Rich Men Cry

[Dr. Shane]

My Facebook friends may have seen this there:

With Chrysler and GM closing down a lot of dealerships we see a lot of rich men crying on the news. I think if they had followed Dave Ramsey's debt-free path of running a business they would be in much better shape. They are crying because despite the millions they may have in assets, they have even more millions in debt.

Imagine the shape these dealership owners would be in if they had their sales lot completely paid for. Most of these properties are in prime locations along busy expressways or main traffic corridors. If they were debt-free these owners could open up a used car lot and use their garages as mechanic, body, tire and oil-change shops. However since many of them are covered in debt, they will end up filing bankruptcy and the buildings will sit there for months or years until someone develops them into another business.

[phkrause]

Some good thoughts there Shane. Its sad that we live beyond our means. I know, unfortunetly, I'm one of those.

pk

[GreatLakesGramma]

No, the government is not the main problem, the people in this country are. The government is only the way it is because its citizens are the same way.

[Liz]

Rich Men Cry--

Well, all I got to say is....Boo, freakin', Hoo. These guys live in these huge houses, drive fancy cars, take expensive vacations, all the while looking down their noses at "us little people", and now I am supposed to feel sorry for them? Yeah, riiiiight.

[Outta Here]

It's all relative. There are always people who are better off financially; always people who are less well off. But people are people, just the same.

[Key Guy]

Some good thoughts there Shane. Its sad that we live beyond our means. I know, unfortunetly, I'm one of those.

As a small business owner and one wanting to grow aggressively, I find that it's a struggle to balance debt, financial stability and growth.

In a home setting, one only need to make sure the expenses don't exceed income.

In a business setting, one must live off of the profits, yet be able to invest in the future (advertising, new stock, new product lines, expansion of the business infrastructure and equipment).

Borrowing funds for growth is logical when times are good. I'll be the first to admit that many business owners over-extend, a quick drive by the local banks' lots full of repossessed business vehicles tells the story. But it's a common adage in business that it's VERY helpful to work with other people's money.

I choose to follow the Japanese business model of slow, systematic growth for more dependable results. Yet, borrowing is still part of that equation. What's a better realistic suggestion?

[carolaa]

Rich Men Cry--

Well, all I got to say is....Boo, freakin', Hoo. These guys live in these huge houses, drive fancy cars, take expensive vacations, all the while looking down their noses at "us little people", and now I am supposed to feel sorry for them? Yeah, riiiiight.

I could be wrong, but I don't think Shane's point was for us to feel sorry for them. I think he was just pointing out that if these guys didn't have so much debt, they would be sitting pretty right now.

My boss owns a small business, and he worked his way out of debt years ago and pays cash for all his inventory purchases. He hasn't gone into debt to live high on the hog, either. He lives in a middle class neighborhood. His big splurge is one overseas trip every year, mostly paid for by credit card rewards. (He puts everything on the credit card and pays it off every month.) The ones who have managed their businesses sensibly and cautiously are mostly going to do fine.

[Liz]

With Chrysler and GM closing down a lot of dealerships we see a lot of rich men crying on the news.

This is what I was commenting on. I agree with Shane, if they had followed Dave Ramsey or any of the other "get out of debt gurus" they wouldn't be crying.

[carolaa]

I think it's a bit of a misnomer to call them "rich." They are living as if they were rich, but they are not rich. Hence, the crying when the chickens come home to roost. What's really sad is how it affects other people besides themselves.

[bonnie]

[quoteRich Men Cry--

Well, all I got to say is....Boo, freakin', Hoo. These guys live in these huge houses, drive fancy cars, take expensive vacations, all the while looking down their noses at "us little people", and now I am supposed to feel sorry for them? Yeah, riiiiight.

[carolaa]

So you feel sorry for people who live beyond their means? Because that's who Liz was talking about.

[bonnie]

So you feel sorry for people who live beyond their means? Because that's who Liz was talking about.

I know who she is talking about. Living beyond one's means is not a crime,it is a bad financial decision. Doing so does not make them bad people.

It certainly doesn't mean anyone is looking down their nose at another.

I feel bad for anyone that has put their heart and everything they have into their own business and now may lose it. As I do for those that are facing foreclosure thru their own bad decisions.

I don't resent those that have more than I do. Nor am I happy when and if they lose it

[Dr. Shane]

As a small business owner and one wanting to grow aggressively, I find that it's a struggle to balance debt, financial stability and growth...

In a business setting, one must live off of the profits, yet be able to invest in the future...

it's a common adage in business that it's VERY helpful to work with other people's money.

