You can invest a small amount of money (and a lot of hard work and well-spent time) in a small business and see it grow into a business that is worth a million in seven years. I’ve done it many times. I’ve coached people who have done it. Stories are published in magazines every month about people who have done it.

But let’s be frank. With only $18,000 to $25,000 to invest, it won’t be easy. That’s why I like to encourage Early to Rise readers who are at this first wealth-building stage to focus most of their time and efforts on building their income. Doubling your income in a year or two is entirely possible if you follow the advice I gave you in previous posts. And if you double your income and don’t double your lifestyle, you’ll have a lot more money left over to ensure the success of your small side business.

Here are five things I recommend if you are in this situation:

1. Find a way to radically increase your salary by making yourself radically more valuable at work.
2. Resist the temptation to spend more money as your income rises.
3. Put some of your savings down on an undervalued, small, single-family house, fix it up fast, and sell it for a profit.
4. Reinvest that original capital plus the profit in another buyand-flip deal. Keep doing this until it becomes a very pleasant habit.
5. Invest another portion of your savings in a part-time, weekend business. Sell a product or service you know and understand.

Make sure you are not a pioneer. Unless there are others actively selling the same thing, you don’t want to be in the market. The idea is to enter an active market with a better/cleverer/cheaper version of what others are selling. Sell only by direct response—print, mail, and Internet. Go carefully and learn from your mistakes.

Muni funds can also play with the value of your shares to your disadvantage. Muni issues are rarely traded. Muni managers can use any reasonable value for fund assets. Though credit quality may have deteriorated, managers often refrain from writing down asset values for fear of losing shareholders. However, at some point asset values must be marked to market to avoid outright fraud and jail time for the fund managers. If you buy fund shares at a high valuation of assets and later have to redeem when assets are written down to realistic levels, you will justifiably feel betrayed.

Fund managers can also turn tax-free munis into taxable bonds. Capital gains from selling appreciated muni bonds are taxable. Individual savers typically hold munis until maturity so there are no capital gains. Muni fund managers trade bonds. This creates capital gains, often short-term capital gains, which are taxed at the highest rate. Muni funds are outside the comfort zone of most savers.

Municipal bonds also have call provisions that allow the issuer to redeem bonds before their term expires. For example, a 30-year bond will typically have a seven-year call. If interest rates have declined over the seven-year period, the state will redeem the bonds and then issue loweryielding securities. Obviously, this is not in your favor, and you may find it irritating.

Munis are also subject to wide swings in value. State economies are more volatile than the national economy. When a state economy is booming, state tax revenues are high and there is little need to issue munis. At the same time, state residents’ incomes are high. They want munis, which pay tax-free interest. The combination of low supply and high demand leads to overpriced, scarce bonds. When a state is in recession, tax revenues decline.

The state issues a hoard of bonds to keep going just at the time when it can least afford to make interest and principal payments. Muni interest rates rise to compensate for the reduced security. Older munis lose value.

Consider how you react to wide price swings.

Unmanageability is a big issue with municipal bonds (munis). (Munis are bonds issued by states and local governments.) State and local government bonds are less secure than federal government bonds. The federal government can print money to pay bond interest and principal. With munis, defaults are possible, because state and local governments do not have the power to print money. Although defaults are rare, they occur. Many munis are secured by specific projects. If the project is bad, the muni could default.

Other munis are secured by a general fund. However, mismanagement of the general fund can endanger your muni. For example, the Orange County (California) general fund in 1993 and 1994 was run like a hedge fund. The fund manager invested in derivatives and leveraged up the fund just when interest rates rose dramatically, bankrupting the county. This type of mismanagement can lead to feelings of outrage among bondholders.

Munis are sometimes insured, but the insurer needs to be solid for the insurance to be any help. State and local governments sometimes establish a fund, known as a sinking fund, to be used to pay off specific bonds when they come due. These bonds are known as prerefunded bonds. Prerefunded bonds are more secure as long as the sinking fund is never attached.

During ownership, some savers also experience a sense of regret. High inflation in the 1970s reduced the purchasing power of savings and was not compensated for by interest paid. When real estate was hot in the early 1980s, savers regretted they were not participating. The stock bubble of the late 1990s also led to regrets and jealousy. However, savers who hold out experience a sense of satisfaction when bubbles burst and speculators scramble to place their remaining funds in savings instruments.

When CDs mature and must be rolled over, savers experience a mixed set of emotions. Higher interest rates can lead to joy unless inflation has risen such that purchasing power will be lost. Lower rates can lead to regret that a long-term investment was not made.

