The Cornerstone of My Business

The Cornerstone of My Business

One of my favorite “Sales” teachers is Dan Kennedy who has taught me so much about how to build a business of “raving fans”.  Dan does not believe in trying to “convince” people to buy your product.  Instead, he teaches you how to provide value and information to people who need you so you can “help” them buy your product.  There is no “selling” involved in this method.  Instead, you focus on helping people and the sales will follow naturally.

He also preaches the need for becoming an expert in small segments of your business.  “Niches to Riches” is phrase used often and I’ve come to believe in that idea wholeheartedly.  Even though I can do most types of loans in this arena called Mortgage Origination, my own niches are Credit Improvement and First Time Homebuyers.

I create a regular stream of business by finding people who need help fixing their credit and helping them become homebuyers.  Along the way, I find plenty of folks who are ready to buy their home now or want to refinance their homes to take advantage of lower interest rates, but it’s the folks who aren’t ready right now – and all they have is a dream and the desire to do what they need to do – that are particularly satisfying to work with. 

Guiding them through how to raise their credit scores and how to deal with collectors so they can get ready to buy a home is the “value and information” I provide, and when they finally get to the point of qualifying for a mortgage loan, who else are they going to go to for their loan?  I get to help people who other mortgage places turn away, and when we’re done, they become my best future-client lead sources.  It’s smart business that has benefitted hundreds of families over the years.

Get $500 In The Bank

You’re trying to get in position to buy a home.  You may have huge outstanding debts or serious credit blemishes on your record.  Maybe collectors are calling you and you’re afraid to answer the phone and it seems every time you get a paycheck that your immediate bills already add up to MORE than your take home pay.

If this sounds like you, or maybe your situation isn’t nearly this severe but things are still tight, the first step to financial freedom and getting yourself ready to buy a home is to start with getting $500 in the bank.  And I don’t just mean that you deposit your paycheck and then spend it.  I mean $500 that sits there, doing absolutely nothing.  Month after month, your bank balance NEVER goes below $500.

And here’s the harsh part of this lesson:  If you can’t do this, you shouldn’t buy a house and you shouldn’t even think about it anymore.

But, I’m not telling you that you have to be able to do this right this minute.  It’s okay to take a few months to get there if you need to.  But start right now getting yourself to this position.  Make it a priority.  Think of it as your first test.  If you can quickly and easily pass this test, you’ll be in good shape to buy your home very, very soon.  If you struggle to pass this test, then realize you’ve got a long battle on your hands to get yourself ready to take on a mortgage.

Sadly, You’re Not Alone…

Why $500?  Well, first of all you should realize that if you don’t have $500 in the bank, you are not alone.  A recent survey revealed that over one-third of adults under the age of 35 did NOT have even $500 in the bank (Percentages improved slightly with older age brackets, but not much).

When you live this way, you know about the devastating effects of overdraft fees, late charges, and the helplessness you feel whenever an emergency strikes – car breaks down, appliance failure, medical emergency, etc.  Any one of these things can wreak havoc on your budget for months before you can catch up again – that is IF another emergency doesn’t hit you again right away too.

We’ll look at ways to build this $500 cushion in upcoming articles, but to get you started, here’s your first assignment: 

When you get your next paycheck, write yourself a check for $100.

Don’t cash the check, but do deduct it from your registry – you’ve now given yourself a $100 cushion in your checking account – enough to prevent bounced checks.  Maybe instead of cashing it, you put it a frame and hang it someplace where you’ll see it often as a reminder of what you’re trying to accomplish?  (If you use a debit card and rely on the ATM balance, you’ll need to mentally subtract this $100 each time you see your balance.)  

Honey?  The Show Starts At 6:45 – Don’t Be Late!

This technique is the same principle my wife uses to make sure I get someplace on time – she’ll tell me something really starts 15-30 minutes sooner than it does, creating a little time cushion, and that way I always seem to show up on time.  So create a little checking account cushion and it’ll likely save you $100’s over the next year in banking fees, and it’ll get you that much closer to buying a home.

How To Get $500 In The Bank – FAST!

