Top Reason Why Most Businesses Fail

Top Reason Why Most Businesses Fail
Remember this: "Your business is always a reflection of you". If you think about, why most businesses fail. I think why most businesses fail is because most people start businesses for the wrong reason.

Top Reason Why Most Businesses Fail

Reason 1: Why Most Businesses Fail

  • They start the business they want to get out of a job. 
  • They start a business because they want to make money. Of course, nothing wrong with that.
  • They start a business because they think maybe there's an opportunity. It sounds like an easy way to make money and it's not.
  • They start it for the wrong reason. Versus, they see a need in the marketplace.
There's a skill, there's an expertise, there's some value they could bring to that particular industry. 

Think about starting a business like flying a plane. And you can't just say well I'm passionate. I have a great idea. Let me fly that plane.
  • Have you flown a plane before?
  • Do you know how to fly a plane?
  • Do you know where you're going?
  • But it looks like fun, let me get a plane.
There are chances of you crashing? Very high. And that's why statistic shows, 90% of small businesses fail in the first 5 years.
  • Even the ones who survive after 5 years, most of them don't pass the million-dollar mark. It's just kind of surviving and that's why.
People go into business for the wrong reason. They go into business without the proper training, without the skills.

I could tell you when I had all those failures when I started all these crazy businesses, and why they failed it's not because of the vehicle. It's because of me as a business person that I didn't have the business acumen. I didn't have the business experience.

I didn't know anything about leadership, marketing, sales, negotiation, raising capital, any of these skills I have today. Everything I did it didn't work because I was a lousy business person.

I sucked as a business person. But I learned from my mistakes. And that's the good thing about business. You can suck many, many, many years. When you get better you learn from it. And when you practice, and you dust yourself off learn from your mistake you suck even a little less. And one day you wake up. You say "you know what, I don't suck no more".
  • One win in business can make up a lot of losses. One win can make up for all your losses. You pay off all your debt and you can make a lot of money with just the right idea, the right time, the right people. 
You have to have business training. You cannot just say I'm going to fly a plane. Of course, that's dangerous. The failures are high. You're going to crash. But if you go in with the proper mindset, and you get proper training. You are going to fly the plane. Well, learn how to read the details. 
  • How to read those financial statements. 
  • How do you work with people? 
  • How do you take off?
  • How do you land safely?
  • How do you control?
All these things you learn, all the business skill that you learned. Once you develop that, then what happens is whatever skills that you learn as a business person, you would get transfer to another industry.

That's why I could start one business in whatever industry I can start in another business in a totally different sector. They would be successful not because of just the industry because of my skill as a businessman.

Once I know how to fly a plane or drive a car. Well yeah, I can drive a Bently. SUV. Sports car. Maybe there are some differences. Maybe it's a little bit different, the look, the feel of driving. But pretty much where you turn the engine, maybe is a little bit different. But most of those driving skill I learn would be applied.

Once you know how to drive, once you know how to build a company, it's kind of same. 

Reason 2: Why Most Businesses Fail

The last reason why I believe most businesses fail is the business owner himself or herself. They don't know how to close. They don't know how to sell.

They may be very passionate about an idea. They might be very creative, and they may be an inventor. Or they have some relationships, that could start the business. But they don't have a skill. They don't have the ability to close, to persuade and convince.

The ability to close is the number one skill that you need in business. Because everything you want in terms of resources, capital, employee, every single day you're closing.
  • You are talking with a vendor. You are closing.
  • You are negotiating, you are closing.
  • You are motivating employees trying to sell them your vision, you are closing.
  • You are talking with customers, you are closing.
Without that ability, the business won't work. 

They don't know how to produce revenue. When you don't know how to close, you don't know how to produce revenue. 

Remember this, whoever can make it rain controls the game. So if you don't know how to make it rain, you don't know how to bring in revenue, you don't know how to generate sales, your business will struggle.

I've never seen a company go out of business because of too much revenue. It's always a lack of revenue, the owners very good at what they do. They are very talented. They are very passionate. They might even have expertise and experience. But they don't know how to generate revenue.
  • If you know how to generate revenue your business is fine. Then you can bring on the people. Then you can bring on talents. Then you can bring on the team. 
The number one thing you have to figure out in your business, the number one key, is you have to figure out optimal selling strategy.

