Get Rich Quick–Escape the Rat Race

Posted on December 14, 2012December 14, 2012 by Danielle

Gotta love ‘em. I know I do. There’s a cottage industry in Positive Thinking 2.0. If you’re sitting in your boring everyday job (you know, the one with employer paid health insurance and the 401(k) match), you’re probably right in thinking you could make a lot more money in your own business, enjoy it more, and set your own hours. At least half your co-workers think that, too, (about themselves, of course—not you). Deep down in our hearts we know we’re all creative and have a great novel in us, could make extraordinarily beautiful or innovative widgets, or provide such an extraordinary service that the queue in front of our door will be longer than the one in front of the local Apple store when they introduce iPhone 21.

There are plenty of book authors, and lately e-book authors, webinar providers, and meet-up conference purveyors, who are happy to take your money and feed your dreams. The genre has such a long history that I can’t even think who the granddaddy might be—maybe Napoleon Hill (Think and Grow Rich). Thing is, each of these guys (and for some reason nearly all of them are guys) has a nugget of truth in them. And every one of these gurus make it sound so easy. After all, they’re not telling you how to go get a law degree, or a CPA, or a CFP® (forgive self-serving comment)—things that will take a significant amount of education, study, and passing of exams before you can even hang out a shingle. No, they have titles like The $100 Startup (as opposed to the $25,000 or so it probably takes to set up a small law, accounting, or financial planning office) or The Laptop Millionaire.

I think we should treat these books as inspirational rather than practical. I sold real estate for seven years at a time when a book called Nothing Down was extremely popular. In that seven years, I never ever saw anyone successfully execute the strategy, nor did any of my colleagues, although I saw a few people (including real estate agents) try. The author of that went bankrupt in 1996, but still makes a ton of money, apparently, selling books and being a motivational speaker.

The $100 Startup is more interesting. I’ve mentioned the author, Chris Guilleabeau, before—he’s a world traveler and travel hacking expert. It’s fun to read, just don’t expect a blueprint. It’s a collection of anecdotes about people who have started businesses on a shoestring—retail, small service & design firms, and consumer products, mostly. They’re mostly not making a ton ($45K-$75K seems to be success).What isn’t emphasized is that nearly all of these took a ton of work and even if people are traveling the world now, a lot of planning, research and false starts went into most of their successes. The stories are quite inspiring, but you couldn’t just pick this up and start a business. No mention of the really boring but essential stuff, like how to learn Quickbooks in a hurry.

The Laptop Millionaire had some good suggestions as to how to work the internet to develop and promote your fledgling idea, but you’re going to need a lot more specific information on SEO in order to actually accomplish it.

So, am I saying that you can’t quit your job and make your fortune? No, not at all. But even a successful arts start-up requires developing BUSINESS, not creative skills. Tons of people have great ideas, far fewer can bring them to market (which I am loosely defining—whether it’s a book, any kind of indie project, or yet another piece of marginally tested software).

Here’s what I see with people who I’ve met personally who have actually brought it off:

Have a war chest. You’re going to need enough to live on for at least a year. Then you’re going to cut your spending by 25-50% so you can live on that money for at least two years. Even if you land clients right away, collecting off of them (particularly in a service business) can be a trick. Paying suppliers can only be put off so long.
Have investors who will cover the cost of actually running the business end. Not your salary, just equipment, supplies, promo & design—whatever it takes. That investment can come from you (in addition to living expenses), a spouse, parents, the bank—whatever you can get.
Do it nights and weekends before you quit the day job. Sure, this means working a lot of hours—but not any more than you’re going to be once the business is in start-up.
Land your first client, produce your samples or prototype, or whatever it takes before you quit your day job. You may not even like the idea as much once you have to work it.
Learn to sell. If you have a product or service that can be peddled by cold calling, be sure you can do it (it’s the cheapest outlay of money). If it requires being sold on the internet, learn everything you can about SEO, web advertising and promotion, etc.
Learn to write. Even though nobody reads anymore, many businesses require producing A LOT of copy—help guides, blogs, white papers, manuals, FAQs, articles.
Learn all the office systems—Quickbooks, CRM, CAD, whatever you might need, you’re going to be doing it yourself. Get it set up before you quit the day job.
Spend as little as possible. Sure, you can hire out. Sure, you can pay for it. Right.
Don’t raid the 401(k) unless you’re under 40. Then, you might have a chance to replace it. If you make a big success, you can laugh at the 401(k) as chump change. If not, you’ll be really glad it’s still there.
Try to structure the business so it can run or make money at least in part without your hourly involvement, and so that eventually someone else can come in and run it or buy it.

If it were easy, everyone would do it. But if no one tried, we’d still be hammering antelope with rocks. And I’d be writing this on my old Underwood. Hats off to dreamers.

Three simple steps to wealth

Posted on November 16, 2012November 16, 2012 by Danielle

Just because it’s simple doesn’t mean it’s easy. The solution to nearly all money problems is quite simple:

Spend less
Earn more
Invest the surplus

The devil’s in the details. Often, people with financial difficulties are in fact very good at least one of these, but they don’t take into account the other two.

