Evaluating the Need for Credit Cards

If you have endless cash, you will never have a need for credit. You will never have to take out a loan because you will always have the money to cover any cost. However, many people do not have this option.

As a general rule, you should not purchase something on credit if you cannot afford to pay for the item in cash. This does not mean that you have to have the entire amount in cash currently available. This means that you have to be able to use your cash, without financial strain, to pay off the bill.

In this day and age, credit cards are essential for building your credit score. Why is this important? Like I said, if you have endless cash, this is not a problem. However, like most of the people in this country, a big purchase, like a house, if something that cannot be afforded if cash was required. Therefore, in order to qualify for a big loan (like a house, car, etc.) we have to build our creditworthiness. Building your creditworthiness is accomplished by raising your credit score. Raising your credit score is accomplished by the correct use of credit cards.

Therefore, the need for credit cards is important in order to be able to afford shelter for yourself and your family and to provide a convenient mode of transportation. If used correctly, credit cards can be a very powerful financial tool. Learn to use your credit cards correctly and you will be able to open financial doors that would otherwise remain closed to you.

What is Universal Default and How Does it Affect Your Credit?

Universal default can be a big problem. Have you ever looked at the terms and conditions of a credit card? Somewhere in the fine print you might discover that your particular credit card is subject to universal default.

What is universal default? Universal default is a practice in the financial industry where a loan that you have goes into default (whatever the default terms are under the agreement of said loan) when you default on another unrelated loan. In other words, if I have two credit cards, Credit Card A and Credit Card B, and Credit Card A is subject to universal default and I have NOT defaulted on said credit card but I have defaulted on Credit Card B, Credit Card A would then be in default.

Why is universal default a problem? Universal default is a problem because it can negatively impact your credit score. If you are never late on any payments, then this financial practice is unimportant, however, if by misfortune, mistake, or some other accident you are late on a loan payment (and thus in default) you can get dinged twice (once for the account for which you are in default and once for the card that practices universal default) for one accident. This in turn has a double negative impact on your credit report and credit score.

Universal default does make some sense if you think about it. A person’s credit worthiness is based on how likely a person is to pay back a loan. The more risky a person, the more unlikely he/she is to pay back a loan. Think about it like this: If a person defaulted on Loan A before applying for Loan B, that person would most likely be denied for Loan B. Why should this change if said person already has acquired Loan B? Is not that person still just as risky before acquiring the loan as he/she is during (post acquisition) the life of that same loan? Although this may be true, my thought is, why put yourself in harms way? Do not take on more risk than you have to. There are plenty of credit card companies that do not practice universal default, therefore, acquire those cards and save yourself the headache should you accidentally or even intentionally miss a payment on one loan.

Defining Financial Freedom

What is financial freedom? Basically, one would probably define financial freedom as being rich or as being wealthy. But, what is rich? What is wealthy? Do you define “being rich” or “being wealthy” as having a lot of money? Do you define “being rich” or “being wealthy” as having the time to do what you want when you want, or do you feel that spending more time with your family is the defining characteristic of success?

Here is the million dollar question: do you need a lot of money to be able to have the freedom to do what you want and to be able to spend more time with your family? In other words, do you have to be “financially free” in order to achieve your “higher” goals?

Up to this point I have asked many questions but have provided few answers. The reason for this is because each person is different. A lot of money, a big house, and an expensive car are not necessary for many people to be happy. Many people who are not financially rich lead exceptionally happy lives. These people create a budget and stick to it, however, these people enjoy quality of life over financial success. Some of the happiest people on earth make barely enough money to fit into what is defined as the “middle class.”

How does this help define financial freedom? Basically, there are two ways to think of financial freedom. First, one can have an abundance of money and can, therefore, afford anything one wants. This means that money is not an issue of concern. The other way one can be financially free is for one to not care about money. These are the travelers and movers in the world that make just enough money to support themselves, but because they are always on the move, traveling around and discovering new things, money is not an issue. These people believe that life experiences are more important than the size of a bank account.

The big question you need to answer is: what kind of financial freedom do you want?

What if I Experience a Loss?

In everyday speak, a loss is a bad thing. Whether the loss is love, life, or money, a loss is never good. However, because I deal primarily in business transactions and financial insight, we will disregard all other losses and concern ourselves solely on financial loss.

For example purposes, let us pretend that you own a business. You want to make a lot of money in your business. But sometimes, a loss happens. Now what? Do you pack up shop and leave? The answer is: it depends.

If you are a new company, chances are you are going to be operating at a loss in the beginning. This is due to all the initial costs that were necessary to establish your business. Does this mean that after a year, if the company is not profitable you should close shop? What about after two years? How about three years? Once again, your decision depends on your situation. If you are a new business, you probably should not pack up after a year. But if you have no long term plan and you keep losing money year after year, you might want to think about cutting your losses.

Many people make the classic mistake of justifying their continuing a failing business because of all the time and money that has already been used for the business. A classic statement is something like, “I already put $X into the company, I might as well ride it out.” This is a terrible way to think because this usually results in further monetary loss! The time and money that have already been spent are sunk costs. A sunk cost is defined as “a past outlay or loss that cannot be altered by current or future actions.” This means that “riding it out” will not recoup the loss. You have to move on and stop wasting additional dollars!

On the other hand, there are some pretty big companies that operate at a loss because their future profit potential is huge. Two companies that currently do this are Sirius and XM Satellite Radio. Because of the costs of launching satellites, acquiring customers, and developing packaging contracts with auto makers, these companies have been operating at a loss for years. However, as more and more people sign up for the service and as equipment costs decrease, these companies come closer to becoming cash flow positive with every passing quarter.