What is the Optimal Selling Strategy?

It means, how can you make the first profitable sale? That's the number one focus you need.
  • Not how do I make the greatest gadget?
  • How do I make the greatest thing?
  • How to deliver the greatest program? NO.
How can you make the first profitable sale? When you can make that first sale profitably, you have got a business. Predictably.
  • Until you figure out a way to consistently and predictably make that first profitable sale, you don't have any business. You have a hobby. You have a dream. 
You might hope oh maybe someone will send me a referral. 
Maybe someone would hire me.
Maybe when I put my name out there, someday someone would call me.

That's not a business. You must have a predictable and consistent way of making that first profitable sale.
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Hustling Only Makes You Tired Not Rich - Stop Hustling

Hustling Only Makes You Tired Not Rich - Stop Hustling
Work till you drop. work until you're exhausted. That's always the message about the secret to success. You've got to work hard and you have to put in the hours. I think that there's some truth to that, but that truly is not the answer.

Hustling Only Makes You Tired Not Rich - Stop Hustling

Because if that is the answer, I have 2 questions for you and then I will rest my case.

1. Are You Currently Working Very, Very Hard? 
  • Are you getting the results that you want?
  • Are you making the kinda money that you want?
If the answer is no, then why not? If that's such a secret formula for success?

2. How Many People do you Know in Your Life that Works Very Hard, Yet they don't make a lot of money?

Think about it, so that cannot be the answer.
  • It's part of the answer, you have to put in the effort. You have to work hard to get a degree, but that's not what's going to make you rich.

The Trust Is This.

I think it depends on where you are in your career, but assuming I am talking to you as an entrepreneur, I am talking to you as a high achiever, here's what I believe.

If you have been working and hustling.....

I hustled for the first 5 years of my life. I worked every single day, I didn't take a single day off, for the first 5 years of my life. There was no balance, I was working my face off. I got to pay the price to success, I got that. 
  • But if after 5 years in your career, I believe, in term of money, if you are not making at least 6 figure income, after 5 years of hard work, something is missing.
  • If after 10 years of your career as an entrepreneur, you are not making 7 figure income, you have to revisit, you have to look at what you are doing right now. Something is wrong, that's the way I measure it.
Because if you're not making the money that you want after 10 years, you really think, by putting in more hours, which you know, you cannot possibly put in more hours. You have put in as many hours as you could, you work on the weekends, that is not the answer. while you're working 12 hours a day. what are you going to work, 13 hours or 14 hours?

That 2 hours effort, you think that is going to make you the difference? It's not, that is not the answer. So that's why I much more subscribe to the principle of the 80-20 principle.
Anything that you do in life, 20% of your activities give you 80% of the results. 20% of customers give you 80% of the revenue. 20% of customers give you 80% of headaches. You look at everything we do in life, only 20% of what you do gives you 80% of results.
If you're looking at what you do, you're hustling, you're doing all these things, which is good, but then you have to think about, if it's not working, you got to know how to think. It's not just hustling, you got to think, what is it that I'm doing, what is not working? What could I have done better?

A lot of the influencers, a lot of the gurus, they all talk about hustle, the hustle is their approach. I'm not saying it's wrong, but I believe it should be a minimum effort, maximum result.

Everything I stand for is about simplicity. Hustle is not what makes you rich. You look at every single rich person that I know, they hustle, yes they still hustle, which is fine. But their definition of hustle is very different, from your definition of hustle.
  • You hustle is just work, work, work. While I can tell you what makes people rich, is not the world hustle. 

What makes people rich is the word leverage. Look at every single rich person, has leverage. 

What is Leverage?

  • Other people time
  • Other people money,
  • Other people resources.
  • They have a team, they have a money-making them money.
  • They have advisors, they have the technology.
  • They have something, they leverage other people's "blank". Other people talents, other people resources.
  • Other people intelligence.
That's what makes you rich.

The keyword is not hustle, it's leverage. Now, you got to earn the right to get to the point leverage, and chances are you might not have the understanding to be there yet, but today, I'm just sharing the concept with you.

Leverage is what makes you earn more money because money is nothing more than a byproduct of value creation. How can you create more value for more people? It's that simple, so at a time when I was making 6 figure income, I was only working with a handful of people.