Borrowing money is required in many circumstances to start a business. However once the business is established (3-5 years) it should be debt-free. Many business owners live on credit and are always buying new equipment or expanding by using credit. That is how they get up-side down and when the economy slows or they lose a major client they end up bankrupt. Some even borrow money on a regular basis to make payroll.

The key to becoming rich - and I mean extremely wealthy - is getting and remaining debt free. While some claim it is helpful to work with other people's money, as long as we do that we will be paying other people interest. If we are to become extremely wealthy we are going to want other people paying us interest. Interest is the tide the determines our financial path. Interest either stands in our way of wealth or increases the flow of wealth into our financial success. The only way it works for us is if others are paying it to us and we are not paying it to others.

A small business should have five basic accounts. One for material and operation (rent, fuel, utilities, etc.) costs. One for payroll. One for taxes. One for profits. One for capital investments. The business revenues must then be divided into these accounts.

The money in the capital investment account may be invested into CDs, money markets, bonds or some other low risk investment that allows some access to the money. When it comes time that the business needs to buy more property, build or buy a piece of large equipment, the business owner can cash out the investment and use that money instead of borrowing money and paying interest.

Of course not every business can follow this model but this is the "ideal" debt-free model. Certainly these car dealers that brag about being in business for 60 years should have been debt free long ago.

[carolaa]

I think another good piece of advice is to diversify as soon as you can. Don't put all your eggs in one basket. Anyway, that's something I've been thinking about lately.

[Dr. Shane]

I could be wrong, but I don't think Shane's point was for us to feel sorry for them. I think he was just pointing out that if these guys didn't have so much debt, they would be sitting pretty right now.

That is exactly what I am saying. And these people are not bad or stupid. They are just running their businesses like everyone else is. Most everyone in the country is living on credit and running their businesses on credit. These people are crying and angry because they feel like the big auto manufacturers are pulling the rug out from under them. However, in reality they have been walking on a frozen lake of credit and the ice just broke underneath them. Business people have things go bad all the time. They lose a major client or technology changes making their product or service obsolete. Businesses owners that are debt-free are not destined to bankruptcy when these things happen.

[carolaa]

The ones I feel sorry for are the employees of these poorly run businesses. There's going to be a lot of people losing their jobs now. Of course, if they are debt free, it won't be such a traumatic thing for them.

[Dr. Shane]

Most of those will be able to find other jobs. In fact, some may actually find jobs and move on before the dealerships close down. That is because what the car manufacturers want is few but bigger dealerships. So the sales people at these dealerships that are closer can likely find a job at another dealership down the road. The mechanics can find work down the road as well as those working in the parts departments, etc. While the smaller dealerships will be closing, the larger dealerships will be expanding. This is especially true as the pent-up demand for cars breaks lose later this year. A lot of people are putting off buying a car because of the economy but eventually the pent-up demand will break lose and the dealerships that are left will have to expand.

[Amelia]

Here in the Portland metro area car dealerships are closing right and left. It's going to be hard for all those employees to move on to the next place down the road. Especially when the next place is also closed.

[Dr. Shane]

Temporarily yes, there is a slow down. People are not buying cars and credit is harder to get. However in the long run people will buy cars again. When business picks up again the remaining dealerships will have to expand and the jobs that were lost will be created again.

[phkrause]

With more and more people being laid off there are less and less jobs available.

pk

[GreatLakesGramma]

My husband's employer, who happens to be his brother, operates debt free. He's been in business probably close to 40 years now. When we got together with the executor of their dad's estate, he told us he & his wife had lost $400,000 on their stocks last year. Thankfully, he has savings too, but he is struggling to get enough contracts to keep the employees busy.

He is an electrical contractor. They do mostly commercial and industrial construction. The competition is fierce, but they actually made a small profit last year, which is better than they had been doing in several years, because the Michigan economy has been going downhill for the last 8 years.

There are those among their employees who resent my brother in law for making money off their labor, but if it weren't for all his hard work, they wouldn't have any work. It is extremely stressful to be a small business owner, when the economy is bad. They have a house on Beaver Island, in Lake Michigan, where they spend many weekends during the warmer months. They have their own plane, and fly there themselves. It is necessary for them to have a getaway like this to survive the stress of business ownership. They take their responsibility to their employees very seriously. It is completely unjustified for anyone to resent them for their possessions or their lifestyle.

[carolaa]

I don't think people should resent others' lifestyles, either. Everyone has a right to spend their money however they want. But a lot of people try to live lifestyles they can't afford and then are in a world of hurt when the economy goes south.