In another article, “Get $500 In The Bank”, I told you to write yourself a $100 check without cashing it (hanging it on the wall someplace you can see it everyday for motivation) to create a little cushion in your checking account to prevent bounced checks (and hefty bouncing fees).  This is the first step towards getting $500 in the bank and keeping it there.

I also told you, in a kind of snotty way, that getting this $500 in the bank was the first step towards home ownership, and if you weren’t able to do this first step, then you should give up your dream of owning a home. 

Well, that was down-right RUDE!

Yes, it was rude – but it was also true.  It is easy to preach at you about things you should be doing, but it is quite another to offer practical solutions.  And I’m a practical solution kind of guy.  Step one was to create the cushion in your checking account.  Step two and three are below. 

Three steps ANYONE can do that will put $500 in the bank right away.  So, again, if you can’t manage to get the $500 in the bank – even after I show you this anyone-can-do-it 3-step plan, well, just keep renting and miss out on the most proven wealth-building vehicle (home ownership) that there ever was and ever will be.  (Oops!  I got snotty again there)

Step 2:

Step 2 may seem silly to you, and right off you’ll think, “Oh, that will do me a lot of good – NOT!” but come on!  Just play along!  How many other debt management, wealth-building, how to buy a home articles have you read that haven’t gotten you anywhere?  I’m guessing, quite a few.  But this step is so stinking easy to do, and it will get you STARTED, that you just need to do it.  If you don’t have a pile of cash in the bank right now – then DO THIS!!!

Here’s what you do:  Go through all your coat pockets, cups in the laundry room, dresser drawers, car ashtrays, couch cushions, etc., and gather up all your loose change.  (Loose change?  Are you serious?  Hey, just do it – you’ll be shocked how much change you have.  And it doesn’t even matter how much you have.  37 cents?  $20?  Doesn’t matter.) 

“I’d like to open a savings account with this $2.54…”

Once you’ve gathered up your coins, head to your bank and get some of them free paper coin rollers.  While you’re there, find out about how to open a savings account – any rules you need to know.  Then head home and roll the coins up.  You’ll use this as the opening deposit in your savings account.  (Yes, most banks will let you open a new savings account for as little as $1.00.)

How does this help you?  It gets you started.  You’ve actually taken an action step.  You’ve started to build real momentum.  AND you’ve created a “landing pad” for the next wave of deposits you’ll be creating with Step 3.

Step 3 – Remember, ANYONE Can Do This

In Step 3, you’re gonna part with some junk.  Find your old record albums, cassettes, video games, VHS movies, books, and get ready to sell them.  You can use Ebay or Craigslist or try taking your books to a local half-price book store and see what you can get.  Look for other items that may have some value – old coin collections, jewelry, tools, Boy Scout merit badges.  Get these sold!  (Come on, do you want a house or an apartment filled with junk?)

Don’t stop with just YOUR junk.  Ask your relatives and friends if you can clean out their junk for them – if they know why you’re doing it, they’ll be happy to help you out and provide you with lots of cool stuff.

If you don’t know how to do Ebay, etc. yourself and don’t want to learn (Hey, did you miss that part about “anyone can do this”?) then it is NOT hard to find someone who will sell your stuff for you on Ebay and take 30% of the profit – that’s better than nothing if you just can’t do it yourself for some reason. 

Let Your House Seeds Grow

Your goal is a minimum of $500.  Don’t stop until you get $500 in that new savings account.  Once that $500 is in your savings account - DON”T TOUCH IT!  That $500 is your house “seed” money.  Plant it and it’ll grow into a home.  Pull the seeds out of the ground before they grow, you got nothing but worthless dirt.

What did that take you – a day or two?  Did you enjoy doing it?  Many people supplement their incomes nicely doing Ebay-like selling.  Ebay.com has free tutorials that show you step by step how if you want to learn.  This one skill could get you your house faster than you can imagine.  Something to consider doing more of, but at least do it this one time – it’ll feel like progress!  Do it!!!

