Jan. 15, 2013
Debt Free vs. Using OPM …
Motivation …Learned from the Great RecessionMost Personal Finance “Experts” say:
“pay off all your debt”Most seniors will say: “pay off your
mortgage as soon as possible”Most Real Estate investors need more
funds to grow their portfolios
Ref: www.WealthDNA.us – OPM
Jan. 15, 2013
Outline …
Lessons from the Great RecessionWhat do the Personal Finance “experts”
say?5 Parts to any Balance SheetPaying-off your Mortgage – Genesis?5 Great Sources of OPMWho should Pay-off all their Debt?Managing the Risk of Debt
Jan. 15, 2013
Lessons from the Great Recession …
When loans are readily available – Everyone is willing to borrow
Most people will spend ALL their moneyMarkets have Cycles (4th Commandment
of Investing)Cash reserves are critical when things go
wrong (borrow when you need it?)Greed more prevalent than Common
Sense
Jan. 15, 2013
Facts: Cash Reserves
Cash is King during crisesIf you pay-off/pay-down your mortgage –
your bank will lend to you again - FALSEBanks only lend:
When you don’t need the money, and [as of 2008] When you don’t want the money !
Renters default when they lose jobs Borrowers default when they lose jobs +
when values drop
Jan. 15, 2013
Opinions: Suze Orman
Use Cash (or Debit card) NOT Credit Card – Generally False
Spend on what you Need not what you Want – TRUE
Get more pleasure from Saving than Spending - OK
Have savings for 8 months of expenses – Generally OK
Think of your Home as a Savings account not as a stock to trade - ?
Retirement Planning starts with your 1st job - OK
Jan. 15, 2013
Opinions: Dave Ramsey
Get out of Debt – Use “Debt Snowball” – Generally False
3-6 month Emergency fund - TRUESave 15% for Retirement – OK Save for kid’s college – Generally FalsePay your Mortgage off early – FALSE Generate Wealth and Give – TRUE
Jan. 15, 2013
Opinions: Robert Kiyosaki
Debt and ALL Liabilities are Bad (they are expenses) - Partially FALSE
J.O.B. = working hard for money (taxed on gross income) - TRUE
Passive Income = your money working for you - TRUE
Form a Corp. [or LLC] for all your business activity (taxed on net income) - TRUE
Some Assets are actually Liabilities - ?
Jan. 15, 2013
FACTS: The Ronald
ALL generalizations are False ! (including this one?)
Financial advice needs to be tailored to the individual, qualified
“Happiness is a Positive Cash Flow” – Frederick Adler
Jan. 15, 2013
5 Parts to any Balance Sheet …
You will NOT find this in any Accounting textbook
Your CPA will not tell you (guess why) I also had a disadvantage as a Finance
Guy Robert Kiyosaki’s “Rich Dad-Poor Dad”
helped me connect the dots
Jan. 15, 2013
BETTER Balance Sheet …
ASSETS LIABILITIES
Kiyosaki: “Some Assets
are actually Liabilities”
EQUITY / NET WORTH
NW = Assets - Liabilities
$ XYZ $ XYZ
Jan. 15, 2013
BEST Balance Sheet … 5 Parts
ASSETS LIABILITIES
IGA’s = Income Good Liabilities
Generating Assets
Bad Liabilities
Toxic Assets EQUITY / NET WORTH
NW = Assets - Liabilities
$ XYZ $ XYZ
Jan. 15, 2013
Examples of Assets …
IGA’s:Stocks, Bonds, Commodities …Investment properties, Notes on propertiesOther Alternative InvestmentsEtc.Toxic Assets: Personal Home, CarsFurniture, Clothes, other expensesBanks: OREO, Non-performing Loans
Jan. 15, 2013
Examples of Liabilities …
Bad: High Interest Credit card debt (paying-off is
best risk-free investment) Debt with interest above your investment ROI Loans / Leases on “toys”
Depends: Car loans
Good: Mortgages on investment properties Debt with interest below your investment ROI
Jan. 15, 2013
Outline …
Lessons from the Great RecessionWhat do the Personal Finance “experts”
say?5 Parts to any Balance SheetPaying-off your Mortgage – Genesis?5 Great sources of OPMWho should Pay-off all their Debt?Managing the Risk of Debt
Jan. 15, 2013
Paying-off your Mortgage – Genesis
Turkey Story – “Why cut off the tail?”“Pay-off your Mortgage” – Genesis?