Liquidating savings often triggers many emotions. A source of security is dying. When savings must be substantially liquidated, a grieving process begins. The saver may experience a wide range of emotions including sadness, regret, anger, resentment, helplessness, confusion, and free-floating fear. Generally, the cause of liquidation will compound the emotional mix. A divorce often requires a non-working spouse to both watch her savings dwindle as she reenters the work force and grieves the loss of her marriage.

The biggest issues with money market funds involve impulse buying of stuff you do not need and becoming a target for sales pitches from the sales force that sold you the money market fund. Money market funds can be tapped with checks, credit cards, and online transfers. Impulse buyers may want to avoid the opportunity to make quick purchases. Some brokers who are slightly unscrupulous tell money market fund owners that they should “put their money to work” and that “cash is trash.” Lured by potentially higher returns in stocks and other high-commission, high-spread investments, money market funds are easily and quickly converted. With CDs, you lose your interest if you liquidate before the term. Savings accounts often require several steps to convert into risky investments. Money market funds, particularly those attached to brokerage accounts, can be converted at the click of a mouse. If you are vulnerable to sales pitches or impulse buying, you may not want to own money market funds.

The next figure shows the same kind of relationship between the assets and liabilities accounts. If we add $100 to assets, the debits go up $100, and the credits go down $100. At the same time, in the liabilities account, debits go down $100 and credits go up $100.

The figure shows how an accountant would record four common transactions in terms of debits and credits:

The company borrows $8,000. Cash (an asset) is debited and Notes Payable (a liability) is credited.

The company sells $5,000 in merchandise on credit. Sales Income (an income account) is credited and Accounts Receivable (an asset) is debited.

The company pays its electricity bill of $200 immediately. Utilities Expense (an expense account) is debited and Cash (an asset) is credited.

The company sells some of its older computers for $1,500. Office Equipment (an asset) is credited and Cash (an asset) is debited.

Simple as it should be, the concept of debits and credits is a little like a Zen koan (a paradox). Terms are easily defined, but how they integrate into your balance sheet and income statement and the effect they have on your accounts… Well, that’s not so clearly understood without first understanding how liabilities and owners’ equity are treated in relation to assets. That may take a little getting used to.

One of the best ways to approach the opportunity cost of debt is to consider your interest rates as “potential rates of return.” In other words, if you had to choose between putting $100 per month toward a savings account paying 2% and a credit card charging you 15%, you should pay down the credit card. Even though you won’t earn the 2% annually on your $100, you avoided paying 15% on the same amount. For the savings account to make more sense, it’d have to have a higher interest rate than your credit card. In short, this means paying off a 15% credit card is roughly equivalent to earning 15% on your money!

Opportunity cost is a concept from economics that states whenever you make a choice to do something, you are also making a choice not to do many other things. Oftentimes, those other choices had benefits attached to them that you will now miss out on because you chose another seemingly good option.

Great examples of opportunity costs in action can be found on any number of TV games shows like Who Wants to Be a Millionaire or Deal or No Deal. In these shows, a contestant has to make a tough choice between taking a sure thing like $25,000, or taking a chance of winning $1 million or going home broke. If you choose the $25,000, it costs you an opportunity to possibly leave with a million bucks. If you choose to roll the dice and you lose, you missed an opportunity at a guaranteed $25,000.

Everything in your personal finances has an opportunity cost. If you pay down your debt, you lose the opportunity to do all kinds of fun things with your extra cash, from spending it to investing it. However, if you pay down your debt, you’ll likely be debtand stress-free much sooner.

Although there are many benefits associated with loan workouts, they can suffer from drawbacks that make them unsuitable for all cases of corporate distress.

The principal problem is that they need all the participants affected by the terms of a workout to agree to its terms. This can create a ‘hold-out’ problem, whereby one or more disgruntled creditor can demand disproportionately preferential terms in exchange for their consent. Similarly, parties not necessarily directly affected by the loan workout, for example trade creditors, may seek to improve their position by taking, or threatening to take, legal action to recover their exposures to a company. This can undermine the entire process.

In addition, the structure of the creditor group in amulti-creditor workout can have a considerable impact on its effectiveness. The larger this group is, and the more divergent its interests are, the more difficult and time-consuming the process of developing a consensus is likely to be. For example, a loan workout involving a significant number of banks, purchasers of distressed debt, bondholders and shareholders, with each group potentially having conflicting objectives, may not be possible to agree without some form of recourse to the courts.