Monday, March 20, 2017

First you have to save money to get rich

Saving and budgeting are good habits and you should practice them. It helps you to control your money and your cash flow. For generations it was safer to invest only money you had already earned and saved. This approach is very low-risk even today.

If you want to be rich and you are not owner of large capital already, you will have to learn how to use the money of other people and use it as leverage with your money, your time, your knowledge and your actions.

When you borrow money, you take the risk of not being able to pay it back with interest. This risk must be legitimated with potential profit and your limited liability. Cost of money (interest rate) must be lower than your final profit rate after taxation.

If  you borrow money at 10% interest rate, your profits must be higher than 10% to be able just to pay your loan back. Having 0% profit and taking risk is not smart. The minimum profit when taking business risks should be 30%, depending on how big the risk is and how much of your energy you need to put into that business or trade.

Profit rate should include enough reserves for unplanned costs. There are always some unplanned costs in business. For big investments it is not realistic to use your savings for financing. Think
twice before taking a loan, but don’t be afraid of it.

Don’t let your emotions guide you when preparing the business plan. Sometimes you have to become a cold blooded beast with investments. And of course use limited liability company to protect yourself if everything goes wrong and you have no business and no money to pay your loan

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