When Is Debt OK? 4 Times It’s OK to Take on Debt

 

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The worst four-letter word in finance, especially since, let’s say, 2008 is “debt.”

Personal debt.

National debt.

Sovereign debt.

They all have nasty connotations.

But, is debt always bad, without exception?

I think there are a few wise ways to use debt as a tool, not as a weapon of mass self-destruction. Here are four reasons not to be afraid of debt.

Use Debt for Things That Increase in Value

One use for debt is to purchase major items that have a better chance to go up in value. For instance, technically a home will go up in value, so taking a mortgage out for a house is a good idea.

Now, a car probably isn’t a good idea for debt. The second you drive the car off the lot, you’re losing money. But, an $18,000 or so price tag is a pretty stiff bill to pay in one chunk. Here’s a compromise: take out a loan on your car, but double the payments, pay if off a few years early and then keep saving that amount for your next automobile purchase.

Use Debt in Emergencies

You should save for an emergency fund, but sometimes the emergency hits quicker than you thought, or hits harder than you thought. If that happens, debt is certainly an alternative. But remember, when you reach safer shores, those debt bills are the first ones to pay off.

Use Debt for Your Credit Record

Acquiring and dealing with debt responsibly is actually a positive. It improves your credit score and probably will give you better interest rate when you do need to use debt.

Sometimes You Have to Use It

Some purchases require a credit card is one example of this. Most rental car agencies won’t let you use a car unless you have one–same thing with hotels. As we discussed, some purchases are too big not to use other people’s money.

Essentially, debt is pretty difficult to avoid. But the key is to not make credit cards and loans as your primary way to make purchases. Consider other alternatives. Also, when you do use debt, make it your priority to pay off.

Related posts: Weekly Wisdom: Steering Your Personal Financial Decisions in Interesting TimesThis Winter: How To Make A Debt SnowballThe Power of a Debt Free LifeHow Your Thoughts Affect DebtHow Technology Can Improve Your Debt Score

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Top 5 Kindle Steals: Great eBooks for Business and Self-Improvement

Each month, you can get deals on Kindle books at Amazon.

Typically, Amazon prices the books at around $3.99, but some are a lot less. The books cover a range of subjects and topics, but usually they have a few titles in the business and self-improvement section, two subjects that this blog is concerned with.

Here are some good ones that I discovered in the list.

Check them out.

Make a Real Living as a Freelance Writer

By Jenna Glatzer

“Step-by-step instructions on how writers can earn top dollar writing for magazines are provided in this book. Secrets are revealed about what the high-paying magazines really want, how to build relationships with editors, how to ascertain which sections of a magazine are open to freelancers, what kinds of stories are in demand, what to do if a deadbeat publisher doesn’t pay up, how to market reprints, and how to become an expert in one’s chosen writing field. Basic terms like query, clips, and source sheet are defined for beginning writers, and tips on everything from coming up with an idea to pitching a syndicated column are also included.”

The Only Investment Guide You’ll Ever Need

By Andrew Tobias

“For more than thirty years, The Only Investment Guide You’ll Ever Need has been a favorite finance guide, earning the allegiance of more than a million readers across the United States. Now even more indispensable, this completely revised and updated edition will show readers how to use money to their best advantage in the wake of epochal change on Wall Street, no matter how much or how little they may have.”

Goals!

By Brian Tracy

“Based on more than 20 years of experience and 40 years of research, this book presents a completely updated and practical, proven strategy for creating and meeting goals that has been used by more than 1 million people already in its first edition.”

Switched on Selling

By Jerry V. Tiplitz

“Is your brain stuck in the OFF position? Are you switched-off for any part of the sales process-from making cold calls to answering questions, to asking for the order, to handling rejection? Switched-On Selling is a proven, leading-edge, mind-body technology that will immediately re-wire the default settings for all parts of the sales process to balance your brain for optimum success. It starts working as soon as you finish each chapter!”

The Day Wall Street Exploded

By Beverly Gage

“In The Day Wall Street Exploded, Beverly Gage tells the story of a once infamous but now largely forgotten terrorist attack. Based on thousands of pages of Bureau of Investigation reports, this historical detective saga traces the four-year hunt for the perpetrators, a worldwide effort that spread as far as Italy and the new Soviet nation.”

Related posts: Author! Author! Writing eBooks For Residual IncomeMove Your Own Damn Cheese: Five Business Book LiesDoes Your Lizard Brain Control Your MoneyFree Books for KindleTuned In: Uncover the Extraordinary Opportunities That Lead to Business Breakthroughs

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Weekend Wisdom: Signs of Hope?

