Prosper Newsletter: December 2007 > Financial

You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.

Accelerator Margins

Are you riddled with debt? If so, you are not alone. But as with so many others in this position, the faster you get out of debt, the faster you can meet your goals and make the improvements that will bring joy to your life. An accelerator margin is one of the proven wealth-building strategies you can use to manage cash flow and exchange a life of debt for a life of wealth. Several financial experts use the term (accelerator margin) to describe the extra money that can be applied towards a debt's principal. The money you would otherwise spend on expenses is actually going to pay off a balance that is accruing interest. In this case, money saved is money earned—and ultimately, money invested.

So let's talk about how it really works. More importantly, let's address how it can actually work for you. The average American makes between one and three million dollars over the course of his or her lifetime. Then why is it that so few have so little at the end of their lifetime? They don't understand how to make the accelerator margin work for them. Instead, the average American allows banks, credit card companies, lending institutions, and even the federal government to use the accelerator margin against them. Make this coming year the year that you decide to make the accelerator margin work for you.

Accelerator margin is money you apply to paying off debt balances. Say you're a person who has three credit cards and each has a balance of $2,000. Assume you are accustomed to just paying the minimums every month ($80). Then, let's say you discover where you are wasting money every month and it totals $100. By putting that newly found money towards the principal on your highest-interest credit card, the balance owed should shrink at an accelerated rate. Then once the first credit card is paid off, the minimum balance ($80) plus your accelerator margin ($100) should be applied to the next highest-interest credit card.

Thus, your debts are paid off faster as the accelerator margin works in your favor. With each balance paid off your accelerator margin blossoms to $80 + $80 + $80 + $100 for a total of $340. Once those balances come down, you begin applying your accelerator margin to your mortgage. Over the life of your 30-year mortgage, this kind of added principal payoff makes enormous differences in the time it takes to pay of your mortgage. Then with your mortgage gone, you can now apply your entire accelerator margin ($340 plus your monthly mortgage payment) towards your retirement investments and amass a fortune. Seems simple, right? It actually is. It's simply a matter of making it happen. There is no better time of year to make it happen than now. With holiday shopping out of the way, set your goals at new heights for next year.

We are trained at an early age to buy things we don't need at prices we cannot afford to enrich the institutions that know better. By knowing better, and doing something about it, you can actually escape the plight of the average American who works well into their golden years and/or relies on government programs to fund their retirement. Don't be average. Make your plans for improvement now, and act on them!

Testimonial

Since beginning the TDIW program, I have taken better control of my finances. I have made better financial choices by resisting the temptation to spend money at will. I have managed to come up with an accelerator payment twice in the last 4 months inspite of a number of unforeseen financial emergencies. I can see that this program will work and that inspires me to stick with it. The best news is, I have stopped incurring additional credit card debt.

The accountability of meeting with you (my coach) each week has definitely helped keep me focused. Tracking expenses and talking about the highs and lows helps to keep things in perspective. I can see a lot of room for improvement, as well. All your advice, tips and recommended resources will be invaluable in the upcoming months. The greatest benefit is knowing that this can be done -- it is doable -- it can happen -- and now I have tools / resources I didn't know existed before.

My target accelerator is $400 per month.
My debt free date is September, 2013.

Thanks for all your help.


Karen F.

Tip of the Month

Making Financial Improvements Starts with a Good Attitude

Financial success is not just a matter of keeping track of your dollars and cents. Your attitude and your thoughts are critical to your financial success. Before tackling a major financial overhaul, you must start with an attitude tune up. A good attitude is a great asset. A rotten attitude is among your worst liabilities.

One of the keystones of purging a stinky attitude is weeding out negative people and surrounding ourselves with those who uplift and encourage us. Negativism is contagious. Here are eight strategies discussed by Chicken Soup for the Soul co-author, Jack Canfield, in his book The Success Principles: How to Get From Where You Are to Where You Want to Be.

The eight strategies are as follows:

British entrepreneur Richard Branson, founder of Virgin, is a great example of a person who is highly successful and stands as a wonderful example of the attitude of success. Mr. Branson is well known for his business savvy. He is the author of Screw It, Let's Do It: Lessons in Life. He goes for it. His employees call him Dr. Yes because he has a penchant for green-lighting ideas. Virgin started as a music business, but because he remained opened to new ideas. He now has more than 350 other businesses around the world.

Mr. Branson does not believe in gambling but he is a believer in making bold moves while protecting his downside. He gives the example of when the Virgin group turned itself from the music business into an airline. He said that they struck a deal with Boeing that allowed them to lease a plane for 12 months. That way, if they had miscalculated and travelers continued traveling with airlines with lousy service, all they would had lost would have been the $10 million rental cost. However, because their music business was making $20 million, there was no way that the airline venture would sink them.

In his book, Mr. Branson tells a story about a childhood attempt to make money by growing Christmas trees. Rabbits ate all the seedlings, yet he turned a profit because he shot the rabbits and sold them to butcher shops. He has made a successful conglomerate out of finding opportunities by identifying things that aren't working so well know and finding a way to improve them.

We should take a lesson from Mr. Branson's take on failure. He has been quoted as saying that mistakes do not let him down. He believes that as long as he has learned something from his mistakes they are useful experiences. He says that even if things go horribly wrong in life, we do not have to let it get to us. Real success is having people we love in our lives - family and friends and when we have this, we have everything. Good luck in your ventures for success in the coming year.


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