First, there’s the very frugal type. If you’ve ever been mocked for the latte factor (pinching pennies by carrying your own coffee rather than Starbucks’), that would be you. You squirrel it away, have a budget, research every purchase, and pay off your credit cards every month (if you use them at all). You’re an expert at living on less. I love it. The danger here is that you’re so focused on not spending that you forget to invest properly, which inevitably involves some risk—something that frugal people often hate. Or, you’re so focused on steadiness that you overlook the big wins in income that can be generated by pursuing a better job or a significant raise.

Earning more, however, is not necessarily a sure ticket to wealth. Wealth is how much you hold on to, not how much money has slipped through your fingers. People with large salaries in highly visible or status oriented jobs are not necessarily rich—especially if they spend a lot on toys, travel, transportation, or the (seemingly inevitable) McMansion. Also, people in high earning jobs also find themselves under quite a bit of stress, and the urge to make it up to yourself with rewards is hard to resist. This group needs to remember that there’s a particular kind of satisfaction in a 6 or 7 figure investment portfolio as well.

Group number three: okay, you earn more than you spend, and you’re hardly more extravagant than a nun. Where is your surplus parked? In CDs? No! With a stockbroker, fee-based “advisor”, wrap account…? AAARRRGGGHHH! You owe it to your hard work to educate yourself. Investment scams and schemes can cost you way more than you’ll save in years of frugality or even earnings. Really, the hour a week you spend reading financial books or articles may earn (or save) you more per hour than any other action you can take to preserve and increase your wealth.

In fact, these three principles could as easily apply to our national economic woes as much as our personal financial management. If only…

Investing—who can you trust?

Posted on November 7, 2012November 7, 2012 by Danielle

An awful lot of hot air has been blowing lately about trust and believability. Now that it’s the morning-after, maybe we can recover from all the campaign ads and go back to pondering the usual scoundrels. I have the secret to success, however, at least when it comes to investment safety. Follow these principals and you’ll avoid most of the ways you can be skinned alive.

If it sounds too good to be true, IT IS. Not like I haven’t said this before, but look beneath the hood of any scam, and you’ll find our own personal greed has something to do with it. No, we’re not smarter or cleverer or luckier than the next guy and that nice man isn’t keying you in on a privileged deal—not a legal one, anyway. If you are truly in on an insider deal, well, I hope your mug shot looks good on the front page of the Wall Street Journal. But for most of us, guaranteed returns better than the return of the specific market are a sure sign you’re talking to a crook—unless it’s a federally-insured savings account, and you’re not going to make any money at all on that one. Ask investors in David Lerner (or many other) non-traded REITs—you can’t get an 8% return in this market without getting more than a whiff of fish.
Just because he’s nice doesn’t mean he’s honest. If you’re selling some crap, especially something that’s hard for the consumer to evaluate, you’d better be nice or you’ll be eating cat food. But there are some professions where “nice” doesn’t count as much as an honest answer and advice based on expertise: doctors, attorneys, accountants, and financial advisors. Get a Lab if you want nice. Similarly, just because he belongs to your church, or says he loves older people, or graduated from an Ivy League school doesn’t mean he’s honest or competent. In fact, that’s one of the best ways to scam people with their guard down.
Understand what you’re buying. If you don’t know how it will make money, what will cause it to go up or down, and why you should include it in your portfolio, don’t buy it. You don’t know what you’re doing, and probably neither does the “advisor” if they can’t explain it to you. And why is he selling it to you? Is there a monthly bonus contest going on?
Know what it costs you. You have to pay for advice—no one works for free. If you get “free” info off the internet, you’ve probably just gotten either a)something worth what you paid for it or 2)good background but not specific enough for your personal situation. If you just went to a “free” lunch at Maggiano’s and the nice young man told you that they were fee-based and didn’t generally collect commissions, you are about to pay four or five $$ figures for that lunch. Any reputable fee-only advisor can tell you exactly what you’re going to be paying, whether hourly or based on assets-under-management fees. Know how someone gets paid and you’ll know where their interest lies. Management fees and fees on retirement plans can be jaw droppers once you find out how high they really are.
Educate yourself. Read more than the sports section or the movie reviews. Every day, every newspaper, magazine, and a myriad of financial websites run articles on annuities, asset allocation, target funds, emergency funds, and on and on. Force yourself to read at least one article a day. Jeez, just read this blog! You can eat the elephant one bite at a time—you don’t have to know everything instantly, but over time you’ll find you’ve begun to get a grip on even the most complex issues (I nominate annuities for that title).
Don’t leave it all up to your spouse. Two heads are better than one, and after years of ignorance it’s very hard if you suddenly have to go it alone.

Follow these principles and Bernie Madoff wouldn’t have been padding around in custom embroidered velvet slippers. My clients wouldn’t be bringing me portfolios full of A, B, and C shares, IRA accounts with 29 different mutual funds, 57 varieties of annuities, and life insurance they didn’t need at 3x the cost of term. With decent planning and a healthy dose of skepticism, they’d enjoy far greater prosperity and some peace.