Make the Most of What You Don’t Have

This guest post was written by 14-year-old blogger, Tushar Dhoot.

It takes a good businessman (or businesswoman for the feminists out there) to manage their finances properly, and to take the cash at their disposal and get the best return for it. We hear stories about these kinds of people all the time. It takes a truly gifted businessman, however, to make the most of what they don’t have, and to make money off the cash that is not at their disposal. The stories of these people are the ones that the mainstream media doesn’t cover.

What do I mean by making the most of what you don’t have? Debt management and making money off your debt, of course! This is a topic that John has often preached about on this blog, and while I am a fierce opponent of racking up credit card debt because of the gateway I believe it creates, I still understand and value the power of making debt work in your favour, and basically, making the most of what you don’t have.

Interest Reduction

The first, and probably most obvious, part of debt management is to juggle it to lower the interest rates on your loans. This can help you pay off your loan in a less amount of time, and therefore also help you save thousands on your loan. Just like a bad commercial, however, there’s that “But wait! Buy now and get..” moment here too. So not only do repay your loan faster and cheaper, but doing so can also substantially increase your credit rating, and help you get a loan easier and for a lower interest rate in the future.

The way this works, is that you go loan hunting, looking specifically for a lower interest rate than whatever you’re paying right now. Once you find the best deal, you shift your entire debt from the loan with the high interest into the loan with the lower interest rate. Now you just pocket the savings. So if, for example, company A charges you 5.5% for a loan, and company B can offer you the same loan for a lower 4.0%, you’ve just saved 1.5% per year on that loan!

Investment Debt

This is the kind of good debt you’re always hearing about. I know John’s always talking about, and most of the time, he’s right. Investment debt is basically finding someone to give you a loan for a lower interest rate than what you can make from your business or a business opportunity. This is great for online businesses because a lot of them, if managed correctly, grow exponentially, and in a world of single-digit loan rates, you’re going to make some big money.

When you do start to acquire some debt to invest, you want to first calculate your rate of return. I don’t want to make this a financial 101 class, so I’ll just simplify it and say a rate of return is basically how much you make back on your money per year in % (percent)format. Then you just have to go out and find a loan with a interest rate that is less than your rate of return, and invest the borrowed money alongside your own.

One thing that is vital to understand is that, while you may be making a smaller percentage of profit on the borrowed money, you will make more overall because you are basically making a profit on money you never had. So if Jack had $10,000 to put into a business that paid him 15% return, and he borrowed an additional $10,000, he would make 6% on $20,000 instead of $10,000. Sure, he’ll make less on the additional 10 grand because he will have to pay interest, but the fact that he’s making more overall should be enough to entice him.

Banking It

This is the final, less common, form of good debt. It’s when you take debt from a loan, and then put it into the bank so they can pay you. This only makes you money if the bank is paying you more than you are paying the creditor in interest. The reason this isn’t so common is because most banks are offering approximately the same, if not the exact same, rate for you to keep your money in their vault. They have to make a profit, so they will almost always charge a higher rate on loans then what they pay for deposits.

If you have a good credit rating, however, most banks will be willing to give you an introductory low rate. This can be for a short amount of time, like 1 or 2 months, or for a long time, such as 2 years. What you do is take the loan, put it into a high-interest savings account, and profit off the difference. When the time to pay up comes around, you just take out what you need and pay them back. The rest is yours to keep.

So that’s how I think you can make the most of what you don’t have. As with all things financial, however, I stress the importance of you researching what you’re doing and thinking it over. The last thing I would want to do was hear about someone harming their finances because they tried one of these strategies and failed. These can, and do work, if used correctly. That’s it for now, and until next time, keep making the most of what you don’t have!

31 thoughts on “Make the Most of What You Don’t Have”

  1. Manori Money says:

    Thanks for the info john. I think this can be related to many people. Considering what we are going to through in the States.

    1. Faisal Anwar says:

      Well, Manori this applies to everywhere around the world especially in times like this. You really know alot Tushar. Good writting too! Some of the things you said here are entirely new to me. Thanks for the info.

      1. Not new info for many, but well worth riminding yourself of it and writing down ways to improve your current situation.

        Thanks dude, you’re well in tune for a 14 year old!

        1. True most already know it but it’s kind of a shock to the system when it comes from a 14 year old.

          1. Yeah Michael, I know what you mean, I can believe Tushar is only 14. Such a great post and with a so mature information.

            Congrats Tushar.

  2. Manori Money says:

    Thanks for the info Tushar. I think this can be related to many people. Considering what we are going to through in the States.