If your company is designed to follow some sort of long term profitability plan, then it would not make sense to close shop after a year or two or three of losses. Just makes sure that your future profits are viable. Do not fool yourself into thinking that future profits will come if such a future profit business structure was not part of your original intention or plan.

Entrepreneurs Need to Think Big

Any entrepreneur is a person, by definition, that takes a risk in the business world. So why should you be any different? Think BIG!

What exactly does “think big” mean? Thinking big means that you take into consideration any and all ideas that you feel are too hard, too expensive, too time consuming, or are out of your reach. Why limit yourself by things that you think are easy to obtain? If a project or investment is easy to obtain, this usually translates into a small amount of risk. If a project or investment has only a small amount of risk attached to it, this usually means that the reward will also be small. As an entrepreneur, you should challenge yourself to take a risk and to consider all possibilities regardless of intensity or degree of impossibility.

Keep in mind that thinking big and acting on those thoughts are two very different things. When I tell you to think big, the point is to prevent you from limiting your options before you have even considered the possibilities, advantages, or chance of success. This does not mean that you should blindly follow an idea merely because it is a “big” idea.

Thinking big means accepting all ideas and working through the details until you reach a decision as to your course of action or inaction, if that is the case. Think big, reach for the stars, dream about the impossible, but follow your intuitions, education, and instincts as to a course of action to pursue.

Is it Possible to Define Entrepreneurial Spirit?

Entrepreneurial spirit is the motivation used to better yourself and/or others on your quest to achieve “success.” As far as the definition game goes, I believe that “success” is much harder to define and even harder to obtain that is entrepreneurial spirit.

Put simply, entrepreneurial spirit is motivation. Motivation to do what? That is a question that you have to answer. Nobody can tell you that you are an entrepreneur. Nobody can say, follow these steps and you’re an entrepreneur. Unlike traditional college programs, one cannot major in “entrepreneurialism.” You can take classes on the subject, but for the most part, a Business degree is as close as universities get to offering a major in entrepreneurialism. The point is, you have to find your own reason for choosing the path you chose, and then be responsible for maintaining the passion necessary to complete your quest.

A professor once told me, “an entrepreneur has only three characteristics, Passion, Passion, and Ego.” It was the first two characteristics (passion and passion) that really made me think. Two-thirds of being and maintaining yourself as an entrepreneur is having the passion to be an entrepreneur; having the passion to pursue the entrepreneurial dream; having the passion to think of an idea and see it through to fruition; just simply having the passion to do.

Only you can light the fire to pursue your dreams. School, experience, specialty courses, degrees, and the what not are all just tools to help prepare you for the journey. But, what good are these tools if you do not have the passion to use them? Talking is not action, and many would be entrepreneurs make this fatal mistake. If you want to do something, take action!

I have a friend who became very successful in the real estate business. He came from a similar educational and financial background as me, yet he has already achieved what I currently working toward. We were sitting down one day having coffee and I asked him, “How did you get the financing for your first real estate purchase?” He said, “If you want to get financing, go out and get it. That is what I did.”

My friend did not know anybody special. He did not have rich family members or any other type of monetary connection that I did not. His ace in the hole, his sole source of revenue was his passion. He had the passion to go out and get what he wanted. I am sorry to say that he had more passion than me or else I would have been in the same boat. However, all is not lost. I learned from our little conversation and am better off because of it.

Find your passion; find your “entrepreneurial spirit” and success will follow.

Tips on Developing a Reputation as a Ubiquitous Businessperson

Ubiquitous is defined as "being or seeming to be everywhere at the same time." How does this help a businessperson's reputation? To be described as ubiquitous means that you can be in more than one place at once. It means that you can handle more than one situation at a time. Put simply, it means that you are a multitasker.

Is being able to multitask a good trait to possess? I believe it is. Being able to effectively complete more than one task at a time helps with efficiency. Efficiency equates to cost savings. Cost savings equate to higher profits. Higher profits equates to more money! Do you see a winning formula here?

Now back to the question at hand; how do you develop a reputation of being a multitasker? First, you have to know your limits. There are many characteristics that will help you in the business world, and you do not have to possess all of them to be successful. Develop the characteristics that play to your strengths. Do not try to bite off more than you can chew just because you want to show your ability to handle multiple tasks. Business partners, investors, and customers will be more concerned will quality than quantity. It makes more sense to do a great job on one project than a mediocre job on three projects. The reason this is true is because even though three jobs were "completed," they will probably have to be redone because of lack of quality. Having to redo things costs money and effectively negates the cost saving purpose of multitasking.

Second, if you evaluate your situation and think you can effectively handle more than one task at a time, try your hand at more responsibility. Start small and take on one additional, small task. For example, if your current project is in real estate investment and your task is to find financing, but you feel that financing will not be a hard project to effectively complete, you may want to take on another small project, such as finding renters (if you are going to hold the real estate).

Last, do not try to do everything yourself. This point is similar to my first point except for one difference. My first point was, do not multitask for the sake of multitasking. This third point is, once you have started multitasking and found that you can successfully do it, do not use this success as a motive to do everything. Nobody can do everything, and if you attempt to, two possibilities will result: (1) you will get "burned out" and not be able to effectively perform any task; or (2) you will not be able to complete all the tasks and some aspect of your project will "fall through."

Having the ability to multitask will be beneficial to your future success, however, only do so within your limits. Remember, effectively completing one task is better than partially completing multiple tasks. The whole point of multitasking is cost saving, and this only works if projects do not have to be redone. Be ubiquitous, but not irrational, and your reputation will develop accordingly.