Even Eagles Need a Push …

The eagle gently coaxed her off-spring toward the edge of her nest. Her heart quivered with conflicting emotions as she felt their resistance to persistent nudging. "Why does the thrill of soaring have to begin with the fear of falling?" she thought. This ageless question was still unanswered for her.

As in the tradition of eagles, her nest was located high on the shelf of a sheer rock face. Below there was nothing but air to support the wings of each young eagle, "It is possible that this time it will not work?" the mother eagle thought. Despite her fears, the eagle knew it was time. Her parental mission was almost complete.
There remained one final task—the push.

The mother eagle drew courage from an innate wisdom. Until her young discovered their wings, there was no purpose for their lives. Until they learned how to soar, they would fail to understand the privilege it was to have been born an eagle. The push was the greatest gift the mother eagle had to offer. It was her supreme act of love. And so one by one she pushed them…and they flew!

How to Enjoy Work

If you have to work, you might as well enjoy it! Here are eight ways to enjoy your work.

1. Decide to enjoy it! Make up your mind to feel good at work. You will be surprised how much better you will like your work if you just make a deliberate decision to enjoy it.

2. Maintain good and friendly relationships with your employer and with your co-workers. Getting along with and liking the people you work with will make any job more enjoyable.

3. Remember that your work provides much (if not all) of your necessities and luxuries. Just think, unless you inherited a bundle, you owe all you have to work. In that light, the old job looks pretty good, doesn’t it?

4. Keep in mind the service you are providing people through your work. The job you do helps other people. Now that is a good feeling!

5. Challenge yourself at work. Set and pursue attainable goals. Always try to do a better job. Stretch yourself and your abilities! Grow! That attitude can make even a dull job exciting!

6. Concentrate on the good things about your job. Write out a list of things you like about your job. Read the list every night before you go to sleep.

7. Do more than you are paid to do. If you do just enough to barely squeak by, you will be bored, but if you really get after it, you will feel good about yourself. Besides that, your boss will soon notice and before too long you will be rewarded.

8. Adopt the “this is my company” attitude. You may not actually own the company, but wherever you work, it is your company! And when you begin to feel like it is your company, you will discover a new sense of pride and fulfillment.

Be Positive

If someone offered you $10 million in cash if you would consistently show a positive attitude for the next 30 days, would you give it a try? If they defined such an attitude as “acting positive, pleasant, friendly, enthusiastic, and encouraging,” could you do that for 30 days? I think you could. You would have a good attitude for a month, because you would be highly motivated to win the prize money.


Now, nobody is going to offer you such a cash prize for a good attitude, but the real-life payoffs for a positive attitude are outstanding!

They include:

• Happiness.
The better your attitude the happier you will be! Happiness is not a commodity that is found by pursuit. Instead, it is a state of mind produced by a positive attitude.

• Health. A good attitude is a better pain reliever than Anacin, Tylenol, Mediprin, and Bayer, all put together! A positive mental attitude strengthens the body’s immune system and releases a natural drug (more powerful than morphine) into the mind.

• Self-confidence. A good attitude causes people to feel good about themselves and project that feeling to others.

• Better relationships. People who feel good about themselves are not on the defensive with other people. They are open and honest and have rich, rewarding relationships.

• Improved performance. Experts say that attitude accounts for 85% of all job success. People perform better in every area of their lives with a good attitude than they do with a bad one!

• Encouragement for other people. Since attitude is highly contagious, your good attitude will automatically make you a real benefit to everyone you meet.

• Increased income and other material rewards. Because your good attitude will make you very valuable to other people (your boss, for instance), they, in time, will reward you with money and possessions. With so much to gain and so little to lose, you might show a good attitude for 30 days. If you don’t like it after trying it for 30 days, then go ahead and be as miserable as you want to be. But at least give a positive mental attitude a sincere try.

Enjoy Life and Work

E V E RY B O D Y L I K E S to hear the words, “I like you!” Most people, however, expect to hear these from other people, not from themselves. But as Phyllis Diller said: “If someone doesn’t like himself, it’s almost impossible for others to like him.”

Here are seven proven ways to like yourself better.

1. Don’t compare yourself with other people!
You were designed to be yourself and nobody else. There is no “normal.” There is no “average.” Rating yourself by other people’s standards, opinions, and abilities will always make you come up short.

2. Stay in line with your conscience and with your own moral standards.
It is almost impossible to like yourself when you feel guilty. Guilt comes from doing things you personally believe to be wrong. So to like yourself more, get in touch with your own values, and live by them. Refuse to violate your conscience.

3. Forgive yourself.
When you have broken your own principles, forgive yourself completely! You’re human. You make mistakes. So acknowledge you were wrong. Correct the wrong behavior. Learn from it. Then, once and for all, put it out of your mind.

4. Separate personal worth from performance.
You are not your work! As Wayne Dyer said: “If you are what you do, then when you don’t, you aren’t!” So build your self-worth on your infinite value as a magnificently designed, intricately crafted, human person. Your ultimate value comes from being human.

5. Accept compliments from other people.
Don’t say: “Well, it was really nothing.” Instead say: “Thank you very much!” Receive compliments and allow them to build you up. Savor them.

6. Give yourself compliments.
It is all right to appreciate yourself. So compliment yourself often.

7. Use the affirmation “I like myself!”
Say it like you mean it—with feeling. Say it in your mind, throughout the day. Say it aloud, when you are alone! Say it 10,000 times, over the next year! Then one day, you will fully believe it.

Effect Of Thought on Circumstances

You will be what you will be; Let failure find its false content in that poor word, “environment,” But spirit scorns it, and is free.

It masters time, it conquers space; It cows that boastful trickster, Chance, and bids the tyrant Circumstance Uncrown, and fill a servant’s place.

The human Will, that force unseen, the offspring of deathless Soul, Can hew a way to any goal, though walls of granite intervene.

Be not impatient in delay, but wait as one who understands; when spirit rises and commands, the gods are ready to obey.

Dilemmas in the making of tough decisions

A group of children were playing near two railway tracks, one still in use while the other long-disused. Only one child played on the disused track, the rest on the operational track. The train came, and you were just beside the track interchange. You could make the train change its course to the disused track and saved most of the kids. However, that would also mean the lone child playing by the disused track would be sacrificed. Or would you rather let the train go its way?

Let's take a pause to think what kind of decision we could make. Most people might choose to divert the course of the train, and sacrifice only one child instead.

You might think the same way, I guess. Exactly, I thought the same way initially because to save most of the children at the expense of only one child was only rational decision most people would be capable of making, both morally and emotionally. But, have you ever thought that the child choosing to play on the disused track had in fact made the right decision to play at a safe place in the very first place? Nevertheless, he had to be sacrificed because of his ignorant friends who choose to play where the danger was. This kind of dilemma happens around us everyday. In the office, community, in politics and especially in a democratic society, the minority is often sacrificed for the interest of the majority, no matter how foolish or ignorant the majorities are, and how farsighted and knowledgeable the minorities are.

The child who chose not to play with the rest on the operational track was very sadly, being justifiably sidelined. Oh, yes. It was a justified act, or so it seems.

And in the case he was sacrificed, no one would shed a tear for him. The friend who forwarded me the story said he would not try to change the course of the train because he believed that the kids playing on the operational track should have known very well that track was still in use, and that they should have run away if they heard the train's sirens. If the train were diverted, that lone child would definitely die because he never thought the train could come over to that track! Moreover, that track was not in use probably because it was not safe. If the train was diverted to the disused track, we could have put the precious lives of all passengers on board at stake! – And how stupid that would be!

And in your attempt to save a few kids by sacrificing one child on one hand, you might have foolishly end up sacrificing hundreds of people (the innocent passengers) on the other hand just to save these few kids. Who knows the country’s Chief Justice, some brilliant business-people, potentially bright athletes or even some pregnant women as well as doctors together with their patients who are on their ways to the hospital might well be on board among these innocent passengers … numbering more than just `a few’.

While we are all aware that life is full of tough decisions that need to be made, we may not realize that hasty decisions may not always be the right one.

"Remember that what's right isn't always popular... and what's popular isn't always right.”

Analysis Paralysis

Very often we want to analyze, analyze & yet analyze

Until everybody paralyzed

An angel once wrote

Great Minds Discuss IDEAS

Average Minds Discuss EVENTS

Small Minds Discuss PEOPLE

Go the Distance

A friendship must go the distance.

It must have persistence.

This kind of friend will treat you right, and won't find joy in a fight.

This friend won't walk away.

When you need help, this friend will stay.

A friend will love you for who you are.

Will look at you as if you're a star.

A friend won't talk behind your back, and will be your defense in an attack.

I know that you're this kind of friend who will go the distance until the end.

Casa Idaman Project Progress - 15 Feb 2009

Employee - What do I do during recession?

