If you’re anything like me, you’re always interested in finding new ways to make money. Usually this comes as seeking new real estate investments or business opportunities. What if I told you that there’s an even easier, risk free, way to improve your cash flow which is often overlooked?
Every person in the world has been impacted during this past year with the COVID pandemic. I think it’s safe to say that there are going to be lingering issues for the rest of our lives whether it be mentally, emotionally, or financially. It has been so tumultuous at every level of our lives. Our emotions and minds are spinning out of control which creates a feeling of confusion and lack of stability. With each passing news headline and stories of hardships, questions and self doubt pop up slowly eating away at your resolve. Am I doing the right things for my future and family? Am I missing an opportunity that I should be focusing on right now? What is going to happen to the future of our world?
The constant shifting can make it difficult to remain grounded and prepared to move ahead when the timing is right. Just try to keep remembering that you’re absolutely not alone. It feels lonely since most of us are locked in our homes and safely distancing from family and friends. I previously thought that anxiety around my fear of missing out was the worst possible feeling. I’d much rather have that feeling back versus there not being anywhere to go.
Depending on the industry that you specialize in, you may be in a better or worse situation due to the pandemic. That’s fantastic if you’re in a better position. Continue to take steps to remain prosperous. This advice is going to be helpful regardless of how well you have weathered this past year.
In trying times, sometimes all we need are a few little victories to bring back a little hope. I personally try to focus on the things that I can actually control. Doing these little things can give you that boost of inspiration knowing that you can still improve your position even when you are hearing nothing but doom and gloom. Try your best to avoid the negativity and work on these simple things that will improve your life financially.
Insurance. Take a look at all of your insurance policies. Is your insurance agent working for you by shopping around for comparable coverage at better rates? Are the policies that you have still adequate or should you be looking to make adjustments on coverage?
During good times when things are really busy and I’m making new acquisitions or growing a business, insurance usually ends up being something of a nuisance. I quickly get a policy in place that gets me covered at that time to move forward with a deal. It’s not so haphazard that I don’t have appropriate coverage as much as it is that I haven’t looked at other options.
Again, if you’re anything like me you may have insurance policies scattered across a number of different carriers and agencies. That’s really not anything that bothered me too much until I took a moment to really look at the mess it is starting to become as I continue to scale. Even if you don’t have a lot of different properties or businesses, you most likely have multiple policies like auto, renters, homeowners, umbrella, etc… Take a close look at the policies that you have, or should have, and take the steps below. I recently, within the past couple of months, did these steps and managed to improve my overall insurance coverage and created thousands of dollars a year in premium savings.
- Gather up your existing insurance documents. These documents will have details of the current coverage and premiums, which will make the next steps much easier.
- Evaluate your relationship with your agent. Ask yourself the following questions. Do you even know who your agent is? Do they really even know who you are? Have they ever been in contact with you to discuss your policies to ensure appropriate insurance coverage or premium reductions?
- Get in touch with insurance agents. If you have a great relationship with your agent, perfect. Just make a call to touch base to make sure that your policies are up to date and see if they have any recommendations. If you find that your relationship is lacking or non-existent you’re still in luck! The insurance market is very competitive and you should have no problem finding an agent that is hungry for your business and will provide you with the level of customer service that you deserve. I suggest searching for local insurance offices so that you can establish a relationship with a real life person that is a part of your community. Not only does that allow you to build a rapport, but you’re also supporting a local business.
- Evaluate options. So you’ve reconnected with your existing agent or you’ve started a dialogue with new agents. How do you feel? Do they give you a feeling of sincerity with a genuine interest of your insurance needs? Did they provide quotes and walk you through the different policy options and coverages? If not, keep looking. I guarantee that there is a stellar agent that would be delighted to have you as a client.
- Execute policy changes. Hopefully all of the work in steps 1-4 have paid off. Either saving you some money, fixing coverage gaps, or by developing a better relationship with an insurance agent that will work for you.