I was only serving a dozen people, and I was making good money. So I know if I wanted to make more money, I need to serve more, I need 10X times the people that I served. 
  • To be a 7 figure earner, it's very, different from a 6 figure earner in terms of mindset. So I know 2 things, 
  • I need to shift my mindset: The way I think about, who do I have to become.
  • I need to think about how I can, deliver more value to more people, in a bigger way.

That's it, not the money part, that's what I focus on.

It's not just hustling, it's far from hustle, I think about that and I accomplish that goal. 

I saw myself as a 7 figure earner. I didn't see myself as an 8 figure earner yet back then. So I knew, okay in order to be an 8 figure earner, 
  • How should I act
  • How should I talk
  • How should I behave
  • How should I run my business?
I figure that out first, very clearly. And I was interviewing, I was talking with other 8 figure earners,
  • How do you guys run your business?
  • How do you guys get to where you are today?
  • What do you do, how do you lead people?
  • How do you do marketing, how do you sell?
  • How do you do all these things, I want to know?
And I noticed the way that they behave, the way that they think, it's very different, from the ones who are making 7 figure. 

Now, I go over the same thing. We're at the 8 figure level, now I want to go the 9 figure level as an entrepreneur, it's the same thing.

Can you imagine, from 6 figure to 8 figure, do I just hustle a hundred times harder to get to this? Of course not. I didn't work a hundred times harder, what changes are,
  • I think 10 times harder
  • I think 10 times bigger
  • I learn 10 times harder. 
Not hustle. 

I hope you learn from this article. It's about working harder. It's about changing your mindset.
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How To Invest: How To Invest Your First $700

How To Invest: How To Invest Your First $700
Maybe you've just earned your first paycheck, or you have been working for some time, now you've put aside a little bit of money, what is the best way to invest the first $700?

How To Invest: How To Invest Your First $700

Now, let me give you a few options. 

There are a few things that you could do. 
  1. You could just blow it. You could spend that money on drinks, or on a little trip, or you can spend that money on buying some video games, and things like that.
You could just blow that 700 bucks and you won't get a return, but you will get some pleasure out of it.  It's leisure money, you could do that, but that's not called investing. That is just spending money.
  • Now, another thing that you could do is maybe you're thinking about, well, maybe you can buy a little bit of mutual fund, you can by cryptocurrency, or you use that money for something, and you could do that, too.

The question is even if you put that money aside and you invest it for a long term, how much of a difference does it actually make to your financial future?
Another thing that you could do, which may be something you could do, maybe you have some credit card debt, or you have some debt that you want to pay off that has a high-interest rate. 
  • Obviously, if you have credit card debt, it's going to be very difficult for you to put that $700 to work that will get a better return than the interest that you're paying for your credit card, so maybe use that money to pay off some debt.

But, I always say: You don't have a DEBT problem. You have an INCOME problem.

Think about the debt that you have right now, the amount of debt. Maybe you have a $2,000 in debt, $10,000 in debt, in some cases, maybe even $100,000, your student loan, your credit card, your mortgage, whatever that you have, 

But I want you to think about it with your current income, how much you're earning right now, how long would it take for you to pay off that debt?

Read: How To Pay Off Debt on a Low Income

How long would it take for you, with your current income, to pay off the debt, the money that you owe to other people? So you don't have a debt problem, you have an income problem, and at the end of the day, your income problem really is your skill problem.

You don't have an income problem, you actually have a skill problem.
You don't have a valuable skill that you can offer to the marketplace in exchange for more money so you can earn more income, so that $700, I'll share with you what I did.
1. I did not just go out there and just blow it and spend money on stupid things.

2. I did not use that money to pay off the debt, because I was owing people so much money that little bit of money didn't help, because all the businesses that I got into that I fail at, all the money I owe, that $700 didn't even make that much of a difference.