Markets
- We all know that markets have slumped
- We read about job-loses in news papers
- People talk about at least 24 months of recession
- Early entrants are not getting jobs
- Companies are closing
- Sales are not picking up
- Suddenly cash has evaporated from the market
- Profitability is severely hit

I am employee
- I need to keep my job
- I need to pay EMIs
- I have a family to run
- I need to keep working to sustain myself
- I need to feel secure
- I need to save a little money for a rainy day

Basic Don’ts
- Do not take too much vacation
- Do not ask for promotion. Don’t ask for a salary increase. If you ask, you may soon not have a job. Remember, there are people available with better skills at lower salary levels.
- Do not complain
- Do not waste time gossiping
- Don’t resist a transfer
- Don’t resist travel
- Don’t resist a salary cut
- Don’t resist extra-work load
- Don’t resist extra time at office if needed
- Don’t change jobs in this market. It is too risky.

Basic Do’s
- Be punctual to office
- Ensure you pick up new skills
- Ensure you deliver as per deadlines
- Ensure that you contribute to knowledge forums etc
- Do something innovative
- Take training programs
- Organize team meeting to improve productivity
- Always be engaged & productive
- Work doubly hard and save money for your company
- Remember, your boss is always right and is the best (recession or no recession)
- Be cheerful, keep smiling, life goes on

Daily Expenses
- Take a stock of your expenses – actually write it down
- Tick “Need to have” vs. “Nice to have”
- Knock off all “Nice to have expenses” – Right Now!
- Assuming you didn’t have a job – Plan for cash to survive for 24 months. Apparently, this recession will take at least 24 months to come out of. Sit on cash!
- Other tips to cut expenses –
o Going to malls is expensive
o Good restaurants are expensive
o Impulsive shopping is expensive
o Taking flights is expensive
o Eating out daily is expensive
o Check services which you are not using but have subscribed to
o Going on vacations is expensive

The big loans
- Home Loan & EMI
- If you own one home and you are living in it and paying EMI, then see if you can partially fore-close it.
- If you have two homes and paying EMI on both –
· See if you can rent the second home – don’t bother about amount of rent. Rent to get cash flows going. Don’t feel bad that rental is not good enough. Trust me – it will soon be a great feeling to rent.
· If you have enough money, then fore-close a significant part of it. If your interest rate is less than bank FD (which I doubt), then you don’t have to fore-close.
· If you think the property will fetch a decent value, then sell it (though it is a buyer’s market)




Do I buy anything now? Do I invest?
- Investing in stock and mutual funds?
o Generate spare money every month – take a Systematic Investment plan (about 15% of your salary) – keep buying at low values for the next 24 months
- Buy an asset – buy a house/apartment/land?
o If you have cash and feel secure, this is a great time to buy. You can negotiate hard with builders/developers. Actually, you can write your own terms on the agreement.
§ First preference – Buy Land (always buy small sites, it is easier to dispose. Else farm land is a great option – big land, low cost)
§ Second preference – Buy House + Land (again buy from known developers)
§ Third preference – Buy apartment (you always wanted to buy that 3-bed/4-bed apartment from a reputed builder, but could never afford) – now is the time to ask for free. Some are being sold at ridiculous prices.

These suggestions are tough – do I live life or not?
- The new principle – “Happiness is inversely proportional to expectations/desires”. More the expectations / desires – lesser the happiness and vice versa
- Some other ways to live great life –
o Spend time with family – go for a picnic in a nearby garden
o Exercise and walk a lot, drink lots of water
o Listen to Radio, watch some TV
o Visit Libraries, read books which you purchased, but never had a chance to open them
o Go to friends place a for a dinner
o Enroll into a hobby – music, painting etc
o Do social service – start teaching, mentoring etc
o Spend more time with your children
o Join laughter forum, attend conferences and meet interesting people

Profit Comparisons: One of the Least Important Uses of the Concept of Profit

One of the most distracting uses of the concept of profit in this country is our tendency to place too much emphasis on profit comparisons between companies or between industries. What does it mean to say that the oil industry makes more profit than the chemical industry? Usually, when this kind of discussion evolves, we talk about technical efficiencies, cost efficiencies, productivities, or differences in management. However, when all is said and done, when all of the technical analysis of profit is written and discussed, the bottom line is this: What does profit mean for the community? What does profit mean for people?

Profit Maximization and Ethics

When businesspeople profit-maximize, that is, allocate scarce resources efficiently, people have more of the things they want, and that is good. When they do not profit-maximize, that is, allocate scarce resources inefficiently, people have less of the things they want, and that is bad. This is especially true if the things they want are food, health care, education, and other necessities of life.

Since ethics is basically the study of what is good and what is bad, then the decision to profit-maximize or not to profit-maximize becomes an ethical decision. Therefore, those resource allocators who try to use resources efficiently are ethical managers. Those resource allocators who do not try to use resources efficiently are not ethical managers.

There is more to profit maximization and ethics than the decision to use or not use resources efficiently. However, that discussion falls outside the scope of this book.

Profit Maximization and the Bottom Line

The behavior of profit maximization as it relates to the bottom line will result in one of two outcomes. If the bottom line of the company shows a profit, it will be the most profit the company can receive for using its resources efficiently. If the bottom line of the company shows a loss, it will be the minimum loss the, company can incur by using its resources efficiently.

The only thing the behavior of profit maximization will ever guarantee is the efficient use of scarce resources. When resources are allocated efficiently, we all have more of the things we want.

The Behavior That Maximizes Profit

I define profit maximization in behavioral terms as the act of producing the right kind and the right amount of the goods and services the consumer wants at the lowest possible cost.

Businesses know they are producing the right kind of goods and services if consumers are willing to buy them. Let me emphasize again that businesses that produce goods and services illegally have no place in this discussion because they are performing criminal acts.

Businesses also know when they are producing the right amount of goods and services. It is that level of output where marginal revenue is equal to marginal cost, as previously discussed. To produce less would mean the company would not bring units to the marketplace that, when sold, would result in revenues greater than the cost of producing them, and this kind of behavior is inefficient. To produce more would mean the company would bring units to the marketplace that, when sold, would result in revenues less than the cost of producing them, and this kind of behavior is also inefficient.

Producing at the lowest possible cost is probably the most recognizable tenet of business behavior. Lower costs give the company a competitive advantage in the marketplace. Higher costs put it at a competitive disadvantage and reduce its ability to survive.

The Real World of Profit Maximization

Assume you make cars. You produce a car and take it to the marketplace. As long as you can sell the car for more than it costs you to make it, you will sell it. In the technical language of profit maximization, one would say that you would bring the car to market as long as the marginal revenue from the sale of the 'car is greater than the marginal cost of producing the car.

In fact, you will continue to bring additional cars to the market until the revenue from the sale of the car is equal to the cost of producing the car (marginal revenue equals marginal cost). Once your cost exceeds your revenue (marginal revenue is less than marginal cost), you will no longer bring cars to the marketplace because you will lose money on these additional units.

The Technical Definition of Profit Maximization

From a technical perspective, profit maximization is defined as the set of conditions in which marginal revenue is equal to marginal cost and the marginal-cost curve intersects the marginal-revenue curve from below. At this point, and only this point, the company is operating at a level of efficiency that guarantees the community the maximum amount of goods and services that can be produced from a given set of scarce resources. These efficiencies are usually calculated mathematically and are rarely translated into behavior.

What Is Profit Maximization? Or If Profit Maximization Is Not Merely Making the Bottom line as Large as Possible, Then What Is It?

Any analysis of profit maximization begins and ends with the people who are involved in business: What is it that these people do? They engage in the human behavior of allocating the scarce resources that produce the goods and services the community wants. Stated another way, businesspeople are resource allocators. That is their profession; that is their mandate.

There is a directive that comes with this responsibility of being a resource allocator. Businesspeople must allocate scarce resources efficiently! And how do businesspeople allocate scarce resources efficiently? They do it by adhering to the principles inherent in profit maximization, also referred to as profit maximizing.

Rather than concentrating on the bottom line, profit maximization focuses on the behavior that leads directly to bottom-line profits and losses. Rather than concentrating on numbers, profit maximization focuses on all of those human activities that generate these numbers.

When I use the phrase H profit maximization" or "profit maximizing," I am referring to everything and anything that goes into good business. Stated another way, profit maximization refers to everything that goes into converting scarce resources into what people want and doing it efficiently.

Opportunity Costs and the late, Great Planet Earth

I could write a book shooting holes in the arguments about how business, by maximizing its bottom line or accounting profit, is destroying the universe, undermining the morals of our children, and causing every physical and social disaster that has ever occurred or will ever occur. But it isn't necessary. There is one and only one argument against these kinds of accusations. That argument is opportunity cost.

I cannot help but think about the biblical reproach that asks, "What does it profit a man if he gain the whole world but suffer the loss of his soul?" Within this context I would like to ask, "What does it profit a company if its opportunity cost exceeds its bottom line?"

Companies that are rational when it comes to making business decisions have absolutely no incentive to engage in strategies to maximize their bottom lines by destroying the Earth. The opportunity cost associated with such a decision would be cataclysmic. And what are these cataclysmic opportunity costs for businesses? They would destroy their resource base and their customer base, thereby destroying themselves. And that, my dear Watson, is the ultimate opportunity cost any company can incur.

A Lecture by a Well-Intentioned Scientist

About ten years ago, a faculty member from one of the science departments attended a business school faculty meeting at the university where I was working. He asked to address our group and proceeded to berate us for teaching our students to maximize the bottom line (accounting profit) by using business strategies that were destroying the planet Earth.

