Your Credit Rating and Cash

Of all your monetary assets, your credit rating is the most valuable asset you have. A good credit rating, and the knowledge of how to use it to make money, is all you need to make yourself rich. Everything else you do, just makes it easier, or more difficult to make money. Protect your credit rating because once it is messed up you will spend years rebuilding it, and that time, and effort can be better spent getting rich.

Knowing how to use your credit availability is simple; you only need to follow this rule. Borrow only when the money will be used to make money. There are three exceptions to this rule, borrowing for education, for your home and for a car. Any other debt that is not for a profit-making venture is a hindrance to your getting wealthy.

Borrowing Money

Borrowing money to make money can make good sense. Be certain that you have a plan for paying the money back and a back up plan just in case things do not work out as planed. Most of my borrowing is for long-term investments in real estate, or for inventory for resale in one of my businesses.

For personal use I will borrow if the item being purchased will last longer then the payments. That pretty much cuts the list to cars, education, appliances, and home improvements. Even if I can pay cash, I might not if the money can make more then the loan will cost.

All lenders will expect you to put up collateral, and have equity in your venture before they will consider the loan.

Note: Deposit all money borrowed for investment in a separate bank account. In order to deduct the interest on the borrowed funds you will need to show the IRS that the money was used for investments and/or business purposes.

Cash Flow

Cash flow is more important then cash on hand. If you have a positive monthly cash flow, you have choices available to you. I.E. Let us say that at the end of the month you have $300.00 left over after paying all the household expenses for the month. Your choices of what to do with this extra money include, paying a bill, save it, spend it, invest it, or use it to make the payments on a loan for investment purposes.

Your plan or goals should include increasing your monthly net income from all sources so that you have money to invest (a positive net cash flow). Besides your paycheck, look for other ways of increasing the income. For example, work overtime, hold a garage sale, buy a rent house, or take a part time job.

You do not have to wait until you accumulate a lot of money to start a business, or buy a rental property. You can borrow the money and use your extra monthly cash flow to pay back a loan used for the investment. The more you increase your monthly cash flow the more options will be available to you.

Do not wait until you find an investment to start looking for the money, find the money and the money sources, and be ready when an investment opportunity comes along.

Lets imagine that you found a home for sale for $50,000 that you feel would bring $70,000 if it were fixed up. You offer to buy the house with the owner carrying the note. You get the down payment using a credit card loan check, and make both payments from your current monthly personal (income) cash flow. You fix up the house and resale it to pay off the credit card and the mortgage.

To do this type of deal you need a knowledge of the local housing market and a positive monthly cash flow from which to make the payments and the ability to get the home fixed up for resale quickly.

Once a year I sit down and make a list of places that I can raise cash from. What I want to know is what is the total cash available to me if the need or opportunity arises. My money source list includes, cash on hand, savings, insurance policy loans, IRA's, credit card limits, lines of credit, friends, relatives, my net monthly cash flow from investments and rental and a few more sources. With a knowledge of what money is assessable to work with, I know what I can do when the opportunities arises.

Existing assets

When you prepare your financial statement, you may well discover assets that have loan value. Such as your home, other owned real estate, 401Ks, annuities, live insurance polices, etc. As long as your monthly cash flow can handle the payments, these can be good sources of investment money.