Are You a Financial Idiot Like These Guys?
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I just finished reading an article about how 3 men are in jail, each with bail set at $5 million due to a $200 million dollar scheme they had going on. (Click here if you want to read the story). Now what got me the most interested in this story is how they were doing it and how many of us probably do similar things.
Now I truly do not know the entire story here, but from what I can tell is these three guys started gathering investors for real estate investments. They would actually buy the real estate but what happened (and this is just my interpretation), is they got greedy and started spending the money they started to make instead of reinvesting it in the maintenance and upkeep of the properties.
Now over time, the properties started to depreciate because of lack of maintenance and some had to be closed down but what the three guys did was they recruited more investors to then pay the interest to the original investors.
Basically they where getting themselves in more debt, to pay off the original debt.
So here is my question for you… well actually a couple questions.
1. Do you focus in on your business and ensure you reinvest a proper amount of your profits to maintain current investments?
What I mean is, do you just build and build and never reinvest and maintain?
I see so many people put so much time and interest into a blog or something else and then once done, they just move on to the next one. They stop promoting, stop adding new content, stop updating and all that good stuff.
What ends up happening, is the original investment dries up and they continue this cycle, they never actually grow their business but just barely maintain its current level because they are simply building a new one in place of an old one they let die.
It is like trying the fill a bucket that has a hole in it. You can never sit back and relax because you have to keep working to keep at least some water in the bucket.
2. Are you paying debt with debt?
OK, this one is not so much a business question as just a very important one.
Did you know that the average American saves “-1%” of their income, compared to “+10%” fifteen years ago.
I know of people that actually pay off debt by just transferring it from one credit card to another. I am not talking about transferring a balance from a higher interest rate to a lower; I mean just making the min payments.
Finances seem to be one of those things that we so easily say…
“I will take care of later”
Whether it be investing, saving or getting out of debt, we seem to think we have plenty of time and have nothing to worry about… until it is too late!
The problem is the majority of us do this all our lives and then retire with nothing and look back crying that we were so stupid.
I wonder if those three guys really intended for this to happen or did they actually want to start a legitimate business but let greed and the “take care of it later” take control?
Do not be one of the sad statistics… step back, look at what you are doing and then do the things that will put you in control.
So what comments or opinions do you have? Oh and if you liked this post please share it on twitter by clicking here.
You are spot on about the “i will take care of it later” part and its amazing how easily you can accumulate debt from credit cards
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thanks for your articles,…It's seems that I have to open my eyes widely, that I'm still like a Financial Idiot Like These Guys
For the most part the sites I build are a set and forget model so maintainence isn't really a huge part of what I do. But I still look back at how I can improve them from time to time.
Steve
WOW they are either very evil or very stooopid…or both.
I don't understand people who rip other people off…..and credit cards to pay off debt is foolish…memories of college…silly youth.
Lol, that was a good read indeed!
Hi
Didn't Bernie Madoff do the same thing?
And the Federal Reserve?
Aren't the Western Nations moving towards a 10 Trillion debt?
Where are we going to put all these people now G-Bay is closing?
Guess I lost the plot somewhere over the rainbow, or what rules
are we marketers going to play by?
Stan
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Hello!
Good article! Paying debt with another debt is always a greater risk.
Thank you
There isn't anything wrong with paying debt down with debt, it's safe to say that 90% of all publicly traded companies do this. The problem is that it was a ponzi scheme
Great point about peple procrastinating and saying that they'll do it later. I had actually heard recently about what you said with people saving negative 1% of what they get. Our society is going down the drain because of people wanting the easy way out of everything in life. Anyway, great stuff! I'll be visiting back soon.
Better be careful wiht dept, thanks for the article.
Paying Debt with Debt? Sure… IT is a common practice here in Portugal sadly…
Wow… who did these guys think they were, Bernard Madoff? This is a perfect example of how NOT to run an honest enterprise. I'm of the opinion that unless everyone wins, there's no sense in putting a deal together. Then, if you have any sense at all, you will reinvest at least a portion of your profits and make your business grow. That's how to grow true wealth so you eventually don't have to work so hard and long.
I would consider myself a financial idiot but that's only because I have a hard time figuring out how to make my money grow. One thing I've maintained though is my current lack of debt. I never borrow unless I really really need to. Then again, that might be the reason why I'm not earning even more. Don't some successful businessmen say that it's impossible not to make loans if you want to make your business grow?
You are so right. Instead of continuing to build on one business, I am continually putting up new sites and end out not having the time to focus on all of them. I like the set and forget model too, but they would probably be more profitable if I spent more time focused on just a few.
This is sad but true. Everybody can concede that we are all finacial idiots.
Toronto Roofing
No. I am not!
I confess I am financial idiot. Oh well, I guess at least not that much when I was sill younger.
This really was a nice little wake-up call to anyone who owns multiple sites (most people reading this blog). You truly have to work at even your most profitable early built sites every single day to keep them that way. This market is too dynamic to slow down at any point.