He accused us of teaching students that, in the interest of profit, it was good business to pollute our rivers and streams, foul our air, contaminate the soil, and destroy the ozone layer. The shocking part of his diatribe was that he believed what he was saying.

At the time, I thought to myself that the arrogance and conceit of this well intentioned, grossly ignorant man were reprehensible. He had never attended a single lecture by any professor in the school of business. He assumed that my colleagues and I were teaching this kind of drivel. His conclusions were based on anecdotal data about a few businesspeople, out of tens of millions, who were abusing the system.

Profit VS. Profit Maximization

We have already said that accounting profit is equal to total revenue minus total fixed cost and total variable cost. Economic profit is equal to accounting profit minus opportunity cost. We also know that profit, whether accounting profit or economic profit, is an event or happening that occurs when people engage in those kinds of human activities that generate revenues and produce goods and services.

Profit maximization is a different kind of animal. Most men and women in business probably think of it as maximizing their bottom line or accounting profit. Essentially, this perception is an accounting perspective. It is not an economic perspective. And it is not the meaning of profit maximization.

There are those who believe that profit maximization implies that companies can and will do anything to make the most profit they can, regardless of the means. They accuse business of raping the land, polluting the environment, destroying our institutions, and so on. This perspective on profit maximization is usually advanced by those who have never run a business.

Once Upon a True I Pursued Profit

Many years ago, I settled down in a large city located in what is called the Deep South. Instead of going to work for some company, I purchased a custard stand. The closest thing to it in existence today is a Dairy Queen.

Seven days a week, I opened up my business at ten in the morning and closed it at ten in the evening. During those hours, I made and sold custard (ice milk), purchased supplies, hired and trained people, ran radio ads, cleaned all my equipment, and more. I did all the things I had to do in that business because I was pursuing profit.

Throughout that year I was involved in either production activities or sales activities. But no matter how hard I worked or how many hours I stayed at the business, I never found any direct profit activities. What I discovered very quickly was that pursuing profit was where all the action was. Profit happened because of the things I did in the pursuit of profit.

At the end of my first year in business, I lost money. Stated another way, I made negative accounting as well as negative economic profit. So I sold the business and went to college.

The Difference Between the Event Profit and the Pursuit of Profit

On more than one occasion, I have said that profit is an event, a happening. I have also said that people acquire profit by producing the goods and services the community wants. I refer to this acquiring process as the pursuit of profit.

When people pursue profit, they get involved in two kinds of behavior. First, they try to produce a product or a service (which is behavior/action). Second, they try to generate revenues by selling their product or service (which is behavior/action). There is no other kind of business activity. Businesspeople are involved in sales activities and/or production activities. There are no profit activities.

At the end of the month, the quarter, the year, all of this sales and production activity leads to an event or happening. That event or happening is profit and profit can only be equal to, greater than, or less than opportunity cost. It cannot be anything else.

These sales and production activities, which are human activities, can be good, bad, reasonable, unreasonable, legal, illegal, or any other descriptive label you want to put on them. But the result of this activity, irrespective of the kind of behavior involved, is profit. Profit is not a human activity. The pursuit of profit is a human activity. Again, profit cannot be good or bad. Only the behavior involved in the pursuit of profit can be good or bad.

One More Comment About illegal Profit

Very often it is business that is labeled a profiteer. Business is not a monolithic institution with its corporate office located in some large municipality, making decisions without people. Business is only a word to describe a certain kind of people behavior. Business is people. Consequently, if a company is engaged in any illegal activity, it is the people within the company who are committing a crime.

As a group, businesspeople are no better and no worse than any other group of people, including physicians, educators, and religious leaders. The company that makes a profit does so, among other things, because the people working for it are operating within the law. The act of making a profit is perfectly legal. It is criminal when a company makes a profit by violating the law.

Profit That Is Acquired Illegally

One of the major problems people have with profit arises from the practice of some individuals of using their business in an illegal manner. This kind of human behavior is commonly referred to as profiteering. Webster's Dictionary defines profiteering as the act of making what is considered an unreasonable profit, especially on the sale of essential goods, during an emergency. Journalists have extended this definition to include illegal business practices.

Webster's definition has no substance in the body of historical and contemporary microeconomics. As I have previously explained, economic profit can be equal to, greater than, or less than opportunity cost. Any other description requires a value judgment on the part of the individual asserting the description. For example when Webster’s Dictionary talks about making an unreasonable profit, the adjective "unreasonable" is a value judgment on the part of the publisher that begs the question of efficiency and ignores the issue of scarce resources.

Illegal business practices that are erroneously tagged "profiteering" cannot be dismissed like Webster's definition, because these are criminal acts that have a basis in statutory law. However, one could ask if it is fair to put the label" profiteer" on people who engage in illegal business practices and not put a label on those engaged in other types of illegal activities. Why not establish a special label for all individuals who use their positions or professions to break the law? Then we could call lawyers who do this kind of thing, "lawyerteers"; men of the cloth, "religiteers"; news media people, "mediateers": film makers" movieteers": actors and actresses, "artisteers": and environmentalists, "environmentaliteers." Better yet, why not call all people who break the law, regardless of how they do it, criminals?

Another Kind of Event or Happening

During the decade of the 1980s, there were two friends who were musicians. I will refer to them as Frick and Frack.

One day Frick invited Frack over to his "pad" to listen to a song that he had just composed. It was a beautiful ballad that lingered in Frack's memory.

When Frack returned to her home, she recorded the song on a tape, acquired a copyright, and sent the tape to a recording studio. Six weeks later, the song rose to the top of the recording charts.

You don't have to be a rocket scientist to realize that the song was stolen by Frack. Furthermore, her behavior was illegal. Maybe her behavior was criminal. Be that as it may, the event or happening from this illegal behavior was that the song was published. That doesn't make the song illegal.' The behavior that led to its release was illegal.

If Frick had copyrighted and recorded the song, the event or happening would have been the same--the song would have been published. That wouldn't have made the song legal. The behavior that led to its release would have been legal.

And so it is with profit. The behavior that leads to the event or happening we call profit can be legal. Or the behavior that leads to the event or happening we call profit can be illegal. But, regardless of the behavior that produces profit, the event or happening we refer to as profit can only be equal to, greater than, or less than opportunity cost.

Profit Isn't "Good" or "Bad" It's an Event

The reasons for criticizing profit are many and varied, but the underlying cause is that few people, including those who are in the business of pursuing profit, truly understand what a positive impact it has on all of us. Too often we tend to look at profit as being inherently good or inherently bad, when, in fact, it is neither.

Profit is an event, a happening. As we already know, it can only be equal to, greater than, or less than opportunity cost. What is good or bad about profit is how we as human beings acquire it. For example, if we acquire profit by selling illegal drugs, that is bad. If we acquire profit by producing legal drugs that relieve suffering, cure diseases, and extend life, that is good.

I cannot help but think about people like Ross Perot and Bill Gates. In the pursuit of profit, these men have created employment opportunities that have enhanced the quality of life for more than a hundred thousand men and women in communities all over the world. These jobs provide food, clothing, housing, health care, education, recreation, and more for themselves and for several hundred thousand family members. For the life of me, I just don't understand why this kind of behavior is considered by some to be inherently bad. I'm convinced that the benefits for people from the pursuit of profit are absolutely, positively, inherently good. I am also convinced that it takes a colossal amount of arrogance to ignore these benefits.

The Criticism of Profit

Unfortunately, profit is criticized much more than it is acclaimed. It has been the whipping-boy of politicians, the print media, television newscasters and personalities, self-appointed speakers for labor and consumers, environmentalists, the arts community, and the religious community. All of these groups, at one time or another, have joined in a chorus of righteous indignation opposing the profit of "big oil," "big banks," or "big corporations."

The problem is that most of this opposition has more to do with demagoguery, political posturing, and fund-raising than it does with rational economic analysis. Many of these groups are against all profit except their own.

The Only Way to Define Profit

At the beginning of this book, I pointed out that we live in a world of scarce resources and infinite wants. I also noted that one of the important postulates of the marketplace is that more goods and services from a given set of resources are better than less.

There is only one way to be certain that we are getting the most out of a given set of resources. We have to examine alternative uses for those resources. In other words we have to find out what it is we are giving up (the forgone goods and services). And, as we already know, any time we look at alternative uses for our resources, we are taking stock of opportunity cost.

Remember Farmer Jones? Remember the chief financial officer? Both of their businesses were driven by alternative uses of their resources (their opportunity cost). Both of them were looking beyond their accounting profit to their economic profit. And what did they learn by doing this?

Whenever a company's profit more than covers its opportunity cost, there are no other more productive uses for its resources. It is using its resources efficiently. The same holds true when profit is equal to opportunity cost. Whenever profit does not cover opportunity cost, there are more productive uses for the resources. The company is not using its resources efficiently.

Now you know why economists describe profit as being equal to, greater than, or less than opportunity cost. Any other description of profit begs the question of efficiency and ignores the issue of scarce resources.

A Closer wok at Economic Profit

Economic profit equals total revenue minus total fixed cost, total variable cost, and opportunity cost.

The only difference between the accounting model of profit and the economic model of profit is opportunity cost. In fact, we could say that economic profit is equal to accounting profit minus opportunity cost.

