The Rich Think Differently ... About Debt, That Is!

The Rich Think Differently ... About Debt, That Is!
Ask a person with overwhelming debt what his or her biggest
problem is and that person will invariably say, "Debt!"
Most people in that situation dream of living debt-free.

But is debt really the enemy?

It may interest you to realize that many of the wealthiest
people in the world actually have and regularly get into
debt.

I'm not talking about ditzy socialites or overpaid
celebrity types. I'm talking about self-made millionaires
and billionaires. The kind of people who started off poor
or average and amassed (and held onto) great wealth.

A famous novelist once said, "The rich are different." I
don't know about that, but I can say from some recent
observations that "The rich think different." Only I'd say
"differently" because it's grammatically more defensible.

Debt is not the evil end of life as we know it, if you
think about it in a different way.

First of all, if you're in overwhelming debt right now,
your debt is a disaster and you have to get rid of it. You
won't prosper until your debt dies.

But not all debt is like your debt. There is actually such
a thing as smart debt.

Rich people enter into smart debt all of the time. They do
it on purpose. They have an actual plan in mind. A smart
rich person doesn't just fall into debt like tripping over
a curb. He or she gets into debt mindfully and out of debt
on a timetable.

So what's so smart about their debt? Their debt is about
leverage.

A lever is one of the earliest forms of tools invented by
humans and it was designed to magnify or amplify human
strength. A guy with a lever could move something much
larger and heavier than a guy relying on brute strength
alone.

Most people without much money are like the guys without
the levers. We have only the power of what little cash we
have with us.

But let's think differently about money. Let's say you had
the opportunity to invest in something that you thought was
a great deal. You could invest your own money, selling
stocks or a home or gutting your retirement portfolio. Or
you could simply borrow the money (debt!), invest it, and
reap the reward.

You can do this already if you buy a house. Let's say you
find a house that you believe is undervalued. You want to
buy it, but it costs $250,000 and you don't have that kind
of money in the cookie jar. So you invest $25,000 of your
own and mortgage the rest. And let's say you're prepared to
keep the house for a year or so while you make renovations,
investing another $25,000 in upgrades. You're a savvy real
estate person and a year later, you put the house on the
market and walk away with $350,000. You pay off the
mortgage ($225,000) and the money you sunk into the place
($25,000 plus a year's worth of mortgage payments, say
$18,000) and your downpayment ($25,000) and you walk away
with $57,000.

See how that works?

Smart wealthy people see debt as a way to leverage money or
extend themselves without tying up their own capital. If
your own debt was about buying cars or vacations or clothes
you couldn't afford, that's not smart debt. You need to pay
that off and stop doing that kind of thing.

By the way, smart rich people also know that when you
invest money, serious risks are involved. They study those
risks, think about them, and make plans for them. And if
they get caught—and we all do, sooner or
later—they don't whine. They just go on.

----------------------------------------------------
Want to think some more about smart debt? Check out the
Smart Debt posting at
http://www.debconsolidationideas.wordpress.com . Jo Ann
LeQuang wrote this article and blogs at Debt Consolidation
Ideas. If you need to know more information about debt
consolidation from a site that sells no financial products
or services, check out
http://www.debt-consolidation-diva.com .

Debt Is The Mother Of All Battles

Debt Is The Mother Of All Battles
The credit crunch is not just about the willingness of
banks to lend each other money. It affects each and every
one of us. Over the last fifteen years we have seen an ever
increasing injection of money into the monetary systems of
all the major banks in the western world and with low
interest rates this has created an environment of a cheap
money supply.

We have all been encouraged to borrow money whether it is
for cheaper mortgages, zero rated credit cards, or bank
loans, all with the intentions of keep us spending and
therefore keeping the major economies running.

This has resulted in levels of personal debt never seen
before in every major industrial country in the world.

In the next two years the people of these major countries
will be fighting their biggest battles not on the streets
of Bagdad or the hills of Afghanistan. The biggest battles
will be on their home front, literally. Desperately
fighting from trench to trench trying to stem off the ever
increasing price rises of food and utility supplies and
millions of people will carry the scars from skirmishes
with bailiffs and debt recovery companies.

The major battle for the majority of average families in
this worldwide economy will be, not just stopping going
into debt, but managing their debt.