I know that wouldn't make a difference. So what I did is I invested the money into myself.
  • I believe the best investment that no one could compete is you invest that dollar into yourself, improving yourself.
  • Now, for some, it maybe is taking a public speaking course, going to Toastmasters, spending a couple hundred dollars to improve your communication skills so you could be more confident when you talk to people.
  • For some, maybe it's going through a personal development course that would help you to develop that self-awareness, knowing yourself more.
  • For some, maybe it's learning how to sell
  • For some, it's learning how to talk to people, learn how to do copywriting.
  • Whatever it is, or how to do digital marketing, but invest that money in yourself.
  • Buying that book, $20, with $700 you can buy a lot of books, and if you buy kindle and eBooks, you can buy even more.
  • Maybe it's going to a seminar, going to a workshop. Maybe it takes an online course. Whatever that is, invest in yourself.

That is the best investment that you can make.
  • Improving your skills, improving your confidence, improving different areas of your life so you can deliver more value to the marketplace.
Now, let's say, hypothetically, you double your income. Instead of making $2,000, now, you're making $4,000 a month. That's $24,000 in addition to income to you.

That kind of return from $700 to $22,000 a year, 

My question is

What kind of investments would give you that kind of return? None in the world, and that's just the first year.

Once you get good, you can keep earning and earning, year after year, you're still producing income from something that you learned, could be 2, 3, 5, 10 years ago.

No one could take that away from you. The government cannot tax it, no one can steal that from you, it's yours, so that $700, invest in yourself.

It will never go wrong. Your first $5,000, invest in yourself. Believe in yourself. Bet on yourself. Don't bet on others, don't bet on a stock, invest in yourself first. 

Once you earn more money, yes. Once you have developed the earning abilities, then yes, that extra, one, you don't, just have $700 put aside. You have way more than you put aside. Then yes, you can look into other investments, and that's my suggestion for you.
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How To Generate More Revenue For Your Business

How To Generate More Revenue For Your Business
Today we are going to talk about the 3 ways to generate more revenue for your business and for your company. Now, business sometimes people make it way too complicated than it needs to be. 

People are complicated. I always say business is simple but people are complicated. Finding the right people or building the right team, because every single individual is different. So that's a little bit more complicated. But when it comes to business, it's actually quite simple.

How To Generate More Revenue For Your Business

There are actually only 3 ways for you to grow a business, to grow a company. 

So if you are struggling with your sales, struggling with cash flow, I would recommend you look at one of these 3 ways and see what you need to work on.

1. Getting More Customers.

How do I get more people in the door? You want to get more customers, we all want more customers so we can generate more revenue. Now it depends on your business type. 

You might have a two-step process, meaning you may not get a customer directly, it may not be a direct sales scenario. it could be a two-step process where you actually generate a lead. Maybe you generate a lead online and then you convert that lead into a sale.

You have the lead generate process and then you have the conversion process. It doesn't matter. The button line is that's what you focus on, what most entrepreneurs focus on, 

How Do I Get More Customers?

  • Sometimes the highest-paid leverage points that you have within your business may not be getting more customers because it costs a lot of money to acquire customers nowadays
  • When you're running traffic, when you're doing any kind of advertising, it costs a lot of money to acquire that first initial customer. 
If you are a startup, yes, then focus on getting customers because you need customers to survive, but if you have been in business for a while, then I want you to consider some of the other ways to increase your revenue, to grow your business.

2. Getting Your Customers To Come Back More Often

This is a very big deal because getting customers are very, very costly, the cost of acquiring a new customer, but if you have customers who are already buying from you, they know you, they like you, they trust you, they have done business with you, very often I find that this is the part that most entrepreneurs neglect.
They spend all their time, it could be 80, 90% of their time just focusing on let's get more customers, that's where the revenue comes in instead of nurturing the relationships that they already have.

Let me give you a perfect example.

Let's say if you run a retail business and you are some kind of service provider, maybe a massage therapist, maybe acupuncture, maybe you run a salon, it doesn't matter, and you have people coming to you, let's say once a month.

Once a month they will visit your store, they will visit your shop and a transaction will take place. You provide your service, you'll get paid and that's 12 times a year, once a month. 

Now, I want you to think about this. Imagine instead of once a month, by the time let's say you finish the service, let's say you finish doing their hair and before they pay you, ask them to book the next appointment. 

We call that rebooking, in business term, and you encourage them, instead of coming back every 4 weeks, you say why don't you come back 3 weeks, every week. Now, you may not think that's a big deal.