The Day the Music Died - Tribute to Harold LeMay

The Summer of 1977.  My little South Tacoma Church – Immanuel Baptist – held a slave auction (not politically correct to call it that today, I know, but that’s what they were called then) to raise money for our youth group.  I can’t even remember what we were raising money for, but I do remember that I donated 40 hours of my labor to the cause.  You wouldn’t guess by looking at me today, but at 16 years of age I was in-shape and a fine athlete, and sure enough, I received the top bid that day - $10 an hour (minimum wage back them was like $2.25, so this was an impressive bid).

My buyer that day was a long-time member of our church, Harold LeMay.  Commonly known as “the Garbage Man”, Harold owned a garbage hauling company in Tacoma.  He gave me an address to report to, told me to wear some work boots and work gloves, and said he’d meet me there to get me started.

At the designated time and place, Mr. LeMay was waiting for me, dressed in his usual red coveralls and holding a shovel.  “I need a ditch dug around this field, 2 feet deep and 4 feet wide.  I figure it’s 40 man hours.  If you get done sooner, I’ll still pay for 40.  You can start here and I’ll be out to check on you later.”  And after pointing out the property lines, off he drove in his old flatbed truck.

Not knowing what the ditch was for, I started digging.  Fortunately, the dirt was pretty soft, so the digging for the most part went pretty fast.  But it was hot – very hot.  The field was overgrown with tall, dead grasses and it surrounded 3 huge, boarded-up chicken coups.  Seemed like a strange assignment, but I dug away at it.

That afternoon, Mr. LeMay came to check up on my progress.  He was pleased and said so.  “But what am I doing this for anyway?” I asked.  Looking back, it would have been easy to tell me something fatherly like, “Because I said so”, but I think he might have felt like my hard work deserved some reward.  So he said, “Let me show you something”, and walked off towards the chicken coups.  I followed fast on his heals.

He unlatched a secret latch and pushed open the barn door.  There before me were hundreds of old cars or parts of cars.  Many were just rusted out old hulks, but others were in pretty good shape.  He stood gesturing at his collection and said, “Can’t let my babies get all rusty, and that ditch will help the field drain.”  I remember instantly falling in love with an old rusty Desoto and its shiny chrome conquistador hood ornament and I can still smell the dust and feel the cracked leather as I crawled behind the wheel to check it out.

A few days later was August 16^th, and as I dug KTAC 850 AM broke the news that Elvis Presley had died.  For two hours, they played a tribute to Elvis while I dug more ditch in 90 degree heat.  At the end of the tribute, DJ “Don Wade in the Morning” played Don McLean’s “American Pie”.  For all 8 minutes and 28 seconds, I sat in silence on the edge of my ditch and listened to the words – the day the music died.  I might have shed a tear or two – or it could have been nothing more that a good face sweat – but whenever I’ve heard that song since then, I am instantly 16 years old, back in that ditch, thinking of Elvis, life’s choices, and Harold LeMay’s chicken coups and old cars. 

I had the same kind of reaction the day I heard that Harold had passed away in Nov. 2000.  At the time of his death, the humble Garbage Man and his wife Nancy had amassed the largest private automobile collection in the world (over 3,000 vehicles – see related story inside).  He lovingly restored those rusted out hulks to their former glory – not because the hulks somehow deserved the second chance, but because he loved providing said chance.  Even then, the heavenly metaphor did not escape my notice.  Undeserved second chances - from garbage to glory. 

Tomorrow, part of Harold's collection goes on display at the LeMay America's Car Museum in Tacoma.  I'm sure at some point I will be visiting this fancied-up display of the history of automobilia.  But I remember Harold differently - his overalls, his flat bed truck, his love of the potential he saw in things.  I'm happy that big fancy museum has finally opened, but I'm even happier that Harold's Spanaway Museum location will remain open and will portray Harold's collection in a much more simple and down to earth manner.  Check out both locations!  And thanks for the memories Harold and Nancy!

Should You Pay Off Your Mortgage Early?

