October 19, 2016

http://www.inc.com/minda-zetlin/4-smart-habits-that-made-warren-buffett-a-billionaire-and-will-work-for-you-too.html

What makes Warren Buffett one of the riches people in the world? Unlike fellow billionaires Bill Gates, Mark Zuckerberg, and Jeff Bezos, he did not create a ground-breaking high-tech product. Instead, Buffett’s wealth began with a series of small, simple habits that anyone can follow and that are guaranteed to bring you greater wealth. The personal finance site GOBankingRates has identified some of the smartest habits that have put Buffett in every top-five list of wealthiest humans. Here are my favorites. You can read the full list here. The four habits are: think like an entrepreneur, invest even small amounts, borrow as little as you can, and live below your means. Being an entrepreneur does not mean you have to quit your job. Instead have an entrepreneur mindset, look for opportunities. Specifically look for ways to create assets that will generate cash flow; ideally assets that generate passive income. If you can’t afford it, then create it. It’s about looking at this abundant world and using your God given gifts to make it better. It may require sweat equity but it’s worth the effort. You don’t need a huge amount of money to become a successful investor. (In fact, here are some excellent investments you can make with $500 or less If you have your own business, either full-time or on the side, investing some of your earnings back into your business is one of the smartest things you can do. Buffett did just that when he and a friend bought a pinball machine for $25 and placed it in a local barber shop. When it earned money for them, rather than spend it, they bought additional pinball machines. In time, they had eight machines in different barber shops. When they sold that business, Buffett used the proceeds to start another business. It’s also important to carry as little debt as possible. Liabilities will create an expense which will reduce your income. I suggest if you must have debt, create your own debt and become a self-lender. My mustard seed app can show you how. You can learn more about it by contacting me. Finally, the hardest part is living below your means. The best way to do this type of living is to have a budget, and be content with what you do have.

http://www.investopedia.com/articles/07/debt_to_income.asp

Your debt-to-income ratio is a personal finance measure that compares the amount of money that you earn to the amount of money that you owe to your creditors. For most people, this number comes into play when they are trying to line up the financing to purchase a home, as it is used to determine mortgage affordability. (For more information, see Mortgages: How Much Can You Afford?) Debt to income is a common ratio you will see whenever you go to apply for a loan. Any lender will be looking at this ratio, and this ratio is a good measure to use in your own life. This article does adequately explain how to calculate the ratio so I’ll quote heavily from it. For example, if you earn $2,000 per month and have a mortgage expense of $400, taxes of $200 and insurance expenses of $150, your debt-to-income ratio is 37.5%. The more encompassing measure is to include the total amount of money that you spend each month servicing debt. This includes all recurring debt, such as mortgages, car loans, child support payments and credit card payments. Lending is always based on gross income, which is income before taxes. However, I will add that banks will factor in a standard living expense into their calculation as well factor in taxes. The article states that net income (take home pay) is income after taxes and deductions. I call net income the income after all your taxes, deductions and expenses are paid like a true business. In my financial small groups, I’m clear to make that distinction to avoid confusion. So, what is a good ratio? Traditional lenders generally prefer a 36% debt-to-income ratio, with no more than 28% of that debt dedicated toward servicing the mortgage on your house. A debt-to-income ratio of 37-40% is often viewed as an upper limit, although some lenders will permit ratios in that range or higher. However, although lenders may be willing to give you the loan, that doesn’t mean that you should take it. Another good ratio to keep in mind is your take home pay (gross profit) or what is deposited into your account divided by your fixed expenses. Fixed expenses are expenses you have to pay every month (mortgage/rent, insurance, cell phone, water, electricity, gas etc.) If your fixed expenses are greater than 50% of your take home pay, then you could be in trouble. These expenses don’t include living expenses such as food, or debt payments. The danger is if your ratio is this high you are likely to stay in debt, which over time could lead to financial ruin. Knowing your debt to income ratio and keeping it low is the key to having more income and less stress in your life. Have more contentment with less.

If you need a financial checkup you can reach me in the contact me section.

For this week, I’ve included Business Advice from “the Profit”, Marcus Lemonis from LinkedIn Marketing Solutions YouTube channel.

“If you think you know it all, you’re a fool for sure; real survivors learn wisdom from others.” Proverbs 28:26 MSG

 

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