Refinance Loans. Interest rates remain at an all time low. I don’t know if this is the lowest they will go or when they will begin to climb, but if you can lock in better interest rates then I suggest looking into it. Here is my disclaimer that I am not a financial advisor / expert and these are strictly just my opinions. Everyone’s financial position is unique and I would suggest reaching out to an expert for guidance if you have any questions.
I have been putting off refinancing my loans because I didn’t ask the question about what would be involved. I pictured a difficult negotiation, ridiculous fees, or even being denied. These were all just barriers that I was putting in front of myself for no good reason. I attribute it to the uncertainty and feeling of imbalance that I discussed earlier in this article. The current environment that we’re in makes casting self doubt and uncertainty extremely easy, and we need to remain vigilant and quickly identify when this happens (in all aspects of our lives).
Depending on the loans that you currently have, there may be a couple of different options to explore. I have successfully deployed each of these methods below on loans that are tied to assets. I do not have any personal experience with negotiating rates on consumer debt, but if that applies to you, definitely reach out to the lender to see if they have any options.
- Refinance. This could mean restructuring multiple loans into one, changing terms, reducing interest rates, etc… It’s essentially establishing a new loan on an existing asset(s). One strategy to consider deploying here is if you own your own home. Consider this scenario where you currently have an interest rate of 5.25% and 20 years left to pay off your home. Refinancing could restructure your loan to a new loan at 3% over 30 years.
- This takes the remaining balance that you have on your loan, lowers the interest rate, and spreads the balance over 30 years. This drastically reduces your monthly payment and free cash flow for other investments.
- The initial reaction, from a non wealth building perspective, is that you’ve reset the clock and you’re stuck with another 30 years to pay a mortgage. On the surface that’s true. However, consider the amount of money that you are now saving on a fixed monthly payment. Redeploying the savings to an investment that earns more than 3% interest is going to provide you a better return in the long run.
- Keep in mind that there are closing costs associated with refinancing, which can typically be rolled into the new loan. These fees are typically offset by the savings over the course of the first year. Refinancing probably does not make financial sense if you’re planning on selling your home within the next year.
- Cash Out Refinancing. This process is very similar to the refinancing option, but in addition to changing the loan terms you get a cash payment. After owning your home for 10 years, hopefully you have some equity built up that you can cash out. So using the example from the refinancing option, the new loan balance would also include whatever amount you decide to take out. This cash out amount would be rolled into the new 30 year loan at 3% interest.
- This is a great strategy for those that need cash to purchase another asset that generates income or for an investment. Where some people get caught in this is that they use the money to buy a liability which liquidates their net worth. Buying a liability with a cash out refinance is not a wealth building move.
- Maybe you don’t have an investment to make or desire to buy an asset. In this case cash out refinancing may not make sense. However, maybe you have another loan at a higher interest rate like credit cards, line of credit, auto loan, student loans, etc… It would be a wealth building strategy to pay down higher interest loans with a lower interest loan.
- Again, there are closing costs associated with cash out refinancing. You will need to determine how long it will take to pay off the refinancing fees based on the overall savings from the restructuring.
- Rate Adjustment. This is a method that is new to me, which I have utilized for a few of my real estate loans. This simply a change to your interest rate without changing any of the other loan terms. For example, a lender can lower your interest rate from 4.25% to 3.25%. This will lower your monthly payments by the amount of interest that you are no longer paying. Pay principle down at the same rate while improving cashflow.
- The benefits of a rate adjustment over refinancing is that it can be done relatively quickly, it often doesn’t require an appraisal of the asset or property, and the fees are lower versus refinancing.
- This is a great strategy if you’re happy with all of the other loan terms. Typically if it is a commercial loan, it will be a balloon loan which will need to be refinanced at some point in the future prior to the balance being paid off. In my case I have 4 years remaining, so a simple rate adjustment made sense versus going through the complete refinancing process.
These are just some wealth building strategies that I have been deploying to better position myself during this time of uncertainty. It is amazing how much money can be saved just by making a few phone calls and asking a couple questions. It’s actually fun to find increased value in existing holdings. Best of all, there’s no risk involved!
What are some other strategies that you have been working on to improve cash flow and maintain your financial health?