I often find myself in long conversations with my borrowers over the best way to pay off mortgages early.  Do I recommend the “Bi-Weekly Payment” plan, the “Extra Payment Each Year” plan, or the “Pay A Little Extra Each Month” plan?  Since it is “assumed” that paying off a mortgage early is a smart financial strategy, people are often surprised when I don’t have a favorite strategy to recommend. 

When I get this question, I try to shift the conversation away from “Which strategy is best?” and towards “Are you sure you want to pay off your mortgage early at all?”  While I think it’s admirable to get out of debt and stay out of debt, I don’t believe “paying off your mortgage early” should be your number one financial priority.

Instead, I believe you should use your financial resources to prepare for the future and all those mean, nasty twists and turns that life can throw at you.  I’m not suggesting a gloom-n-doom approach to the future, but we just don’t know what will happen, and paying off your mortgage early may NOT be the smartest financial strategy for you.

My advice is to focus first on building safe liquid assets (resources you could access with little difficulty to pay for stuff) vs. paper wealth (resources that cannot be accessed easily but look really cool on your financial balance sheet).  Equity in your home falls under the “paper wealth” category because it is difficult to access in an emergency and you may not be able to access it at all when you really need it.

An example of what I’m talking about came across my desk recently.  The applicant wanted to refinance his home to access some of his paper wealth.  For several years, he had been paying extra on his mortgage and only owed about $70,000 on a home worth around $400,000.  On paper, things looked good, but...

I’ll leave the gory details of his set-backs out of my story, but when he came to me for help, his wife had left him and the divorce had drained his liquid assets after he paid her half their paper wealth out of his savings and retirement; he had lost his ability to work due to an injury and lost his business;  he was 6 months behind on his mortgage payments;  and he was facing total financial collapse.  He needed me to help him access some of his $330,000 in equity (paper wealth) to live on. 

But because his credit scores were bad and his income was gone, he didn’t qualify for a new loan.  The bank who owned his mortgage – that same bank he had been paying extra to all those years – wouldn’t help him.  I’m sure they saw his home as a great foreclosure opportunity – all that “paper wealth” made his home an enticing target.

His only solution was to try to sell the home before it was foreclosed on in order to keep some of his “paper wealth”, but since he had been so determined to keep his home – not wanting to uproot his children whose mother had just abandoned them – he failed to act quickly enough and now it was too late.

I wish I could tell you his story had a happy ending, but it didn’t.  What I can tell you is that if this man had had $330,000 of “liquid assets” instead of $330,000 of “paper wealth” – his story would have turned out much differently.  So if you are prepaying your mortgage now, but don’t have enough liquid assets available to handle life’s emergencies, please remember: 

You cannot go grocery shopping and tell the cashier, “I don’t have any money, but my

mortgage is paid off”.  Even on double coupon day, that won’t buy you any fruits or veggies.

- Bank Owned Photo by Mike Licht, NotionsCapital.com 

- Onion Photo by Vancouverbcfoodbank

Follow Margaret Steiff’s Example

Born 1840, Margaret suffered from childhood Polio at the age of One.  She could not walk and had limited use of her right hand.  There was no “social safety nets” – no welfare or disability programs - and her mother lamented she would have to care for Margaret the rest of her life "because she had no chance for a bright future".

But Margaret decided she would have a bright future and at age 16, she begged her parents to let her go to sewing school.  If you know anything about sewing, you know that you have to be able to feed and control the fabric with your right hand and sewing machines were operated with foot peddles.  She had no use of her legs and her right hand was useless too.  But she wouldn't give up on the idea and she convinced her parents to let her try.  I don't know how she managed to work the machines, but after a few years of school, she became an expert seamstress and opened a little dress shop in her parent’s home. 

One day she saw a pattern for a cute elephant-shaped pincushion so she made 8 of them to give away as Christmas presents.  At the family party, she noticed her nieces and nephews playing with the pin cushions like toys, and she got an idea.  Margaret started selling these elephants and many other animal creations in her dress shop as toys.  The toys were soon outselling her dresses and she couldn't keep up with the demand.  Her business started growing fast and she hired many of her family members and neighbors to work for her.  This "no chance for a bright future" woman was now employing friends and family and running a successful buisness.