 

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What’s this?

Good economic news?

Come on. That can’t be right.

Well, the U.S. unemployment rate has taken some steps in the right direction and economic growth appears to be creeping back.

I wouldn’t say that the road to economic recovery is paved for us, but any signs of improvement are appreciated. It could be that irrational optimism that led to irrational pessimism is now on its inexorable pendulum swing back to the other side.

It may be that bloggers and writers are more hopeful in the new year, but hopeful writers have made it into my regular reading.

Here are a few of my faves for this week:

Forbes — MIT Gamechanger: Free Online Education for All

Investor Junkie — What Makes Debt Socially Acceptable

The Digerati Life — Three Affordable Ways to Beat Debt

Zero Hedge — Physical Silver Surges To Record 30% Premium Over Spot, In Backwardation

Free Money Finance — 14 Fun Staycations

Daily Money Shot – Updating Your Skills to Find Part-Time Income

Yes I Am Cheap — Starting an Emergency Fund with the Right Amount of Money

So Over Debt — 3 Finance Tips I Got From Watching Cartoons

Funancials — Should I Cancel My Credit Cards

Money Crush — Improve Your Future in 5 Minutes

Blonde on a Budget — January 2012 Jar and Goals

Art of Manliness — Willpower Part I

Related posts: Weekend Wisdom: The Rogue Blogger EditionWeekend Wisdom: 100 Percent Chance of WisdomWeekend Wisdom: Ho-Ho-Holiday EditionWeekend Wisdom: Everything is Boo-tifulWeekend Wisdom: Einstein and Turkey

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Weekend Wisdom–The Revolution Will Be Wikied

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It only took Wikipedia one day to teach the world that it will take a lot more than government bureaucrats to stop information and knowledge from circulating on the web.

The act of protest–shutting down the site–chilled the forces who were trying to push the anti-piracy legislation. Several other sites joined in.

Is there a compromise position? I think everyone’s entitled to the rights of their works. But this didn’t appear to be the right legislation.

What I think this week taught us — or maybe just me, I can’t speak for everyone — is that the real government is truly outside of the bureaucracy now. If we can influence decisions this way, could we begin to grab other powers away from the government, back to ourselves? That’s a question mark for a reason. There’s a fine line between collective intelligence and mob mentality. And that fine line is called knowledge.

Anyway. The web survived intact. And I was still able to do some online reading.

Here’s what I found…

I Will Teach You to be Rich — What the Pros Know About Networking that Your Don’t

Free Money Finance — 7 Ways to Make the Most of Your Gift Cards

Money Crashers — What is Preferred Stock

Generation X Finance — 5 Reasons to Not Borrow From Your 401K

Marginal Revolution — Simulations and the Fermi Paradox

Investor Junkie — Want to be a Great Investor? Learn How to Shop

Over Your Head — Quite Everything. Go Everywhere. A Conversation with Chris Guillebeau

A Dash of Insight — Why the Average Investor is Bamboozled by Recession Forecasts

The Finance Buff — Experiment: Buying on the Dip

My Two Dollars — It’s Not What Your Earn, It’s What Your Spend

Four Hour Work Week Blog — How to Become an Effective CEO: Chief Emotions Officer

Related posts: Weekend Wisdom: Financial StrugglesWeekend Wisdom: The Rogue Blogger EditionWeekend Wisdom–Make Your Own Good LuckWeekend Wisdom — New News for a New YearThree Ways To Prepare For The Automated Trading Revolution

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How to Brainstorm Ways to Make Residual Income

 

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J. Paul Getty said to become rich you need to make money in your sleep.

Easy for him to say, he had oil gushing out of wells 24-7.

Unless you have an oil derrick in your backyard, a solid modern, non-gusher alternative is to earn residual income from any number of business opportunities–from blogging to real estate. Residual income is a set-it and pretty much forget-it system to earn money on a regular basis, whether that’s daily, weekly, monthly, etc.

(Note: I said, “pretty much.”)

The thing is, there are a lot of ways to attain residual income strands, but not all of the methods appeal to all people. In the next few steps, you’ll learn how to brainstorm ways to make residual income.

Your first step is to ask yourself some questions:

How Much?

One of the first questions you should ask is how much do you expect from your streams of residual income. Do you want to make a little side money? Are you expecting to quit your job? Are you going for billionaire status? All are possible, but the probability changes based on what models you expect to use and what services and products you expect to offer.