Whenever economic profit is equal to zero, this model tells us that the business is making accounting profit but that its opportunity cost is equal to its accounting profit. Economists refer to this situation as a case where economic profit is equal to the company's opportunity cost.

Whenever economic profit is positive, the company is making so much accounting profit that it more than covers the opportunity cost of the company. Economists refer to this situation as a case where economic profit is greater than opportunity cost.

Whenever economic profit is negative, there are three possible events. One, the company is making negative accounting profit and cannot cover any of its opportunity cost. Two, the company is making zero accounting profit and cannot cover any of its opportunity cost. And three, the company is making positive accounting profit, but not enough to cover all of its opportunity cost. Economists refer to these three situations as cases where economic profit is less than opportunity cost. Most managers relate only to accounting profit. The world would be better served if all managers related to economic profit and the alternative uses (opportunity cost) associated with the resources at their disposal.

A Closer look at Accounting Profit

From our discussion of accounting versus economic profit, we know that accounting profit equals total revenue minus total fixed cost and total variable cost.

According to this model, whenever revenues exceed fixed and variable costs, accounting profit will be positive. Most businesspeople refer to such situations as cases where the company is profitable.

If fixed and variable costs exceed revenues, accounting profit is negative. Most businesspeople refer to such situations as cases where the company is losing money.

If fixed and variable costs are equal to revenues, accounting profit is zero. Most businesspeople refer to such situations as cases where the company is breaking even.

Whereas this model can tell us whether accounting profits are positive, negative, or zero, it cannot tell us anything about the opportunity cost associated with these accounting profits because of the alternative use of the resources involved. To do this, we have to revisit economic profit.

The Mother of All Costs: Opportunity Costs

In a world of infinite wants and scarce resources, even though we talk about fixed and variable costs, there is only one cost that businesses ever incur. You guessed it: opportunity cost. Let's see why.

Remember our friend Farmer Jones? When he decided to produce corn on his land, he couldn't produce potatoes. His opportunity cost was the forgone potatoes.

What happens if Farmer Jones buys a new tractor? A tractor is one of those fixed costs about which we spoke earlier. Once Farmer Jones uses his money to buy a tractor, he cannot use this same money to buy a combine. Farmer Jones has just incurred an opportunity cost, the forgone combine.

Suppose Farmer Jones spends his fertilizer. Fertilizer is a variable cost. Once Farmer Jones spends his money on fertilizer, he cannot spend this same money on insecticides. Farmer Jones has just incurred an opportunity cost, the forgone insecticides.

The bottom line of this discussion is that every time a business uses any resources, fixed or variable, it incurs opportunity costs.

From the Farm to the City

We now know how Farmer Jones used opportunity cost to make his planting decisions. But what about his city cousin, who was in the manufacturing business? Did he do things differently? Let's find out.

I have a friend who is the chief financial officer of a megasized manufacturing company. This company has factories located in different towns and cities throughout the United States. It also has production facilities other countries.

While fishing for big-mouth bass several years ago, I asked my friend how his company decided what products to produce and what product not to produce. His response was informative.

He told me that, like General Motors or the comer doughnut shop, his company had a limited amount of resources at its disposal (our legacy from Adam and Eve). He also said that his company was making a pretax rate of return of no less than 14 percent on all existing products it was manufacturing. He referred to this 14 percent as an internal rate of return or target rate of return.

He went on to say that any manager who wanted to introduce a new product for manufacture had to demonstrate that the project would yield a rate of return equal to or greater than 14 percent. If he or she couldn't, the project was rejected because it would be an inefficient allocation of the company's resources.

Like Farmer Jones, when this company was comparing rates of return between new products and existing products, it was calculating the opportunity cost associated with using resources to produce product "a" versus product uct "b" or "c." And, like the planting decisions of Farmer Jones, the manufacturing operation of this company was driven by its opportunity cost.

Farmer Jones: More About Opportunity Costs

When I was a teenager, I went to a private high school located along Lake Erie in the northwest corner of the commonwealth of Pennsylvania. To help pay for my tuition, I worked part time on a farm.

I remember that every spring, the manager of the farm, whom I will call Farmer Jones, struggled with the same problem. He had five hundred acres of good planting land, a large herd of milking cows, some marginal acreage to pasture his cows, and some hogs.

The soil was a sandy loam, and it had a lot of small rocks in it. He used to say that given the climate and the sandy loam soil of the area, he could grow only potatoes and feed-corn. Potatoes were his cash crop. Corn was his winter feed for his livestock.

Farmer Jones was very aware that every acre planted in corn could not be planted in potatoes. He knew that his planting acreage was a scarce resource. He also knew that his opportunity cost for planting potatoes was less corn and that for planting corn was fewer potatoes.

I can assure you that Farmer Jones did not drive around the county telling people that he had just planted five hundred acres of corn and, because we live in a world of scarce resources, his decision had created an opportunity cost equal to the five hundred acres of potatoes that would not be grown on this land. He internalized this cost into the operation of his farm in the following manner.

He would sit down at his desk in front of his hand-operated "adding machine" and do what he called some planning (simulations). He would forecast a series of prices for a bushel of potatoes, his cash crop, and for a bushel of corn, his feed corn. He would then estimate how much cash he would give up if he planted more feedcorn. He would also estimate how much more his feedcorn would cost him if he planted more potatoes because he would have to buy some of it from other farmers or feed companies.

What he was calculating was the opportunity cost associated with planting more corn than potatoes and that for planting more potatoes than corn. He wasn't aware of it, but his whole planting operation was driven by his opportunity cost.

I'll bet a dollar against a dime that if Farmer Jones were alive today, he would do the same kind of analysis. The only difference might be that he would do his planning (simulations) on a computer instead of on an "adding machine."

Shoes vs. Socks: Opportunity Costs

Opportunity costs are the goods and services that won't be produced from a given set of resources because these resources were used to produce some other goods and services. The operative word here is other.

When you live in a world where there are not enough resources to produce everything that everyone wants, then all resources have competing alternatives or other uses. If a given set of resources is used to produce shoes, then it can never be used to produce socks. The opportunity cost for the community, once resources are used to produce shoes, is the sock or other goods and services that can never be produced by these same resources.

Variable Costs Are Changeable

Total variable costs are those costs that do change or vary when you produce and services. They include such things as labor-time and materials.

Unlike fixed costs, if you build a Widget plant and you produce nothing, you won't buy any labor-time and materials, so you will have zero variable costs. If you were to produce ten widgets, you would buy a certain amount of labor-time and materials, so you would then have some variable costs. If you were to produce more widgets, you would purchase more labor-time and materials, so you would have more variable costs. As output either increases or decreases (varies), you use more or less labor-time and materials. That is how we get the expression "variable costs

Fixed Costs Are Sunk Costs

Total fixed costs are those costs that do not change when you produce goods and services. They include land, buildings, and equipment, such as computers.

If you were to build a manufacturing plant that had the capacity to produce a hundred widgets over the life of the plant, the cost of that plant would be the same whether you produce nothing, fifty widgets, or one hundred widgets. Hence the expression "fixed costs." Businesspeople often refer to fixed costs as sunk costs because, once the plant is built, your money is sunk into the plant.

Accounting vs. Economic Profit: like the Tailor Says, "The 'Bottom Line' Doesn't Tell the Whole Story"

If we were to ask most managers, including business owners, for a simple statement of accounting profit, they would probably tell us that accounting profit is equal to total revenue minus total cost. Total cost is commonly arranged into total fixed cost and total variable cost.

Economic profit can also be written as total revenue minus total cost. But, from an economic perspective, total cost is arranged into total fixed cost, total variable cost, and opportunity cost.

The only reason accountants do not include opportunity cost in their model is that they are forbidden to do so by statutory mandate. They are as knowledgeable about opportunity cost as economists. However, as recorders of the company's previous business activities (historians), they are forbidden by law to include opportunity cost as a cost of doing business.

The Four Horsemen of Production

I have already used the word "resources" more often than the word" profit." It is time for these resources to step up and identify themselves.

Whenever an individual starts a business, the end product or service will require a mix of four basic resources or factors of production. I like to refer to them as the four horsemen of production.

The first resource is land and the payment that is made to bring land into the productive process is called rent. The second resource is capital, and the payment that is made to bring capital into the productive process is called interest. The third resource is labor-time, and the payment that is made to bring labor-time into the productive process is called wages. The fourth resource is the entrepreneurial and creative skills of people, and the payment that is made to bring these skills into the productive process is called profit.

For those of us who like our life less complicated, there is another definition. Anything used in the production of goods and services is a resource.

Profit, Scarce Resources, and Survival

Given the quality of life we enjoy today compared to that of those who lived before us, it is easy to forget that the efficient allocation of scarce resources is a very serious matter. In fact, it is imperative for our survival. The history of mankind from ancient to modern times is full of examples of the suffering and death people have endured because of the misallocation of scarce resources. I submit that much of the massive starvation we have experienced around the world during my lifetime is directly related to the misallocation of scarce resources.

The institution that concerns itself with the efficient allocation of scarce resources is business. The engine that drives the allocation process is profit. And the fuel used by this engine is the pursuit of profit.