Let me tell you why that's a big deal.

If they come back once a month, that's 12 times a year, that 12 times they will transact with your business in a year's time.

Now, what if they come back every 3 weeks instead of every month. You know what that does to your business?

That's now 17 times they will come back to your business. So instead of 12 times a year, now they're coming back to your business 17 times a year. That's 5 times more.
  • Imagine what that does to your revenue. And it didn't cost you anything extra. All you need to do is ask and suggest, hey, instead of 4 weeks, why don't you come back every 3 weeks.
What are some of the things that you can do to get your customers to come back to your business, to visit your business, to buy from you more often? 

3. Getting Your Customers To Spend More Money On Each Visit

This is very simple. Let's go back to maybe the retail example. 

Let's say each time your customer visits you they spend $100 with you, hypothetically, But if each time they come back and you do some kind of upsell and you get them to spend a little bit more, an extra 10 or 20%, instead of spending $100 each time, they spend $110, $120.

It may not seem like a big deal, but when you take that out 3 months from now, a year from now, in a given year, that's hug amount of profits. That's additional profits and revenue for your company without a lot of extra work.

When you by a pair of shoes, they upsell you to that shoe polish.
Don't just focus on getting more customers. We all need more customers, but how do you get more value? How can you sell to exsting customers more, be able to deliver more value to them? 

Don't just think of how to get more customers.
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How To Stop Living Paycheck to Paycheck

How To Stop Living Paycheck to Paycheck
I want to layout a powerful 2 step process to stop living paycheck to paycheck for good. This framework works no matter what financial position you find yourself in, what job you currently have, what educational background you might have. Whatever just follow these 2 steps and you can escape the paycheck to paycheck.

How To Stop Living Paycheck to Paycheck

1. Own It

This first step in getting out of the paycheck to paycheck living is like the least tangible but the most importantly, you have to own it in other words you have to take 100% responsibility for your financial position in life right now.
  • I don't care if your high school didn't prepare you or your parents taught you bad habits or your spouse spends way too much money on Gucci bags or whatever, maybe you got into money problems because of some kind of medical issue or maybe you were laid up
  • Whatever, I don't care whose fault it is it's not about fault it's about responsibility. Maybe that sounds harsh but the truth is nothing is going to change until you change your mindset about who has the power to change your life
The government isn't going to do it, your parents aren't going to do it, your spouse isn't going to do it, you got to take 100% responsibility for your financial position but don't think of this as like a negative thing it's actually incredibly powerful because it means that you have the ability to change it
Look, I can't change the weather but I can change where I live. That's fault versus responsibility, does that make sense.

2. Assese It

You need to assess the situation in detail and understand exactly where you stand financially right now, can you write down exactly how much money you made last month. And how much money you spent right now, what is your net worth? Can you tell me?

Sadly, people would not even know how to start looking that stuff up, do you see how important this is it's somebody who really wants to lose weight but they have no idea how much they weigh right now or how much they eat or whether they've worked out in the past month, like how serious do you think that person would be about losing their weight if they don't even know those basics and how serious are you about no longer living paycheck to paycheck if you don't know the basics.

You need to know exactly what your finances look like, I want you to fill out a simple personal financial statement, it's a really simple document, don't get overwhelmed, it just helps you list your income, your expense, your assets, the value of properties you own or the value of stocks or bonds or mutual funds, the value of any businesses you might own, then there are liabilities which are things that you owe money on like debt

On this personal financial statement, you're going to list every bit of income you currently have, then you're going to list all your expenses and separate them into one of 3 categories and then grouping them into subcategories

The 3 categories are

1. Fixed Expenses

Those are bills that come regularly and they don't change that much it's like rent

2. Variable Expenses

Which are bills that we all spend money on every month but can fluctuate quite a bit like eating out, gas, groceries, medical bills, clothing?

3. Other Expenses

Which would be like totally optional stuff like going to a movie, went on vacation, in fact for most people there's quite a bit in this category, it's basically stuff that you spend money on but you could have survived this world without. I'm not saying you shouldn't have those things it's just that they don't fit with either fixed or variable expenses.