In 1902, a big celebration was being planned for the President, Theodore "Teddy" Roosevelt.  Teddy had a reputation as a rough-n-tough outdoorsman.  One of his campaign posters featured him holding his rifle and standing with one leg propped up and a large bear he had shot (my, how times have changed in politics, eh?).  In honor of the celebration, Margaret got the idea of selling a new design - a "Teddy" Bear.

That year, her company sold over 3,000 Teddy Bears.  Popularity and reputation spread and by 1907, her company sold 974,000 stuffed animals!  Today, the company is still going strong, selling high priced, high quality stuffed animals, all with the trademark button sewn in one ear.  Old ones sell at auctions for hundreds and thousands of dollars, one recently fetching $125,000 at an auction!

Margaret's Motto:  "Only the best is good enough for children".  "Only the Best" is a great way for you to approach what you do for a living too.  You can never be faulted when you continually provide "only the best" in whatever you do.  And people notice - they really do.

Margaret Steiff decided that in spite of her circumstances, she had the option to chose something better - to have a great life - to create something beautiful and live a life of meaning and purpose.  If she could do it, so can YOU!

- Photo by Dierk Schaefer

Time Budgeting

Who is that fat, happy man in this black-n-white photo?  Show this photo to 100 people today and probably none of the 100 will know who it is.  Do you?  I seriously doubt it.  And why should it matter?  Anyone who can’t afford a color photograph probably doesn’t have much to teach us about building wealth anyway, right?

That fat, happy man happens to be the 2^nd richest person in modern history.  Know who he is yet?  Probably not.  (If I asked you who the #1 richest person in modern history is, would you know that?  If you guessed “Bill Gates” – you’d be off by about 19 spots on the list.  The #1 richest person in modern history was John D. Rockefeller.  So who is this #2 person that we’re talking about and why does it matter?)

First, the reason this person is important to you is this:  If the 2^nd richest person in modern history offered to teach you the secret of success, do you think it might be worth your time to listen?  Please say “YES!!!”  Because that is exactly what Andrew Carnegie did.    

At the height of his success, power, and wealth, Andrew Carnegie wanted to teach the masses how to become successful – something the wealthy and powerful of the world typically frown on.  “Keep the masses dumb and dependent and you can control them forever” has been the mantra of many powerful people throughout the ages.  For Andrew Carnegie to purposely offer his wisdom and secrets to ordinary people was and is a BIG deal!  And he also opened the door to the secrets of other wealthy and powerful people.  His efforts probably helped create more millionaires than any other person in history by providing know-how and promoting the idea that ANYONE can become successful!

It was 1908 when a young, unemployed reporter by the name of Napoleon Hill was summoned to meet with Andrew Carnegie.  Carnegie offered to introduce Hill to the world’s most powerful and wealthy people if Hill would agree to compile their collective wisdom and write “a new philosophy of success” using all he would learn.  Though almost penniless himself, and with no promise of financial help from Carnegie, Hill jumped at the opportunity to work on this project and promised to complete it—which he did.

Over the next 20 years, Hill interviewed over 500 of the most wealthy and powerful people in the world to find out their secrets.  From these interviews, Hill wrote and published several books and became a multi-millionaire himself.  His most famous book was titled, “Think and Grow Rich” – published in 1937, this is still one of the best selling success books on the market today.

One of the first interviews Hill conducted for his research was with Andrew Carnegie himself.  During this interview, Carnegie introduced Hill to the concept of Time Budgeting – which Hill credited for much of his own success.

Here was Carnegie’s daily schedule – can you do something like this yourself?

8 hours a day for Sleep

8 hours a day for Work

4 hours a day for Recreation & Health

2 hours a day for Extra Service to Others

2 hours a day for Study and Prep

Are you getting enough sleep every night?  Are you out of balance with work vs. fun (I know I am right now)?  Do you serve others and spend time improving yourself through reading and education, etc.?  Carnegie didn’t have more hours to work with than you do but his Time Budget helped him get a LOT accomplished! 

Photo by:  Monrovia Public Library - Monrovia, California