Profit and the efficient allocation of scarce resources are not mutually exclusive. They are two sides of the same coin. In fact, I would even go so far as to say that they are synonymous. Without profit, there is no incentive to allocate resources efficiently. If businesspeople do not allocate scarce resources efficiently, there will not be any profit. Therefore, if the efficient allocation of scarce resources is imperative for our survival, so is profit.

In those economic systems where profit was removed from the resource allocation equation, the results have been disastrous. Look at what happened to Eastern Europe and the Soviet Union. Food crops rotted in the fields while store shelves and human stomachs stayed empty because no profit motivation existed to fill these shelves and stomachs. All of these countries are now acknowledging that profit is a politically acceptable dimension to the efficient allocation of scarce resources.

A "Sidebar" About the Rules of the Game

The word "marketplace" means different things to different people. I am using it as a synonym for private enterprise. Private enterprise has some unique property rights associated with it. Not only do individuals have property rights (ownership) over the goods and services they purchase; they also have property rights (ownership) over the resources they purchase to produce the goods and services the community wants.

In the United States, we take this owner of resources for granted. Until recently, people in the socialist countries of the former Soviet Union and Eastern Europe were excluded from the ownership of certain resource used in the production of goods and services. The property rights associated with these resources belonged to the state.

The Rules of the Game: Rule Number Three

Combining scarce resources with infinite wants brings us to our third and final tenet: More is better than less. Whenever this tenet is postulated, people usually ask, "More of what is better than less of what?" The answer is: More goods and services from a given set of resources is better than fewer goods and services from the same set of resources.

In the jargon of the business manager: this tenet would be stipulated in the following manner. The efficient use of scarce resources is better than the inefficient use of scarce resources. The measure of efficiency in this case would be more goods and services from a given set of resources, rather than fewer goods and services. Obviously, I am not referring to illegal goods and services.

Why We Never Stop Consuming

A human being is an organism that must have certain things to continue to survive and function. For example without food we would starve. In parts of the world, without clothing and shelter we would freeze. Without water we would die.

Over time, people satisfy their hunger with different kinds of foods (wants). Today they eat a steak. Tomorrow they eat pasta. The same thing holds true for clothing. When people go country-and-western dancing, they wear jeans and boots. When they go to work, they wear suits, dresses, and shoes.

Wants also arise because of cultural influences. In most communities, high levels of consumption, such as having a house, a car, a megascreen television, or a college degree give people status. So, people often acquire these things to get status.

New wants occur while we are satisfying old wants. When we first began to cook our food, we used an open fire. This cooking ritual created a want for a brick oven, followed by a stove, then a microwave oven; only the future knows what the next cooking technology will be.

The Rules of the Game: Rule Number Two

One could argue that if our wants as a species were less than the available resources that exist outside the Garden, then the consequences of scarce resources would be negated. Fortunately or unfortunately, depending on one's perspective, we seem to be born with an insatiable desire to consume. I remember a colleague who once said that if the universe were finite, Homo sapiens would devour it before the black holes in space got their chance.
From the moment we are conceived until the moment we die, we never stop consuming. Our appetite for goods and services is relentless. Even after death, many of us continue to consume. We use the services of lawyers, accountants and other professional people to distribute our wealth or manage our assets so that the income can be used to support our children, charities, or whatever other beneficiary we may designate.

This insatiable appetite of ours brings us to the second tenet of the marketplace that is important for our analysis of profit: With the introduction of Homo sapiens to this planet, we must now contend with a world of infinite wants.

The Rules of the Game: Rule Number One

If we are to understand the role of profit in our lives, then it is important for us to know the rules of the game. These rules, which are imposed upon us by the marketplace, are often referred to as tenets. We don't have to be acquainted with every tenet of the marketplace, but we do need to address those that are essential to our discussion.

When Adam and Eve lived inside the Garden of Eden, they had unlimited resources. That is why they had everything they wanted except the fruit from the Tree of Knowledge of Good and Evil, which they were forbidden to eat. What they discovered when they were cast out of the Garden was that their resources were suddenly limited. They could no longer have everything they wanted. Furthermore, they had to provide for themselves by the sweat of their brows.

In addition to the anthropological, historical, and religious significance associated with this eviction, these ancient writings call attention to what is perhaps the most consequential tenet of the marketplace: We, the descendants of Adam and Eve, now live in a world of scarce resources. And, in such an environment, we can never, ever have everything we want.

Checking the Scoreboard: Profit as Information

Every morning before they go to work, millions of people, mostly guys, open up the sports page and check the scoreboard to see how their favorite baseball, football, basketball or hockey team performed. If their team scored more points than the opposition, without looking at the statistics, they can predict with high probabilities that their team outperformed the opposition in runs, pitching, fielding, pass completions, number of baskets, and so on. In other words, just by looking at the score, millions of people have a lot of information about their teams.

And so it is with profit. As an information parameter profit is one of the best barometers businesses have to rank the things consumers want. If there is more profit in producing personal computers than there is in producing calculators, then consumers are telling business that they want the one more than the other. Accordingly, businesses will shift their resources to comply with this ranking, and they will make more computers and fewer calculators.

Profit, or lack of it, is also a signal for businesses to enter or exit the marketplace. For example, from 1973 through 1980, when profit was high in the oil industry, there was a surge of entry by new companies. Since then, profit in the industry has declined, and a large number of companies have gone out of business.

What We Were Never Told in School About the Human Behavior That Leads to Profit

The behavioral component of profit calls attention to the manner in which people acquire it. Profit is earned through a very special kind of human behavior. It is the behavior of people producing the goods and services the community wants and needs, such as health care, schools for our children, food for our tables, and shelter for our families.

By any measure, this kind of behavior constitutes the highest level of human activity and the highest level of social good. It is people engaged in business who provide the goods and services the community needs, not those in the arts, in the news media, or in politics.

For any business to create profit, it must engage in highly disciplined people activities. In many ways, this activity is like the activity of producing a great symphony, a well-written play, a fine painting, a vintage wine, a piece of sculptured glass, or a new scientific discovery. It demands excellence, delivers quality, and requires an abundance of creativity. In fact, the best businesspeople are more often than not the most creative.

Moreover, I believe that some of the greatest works of art in this world are the American farm, IBM, American Airlines, a Boeing 747, an Apple computer, a Ford Mustang, and the neighborhood grocery store. For a comprehensive list of these works of art in your community, just look in the yellow pages of your local telephone directory.

The Way People Usually Talk About Profit

Usually, when people talk about profit, they do so within a technical framework. The technical definition of profit was created by business to identify what remains after costs are deducted from revenues (sales).
Essentially, this definition defines profit as a residual that can be positive, or negative. When the residual is positive we identify it as a profit. When the residual is negative, we identify it as a loss.
The technical definition of profit is totally impersonal. Revenues enter the profit equation as a positive number, but they tell us nothing about the energy, the effort, the discipline, and the commitment of the people who produce these revenues for their companies. Costs enter the profit equation as a negative number, and they also tell us nothing about the human creativity, the personal skills, the attention to detail, and the quality of labor of the people who generate these expenses.
If we really want to capture the essence of profit, then we must move beyond any technical definition. We have to discuss profit in terms of human behavior, because the making of profit is a human endeavor.

The Fable of the Tailor

There was once an immigrant tailor who came to this country and opened up a shop. He sewed on buttons, stitched hems, made suits, and did all those other things that tailors do. One day his son, who was an accountant, dropped by for a visit. While he was there, he noticed two cigar boxes sitting next to the cash register. One was labeled "paid bills," and the other was labeled "unpaid bills." The son chastised his father for keeping his records in such an unprofessional manner because the old man didn't know what his profit was.
The father lovingly put his arm around the shoulders of his son and told him that when he came to this country many years ago, the only possessions he had were his clothes. Now he had a home, a car, a good business, good health, a daughter who was a college professor, a daughter who was an engineer, and a son who was not too sharp as an accountant. The old tailor then said, "When I add up all of my blessings and subtract the clothes on my back, what remains is my profit."
This story was told many years ago in a homily given by Monsignor Raphael Kamel, the pastor of All Saints Church in Dallas, Texas. The message is simple, yet powerful. It is also unusual. Unlike most stories that describe profit as ill-gotten or abusive, this one talks about profit in terms of human achievement and social good.

The Tax Man Cometh: Our Public Goods and Services Depend on Profit

The notion that the goods and services provided by the public sector are the result of the pursuit of profit is usually a bit difficult to accept, but their origins are the same as the goods and services provided by the private sector. Here's why.
We are a people of government, and our government, like all governments since the beginning of time, collects revenue. The source of this revenue is a predictable as death. Governments tax the wages, rents, interest, and profits that are paid by businesses to the factors of production (resources) they hire. And so it is that business, while producing goods and services in the private sector, also generates the income that governments tax to produce the public goods and services the community wants.