Great DepressionWhy did most people lose their homes?Why didn’t Hilton’s lose their hotels?
Prior to 1932 Mortgages could be called !
Check your mortgage – Can it be called?
Jan. 15, 2013
Tree Analogy … [Bonus Info.]
Visible (Results)Fruit, FlowersWealth, Health
--------------------------------------------------------------------
Invisible (Causes)RootsSub-conscious
Jan. 15, 2013
Wealth Files
Each of us have file folders in our brain - that we review prior to making decisions
T. Harv Eker developed 17 based on studying rich people …
Are each of yours supportive of becoming Wealthy?
Do some need updating this year?
Ref: “Secrets of the Millionaire Mind” - T. Harv Eker
Jan. 15, 2013
Wealth File #5 - Focus …
Rich: Opportunity What they want Confident they'll make it work Investing
Poor: Obstacles What they don’t want I hope it works Spending
Jan. 15, 2013
Wealth File #13 – Financial Statement …
Rich:Focus on Net Worth (IGA/BSA*)Passive income = Savings +
Investment + Simplification (cost of living)
Poor:Focus on Income (ISA*)Especially working income
* BSA = Balance Sheet Affluent; ISA = Income Sheet Affluent
Jan. 15, 2013
Wealth File #14 – Managing Money …
Rich: Manage money well Have a lot of money – spend little Buy assets
Poor: Mismanage money well Have little money – spend a lot Buy expenses
Jan. 15, 2013
5 Great Sources of OPM …
1. Credit Cards – esp. Company
2. Mortgages/HELOC’s
3. Car Loans?
4. Insurance Policies
5. Margin Accounts
Jan. 15, 2013
… Why stop at 5 Sources?
1. Credit Cards – esp. Company
2. Mortgages / HELOC’s
3. Car Loans?
4. Insurance Policies
5. Margin Accounts
6. Friends & Family (BUT …)
7. Home Sellers
8. Crowdfunding?
Jan. 15, 2013
FACTS: OPM
OPM = Other People’s Money “People” includes any money source, even
bankers !NOTE: Most Wealthy people do NOT use much
leverage – Dr. Thomas Stanley … Why?A loan is paid-off if you either pay it off OR you
have the money available to pay it off – Douglas Andrew
Take & Invest: Any loan with interest below your Investment ROI, for as long as possible
Jan. 15, 2013
Credit Cards …
Use for all expenses over $20 and pay-off each month (free OPM)
How many get 0% balance transfer offers? What do you do with them? I used up to $80,000 to fund Private Mortgage
Loans ! If rate + transfer fee < 6% APR – USE THEM !
(cheap money) Helps build your credit - to get more credit Best: Company credit cards – many will not show
up on your personal credit report
Jan. 15, 2013
Mortgages / HELOC’s … Cheapest, Long-term OPM available ! Tax deductible Inflation protection: Cost of Fixed rate
mortgages do NOT go up with Inflation What if: Borrow at 4% and lend at 6.5%
(on 3-year Low Risk Mortgage)? What if: Borrow at 4% and lend at 10%
(on 3-year High Yield Mortgage)? Inflation Protection: Those Investment Yields
RISE with inflation Best: Long-term, fixed rate, low interest,
interest only
Jan. 15, 2013
Car Loans …
Cars are Toxic Assets; ExpensesONLY buy cars you can afford withOUT a
loan Do NOT buy a car to get a loan ONLY take a loan if you need to buy a carMillionaires with highest Net Worth : Income
are “Used Vehicle Prone Buyers”Better: 60 months, low interest loanBest: Borrow from your own insurance policy
Jan. 15, 2013
Life Insurance Policies …
How many feel Life Insurance is a waste of money?
