Beware of Using Other People’s Money–The Good and The Bad
Credit instruments like; student loans, mortgages, lines of credit, car loans, and credit cards are neither good or bad. What determines the goodness or badness of these instruments is the debt generated by using these tools.
Debt is our obligation to repay borrowed money used to buy things today with money we will have in the future. A good use of debt would be to purchase items or services that create value or produces future wealth. A bad use of debt would be to purchase items that decrease in value and take away future wealth.
Borrowing money to increase our future earning power would generally be a good use of debt. While a higher level of education is not a guarantee of future wealth, should be a wise investment.
Learn How to Build Wealth Volume 4–Real Estate
Investing in real estate may be another way to build wealth. Whether we buy a home or a condominium, our real estate investment can provide the cornerstone for building long term wealth if the right planning is in place.
There are many ways to build wealth using real estate. The most common are:
- Personal Property
- Rental Property
- Real Estate Investment Trusts (REIT)
Generating wealth from real estate usually occurs from a combination of property appreciating, equity pay downs, and tax benefits. The cash flow received is either a lump sum payment from selling the property or from payments received from renters.
Business Succession Planning–The Dream Team
With the rising complexity of taxes, corporate structures, financial products for business owners and legal issues it is difficult to stay ahead. Let alone developing systems that run without you, maintaining thorough and accurate financial records, and managing Net Profit. In fact it can be overwhelming especially in the business transition cycle.
Having the right advisory team to help you manage all of the moving parts, so that you can do what you do best, is extremely important regardless of where you are in the life cycle of your business. It is even more important during the business transition planning process and the execution of the plan. Surround yourself with a DREAM Team.
As with all great teams each member plays a specific role and freely coordinates with others to maximize performance.
Accountant—Valuation, Tax Efficient Sale Price, Create and Verifies Financial Packages outlining performances, Tax Efficient Business structures, Corporate and personal filings
Lawyer—Helps negotiate deal, Identifies potential liability issues, Deal Structure, Title Documents, lease and loan agreements, Buy and Sell Agreement, Estate documents
Business Broker—Provides network of qualified buyers, Negotiate Price
Banker—Financing, Potential buyers, Business Information Booklet
Investment and Insurance Advisor—Tax Efficient strategies to meet financial goals, Maximize value of estate
You can create your own team or have a team assembled for you.
Beware of Using Other People’s Money–Debt and Credit?
In the preceding courses and activities we learned the importance of setting goals, being responsible for our own cash inflow and outflow, spending less than we earn, and saving money. These components form the foundation of a good manager of money. Another aspect of managing money is to use debt correctly.
For most, the ability to save enough to pay the financial costs of achieving some of our goals is very difficult. Whether our goals include starting a business, buying a house or car, or paying for education we may need to borrow money.
The words debt and credit have many different meanings. We will use credit to refer to the trustworthiness and the Creditability we have to borrow money, and debt as our obligation to repay the money we have borrowed. Once creditability has been established borrowed money is provided to us a loan or line of credit. By excepting borrowed money we are in debt to the lender.
Keeping Shareholders on the Same Page With a Shareholders’ Agreement
As an incorporated business there can me more than one that share in its ownership. Shareholders can also take on other responsibilities based on individual skills sets to divvy up responsibilities.
To help layout the rights and obligations, above and beyond the legal requirements set out by provincial and federal legislation is a document called a shareholders agreement. The most commonly used shareholders agreement is called the unanimous shareholders agreement (U.S.A). In general terms the legally binding USA outlines:
• corporate structures
• daily operations
• how the shareholders get paid (annually or at termination—examples death retirement)
and is prepared by lawyers (Lawyers). This important document helps shareholders understand the things they can and can not do.
One of the most important sections of a well written USA describes the procedures for the buying and selling of company shares. This section is commonly referred to as the Buy-Sell Agreement. It can however, be separate from the USA. The buy and sell agreement typically outlines provisions for transferring shares in the event of a shareholder retires or dies.
Additional provisions are added in the event the company goes bankrupt or if a shareholder goes through a divorce.
Because the buy sell agreement includes the buying and selling of share laying out the process of determining the value of the shares is important to spell out. The buy and sell agreement should be reviewed every year.