The First Cup of Coffee in the Morning: Brought to You by the Pursuit of Profit

Describing the benefits that accrue from the pursuit of profit is not an easy task, because they are so obvious that we usually take them for granted. When our clock radios wake us in the morning to our favorite music mixed with reports about traffic conditions and the weather, we drag ourselves out of bed in our central-heated and air-conditioned homes take hot showers. We then sit down with coffee that was automatically brewed when the clock radio turned on, eat precooked breakfasts that were prepared in microwave ovens and read newspapers that were hand-delivered to our homes. We finally put on our clothes, get into our cars, and drive to work on expressways that cost hundreds of millions of dollars to build.
I'll bet a dollar to a penny that most of us have never interrupted our cycle of living and acknowledged, even for a moment, that the quality of our lives is directly related to the pursuit of profit. We just take these blessings for granted.
I remember a student in one of my classes who asked me to be more specific about the benefits we receive from the pursuit of profit. In response to his request, I asked him to look around the classroom, his home, and his community. I pointed out that they wouldn't exist if it were not for the pursuit of profit. I also told him that public goods and services such as our streets, highways, county hospitals, public universities, police protection, fire protection, and national defense all owe their existence to you guessed it, the pursuit of profit. To this day, I don't believe he has gotten the message.

Things to consider when writing will:

Who to write your will?
Someone qualified, eg: Lawyer. So will is valid & can be executed

Appointment of Executor (s)
Responsible for the administration of the deceased’s estate until the entire estate is distributed to the beneficiaries.

Appointment of Trustee (s)
After the estate has been fully administered & distributed, trustee continues to manage your estate until the trust served its purpose or child attain the 18 years old.

Appointment of Guardian (s)
To take care of someone who is incapable of looking after oneself.

Payment of Debt & Liabilities
Debt & liabilities have to settled 1st before the assets can be distributed

Distribution of Assets

EPF

Insurance Policy

Residuary Clause

Special Instruction

Witnesses
At lease 2 witnesses who must be present

Inheritance
Family provision (eg:spouse, unmarried daughter, son below 21)

Review & Updating

Safe Custody of Your will
Keep at a safe place & inform your executor

Will You Ever Have to Pay a Deficiency Judgment From a Foreclosure?

by: Dave Dinkel

When a foreclosure is finished and the home is sold or assessed by an appraisal, for the loss on the mortgage, the deficit amount the bank will not get back from the mortgage balance and expenses due, is called a deficiency. In most states, the lender has an option to get a judgment in this amount against the borrower and this is called a "deficiency judgment". In addition to the loss of the homeowner’s home he also has the potential of having to repay this judgment in the future.

Even if the bank accepts a "deed in lieu of foreclosure" they can still get a deficiency judgment against the borrower. The borrower is the one responsible for the mortgage or deed of trust payments and he may or may not be the homeowner. If the homeowner has a co-signer, the co-signer will be as legally responsible as the borrower to pay back the deficit due. Depending on whether the foreclosure is judicial or non-judicial, and the specific terms of the mortgage, the bank may not be able to seek a deficiency judgment. These laws vary state-by-state and should be reviewed carefully to determine which applies to the reader.

The bank doesn’t just have the amount of the unpaid loan balance due but also legal fees, accelerated interest payments, back principal payments, in some cases pre-payment penalties, and other expenses as part of the judgment amount. This is why a homeowner who has had his mortgage a couple of years could owe more than he borrowed originally. As an example, the homeowner borrowed $200,000 in June of 2006 and in January of 2008 he goes into foreclosure and the final judgment against him could be $218,000! This is because of the additional expenses and the fact that he pays mostly interest in the first 10 years of his mortgage.

The largest loss the lender has is his loss of the ability to loan about 7 - 10 times the unpaid mortgage balance. This is because the Federal Reserve requires the banks to put cash into a non-interest bearing account to cover potential losses. Since the bank can no longer use these funds to get additional loans from the Fed, he is losing tremendous loan power. This loss of revenue to the lender can not be passed on to the homeowner or borrower.

The major factors in deciding whether the lender will pursue a deficiency judgment are whether the lender feels he can collect the judgment and the cost to collect it. In the process of working with the homeowner, the lender pulls his credit and can see what other outstanding bills he has and whether they are being paid timely. The lender can not see what assets the homeowner has but can sometimes see where he works. The homeowner will be asked to fill out a Net Worth Statement ("NWS") which will disclose these assets to the lender. This document is a major part of the decision to pursue the judgment or not. If the lender has no reason to believe the homeowner has extensive assets, they will issue the IRS Form instead. A note of caution - falsifying the NWS can be bank fraud in some states so be careful if you intend to return the NWS to the lender.

The deficiency judgment is determined by the court-approved "Final Judgment" amount in most states. However, in some states, the property must be sold or an appraisal done to determine the "expected" net loss. If your state does this procedure by appraisal, contest the appraisal and have the judgment lowered if you believe it was not correct.

The lender usually chooses not to get a deficiency judgment and instead report the loan deficiency amount on IRS Form 1099. The result to the homeowner is a "phantom income" requires him to pay income taxes on this amount. In this situation the final cost of the guarantor’s foreclosure is the amount of income taxes he pays the IRS instead of the entire deficiency judgment. This is a substantial savings to the homeowner and the lender also benefits because there is no collection on his books that is counted as a liability. Unless there is suspicion of fraud in the original loan, the lender will issue a 1099. In December of 2007 legislation was enacted that allows a maximum exemption amount a homeowner who resides in his property can write off for this deficiency amount.

Carefully weigh your rights and options when you make a decision to allow your home to be lost to foreclosure, as there are solutions besides foreclosure and deed transfer to the lender. Do not be paralyzed with fear that the lender will follow you forever to collect the deficiency judgment, as you have a number of options to fight this including attacking the validity of the original loan.

What is in a Franchise UFOC?

by: Bob Richman

There are 4 parts to a UFOC:

* Cover Page
* Table of Contents
* Items 1-23
* Exhibits

The format for each of these sections is very specific and covers the following:

Cover Page The Cover Page identifies the franchise business, including the name under which the franchisee would operate and what type of business it is. It also includes the amounts of the initial franchise fee. In addition, any additional risk factors are included on the cover in all capital letters. Risk factors that may be included pertain mostly to which state is governing the franchise agreement and where any litigation is permitted to be filed and heard.

Table of Contents The Table of Contents contains the specific 23 items listed below, as well as the exhibits, in a standard format.

Items 1-23 Item 1: The Franchisor, Its Predecessors, and Affiliates This section gives you a background on the Franchisor, including anyone he/she has purchased the franchise from, and any affiliates, meaning anyone else who has a controlling interest in the franchise. Do your research on these representatives, including a credit check if possible. You're quite possibly investing your life savings with these people and knowing any other businesses in which they have been involved and how well they manage financial aspects is important.

Item 2: Business Experience This section gives you a background on the officers and directors of the franchise for the past five years. Similar to the information you will review on the Franchisor itself, you want to carefully review the expertise these people bring to the table. These are the people you will be working with and who will contribute greatly to the success of your franchise. You should get to know them as well as you can.

Item 3: Litigation Any history of litigation, including cases terminated by settlement, must be disclosed in this section. Any Franchisor who is under some kind of restrictive injunction is one to stay away from. Additionally, if a franchisor or any officer has a criminal history or any litigation pending that may affect his or her ability to maintain a franchise then this opportunity is not a worthwhile risk.

Item 4: Bankruptcy The bankruptcy disclosure requires that they tell you up front about any bankruptcy in the last 10 years concerning, "the franchisor, its affiliate, its predecessor, officers, or general partner". Entrepreneurs often have several failures before they are successful. Learning from failed business is not the experience you want to have, which is why you are considering a franchise. This doesn't always mean that having a bankruptcy in the disclosure is a sure prediction of a bankruptcy in the future, but you want to review the circumstances of the bankruptcy carefully, including the amount of time that has lapsed since that bankruptcy. You typically don't want to give your money to someone with a proven track record of not being able to manage it.

Item 5: Initial Franchise Fee The initial franchise fee is the fee you pay to purchase the right to operate as a franchise. This does not include all of the other fees that may be required to get started or continue operation. The important thing to know about the initial franchise fee is exactly what you are getting for those dollars. Knowing how they came up with that number is important. A large initial franchise fee does not equate to a larger earning or a better investment. Consider this fee in addition to the Other Fees (Item 6) and Initial Investment (Item 7) before concluding what it will actually cost to open a franchise.

Item 6: Other Fees Other fees include any other monies you will be required to pay to the franchisor, including royalties, advertising fees, service fees, training fees, or any other ongoing or one-time fees that you as a franchisee will be expected to pay directly to the franchisor.

Item 7: Initial Investment This is the key item in terms of figuring out what is will cost you to get a franchise up and running. This section is laid out as a table, and includes the estimated costs for training, equipment, opening, inventory and other costs associated with starting your franchise. For each item in the list, you are given the amount, the method of payment, when it is due and to whom the payment is to be made. Review this information carefully. Speak with other franchisees and see if the estimated costs were realistic. Expect that you will need more for unexpected expenses. Remember that most businesses are not profitable for at least a year, so include the amount of money it would take you and your family to survive for a year without income.

Item 8: Restrictions on Sources of Products and Services If the franchisor requires you to purchase or lease from designated sources, investigate further. Sometimes the purchase restrictions are because the franchise has negotiated a lower price for certain goods in return for guaranteed orders. However, sometimes the cost of the supplies is not competitive and the franchisor makes a bit of money from the procurement of supplies. This makes the franchise more expensive to run, even if the startup costs look attractive. If the costs are reasonable, the restrictions are not a big issue. Again, talk to existing franchisees to see if they feel these restrictions are reasonable and whether or not they are satisfied they are receiving their money's worth.