Most people have a really strong tendency to increase their spending to whatever level of income they find themselves in, I call it the income creep like you get a raise and you spend more money. But we need to fix that behavior before we increase our income, or else the extra income will simply mean we are living paycheck to paycheck with a nice couches and a nice car
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What is a Secured Loan

What is a Secured Loan
We're going to be talking about something called a secured loan or kind of answering the question of what is a secured loan because it's one of the weirder types of loans in my opinion. It can do good for people but it also doesn't make sense for everyone to do and I find it unnecessary many times but that's what we're going to talk about today.

What is a Secured Loan

What is a secured loan?

  • You would never go to a bank and say, hey I want to apply for a secured loan with the expectation of them understanding this could be for a car, a house or a boat, whatever it may be.

A secured loan is an installment type of loan where your money acts as collateral for the bank. Just like your car is collateral for a car loan, if you get a mortgage your house as collateral for the mortgage loan. In this case, your money is collateral for the actual secured loan.
Just like if you didn't pay for your car loan they're going to come take away your car, if you don't pay for your house then your houses get foreclosed on, If you don't pay on a secured loan well then they will take that money away. That is why it is a secured loan

Let me explain

Let's say you wanted to do a secured loan for like $500, that means that you would need to keep $500 in your savings account. They would lock that money up because that's how much money you want a secured loan for. And what you would repay back to the bank is that $500 plus a little bit of interest as well.

If someone decides to do that secured loan for $500, as they make payments on their loan, that held amount and their saving actually goes down. Let's say you did that $500 and you've paid off $100 toward the loan amount is only $400

Now the amount that they keep locked up in your savings account should only be $400. Over time as you pay down the loan they're going to release some of that locked up money. To the point where at the very end when done paying off that $500 loan, your $500 is still there sitting in your saving account like nothing ever happened to it.

I hope it clear to you.

Now that you know what a secured loan is

Let's look at some of the other questions that you probably have about these secured loans because honestly, they are a uniques type of loan that's not meant for everybody.

Question 1: What do Interest Rate on Secured Loans Typically Look Like

Honestly, they're actually low, every financial institution is going to be different so I can't say it's always this rate. typically somewhere around like 2% to 4%

Question 2: Why is such a low rate

Think about it, if you had to do a loan where you had to keep whatever the loan amount was, you had to keep that same dollar amount in your saving account locked up and you never ever made a payment on it.

What do you think would happen to that money in your savings account. Well, they will probably just take it. If you never make a payment on it they're just going to take the money out of that locked up funds in your savings 

Therefore it's just a very low-risk loan and because of that, it's normally really low-interest rate as well.

Question 3: How Long is the Typical Secured Loan Finance For.

This question just like the same first doesn't have an exact answer, because you can really do a secured loan amount for anything as long as you've got the money for it, you can do a secured loan probably for however much you want

But if you do a $500 loan maybe that loan is going to be financed for like six months or a year at the longest, whereas if you do a $10,000 loan that secured loan may take like 3 years to pay it off

There's no real exact term length limit, you get to choose what you want pretty much based on the dollar amounts of the loan.

Question 4. Can Anybody Get a Secured Loan

Here's another really great benefit to secured loans and that is almost anyone can get approved for this loan. And again like I said earlier your money acts as collateral and it's very low risk for banks to do those type of loans, what is the point in them denying anybody

When there's that little risk involved and they have pretty much they're guaranteed just sitting there locked up, there's no real reason for them to deny you.

It does not matter what your credit score is, doesn't matter what your credit history looks like typically if you've got the money you can get approved for a secured loan.

Question 5: Why Would I Ever Want to do a Secured Loan

Before I answer, really think about this, if you ever in a situation where you have money to pay for something, why would you ever want to lock your own money up and do a loan against it?

3% is pretty low-interest rate but it's not as low as zero, why to pay interest if you don't have to, it just doesn't make any sense so why would you ever want to do that.
  • The answer is really simple in my opinion, you should only do a secured loan if you want to build credit.
It's very low-interest rate and anybody can almost get approved for these loans, so if you're looking to build up a credit history, the last thing that you want to do is to apply and then find out that you're denied, that doesn't do you any good.

