Regardless of whether the economy is surging or crashing, debt is always a topic of discussion in the media. Whenever the news cycle shifts to US budget deficits, it creates a renewed focus on the impact of debt. This is important because most of the developed world is deeply indebted. The most important thing to understand about debt is exactly what it is, and by extension, what it is not.
When most people think of “creating wealth” it conjures up grandiose mental pictures of fabulous riches and exotic celebrities. However, “wealth” simply means you own valuable assets. There is no particular reason why normal, regular people can create wealth using nothing more than their current income and intelligent decisions. The principal barrier to achieving this goal is a mindset that “It takes money to make money.”
With all of the recent news about the real estate market, it is probably a good idea to take a look at the different kinds of real estate that are available. In general, real estate breaks out into “residential” and “commercial” properties. The key difference between these categories we will be examining is the way that they are valued. This is very important because price increases & decreases are driven by the means of valuation.
One of the personal finance topics that many people desperately avoid thinking about is that of insurance, specifically life insurance. The most prominent reason for this is because most people do not cherish the thought of their own demise. Another reason is that there are many insurance products available, and many people get confused.
A survey of millionaires conducted by Thomas J. Stanley and William D. Danko for their book “The Millionaire Next Door” found that taxes are their single highest expense item. Because of this, managing taxes is one of the highest impact items that can increase your net personal income. It is also worth mentioning that taxes work differently for employees and business owners.
Everybody hates to lose. One of the trends that many people experience in the world of investing is a noted tendency to become ‘gun shy’ when they experience volatility in their investments. The reason for this is because our psychological makeup is much more afraid to lose than joyful over gains. This leads many people to either become irrationally risk-averse or to take risks that they are not aware of in a desire to achieve safety. The problem this creates is that fear of loss can make people blind to the opportunity for gain.
During business and economic discussions, it seems that distinctions are rarely made between income and wealth. Income represents the resources that are accumulated annually. Wealth represents the total amount of resources that have been accumulated throughout the tenure of your life. Income must be earned by you year after year. Wealth can be used to generate income year after year, without any direct input from you. (Now we’re talking …)
Benjamin Franklin is famous for saying that a penny saved is a penny earned. With all due respect to Mr. Franklin, it is possible that he has under-estimated the return when yous save. The reason for this miscalculation is the fact that you must pay taxes on every dollar that you earn before you have the opportunity to spend it. (Remember the parable of death and taxes)
Throughout the lexicon of financial advice in the marketplace, there are many different views regarding the role of debt in our lives. The traditional view is that debt causes us to make interest payments that deplete our wealth and erode our ability to build wealth. In the case of the mortgage crisis, many lending institutions and government agencies encouraged excessive lending to borrowers that were at very high risk of default. This even prompted some financial authors to proclaim that all debt is bad, regardless of what it is used to finance, and regardless of how it is structured.
Financial emergencies are an unfortunate part of life. No matter how hard we try, it is inevitable that something will blindside us at some juncture in our life. Chances are that it will be many things blindsiding us at many points throughout the tenure of our life. The thing that is important for people to understand is that the way we address these emergencies will determine whether they become catastrophes.