Debt is simply a fact of life for many people. While debt
can be an incredible burden, it doesn't have to be if
you're willing to work toward a debt-free life. There are
several simple tips you can follow to ensure that you pull
yourself out of debt - and stay out of debt.

First, face your problem head on. Some people tend to
panic, and understandably so, when it comes to debt and as
a result ignore the problem. Ignoring your debt isn't going
to make it go away nor is it going to help you: It's only
going to make problems worse.

Start by sitting down and making a list of all of your
debt, including the name of the person or company to whom
you owe money, the amount of money you owe, and your
monthly payments. Knowing how much you owe and to whom you
owe money will help you get a better handle of the
situation. If you are heavily in debt, you must prioritize
your debts to ensure that those with the most priority -
your mortgage, for example - are paid first.

The next step to working toward a debt free life is to set
a budget and stick to it. To set your budget, start by
listing all of your monthly expenses, including your
recurring bills and debt. Your monthly income should cover
all of your monthly expenses. After, and only after, you've
paid your essential bills should you use the money you have
left to pay down your remaining debt.

While you're in debt, you may have to cut back on some of
the luxuries and only pay for the necessities. For example,
rather than purchasing brand names at your local
supermarket, opt for the store brand. Eat in rather than
eating out. Read magazines at the library rather than
purchasing them. You'll save money that you can then use to
help pay down your debt. (Some experts even recommend
keeping a daily spending journal, so you can see where
you're wasting money.)

In addition, take a look at your current expenses,
including your home and car insurance, to determine if
you're getting the best rate out there. Most experts
recommend shopping around for new insurance at least once
every year to ensure that you're getting the best rates
possible.

If you don't have enough money to pay your monthly
payments, contact each of your creditors and talk to them.
You'll likely be surprised at how willing most creditors
are to work with customers; oftentimes, creditors will
negotiate a smaller monthly payment.

Finally, a word of caution: If you're in debt, you don't
want to go further into debt, so do not open any new credit
cards, initiate any new loans, or take on new debt of any
kind. In fact, cut up your credit cards, leaving only one
for an emergency. Remember, your goal is to pull out of
debt, and adding new debt will only hinder that process.

So as the storm clouds of recession gather on the horizon I
can only suggest you bunker down make your plan of recovery
and prepare to go into battle against the biggest enemy you
will ever have. The life and soul destroying Debt.

----------------------------------------------------
Barry Share is the Founder and editorial director of "The
New Lifestyle Programme" Where you can get your copy of the
amazing..."Design for your Success" a 7 step plan to
achieving wealth health and happiness
=> http://newlifestylepro.com/dfs-s.html

Chicken Little: The Economy is Falling!

Chicken Little: The Economy is Falling!
Deteriorating economic conditions have policymakers in
Washington, D.C. running around like Chicken Little. As a
result of the perceived falling of the sky, these same
policymakers are scrambling to come up with a fiscal
stimulus plan which, coupled with aggressive monetary
policy action by the Fed, is intended to stave off a
recession and calm jittery financial markets. Whilst these
initiatives are well-intentioned, these efforts are an
exercise in futility. There is little, if anything, that
can be done to stop the economic downturn that is in
progress and that is coming.

There is little doubt the current economic downturn was
caused by the deflating of the real estate bubble and the
mortgage crisis. This caused the banking system to clam up
and become more restrictive in lending. This began a chain
reaction which sent a systemic shock throughout the
economy, causing a credit crisis last summer that was
particularly disruptive to financial institutions whose
lending reluctance retarded liquidity and prompted some
degree of panic in equity markets and in corporate
boardrooms.

The Fed's actions in cutting the federal funds rate fifty
basis points along with other policy actions in August was
intended to build confidence and liquidity in the banking
system and, perhaps, shore up struggling equity markets
with a comforting "Bernanke put." Successive cuts along
with the seventy-five basis point cut on January 22, 2008
were aimed at shoring up markets amid mounting turmoil and
uncertainty over the magnitude and depth of the impact the
housing contraction and mortgage crisis would ultimately
have on the broader economy. Alas, the Fed's actions
cannot possibly solve the banking crisis. This was a
situation created by the banks that would only begin to be
relieved by massive write-downs and massive capital
infusions by foreign investors, namely Asians and Arabs,
totaling in excess of $21 billion. To be sure, there is
much more bloodletting to come at financial institutions
who provided too much credit when interest rates were low
with little apparent regard to attending risk of borrowers.
The Fed shares a part of the blame for keeping rates much
too low for much too long and in the process allowing the
real estate bubble to inflate precipitously. The magnitude
of this may ultimately be over $100 billion as derivatives
are revalued in the process to reflect current fundamentals
and counterparty risks are reassessed. And there is more
revaluation to come in the real estate markets as prices
adjust to reflect true fundamentals. This is all a painful
process that cannot be avoided forever.