Likewise, you don't want to build credit by doing like car loans, or through personal loans, or get into like debt to build credit, or paying high-interest rate to build credit

A nice in-between really is a secured loan, let's say that you actually did a $500 loan for one year, the payments on that work out to be $42.35 a month and after that full year, if you use the banks' money that $500 that they gave to you to actually make the payments on the loan, you really only ended up paying $8.20 to build up credit.

For those that do want to build credit, this is one of the cheapest ways I know of getting that done. I would still advocate that a credit card does a better job but sometimes you want to have revolving loan history and you want to have installment loan history.

  • Revolving Loans: Are thing like lines of credit and credit cards
  • Installment Loans: Are things like cars, personal loans, houses, and secured loans.

I think building up credit is the only reason. Why you should ever do a secured loan.
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How Does Interest on Loans Work

How Does Interest on Loans Work
I want to talk about something that it's huge when personal finance and we're talking about interest. What is it, how does it work, is it good, is it bad honestly but it doesn't mean that it's confusing, but I really want to make sure that everyone understands how interest work because it is a very big factor when it comes to personal finance.

How Does Interest on Loans Work

I'm going to break this article in 2 parts, how is it good for you, how is it bad for you. I don't know how you like to take your news but I've got good news and bad news, I normally take the bad news first, so we're going to start there.
  • When most people hear the term interest it's normally because they're talking about a loan. What is the interest rate on loan your credit card, your car loan, your mortgage
  • All these are a loan from a bank and they all have an interest rate attached to them when you take out a loan from a bank or credit union they want you to pay off the original amount that you borrowed 
Let's say you borrowed $10,000 buy a car they want you to pay that $10,000 back plus interest which is extra money that goes to the bank. That's how they make their money on loans through interest.

How much interest you pay them is entirely based on your rate, so when you're taking out a loan you want to make sure that your interest is as low as possible. Because if you do this it means you're going to give less money to the bank in the form of interest and save you money
  • When it comes to loans it's really simple, you want a low-interest rate, the lower the rate, the less you pay. The higher the interest rate the more you pay.
What we're going to do is we're going to make a little scenario here, we're going to pretend someone is buying a car.

How Interest on Loan Work

I don't quite want to show you how to calculate interest just yet, I will in another article, but for today's purposes just understand that I've already done the math for this and I know how it works out but in this example 
  • Car Loan: $10,000
  • Term Lenght: 3 years
  • Interest Rate: 2%
  • Loan Interest: $311.59
  • Loan amount ($10,000) + interest ($311.59) =
  • Total Loan Cost: $10,311.59
  • This person wants to buy a car for $10,000
  • They want to pay the car off in 3 years
  • They find a good credit union or banks that give them 2%
  • This person will pay the bank $311.59 in interest
  • That means when he takes the original $10,000 that he borrowed plus his interest over those 3 years, he paid a total of $10,311.59

This truthfully would be considered a pretty good loan.

Now, let's take a look at what would happen if that person didn't decide to do their homework or research or they just went to the bad bank.

That same person let's say they did a $10,000, 3 years, kept those 2 factors exactly the same, but let changes it, they didn't get 2%, they got 10%
  • New Rate: 10%
  • That comes out to $1617.60
  • Principle + Interest + $11,617.60
That's a difference of $1306.01, I don't know about you but I do not want to pay the bank an extra $1,300 if I don't have to. 

This is just one example and honestly, it's kind of a small one, when you're talking about a house or more expensive car, the difference can be tens of thousands of dollars

That was just to illustrate how interest is really important when it comes to loan and why you need to do your research to make sure that you were getting a low-interest rate on your loans.

Now, I'm not going to lie to you what largely determines the interest rate you get on your loan is going to be your credit score.

Alright, we got the bad news out of the way now, how interest rate affects some loans and how it hurts us, now, we can go on to the good part and see how it intersects benefits us.

We have talked about how interest loan hurts us because interest on a loan can be bad but now we're going to talk about how interest can help us and that is banks will actually pay us interest.
  • Many of you probably already know that but for those of you that don't. Banks pay us interest and what is called

Dividends: Interest that banks pay us

This works out almost the exact opposite of loans, because when it comes to dividends we want our interest rate to be as high as possible, the higher the dividend rate or the interest rate, we make more money.

The lower the dividend rate or interest rate the less money that we make. 

We are going to continue on our next article, do watch out for that.
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