Item 9: Franchisee's Obligations Your obligations as a franchisee can be laid out in various agreements, including but not limited to the franchise agreement. This section explains what your obligations are and exactly where in the legal documentation you can find the information governing your obligations. This is an important section for you to review carefully, as they define your contractual obligations and if you breech these obligations your franchise can be terminated. Talk to current franchisees and see whether meeting these obligations has presented any difficulty. If the obligations seem unreasonable, move on.

Item 10: Financing Sometimes the financing required to start-up a franchise comes from the franchisor him/herself. As with any financial contract, review the conditions and be sure that they are competitive and make sense. Have an accountant or banking representative review the terms and give an opinion. Having a credit check would, again, be handy here.

Item 11: Franchisor's Obligations Just as the UFOC lays out your obligations as a franchisee, the obligations of the franchisor must be clearly disclosed in this section. You are putting your financial future into the hands of the franchise that you purchase, at least in part. Be sure you understand exactly what you are getting for what you are paying. You may want to approach this section in a different manner than the others...perhaps backward. Rather than reading what they will provide, begin by making a list of what you think you will need to be successful. Determine what kind of training you will need and see whether they provide it, when it will be offered, what kind of training it is, and whether or not it meets your needs. What kind of ongoing support or documentation do they include? Also determine what you would need after you have opened the franchise and see whether those items are included in their list of obligations. If they are missing things that you think you will need to be successful, ask to have those things added to the franchise agreement. Verbal promises from salespeople are not sufficient - promised items should be added to this section.

Item 12: Territory Opening a franchise just to see another franchise open up a half mile down the road would be enough to make anyone crazy. The territory section of the UFOC is designed to lay out exactly what rights you have to any territory. Having the right to an "exclusive area" cuts down on the competition, at least from within your own franchise. Unfortunately, not all franchisees are alike. Some will take full advantage of their area and develop the market to its fullest. Others will assume that the lack of competition in their immediate area means they have a right to the business and therefore don't work quite as hard to develop that area. There are many other situations in which an exclusive area causes issues for a franchisor, and most will not grant them. Some will grant an exclusive area only for a specified amount of time or only as long as a certain level of achievement is reached by the franchisee. Understanding what options the franchise offers is very important.

Item 13: Trademarks This section discloses any trademarks, service mark, service name or logotype used in the franchise business and whether or not that trademark or service mark are registered with the US Patent Office. Using a trademark symbol (™) is not the same thing as having a registered trademark. The registered trademark (®) means a certificate of registration has been granted to the franchisor. A trademark registered in the Supplemental Register does not have the same legal rights and there should be a statement in the Trademarks section disclosing this information.

Item 14: Patents, Copyrights, and Proprietary Information This section is important to you only if patents are important to the franchise. If so, get a copy of the patent from the U.S. Patent Office and review the status of the patent. Be familiar with any copyrighted or proprietary information outlined in the UFOC, as the franchisor has a right to modify or prohibit use of anything patented, copyrighted, or proprietary information disclosed in the UFOC.

Item 15: Obligation to Participate in and the Actual Operation of the Franchise Business This section outlines any requirements for the franchisee to personally be involved in the operation of the franchise. If the franchise does not require the franchisee to run the business him or herself, then there must be a statement outlining whether or not a manager running the day-to-day operations of the franchise in place of the owner must complete the franchisor's training program and/or own an equity share of the business, and any limitations placed on the manager (such as being approved by the franchise).

Item 16: Restrictions on What the Franchisee May Sell Restrictions on what you may sell will affect those franchisees who want to operate an expandable business while they own the franchise. This section is also important if you are limited to selling goods or services that won't make you enough return.

Item 17: Renewal, Termination, Transfer, and Dispute Resolution This section is one of the most important in the entire document, and is presented in a table format for easy browsing. The best contract is one stating that as long as you do not breech your contract you can renew your franchise agreement, forever. Contracts that place a limit on your possibility to renew solely at the discretion of the franchisor are bad. Also pay close attention to extensive repairs or decoration that will required as a condition of renewal. The amount of money expected to be spent should be reasonable and there should be some kind of formula so that costs are not incurred all in the same year. Additionally, the refurbishment should keep you industry competitive.

There are many types of transfers. Transferring among business entities, such as from a sole proprietorship into a corporation, should definitely be allowed. A good agreement will also allow your franchise to be transferred to your heirs. If this is not allowed and you're still interested in purchasing the franchise, try to make some provision for the repurchase of your franchise by the franchisor.

This section also outlines the causes for termination of the franchise agreement, states whether the franchise can be sold and who has the right of first refusal (your own blood relatives should not, ideally, come after the franchisor on first rights), and delineates your right to arbitration. Essentially, the more rights you have to control the renewal and transfer of your franchise, the more rights you have for the continuation of your business and the better the agreement. Make sure your franchise attorney reviews these rights as well as your rights to litigation (or requirement to use arbitration). Any additional risks for litigation will also be on the cover page, remember.

Item 18: Public Figures This section requires the disclosure of any public figures the franchise uses as a spokesperson, how much they were paid, and how much control they have in the business (if any). Find out how this arrangement relates to you, whether you can use that figure in personal appearances or advertising, how much it would cost and how frequently you would be allowed to do so.

Item 19: Earnings Claims It is very tricky for a franchisor to project, estimate, or in any way forecast financial sales. There are so many variables in play for an individual franchise that it would be mostly guesswork and optimism to project for a prospective franchisee how much money they will make with their business. Any claims made by the franchisor to this effect must be substantiated, so rarely will you see any earning claims included in a UFOC. The best way to get an idea of what to expect for earnings is to talk to existing franchisees. Find out how long they've been in business, when the business turned profitable, and what their average profits have been. Remember that each business is unique and that each franchisee does not run a business equally well. Speak to several franchisees to get a clearer picture of a range that you might be able to expect.

Item 20: List of Outlets All of the existing franchise locations, along with the franchisee's contact information, is listed in this section. This is the pot of gold, right here. Contacting franchisees with questions about their relationship to the franchisor, their ability to meet their contractual obligations, their general earnings, and how realistic the start-up projections are is the best bit of research and review you can possibly do before purchasing your franchise. Prepare your questions and schedule time with franchees in advance; this one is important.

Item 21: Financial Statements This section points you to the exhibits containing the audited financial statements of the franchisor for the last three years. Take these statements to a qualified accountant for review. The financial status of the franchisor is a track record, showing you not only the ability of the franchisor to run the business, but also the likelihood of success or failure.

Item 22: Contracts All contracts or agreements a franchisee will need to sign must be attached to the UFOC. This includes the Franchise Agreement, purchase agreements, lease agreements, and others.

Item 23: Receipt This document is a receipt of acknowledgment of the UFOC. This has to be provided as the last page of the document for the franchisee to acknowledge that they have received it. This is only important because no monies can legally be exchanged until 10 days after the receipt of the UFOC (the "cooling off" period provided for by law).

Exhibits Any documents that have been identified in the UFOC for the franchise to review or sign must be included as an Exhibit. The exhibits will include copies of such things as the financial statements, Franchise Agreement, leases, or Loan Agreements.

What Does RICH Mean To You?

by: Paul Mara

Have you ever been asked that question?

I was!

Back in 1979 while doing a “pressure cooker” course on selling with an insurance company!

I wondered how relevant that question was, considering my personal and financial situation at the time.

No wife!

No job!

I was a solo dad with three children, one of them a baby less than a year old.

“You must be kidding”, I thought to myself at the time!

What relevance can that have to me learning to sell insurance policies?

How naive I was!

The course that followed had an unbelievably positive and a life changing effect on me. Although it only took affect several years later. The seed had been sown!

You’re probably saying to yourself, “How can a course on selling life insurance have that much effect on anyone?”

Well that Insurance Company was the one created by W Clement Stone.

I found the course to be very challenging, because in New Zealand at that time we weren’t really aware of the “Hype” that Americans used to motivate their workers to perform at their optimum. It pleases me each time I think about it now, to know that I passed, top of the class and received a book as a reward, this book was already a best seller, but I’d never heard of it.

Success Through a Positive Mental Attitude, of which W Clement Stone was co-author with Napoleon Hill. They shared their secrets on becoming wealthy and having a healthy, productive lifestyle, utilising the power of a "positive mental attitude". Sadly my motivation and my persistence waned and I stopped selling insurance.

I kept all the information, studies and the book I had won.

The “BOOK” Success Through a Positive Mental Attitude, which I never opened or read for probably 3 years.

However I did continue two very positive things! I continued to read on a daily basis some of his quotes and I even put them on the wall. My two

favourites were;

“Success is achieved and maintained by those who try and keep trying” and

“Whatever the mind of man can conceive and believe, it can achieve”.

The second thing and the one which I believed the most important was “Goal Setting” I enjoyed the challenge and had learned enough during the course to

realise its long term value.

Life began to take several steps in the right direction not major ones, but positive ones.

Several important things happened in my life over the next 12 years.

Around 1981-2 I began reading, Through a Positive Mental Attitude,

I applied so many of their ideas and formulae, and by 1992 mine and my families life had completely turned around, this included a wonderful wife and two more children and a list of goals I had made in 1986 after father passed away, became a reality.