What Interests You?

This may sound silly, but trust me this is a biggie. Many people believe that as long as they are making money, they could care a less what they’re actually doing to earn cash. That’s a mistake. Let’s say you start blogging as a source of your revenue streams, but you hate to write. Chances are that you’ll never establish the content necessary to run a profitable blog. Even if you do start earning money, you might not be able to sustain your blog.

Understand the types of residual income

If you know what you like and have set some type of income goal, you can look for residual income methods to fit the criteria. This is a partial list, but here are a few of the most popular and easiest and cheapest to start.

Affiliate marketingNiche sitesSelling your own productsSearch engine marketingDividend investingeBook authorSelling appsReal estate

*Notice I didn’t mention multi-level marketing (MLM). Just to be real here: I have never found one that either worked, or one that I could recommend in good conscience. Most of the ones that do work take too much of your soul to be worthwhile. Having said that, it is an example of a residual income-generating business.

What time do you want to spend setting these up?

Residual income makers are often billed as a hands-off approach to making money. That’s not exactly true. You will spend time and effort setting these systems up, but, hopefully, over time you’ll need less and less time maintaining them. Some businesses require less time than others. If you’re a developer or a writer, creating apps or eBooks might be fairly easy. Finding and acquiring real estate, on the other hand, will take considerable research and financial homework. The secret is: if you like the business, you probably won’t mind the leg work.

What types of risk will you be willing to take?

Not all residual income systems require an investment. Some cost, literally, pennies a day–an internet connection is all you need. Buying a condo complex to generate income… well, there’s some risk involved. Be sure you understand the risks and have the means to absorb any type of blow should the investment go horribly wrong.

Resources

Here are a few sources from around the web that I found that I hope are helpful. This hasn’t be easy, most residual income information that I found through search engines are nothing more than advertisements for, probably, people trying to sell stuff to create residual income streams. If you have favorites, please share in the comments below.

Residual Income Startup Guide from Residual Income Journey Blog

How to Create a Seven-Figure Residual Income — Hunter Nuttall

How to Make Residual Income Online — eHow

Related posts: Owning Rental Units For Residual Income8 Residual Income Advice Sites to Help Make Mondays Stink LessUsing Stock Dividends To Create Residual Income StreamsFive Ways To Create Wealth With Passive IncomeThe 15 Best Resources On Creating Passive Income

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Weekend Wisdom: Facebook IPO… Like? Or Not?

 

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A few major financial bits of news hit this week.

Ben Bernanke announced the possibility of more quantitative easing, or as I like to refer to it, The Fed’s Multi-Billion Dollar Obama Reelection Campaign Fund.

That wasn’t exactly unpredictable.

The other bombshell — for me, at least — was the announcement about a Facebook initial public offering, or IPO. I knew it was in the works, but thought it was still being debated by the social network’s executives.

IPOs can be more than just a way to value a company, or to turn virtual billionaires into real billionaires. They can signal increased health in the market and even indicate a new investment climate. Is this the start of another Tech Boom driven by maturing Web 2.0 companies? Hard to say. But my eyes will be on this offering for clues.

Here are some of the other articles and posts I’ve been reading this week…

Budgets Are Sexy — Does America Hate Money?

Forbes — Is Warren Buffett’s Secretary a 1 Percenter?

CashMoneyLife — When Will I Get My Tax Refund

The Finance Buff — How to Buy I Bonds on a Future Date From Treasury Direct

Financial Samurai — What Income Level is Rich?

Arbor Investment Planner Blog — Six Top Global Investment Trends for Your Portfolio in 2012

The College Investor — Your College Major Doesn’t Matter… Unless…

Wealth Informatics — Stay at Home, or Go to Work. What is the Financial and Professional Price?

Dumb Little Man — 7 Habits of Highly Excellent People

The Psy-Fi Blog — The Wisdom of Internet Crowds

Econometrics Beat (Dave Giles) — Hot Topics in Econometrics

Related posts: Weekend Wisdom: 100 Percent Chance of WisdomWeekend Wisdom–The Revolution Will Be WikiedWeekend Wisdom–Make Your Own Good LuckWeekend Wisdom: The Rogue Blogger EditionWeekend Wisdom: May You Live in Interesting Times

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6 Reasons to be Wildly Optimistic About the Future

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It’s always hipper to be a pessimist. As a pessimist, your ability to make jokes is much easier, too. You can be snarky.