Suggest using: Once you maximize the use of Roth IRA’s, or You have family dependent on your income
With Cash value can borrow at low rate and policy continues to grow
Ref: Be your Own Banker Best: Whole life policy optimized for cash value
that you started 20 years ago; Today is next best
Jan. 15, 2013
Margin Accounts …
ONLY IF you have a Non-IRA Brokerage Account
Can borrow at low rates based on ~50% of the assets in that account
I have NOT found a Broker who will allow margin on IRA Acounts (Legal, but triggers UBIT)
Best: Use margin loan to fund High Yield short-term Private Mortgage Loans
Jan. 15, 2013
Friends & Family (BUT …)
Can be a Great … Source of low cost funds Opportunity for lender to “Earn a Higher Return”
Risk #1: If you default – you lose Money, a Lender, and a Friend
Risk #2: If your presentation to them is lousy – they will likely NEVER become Private Mortgage Lenders
Better: Send them link to “Learn to Earn a Higher Return” seminar of www.WealthDNA.us
Best: Have an experienced Lender meet with them … you strike a deal with the Lender
Jan. 15, 2013
Home Sellers …
Single biggest opportunity in today’s market Have you heard my team say: “We’re looking for
properties not deeply underwater”? Several alternatives:
Seller Financing Owner Financing Lease-Option Installment Sale
Best: Older home owners, investors, good credit, don’t need to pay off the loan to buy their next home
Jan. 15, 2013
Crowdfunding …
How many familiar with Crowdfunding?Introduced with JOBS Act in April 2012Rules not yet written (sound familiar?)Best opportunity today: Debt OfferingBISolutions is researching the
opportunityRef: www.WealthDNA.us – Jan. 14,
2013 with Daniel Hirsch of IPOVillage
Jan. 15, 2013
Outline …
Lessons from the Great RecessionWhat do the Personal Finance “experts”
say?5 Parts to any Balance SheetPaying-off your Mortgage – Genesis?5 Great sources of OPMWho should Pay-off all their Debt?Managing the Risk of Debt
Jan. 15, 2013
Paying-off Debt …
You should pay off your debt IF:Your Net Worth is negativeYou do not have good financial discipline
(Good analogy: weight control)You’re paying rates above your
investment ROIYour Wealth Files are more like “Poor
people” than “Rich people”
Jan. 15, 2013
Managing the Risk of Debt …
Having Debt does have risk Payments on Debt need to be paid even if your
investments decline NOTE: Most Wealthy people do NOT use much
leverage – Dr. Thomas Stanley Develop a Portfolio Tracking spreadsheet &
Update every 6 mo. “You can’t manage what you can’t measure”
Work with advisors/experts that keep you out of investments beyond your risk tolerance
Best: Maintain cash reserves/liquid investments (can be Money Markets, CD’s, MP3’s)
Jan. 15, 2013
Wealthy People Think Differently …
References … “Rich Dad – Poor Dad” – Robert Kiyosaki “Missed Fortune” – Douglas R. Andrew “Secrets of the Millionaire Mind” – T. Harv Eker “The Millionaire Mind” – Thomas J. Stanley, PhD “The Millionaire Next Door” – Thomas J. Stanley,
PhD & William D. Danko, PhD www.WealthDNA.us – OPM, Direct Investment
in Real Estate, Crowdfunding, etc.
Jan. 15, 2013
Wealthy People Think Differently …
“Rich people have small TVs and big libraries,
and poor people have small libraries and big TVs”.
- Zig Ziglar
Jan. 15, 2013
Contact
Ron Nawrocki (aka The Ronald)B.I.Solutions Corp.Verrado
Tel: 1-623-249-4792
[email protected]@[email protected]
Proven, Profitable, and Positioned for Growth
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