    1. I’m never a fan of putting money in even what is considered a “high interest savings account” (by that I mean the typical 3% interest). In the Summer of 08 I was able to find a bank that paid 6.1% interest on a CHECKING account up to $25,000 compounded monthly. Try to find a SAVINGS account do that, no way. It takes a lot of searching, but they’re out there. Granted, with times like they are now, the same bank is “only” paying 3.5%, but still, much higher than any other bank I can see for CHECKING or even savings.

      Another great idea is to look into Tax Lien Certificates (referanced in Rich Dad Poor Dad). They have a GUARANTEED rate of return with an average rate of 16%+ per year. And if the home owner doesn’t repay the tax lien within the given time period, you as the lien holder own the house flat and clear for WHAT YOU PAID (pennies on the $). My local county pays 19% with more htna 85% of the liens paid back on time. This is definately a strategy that some people are too scared to do, but something that I am seriously looking into.

  3. Tushar, your definitely on the right financial path with your mature thinking. Congrats on another good post!

    But with your third way or borrowing to make money, his is one risky venture for the amateurs out there. One mistake I encounter with a lot of people end up helping is the fact they either borrow off a line of credit or on margins to play a “hot stock”…you can all guess the outcome that is awaiting that story…

    With any opportunities, be it trying to find a way out of debt, or looking for a few % to add to your net asset value, take a look at both sides and be wise.

    Also when looking for investment debt, you gfotta be careful about what your making, and how your being taxed on that income. Many people fail to see the tax factor until the end of the year at which point they may break even if at best on their venture.

    There is more to learn out there, but you certainly have opened up some thought for many readers to further look into.

    1. Tushar says:

      You are only taxed on your profit, and the tax is never 100% or greater, so you should be making money no matter what.

  4. Splendid Kid says:

    Tushar is such a really great blogger. 🙂

  5. Tushar … I can see that you are going to lead either IMF or WB. Such a clear concept at this age … simply amazing. How did you get this … your father is economist ? lollzz

    1. Faisal Anwar says:

      what, you mean Warner Bros? haha, kidding. Tushar really got some talent in what he does. Keep it up man!

    2. Tushar says:

      Thanks ZK!

      My father is an accountant 😛

      1. Now I can see why you know so much about economics, lol.
        You can tell your father he have done a good job with you he must be proud.

  6. Pahn says:

    I think this is more of a risk,, I usually intend to make most first of what I have,, because every time I do that, it just grows more and more,, then I make most of what is added… I was not interested of getting risk to somethings I am not sure of yet 😀

    1. Wess Stewart says:

      It’s not a risk if you know the game. 😀

    2. Tushar says:

      I know, and that’s why I said you can’t base yourself off this post. You have to make decisions on your own, and look over everything carefully.

  7. Tushar,
    Very impressive post. I think most people may not know this. I guess the average person just takes a critical look at how he or she spends the money, then set their priorities. If there is little or nothing left over at the end of the month, they then find ways to cut their expenses.

    Peter Lee

  8. game-girl says:

    Tushar makes people think about wastes and profits and balance in the financial world.Nice ideas.

  9. Alex says:

    Great advice but remember, borrowing to invest is leverage and leverage cuts both ways.

    A sharper knife will cut meat easier but if you cut yourself it will also hurt you more.

    1. that is a really good quote!

    2. Tran Harry says:

      I like this quote as well, the idea of risk management is how risk adverse each individual is.

      But they thing that I have learned from the recent downturn is that you don’t necessarily get the biggest gains from taking on the riskiest bets any longer.

    3. Tushar says:

      Nice quote.

      You’re right, there’s always the “flip side of the coin”, as I call it.

      The thing is that while the knife can both you and the meat, it will only cut the meat if you’re careful. It’s not something you everyone can do, of course.

  10. Alex says:

    Did I mention? Amazing financial wisdom for a 14 year old!

  11. Pretty dang good witting for a 14 year old. Kid you have a bright future ahead of you. It’s funny when a kid knows more about finances then most adults do.

  12. Linda says:

    A young man destined to go far in the business world.

  13. Yet again an amazing post! Thanks, I now have smth to think about 🙂

  14. Great tips as always, Thanks John!

  15. appleblogger says:

    debt? i will think it again.

  16. You are right tushar, and I believe that living without a single debt isnt not good as well, you maybe then getting less riches than you possibly could, not saying that you need to get a huge debt, it may need to be no more than the 20% than the money you really have to spend. This way you can get more assets or goods without you needing to use your own money.

  17. This topic good tusar.I have some opinion when some know the right balancing of money he will succeed. so every country there are people like that kind going for real success because they know where to spend money how earn money like John chow.

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