Fred Rewey’s Blog

Excitement and motivation are naturally at high levels when first starting on a new path, goal, or project. This is especially true when starting your own cash flow business on the path to financial freedom. Unfortunately, many experience roadblocks that may cause delays. I have found there are three important lessons that help pave your path to success.

1. Avoid Life’s Inertia

You may have already experienced this after starting your business. You set goals with great intentions but found yourself sidetracked by normal day-to-day life situations (work, taking care of the kids, taking care of the spouse, grocery shopping, going out to dinner, etc, etc). The list certainly goes on and on. Expect it. Know that it will happen and plan around it. Making a change for the positive is always tough. Making time can sometimes be even tougher but, as Nike® says, “Just do it.” Find some dedicated time to work your business (at least 8-10 hours per week) and don’t let anything, short of a real emergency, get in your way.

2. Plan on Work

One of the first things to realize is that working the Cash Flow business is no different than working any business - it requires work. The great part is that opposed to working for someone else, you reap all the benefits of your efforts. Simply putting up a sign in your home office that says “I buy cash flows” will not get the phone to ring. In the end, that is what it is all about. It doesn’t matter how good you are on the phone, how well you operate a calculator, how many Funders you know, or if you are the best negotiator on the planet. If the phone doesn’t ring you have nothing. A valued mentor taught me this important lesson over 15 years ago; it is just as true today as it was then - and probably always will be.

3. Feeling You Are Not Ready

Let me say this, “You are ready”! You have all you need to succeed in the cash flow industry, now you just have to get better. Learn all you can. Read all you can. TRY to do as many deals as you can. We say “try” because in the beginning we don’t care whether the deal closes or not (although we always hope it closes for you). What you want is “experience.” If you are concerned that you may say the wrong thing to a seller and lose the deal, let me just say this, “you will.” There, now knowing that you WILL make a mistake should put your mind at rest. We all make mistakes, it is what we do with them that matters. Bottom line: You have all that you need to get started - so get out there and do it.

Well it appears that all eyes are on the Nation’s Real Estate Pricing and Interest Rate’s seemingly continued increases (see the March 22, 2005 post!). What does this mean to you?

For starters, if you are a homeowner that is already enjoying fixed rate financing you will begin to see the benefits of locking in those lower interest rates. This will be particularly true for those that own property to use as rentals. If you have been tied to variable rate financing you are going to start to see the downside. Certainly you have been enjoying lower payments but, like most things, now it is time to pay – literally.

Over the last several months we have mentioned numerous times about the need to “shift” over to fixed rate. Although that ship is pulling out, it is not too late. Real Estate prices, although still booming in a lot of areas, is largely tapering off and beginning the shift to a “buyers market.”

Which brings us to our next question, “Will Real Estate prices crash?” Well, it may be premature to answer that question in any definitive manner, all indications point to a decrease. While I think “Crash” is too firm a word, given the fact we have enjoyed so much growth over the last several years, I think a “correction” is more in order. The greatest concern will be for those that bought on speculative analysis and for those that purchased property (rental) that does not cash flow.

Now would be a good time to address the two issues above – before it impacts any short or long term objectives you may have.

If your goals in 2006 are in line with getting ahead financially, you really only have two ways to do that. Save more money (by cutting down on some expenses) or two, make more money. Although we often look at a multitude of ways to do both, let’s look for the quick hit in the form of a raise from an employer.

When looking for a raise you must concentrate and three main things.

1. It is assumed that you deliver good quality work. But don’t overlook attitude. Call it “team player” or “likeable” - whatever the description don’t underestimate that people need to like you. It cannot only make the different on if you get a raise or not, but how much.

2. Oftentimes people fail to know what their position is worth. There are many resources online such as www.bls.gov that will allow you to look for similar position (and area). By knowing what an “industry average” is may better help you case.

3. Sometimes you need to simply look elsewhere. Ok, we are usually more comfortable staying in the same place but sometimes you need to make a move to another company. When looking at such a move be sure to focus on benefits such as health care and other employee benefits – they can really add up.

As we say start 2006 we find it is a good time to look back on the prior year for some important financial lessons learned. Consider upgrading your financial plan by taking the following actions:

Prepare for Disaster
With several hurricanes and other natural or man-made disasters occurring in 2005, we saw the importance of having a disaster plan in place for both our family and business. Be sure to keep all important financial documents together in a small fire and water proof box so they are protected and readily available. Also consider digitizing them for storage on remote servers and maintaining physical copies of important mementos or documents in a safe deposit box or with trusted family members in another city. Take time to review your current insurance coverage to be sure it adequately covers your home and business needs.

Establish and Maintain Good Credit
A strong credit history has long been important to your financial health. In 2005, the change in bankruptcy laws upped the ante by making it harder to obtain protection from creditors. Start by obtaining a copy of your credit report and reviewing for accuracy. Reports can be obtained for a fee from credit reporting agencies or you can obtain your free copy from each of the bureaus (as mandated by federal law) by visiting www.annualcreditreport.com. Make a goal to keep your credit score above 720 (based on a range of 300-850).

Protect from Identity Theft
With identity theft on the rise, it is essential to take steps that will help you avoid losing months or years cleaning up the mess it can make of your credit. Be sure to:

• Keep an eye on your credit report for any suspicious use or unauthorized inquiries. Carefully review credit card statements for any charges that were not initiated by authorized users, regardless of how small the charge. We once caught fraudulent use of a credit card early that started with a small charge of under $25 at gas station.
• Purchase a cross-cut shredder and use it to dispose of any trash containing personal or business information
• Install a good virus protection program on your computer and only download files sent to you by people you know. Avoid chain letter type emails.
• Never respond to email solicitations asking for personal information or passwords, even if it appears to be from a bank or other known provider. Avoid this type of “phising” by only initiating transactions online.
• Use passwords and pin numbers that are difficult to guess AND change them often. Avoid using the same password or pin number for every account.
• Keep confidential information secure from visitors or employees in both your home and office.

