Tuesday, August 14, 2007

10 Ideas for Living a Life Without Credit or Debt

I was reading 10 Ideas for Living a Life Without Credit or Debt and thought it's a good way to live life but does it make sense to a business man/entrepreneur?

In today's world, it is very difficult to live a life without Credit or Debt. Of course this is what my parents followed and preached us to live without a debt but my father was a teacher and not the entrepreneur....

Let's look at the each point.

1. Save an emergency fund: YES, it is absolutely necessary. Particularly when you don't have good credit.

2. Save for goals: That's how you can buy what you want unless you hit the lotto.

3. Get a Debit Card: I don't agree with this. I would rather purchase using credit card and immediately pay it. There are many advantages using CC.

4. Earn Interest instead of paying it: It does make sense to earn interest but sometime it make more sense to pay interest and earn more by investing better way. That's how these businesses run. In today's world, CASH FLOW IS THE KING, NOT THE CASH.

5. Buy a car in cash: you won't be able to afford better card if you are planning to buy in cash. I would rather put this way. Buy a car less than your saving amount. E.g So far I bought two cars and both of them in cash but than immediatly took loan to improve my credit.

6. Invest for Retirement: It is common sense to invest for retirement. Ideally invest in business which can give you passive income than mutual funds or 401K.

7. Travel without Credit: Yes, you can deposit cash to rent a hotel room if you were in hotel. How about booking hotel from your home? Also do you really want to carry big amount of cash with you? what a stupidity?

8. Rent without Credit: It would be very difficult to rent without credit. Rental companies doesn't care about how much money you have in bank. They check for credit report or ask for credit card to secure the payment.

9. Buy a home without credit: Is it possible?

10: Use Paypal online: This is the only point where I agree with author. Paypal or google checkout makes more sense than giving a check or event credit card numbers to avoid fraud.

Saturday, August 11, 2007

My First Business in USA

Along with my IT career, I wanted to start part time business as a backup plan and eventually get into full time.

I didn't wanted to jump into business and leave my well paid job. So I and my wife started discussing about starting some business. We came up with list of criteria to get into business.

  1. Business should be manageable without us physically working there:I have a full time IT job and we were planning to have children so we decided to start business where we can manage with employees without being present there. And that's what happen. My wife became pregnant within 3 month we bought business and Dr. asked her to take bed-rest. She delivered a baby last month and we were managing business with employees.

  2. Existing profitable business:Unless you can dedicate your full time for marketing and sales to grow your business, don't start with a new business. Buy existing profitable business so from day one, you are earning enough to at least break even or profitable.

  3. Well known franchise:I know many people would argue against this and say that why should we pay 10% to franchiser? Well as you know, brand always helps. As a new business owner, you don't know how to run business and what are the legal and operational issues. Franchiser provides you training. They have a proven business model. They spend time and money for market research and advertisement which we can't afford.
    Also Brand will differentiate your business against your competitor.

  4. Business in 10 miles radius from your home:In last one year, there were so many occasions where I had to rush to the store immediately. E.g Food delivery came and you forgot to write a check for them (Initially you will not have credit with new vendor so you will have to pay at the delivery time). or machine is not working or employee called out etc.. If you live near to your business, it would be easier for you to manage.

  5. Business with more than $300K revenue: This is true for a restaurant business. As we were planning to run the business through employees and if the business doesn't have enough revenue, we can't afford to hire employees and run the business. If revenue is $300K than event net profit is 10-15%, you can afford to payback the loan.

  6. Location: As you must have heard for real estate, "LOCATION LOCATION LOCATION". If you have good location than your battle is half won. It helps a lot to have business in good location. After I bought this business, there were 2 new ice-cream store opened but due to my location, It didn't affect me a lot.

  7. Buy a business before buying a house: This is my personal opinion. Once you buy a house and you start paying your monthly mortgage, you won't be able to take risk for the business particularly where you are relying on business loan to fund your purchase.

After doing research for almost 7 months, we bought an existing Dairy Queen franchise to get started into business. We will be completing one year this month. I am glad that I made that decision and wanted to share with you guys.
Your questions/comments are welcome !!

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