When have you ever heard a comedian tell an optimistic joke?

Plus, let’s face it, the material’s there. The past decade was the decade of the pessimist.

Wars. Recessions. Depressions. Incessant and continual political in-fighting. Environmental problems. The Kardashians.

Could things get bleaker?

Actually, besides the Kardashian thing, there are signs that life is getting better and will get exponentially better. In fact, many of the problems — like violence and war — are statistically not getting worse. The global economy pretty much doubled in this last horrible decade. And technology is pointing toward an amazing future.

Here are six reasons you should be optimistic about the future.

Moore’s Law Continues

About every year and a half, engineers figure out how to double the power of computer chips. The upshot is, you get a mini computer that fits in your pocket that has more power than NASA did back in the 1960s. Moore’s Law using just silicon chips will continue for the next several years, at least, and new technologies, like optical computing, 3-D computing and quantum computing, are on the horizon to take us into a future where the exponential nature of Moore’s Law may turn exponential-exponential.

Researchers Have Continued Amazing Discoveries

If you follow new technologies, the list of breakthroughs and discoveries is nothing less than astounding. In the past decade, researchers have made steps in nanotechnology, energy, quantum computing, brain science, health, medicine, stem cell therapy, and on and on.

More importantly, we’re only seeing published research. What they’re doing in the lab right now or dreaming of theoretically, we can only imagine.

You May be Buying at a Bottom

From a purely financial outlook, if you continue to bargain hunt in the stock market or real estate market, you may be buying at a bottom or near bottom. When the economy turns around, you will ride the investments up. Buy low. Sell high. That’s how your supposed to do it.

Big IPOs

Whether you like Facebook or not, the initial public offering points to an improving economic condition. Bankers look for good economies when they schedule IPOs. There’s another silver lining in this cloud… Big IPOs, if successful, can lead to more IPOs. Which leads me to the next reason to be optimistic…

New Waves of Technology

Ever hear of Big Data? Or 3-D printing? Then read this article in the Wall Street Journal. These new technologies could indicate an approaching wave of prosperity.

Government Hasn’t Totally Screwed Things Up

One refreshing thing is we have witnessed government at it’s most incompetent. And, guess what? We’re still here. There’s no need to hit the bomb shelters just yet.

Just a disclaimer… So, you’re thinking… This idiot thinks it’s going to be wine, roses, and huge blocks of Bre cheese from here on out. Nope. Not saying that. I think we’re in for some swings, but one of those swings is going to catapult us out of this funk.

Oh, crap. Forgot the most important reason to be optimistic. The Kardashians are Getting Older. They can’t stay popular forever… right?

Right?

Related posts: Advanced Technology That Will Propel Your Financial FutureFuture Currencies And The Future Of Trading2010 Forecast: Clouds And A 100 Percent Chance Of AlgorithmsHow Will Quantum Computing Affect Finance?Why We Should Be Rationally Optimistic

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Black Swans, New Normals and Why History Matters to the Investor

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You hear these statements a lot from investors:

“I’m going to be ready for the next black swan.”

Or…

“Past performance is not indicative of future results.

I’ve even said them myself.

But, as cool as it sounds and as much as the media wants to taut these as official catchphrases for investors, it doesn’t make a lot of sense, according to Ken Fisher. In fact, Fisher teaches quite the opposite in his book ' target="_blank">Markets Never Forget. But People Do.

We’ll start with the slam on past performance one first.

Most people think that past performance means the future price movement is absolutely unpredictable. But that’s not absolutely true and it leads to rash investment decisions, according to Fisher.

Fisher quotes investor John Templeton’s warning against the belief that “This time, it’s different.” The media expresses this as “the new normal.” Fisher uses reams of statistical evidence to prove that there is no such thing as a new normal–investment and economic patterns are pretty consistent throughout the past few hundred years.

The market remembers. People forget. And the pattern continues.

When the media shucks this line on the new normal, they’re telling the investor, throw out the rule book, this situation is totally different. The investor can not use probability to guide him or her through these new, treacherous shoals.

Indeed, you can’t use past performance to precisely predict the future, but you can use history, as Fisher says, as a range of possible outcomes. This narrows down probabilities–and that’s all the wise investor needs to make money.

Black Swans

Black Swans — unexpected economic events — are not wildly unpredictable events as you might think. Take the real estate meltdown. Is it so hard to believe that when real estate prices swing wildly up, that they might one day swing wildly down?