Make sure your shareholders and your support “dream team” team of trusted advisors keep your shareholders agreement up-to-date.
Beware of Using Other People’s Money–Introduction
Used properly, borrowing money or going into debt can help us own a home, get an education, buy a house/condo or buy a business. By understanding how debt can work for us to help achieve our goals as well as work against us and hindering our ability to move forward is important. With proper management debt can be a tool to help us accomplish great things.
Within this course students will discover how to potentially use debt to finance their goals when saving and investing is not enough. Upon successful completion of this course students will be able to understand credit uses and costs by learning to:
After completing this course, students will have learned to:
- Describe the risks and responsibilities associated with using credit.
- Identify the role of credit.
- Describe the factors that affect credit worthiness.
- List basic types of credit.
- Compare the services of various types of financial institutions and identify advantages.
- Compare services available from financial institutions, and solve problems involving the cost of purchases on credit.
- Manage money.
- Describe consequences of using excessive debt.
- Calculate how long it takes to repay debt and total cost when borrowing and making minimum payments.
- Compare the advantages and disadvantages of different payment methods.
- Calculate and compare costs associated with the use of credit..
Personal Finance 102–Your Budget Action Plan
The skills of managing money is a learned behavior. It is rare that we get everything right the first go around. To create a budget that meets our needs, and helps us achieve our goals requires planning, practice, and patience.
Personal Finance 102–Keeping Costs Under Control
Without proper planning we can fall short of saving the required money needed to achieve some of our goals. Things like a house, a reliable car, and a post secondary education are thing we may have to spend money on that we don’t have. Borrowing money to purchase something, that will put more money into our pocket then it will take out, would be an example of a good use of debt. More on debt will be discovered in Course 5 Purchasing Using Credit.
When we put money to work for us we want our money to earn interest. When we borrow someone else’s money to purchase things to help us achieve our goals we have to pay the lender interest.
Personal Finance 102–Making Money Work For You
Another way to generate cash inflow is to make money work for us instead of us working for money. Unlike us, money can work 24/7/365 with no lunch breaks, or sick days. The cash generated from “monies” hard work can be used to help pay for future financial goals.
The most common places to put money to work includes either purchasing or owning; paper assets (stock market), real estate (personal and rental property), and businesses (start up and small business). Choosing the right place to put money to work requires an understanding of the goal to be accomplished. It also requires matching knowledge and risk to selecting the most appropriate ownership or purchase.
Paper assets come in all shapes and sizes. Examples of paper assets include; stocks, bonds, mutual funds, deposits, saving certificate, and insurance policies. This topic will be further investigated in Courses 7, 8, 9, and 10.
As mentioned earlier the act of saving money is to not to spend it. Money saved can be put to work in savings accounts to pay for short term goals, or investing in assets to pay for long term goals.
Most financial institutions have savings accounts that are safe, and a good place to start putting money to work. The money earned in a savings account is called interest, and the rate at which money earns is called the interest rate. The interest rate is often given as an annual rate.
To determine how much interest our money will be earning we need to understand whether it is earning simple interest or compound interest. Simple interest is money that is paid on the original amount of money in the savings account. Compound interest is money that is paid on not only the original money in the savings account, but the interest it earns as well.
Personal Finance 102–Earn Your Own Way
As teens its never to soon to start shaping a career path. Deciding to work outside the house is the next step in developing our skills set. Prior to interviewing for the first job it is important to:
Communicate Your skills and values as well as be able to provide examples. This can be in the form of a resume’ or interview question response.
- Demonstrate that you’re coachable. Your attitude is as important as the work you produce.
- Make your boss’s life easier. Hiring you is about you helping them not necessarily them helping you.
- Pay attention to details. By doing the small things you will begin to build trust.
- Be positive and bring lots of energy to the systems you follow.
- Treat their business like it is your business.
- Not work too many hours each week during the school year, as this can lead to lower grades in high school (Click here).
- Know your paycheck will not always be as large as you had hoped it would be.
By law, employers must deduct
- Federal and Provincial Income tax
- Employee contributions to Employment Insurance (EI)
- Employee contributions to the Canada Pension Plan (CPP)
from employment earnings. As a result of these basic deductions paychecks received are less than what is earned.