I had arrived finally, or so I thought, and was ready to respond to the question that still continued to bother me after all those years.

What Does RICH Mean To You?

I had some answers!

That’s what I believed anyway!

1 - " A consistent income created from hard work

2 - " A healthy family

3 - " A loving wife and loving children

4 - "A nice car

5 - " A great holidays

There are other things, but they are either directly or indirectly related to the above list.

Even now when I look at that list it seems to have “hit the nail on the head”.

Then within three years it all slowly began to fall apart, business wise, thankfully not family wise our “Polynesian Inheritance” is so strong, family always come first!

Where was I going wrong?

What was I doing wrong?

Whose fault was it?

Why now when we seemed so successful?

A myriad of questions passed through my mind, I began to blame myself, I was making wrong decisions.

I had begun a downward slide a personal one that took away my mental fortitude, my belief, my self-confidence, I lost motivation, the thing that really hurts me when I think back is that, “I didn’t really care anymore” I began to think that the world owed me, I was a good person so for that I should be rewarded. What a “Pity party”, darn pitiful is all I can say now!

After all these years I am finally getting back on track!

I realise that age and the new generation means I can never be what I was back then, why?

Well that’s the past and I now live for today!

Not tomorrow!

I have found a “Certain Way” that has been available to each and every one of us for more than ninety years.

Probably what W Clement Stone and Napoleon Hill and thousands of others used to become rich, but forgot to tell us some very vital points, whether they did it consciously or just took it for granted that we would figure it out, I am really not to sure.

Want to find out as I have???

The real meaning of what “RICH” is, go to my website “Right Now” and find out how you to can have a “RICH” balanced and fulfilled life with “Prosperous Equilibrium”.

PS. Get a “FREE COPY” about this “Certain Way”, with THE SCIENCE OF GETTING RICH check it out right now!

http://www.prosperous-equilibrium.com/

Using Stop Loss Orders to Determine When to Enter a Trade

by: Derek Frey

More from this Author at http://www.mytradesignals.com/

Many people enter into trades with little more than a desire for profit. In Forex we normally use between 50 – 400 to 1 leverage. Because of the large amount of leverage we are able to use, simply hoping for a profit is not enough. Traders need a solid plan before the pull they trigger. When planning any battle, successful generals begin at the retreat and work their way backwards. Traders should do the same. The first and most important decision is when to admit defeat and retreat. Survival to fight another day is more important that going down with the ship. This article proposes that traders take a different approach to figuring out when and where to place their next trade. The approach is simple. Just like the generals, start by figuring out when to get out. This may sound strange, but if you apply this idea to whatever other methods you are using to determine your entry signals, your bottom line should improve. The overall idea is simple, rather than first looking for a good entry point, look for a point where you would want to be stopped out. At this point you are probably saying “who ever wants to get stopped out?”

The answer is, not the majority. But let’s look at several statistics for a moment to get some perspective. Depending on who you believe, anywhere between 75-95% of all retail Forex traders blow out their account within one year. So it seems that the 5-25% of traders who are winning are doing something different then the majority who are losing. One of those main differences is not being bothered by getting stopped out. Many new traders complain that they hate trading with stops because they have been stopped out of a trade that almost immediately turned around and would have been a huge winner had they not run the stop. They take that to mean that they should not trade with stops. Trading without some kind of risk management is like playing Russian roulette by yourself, it may not be the next pull of the trigger that kills you, but pull it enough times and sooner or later it’s a sure thing. Trading without risk management is much the same. You may get away with it for a while, but the lesson you are learning will sooner or later prove deadly.

There are many forms of risk management, from the extremely complex, like cross hedging with options, to the very simple, such as using stops. The use of stop loss orders is one of the simplest and often most effective way to manage the risks of any given trade. The reason many traders have had a bad experience with using stops is not the fault of the stop itself, but rather the placement of the stop. Most traders get into a trade and then decide where to run a stop, if at all. They often have a fixed dollar amount that they are willing to risk per trade and they then place the stop loss order accordingly. All of this on the surface sounds like a good plan, but in practice it often leads to the scenario mentioned before, where the trade gets stopped out and then the market turns on a dime and goes the way the trader had originally anticipated, leaving them to mistakenly blame the stop. The individual points that led to the stop being placed are not bad in and of themselves, but put together this way, they often lead to the frustration mentioned above.

So let us look at these issues from another angle. Rather than getting into a trade and then deciding where to get out, let’s determine the exit point and let that dictate where we get in. To do this you will need a chart. Choose the chart’s time-frame based on how long you intend to hold the trade. If you only hold your trades for a few hours then a 15 or 60 minute chart should be fine. If you are more of a swing trader, then daily or even weekly charts would be best. Currencies tend to trend more than most other markets. However, they do not trend all the time. In fact the opposite is true. Most markets only trend about 30% of the time. The remaining 70% of the time they are trading within a range or chopping. Therefore, learning how to trade the chop is paramount if you want to be a trader for years to come. What follows is a simple yet effective way to trade the chop.

Trading the Chop

First, start by looking at long term support and resistance zones. Markets tend to have certain zones that they “bounce” off of time and time again before penetrating them. These zones are what you want to look for. Start with weekly or even monthly charts, no matter what time-frame you trade in. This will tell you in an instant whether the market is trending or choppy. Once you determine the underlying market condition, look for significant areas of support and resistance. Finally, move to a daily chart and then to a 60 minute chart. After going through these different time-frames you should be able to find a number of these zones. The best are those that coincide through all the time-frames. That will only happen if the market is at or near relative new highs or lows. When it does happen, though, it is time to sit up and pay attention. However, you do not need to wait for perfect conditions to use this method. You only need a support or resistance zone in whatever time-frame you are comfortable trading. Once you have identified these areas on a chart, you need to look closely and determine where that level would be broken and place your stops accordingly. A move through this level would signify that the market is breaking out from the previously established range. Once you find what the highest high is in the case of a resistance level, or lowest low in the case of a support level, you need to go a certain distance beyond that so you are not stopped out by a move of only one or two pips beyond these levels.

There are many ways to determine how much extra distance to give each market. One way that I have used is to simply look for the next closest Fibonacci number. This method is not scientific, but one that has served me well over the years. The Fibonacci sequence is one that was discovered by a mathematician all the way back in 13th century. The sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144… For the purposes of using them for stops I normally only use 8, 13, 21, 34, 55, and 89. So if the last two digits of the highest high in a resistance zone had been 25, then you would use either 34 or 55 depending on which particular market it is in. The more volatile, or greater the average true range (ATR), the wider you should go.

Once you identify the zone you can then come up with your exact stop point.

Look at the daily chart of the USD/JPY and you can see that we have had significant resistance between roughly 121.50 and 122.25. Each time the market has reached this zone it has failed to follow through. There have been three attempts to break out from this zone, each one being lower than the last, forming a descending trend line. This is what you want to look for. Once you identify the zone you can then come up with your exact stop point. Simply find the recent highest high, in this case 121.66, and then find the next closest Fibonacci number (89) and you have your stop (121.89).

Determining your entry point

Now that you know where you are going to run your stop you can use that to determine your entry point. This is the point where you want determine how much actual money you are willing to risk on the trade. Most money managers will tell you to never invest more than 1% of your account on one trade. That rule really only works for traders using 50k or more. Most traders start with less and therefore are forced to break that rule. Starting with a $5,000 account and only risking 1% would mean that you can only risk $50 per trade, which in some cases is less than the bid/ask spread once you enter the trade, so it is obviously not realistic. But try to keep the amount you risk on any one trade as low as you can. Trading is a long-term endeavor. Do not fall into the trap of thinking that your next trade is “the big one” and you are sure it will work, and therefore put half or even all of your account into it. That is not money management, it is gambling. But let’s say you are comfortable risking $400 on a trade, or 40 pips on a 100k contract. Looking at a Daily chart of the USD/JPY, you can see that the most recent high was 121.66. Using the Fibonacci stop idea you would run your stop at 121.89 because 89 is the next closest Fibonacci number above 66. Now you have your stop well above a significant point of resistance. To calculate your entry point, simply subtract the 40 pips you are willing to risk from your stop point to arrive at 121.59 (121.89 – 40 = 121.59). The next day the market traded up to 121.63 so a limit order at 121.59 should have been filled. Once the order is filled, you can trail your stop with the market or move it to coincide with other support and resistance zones within the range. Your target would be somewhere near the bottom of the range. In this example your target would be a move to 119.50 or below.

So let’s review this method. First determine if the current market is trending or chopping. Then look to identify areas of support and or resistance. Next find the highest high in a recent resistance level or the lowest low in a support level. Determine the next closest Fibonacci number and you have your stop point. Then take the amount you are willing to risk per trade and either subtract it from your stop if it is a short trade or add it to your stop if it is a long trade. You now have both your stop and entry points, and you are only risking whatever amount you determined you were comfortable with. Your stop is placed at a level that signifies a change in the recent trend, and therefore is mush less random than most other stops. This method is not to be used exclusively, but it is one that can compliment whatever other indicators or patterns you are using to determine you next trade. This method should help you avoid getting stopped out at insignificant points that have you selling near highs and buying near lows within the established trading range.

More from this Author at http://www.mytradesignals.com/