The key phrase is “one day.” The event itself wasn’t terribly unpredictable, but the timing of the sudden downswing is harder to predict.

But, you don’t need to find a Black Swan, or figure out exactly when the Black Swan will arrive, if you pay attention to history.

You don’t need to sell at the exact top to preserve money.

You don’t need to buy at the exact bottom to make money.

Near top and near bottom are fine for the astute investor.

Understanding the probability of future events and preparing yourself for that likelihood will improve your chances of buying low and selling high, or selling short and buying low.

If anyone else has read “Markets Never Forget. But People Do,” I’d like to hear your opinion.

Related posts: Black Swans, Complexity, And Government InterventionWhen You See The Black Swan, Ride ItWas Yesterday a Black Swan Event?Finding Black Friday DealsAwesome Investment Book: The Dhandho Investor

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Weekend Wisdom — New News for a New Year

Well, financially speaking, 2011 was a hum-dinger.

Hum-dinger is a technical term, of course, which means bat sh*t crazy.

We’ve had more economic news in 2011 than we typically endure in a decade–crashes, recovery, more crashes and more recovery.

Can we expect more of the same in 2012?

I think I’ll leave this to the dozens of other bloggers who are offering their predictions for the coming year.

I’ll just provide some good reading material that will help you make up your own mind.

Here’s to a great 2012 for all of you!

MSNBC Cosmic Log — Weird News for 2011 Recap

Darwin’s Money — Social Security 2012 Deal Explained

Budgets Are Sexy — It’s New Year’s Resolution Time. Whattya Got?

Wisebread — 5 Things What Angry Birds Taught Me

Five Cent Nickle — Tips for Returning Unwanted Gifts

My Journey to Millions — Analyzing the Perception of the One Percent

First Generation White Collar — The Effects of Being Cheap

Invest it Wisely — Making $30,000 from Blogging in 2012

Investor Junkie — Rich Dad, Poor Dad Review–10 Years Later

Psychology Today — Ideas Having Sex

PBS Newshour — Labs Aim for Spare Parts for Humans

Related posts: Weekend Wisdom: 100 Percent Chance of WisdomWeekend Wisdom: Signs of Hope?Weekend Wisdom: We Are Awash in InformationWeekend Wisdom–The Revolution Will Be WikiedWeekend Wisdom–Make Your Own Good Luck

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Weekend Wisdom–Make Your Own Good Luck

 

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Well, my brothers and sisters, if you made it through Friday the 13th, 2012, you can weather any apocalypse or tribulation, if you ask me.

And if you weathered the past few years of investment hell and churn, I think you’re ready to prosper in the upcoming months and years.

(I never say… “it can’t get worse, right?” Because that’s been somewhat of a jinx.)

Here are two secrets to preparing yourself for any investment condition:

1)  Maintain discipline. It’s easy to let emotions carry you away–either to euphoria or to despair. But, over the long term, what this does is make you bail when you should be joining, and make you join when you should bail.

2) The next secret I call my ABE theory: Always Be Educated. Keep learning no matter what. Read. Think. Write.

Here are some posts and articles that might help you on your ABE quest:

In Over Your Head — The Complete Guide to Snapping the F*ck Out of It

Brain Pickings — Einstein, Anne Lamott, and Steve Jobs on Intuition and Creativity. Here’s another cool one from Brain Pickings… Decoding the Heavens… about a computer built around a 1,000 years to early. Weird stuff.

Money Ning — How I Supplement My Income to Keep My Dreams Alive

Mint.com Blog — 5 Signs a Company is Cheating You

PT Money — What We Need From Suze Orman Instead of Another Celebrity-Endorsed Prepaid Debit Card

AllFinancialMatters — Public’s View of Capitalism (And Other Political Terms)

Len Penzo — 100 Words on Why Competition is Good for Everyone

My Two Dollars — It’s Not What Your Earn, It’s What You Spend

The Finance Buff — Why Others Seem to Have More Money Than You

Financial Samurai — How to Save More for Retirement if You Don’t Make Much Money

Investor Junkie — What Are Drips?

The Digerati Life — 12 Month Calendar and Task List for a Secure Retirement

Related posts: Weekend Wisdom: Is Santa Claus Bipolar?Weekend Wisdom: Moo-la-la-la la… la la… la laWeekend Wisdom: May You Live in Interesting TimesWeekend Wisdom–Another Week, Another Panic EditionWeekend Wisdom: Finance and More

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