An article about your discipline level.

Invest vs pay off credit cards. Skill for SMB success secrets…

I was listening to a podcast the other day on my morning walk.

In the show, the guest was talking about their story of how they were deeply in debt, spent more than they earned and were generally a financial mess.

Then, they started saving part of their paycheque and a year later had a down payment on a rental property.

They then went on to buy many others.

They did all of this while carrying their credit card and other debts.

Yes- they do have a book that you can get for free and likely offer a program to teach you how to be successful for only $1997.

Now, when people ask me if they should pay off their credit card debt before buying a business, I normally tell them they should.

Why?

Two big reasons.

First- credit card debt is often at 19.9% interest or more.

If you pay off this debt, you’re enjoying an after-tax yield of 19.9% on your investment.

Yes, your payments to kill this debt are an investment in freeing up future cash flows for your own purposes.

It’s hard to find this kind of guaranteed investment yield anywhere.

Second- If you’re trying to pay off your credit card debt, you need to live below your means.

You need to free up extra cash to put onto this debt.

Let’s think about how you got this debt…

You spent more than you earned.

Right?

That means you are likely suffering from a lack of discipline.

When you are paying off this debt, you need to act in a disciplined way.

What will this mean?

It will mean that at some point in the month, you will have spent your ‘discretionary budget.’

You will be, say, 5 or 6 days away from your next paycheque and will have no ‘extra money.’

This means you’ll have to eat what’s in your fridge and get by on the gas in your tank.

No extra lifestyle perks for 6 days, no Uber Eats or anything like that.

When your buddy calls up and asks, ‘Hey, the whole gang is going over to Chotchkie’s for wings tonight and we’re going to count the pieces of flair on the waitress’ suspenders, are you coming?’

You’ll have to say, ‘no.’

Can you do this?

This is exercising your Austerity Muscle.

If you can’t say no and you go to the bar and use your credit card to cover the bill, then you basically have no self-control.

How the hell are you going to manage a business successfully if you can’t say no to something like this?

Or that new pair of shoes… or tell your kid that buying new jeans will have to wait until next payday?

The value of paying off crappy debts before you get into business is that it affords you the chance to become a more disciplined and self-controlled human being.

This is a very, very valuable skill when you are a business owner.

You never know what will happen in business to totally mess up your cash flow.

Things like…

-Customers that don’t pay.

-Employees that steal.

-Inventory that goes bad.

-Suppliers that mess up and don’t deliver.

-Governments that tear up sewer lines and cut off access to your store or just change regulations that you’re forced to comply with that might cost you money.

-Etc.

The ability to triage real financial demands and make tough decisions will be required.

Getting over 5 days until you can spend money again will seem easy in comparison to the challenges of being in business.

Your personal financial situation is looked at by banks making lending decisions about business acquisition.

As one banker once said to me…

'How can I trust someone to successfully run a business when they can’t successfully run a household?'

Good question.

If you’re serious, committed and have the discipline and want to learn how to buy a business in a risk-controlled way, sign up for my online learning program at https://www.BusinessBuyerAdvantage.com

Cheers

David 25-pieces-of-flair Barnett

P.S. If you enjoyed this and want more like it every day in your inbox, go sign up at https://www.DavidCBarnettList.com