In addition to monetary policy action, policymakers now
want to give taxpayers rebate cheques ranging from $300 to
$1600 in hopes that these rebates will prompt consumers to
continue spending and, thus, in the process revive the
lagging economy. There is a problem with this. The
federal government does not have this money to give away
right now; we simply can't afford it. This will likely be
funded through debt issuance. In all likelihood, either
Asian or Arab investors will purchase this debt. Now we
are in even more hock to these nations. And assuming
consumers spend the money on goods produced in these
foreign countries, the investors get their original money
back! This hardly makes good sense. In addition, this
fiscal stimulus does not address the mortgage crisis or
rising consumer debt levels. More attention should be
placed on financial responsibility and sound economic and
financial decision-making by the government and
individuals. To be sure, fiscal stimulus is good—but
only at the right time. Throwing money at a problem,
hoping it goes away, without addressing the fundamentals of
the problem is wasteful and counterproductive.

But this is not to suggest that policymakers remain idle
and twiddle their thumbs. To the contrary, action is
needed. Now is the time to reassess the challenges facing
the U.S. economy. A number of factors have resulted in the
economy becoming less competitive. Wages are higher than
in low cost countries. Manufacturing has moved overseas
for cheaper labour. Government spending has grown
dramatically. An entitlement program funding crisis looms.
Corporate taxes are among the highest in the world. The
tax code is complicated. Rather than the fiscal stimulus
proposed, policymakers should consider making President
Bush's tax cuts permanent, thereby eliminating a great and
looming uncertainty. The limits on tax deferred
contributions to retirement or 401k plans should be
increased as a means of increasing savings. The corporate
tax code should be reformed to make businesses domiciled
here more competitive so that U.S. companies don't move
offshore to avoid an onerous tax burden. The federal
government should reduce spending so that debt levels do
not increase significantly only to be further indebted to
foreigners. Congress should give the President the
line-item veto and restore pay-go rules as much as
possible, even though this is difficult in times of war.
Policymakers must begin the process of shifting to a
consumption tax as opposed to an income tax so that
taxation is equitable and so that even illegal aliens here
pay their fair share of the burden. The Federal Reserve
should increase the reserve requirements so that financial
institutions are more judicious when it comes to lending
depositors' money. This should help to avert another near
financial system collapse which could, the next time, have
more significant and more far reaching implications than
the current situation.

Undoubtedly, policymakers are doing what they deem best.
There is an old saying: The path to Hell is paved with
good intentions. The Fed's efforts to cut rates and the
policymakers' fiscal stimulus plan are aimed at helping
avoid a recession or at least soften the impact. No one
likes the thought of a recession, particularly in an
election year. Recessions are not a necessarily bad
phenomenon. All economies must undergo a cooling period.
The longer and higher the rate of expansion, the sharper
and deeper the cooling and contraction. These periods of
cooling are healthy for an economy. They temper excess and
help reign in moral hazards and excessive risk taking
associated with speculative activity. They serve as a
wake-up call to businesses, investors, and financial market
participants.

But rushing to make fiscal and monetary policy decisions
may only compound an already fragile situation. Now may be
the time to show fiscal and policy restraint, even in the
face of massive opposition. Fiscal stimulus and rate cuts
won't help. The banks and mortgage market participants
have to work this out for themselves. Shoring up their
balance sheets with equity injections and write-downs is
the only solution. Recent rate cuts or any further cuts
may well be mistimed and prompt higher inflation in a
period of lower growth. Sometimes it is best to bite the
bullet and let matters sort themselves out. Hopefully,
policymakers will show better financial decision making
skill than thus far. Going too far may open an economic
Pandora's box. Once that happens, the sky may really be
falling.

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Robert M. Clinger III & Sebastian G. Perey
Copyright 2007 Thinking Outside the Boxe
http://www.ThinkingOutsideTheBoxe.com