Think Green
Gas prices are on the rise and unlikely to fall below $2.00 per gallon anytime soon. If shopping for a new vehicle, consider purchasing a fuel efficient model to save money and natural resources. The IRS has provided additional incentive to think green by providing substantial tax credits for purchasing qualifying hybrids or clean-energy vehicles. These dollar-for-dollar tax credits could reduce your 2006 tax bill by up to $3,400 depending on the type of vehicle you purchase.

Maximize Retirement Savings
Retirement plans provide for the ability to accumulate wealth either tax-free or tax-deferred. Many plans also provide a tax deduction for contributions. These tax benefits are in addition to those offered through any employee match. There are also new benefits available under the Roth 401(k) plan starting in 2006. Make a goal to not only learn about the different types of retirement plans but to maximize your contributions for benefits now and in retirement.

Interesting questions have come up lately. Will the real estate market continue to climb? Will it soften? Will it crash? Has the real estate profit train left the station?

Although no one can provide an answer with guaranteed results, it is safe to say that the market is slowing down in a lot of areas, but by no means has the opportunity passed as long as you stick to a couple easy rules.

1. Know your market. Know what real estate is selling for in your area. Know what the expectation is going forward (as far as growth rate, if any). Have you noticed the market slowing down? Are more houses available or on the market longer? Are builders starting to advertise “incentives” when they had been particularly silent in that area until now? When these items occur it becomes fundamentally important that you are buying property under value (so as to realize an immediate profit or equity). If you are buying on “spec” – hoping it will go up in value – you could be the one holding the bag in a declining market.

2. Always, always, always buy real estate that will cash flow. In other words, when you go out and buy a home, always make sure that you can rent that home for at least the amount of your mortgage payment (including taxes and insurance).* Many people make the mistake of thinking they can make the mortgage payments only to realize that they can not rent the property for the money they need to cover the mortgage, taxes, insurance, and repairs. Certainly if you plan on “flipping” the property immediately you can consider ignoring this rule, but a word of caution. If real estate continues to slow down it will be much like a game of high stakes musical chairs – don’t be the one without a seat!

Lastly, I am repeatedly asked if interest rates will continue to go up. Well, let me say that no one knows for sure but I highly suspect you will continue to see a rise in interest rates at every Fed meeting for at least the next year or more…(if I am wrong, I will just delete the Blog post - just kidding)

We have all heard the encouragement to “save for a rainy day” and to tuck away at least three times our monthly expenses “just in case”. Unfortunately, the reality is Americans are saving less than ever. In fact according to the US Commerce Department, the personal savings rate in 2005 dipped into negative territory at minus .5 percent, something that hasn’t happened since the Great Depression. This means that in addition to spending all their after-tax income, people are also tapping into previous savings or increasing their borrowing.

It is time to revisit the 10% savings rule. This requires you start paying yourself first by saving at least 10% of what you make every month. Think of it this way, for every 10 months you save your 10 percent, you will have an entire extra month of income in the bank!

If you already follow the 10% Savings Rule, we congratulate you! You have experienced the benefits of paying yourself first. If you are just starting to implement this rule, you will need to review your income versus expenses and carefully budget your funds so you can pay all bills AFTER you have already reserved 10% for savings. Many people use automatic deposits with a set amount (equal to 10%) going to their savings account and the balance to their checking account. Another approach is to transfer 10% to your savings account every time you make a deposit to your checking account.

Our daughter has been following the pay yourself rule with her allowance since she was seven years old. She takes half of her allowance for spending money and the other half goes into a cigar box for a monthly deposit to her bank savings account. (Half is even better than 10% but she still has parents to pay the bills). As a teenager, she still follows this plan with babysitting income and other money she earns. Her goal is to save up half the cost of a car and then take us up on our offer to match the other half!

Whatever methods you use, just be sure to pay yourself first. Building wealth is really no different than climbing a mountain. Each step, no matter how small, takes you closer to your goal.

Editorial Review - Wiley

Every day, millions of Americans struggle to gain control of their finances and realize true financial freedom. Faced with everything from mounting credit card bills to mortgages and college tuitions, some have given up and filed for bankruptcy, while others have tried to stay afloat by meeting minimum payments. Fighting this type of battle can be daunting, but if you know the rules of the game, you can change your financial life forever.

In Winning the Cash Flow War, nationally renowned cash flow expert Fred Rewey addresses the financial problems that many of us face and offers practical guidance to finding financial freedom in today’s challenging world.

This book is divided into four easy-to-follow parts:

Part One-Evaluating Your Troops: Shows you how to take a hard look at your finances and make realistic goals that you can achieve.

Part Two-Understanding the Battlefield: Reveals the rules, tricks, and traps that we should all know about, but certainly have not been taught by the people making money off of us. This section will get you up to speed on the enemy.

Part Three-Mastering the Rules of War: Details the most powerful and important tools in the game, such as the Time Value of Money. This section will help you determine who your allies are, what tools to use, and how to really win the war on cash flow.

Part Four-Building on Your Victory: Explores the numerous ways to self-employment by creating a second source of income, or for some, a whole new way to bring home primary income.

Winning the Cash Flow War provides you with the tools and knowledge needed to take back your financial life. The unique step-by-step strategies outlined within these pages will transform your attitude about finances and help you to shore up your financial position. Discussing everything from effective budgeting to breaking into the lucrative and fulfilling world of self-employment, Winning the Cash Flow War will help you-once and for all-take control of your financial future.

To order, use the link to the right, check out your local bookstore, or visit www.winningthecashflowwar.com