return over a 20 year time horizon, but those that have been invested in the last 3-6 months will have wished that all their money was transferred to the online savings account.  This is due to the short term unpredictable nature of the stock market even though the potential reward is bigger.

In short, my point here is that there’s no cookie cutting way to get rich.  At least there’s no sure way to get rich quick.  In order to shorten the time it takes to become rich, we just have to take on more risk.  Whether we are willing to take on the risk is up to us, because we are the one that will live with the decision.

As a famous person once said, there’s no free lunch in this world.

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