Let me fill you in on a great guest post “by FMF of Free Money Finance, a blog devoted to helping readers grow their net worth” that I recently read on I Will Teach You To Be Rich, a blog by Ramit Seth … FMF said:
I’ve faced a money making question a few times in my life and I’d like to get your thoughts on it. Here’s the question: as we all try to grow our incomes, which is better, doing more of what we’re currently doing or trying something totally new?
Here are some options I had for making money in my spare time:
- Focusing on my investments — I had them fairly under control, but I needed to spend some good hours really sorting through my strategy for dealing with some past bad decisions. I knew that getting things straightened out totally would net me a decent return.
- Consulting — I had a few people asking me to do some side work for them and help them out in their businesses. The per hour rates were equivalent to what I make at work if you include the benefits from my current job.
- Blogging — Back then, no one thought you could make any money blogging. But it was something I could do easily and I thought it had potential.
- Starting a new business — Or maybe even buying an existing business. I had a few ideas for this option, but I wasn’t sure of the time commitment (which I thought would likely be high).
Each of these, like my hobby income, had their own list of pros and cons — potential income, time commitment, “hassle factor”, and so on. But before I selected one I had to decide what was my best option — to keep doing more of what I had been doing or whether I should try something new?
As FMF went on to say: Millions of Americans face similar decisions every day.
So, which option/s would you choose? Before, I give you my opinion, let me share some personal history:
I joined one the world’s best companies to work for, straight out of college … I was sure that I would only be there for two years, then I would be able use that employer’s prestigious ‘name’ on my resume to look for an even better-paying job.
Therefore, I never even bothered joining the company’s very generous stock purchase plan (exploring my stupidity will be a great subject for a future post!).
I had a great – even wonderful career, but at Year 6 a light-bulb inexplicably went off in my head: I suddenly wanted to – in fact, simply had to – do something for myself!
The problem was, I didn’t know what that ‘something’ was …
So, it took me another 4 years to finally ‘make the jump’ (exploring my ability to procrastinate will be a great subject for a future post!) – but, what attracted me to FMF’s great guest post was that he seemed to be covering all the same decisions now that I went through then:
– Focus on my investments and/or blog: Given that I didn’t have any investments to speak of then, having spent all of my money chasing a couple of failed long-distance relationships (exploring my ability to make bad life choices will be a great subject for a future post!), and given that blogging didn’t yet exist (although, we had – just – moved past the abacus onto the slide rule stage), that left me with …
– Staying in my job: I was past the point of no return on this …. when that ‘light bulb’ finally does go off in your head, you just realize that there is virtually no amount that you can earn in a job that can make you financially free, unless your expectations are very low and you intend to work for a very long time OR you can fight your way to the very top of the corporate food chain.
– Consulting: So that left me with only a couple of choices … consulting was tempting because that’s essentially what I did for this company that I was working for, and I was pretty good at it. But, I quickly realized that consulting was constrained by time and hourly rate … in other words, I was the product that I was selling, and there was only a limited amount of me to sell. And, I would have to divide that limited amount of time between: (a) doing consulting gigs (b) finding more consulting gigs (c) administering my consulting gigs … only one of which paid!
– Go into business: So, I was left with the entrepreneurial path … the path that ultimately lead me to wealth. Why was this path so attractive? I can sum that up in one word … leverage. There is no other activity that – when it works – can produce so much cash (to fuel your passive investments!) for so little investment – other than in blood, sweat and tears – than your own business. None … period.
And, the good thing about a business is that you can minimize your risks by investing little in the way of time (start part time) and costs (bootstrap!) – if you so choose – or, you can jump in boots and all … the choice is entirely yours!
So, here’s what I recommend to all of those facing the same choices as FMF and I faced …
1. Make a decision that you will (eventually) go into your own business.
2. Prepare by (a) starting/maximizing your ‘pay yourself first’ savings plan (b) paying down bad/consumer debt as quickly as possible (c) building up a 3 – 6 month income savings buffer.
3. Minimize your risks (financial and otherwise) by starting a business on the side (blogging, writing, consulting, online, hobby-turned-into-income, manically trading stocks or options, aggressively rehabbing/flipping real-estate, whatever) … if it ‘works’ great … if not, start another …
4. Put at least 50% of the excess business income (i.e. after reinvestments in anything that will help you quickly grow the business) into your Savings/Investment Plan
5. Wait until either your business income grows enough to support you or your passive income from investments grows enough to support you.
6. Then fire your boss before he fires you! At least, it would be nice to have the option 😉
BTW: By now, I’m sure that you have picked up the fatal flaw in my original plan, back when I was still working for ‘The Man’:
If I did choose to start my own consulting practice then, I could have eventually turned it into a consulting business by hiring other consultants to do the consulting work; hiring marketing staff to do the selling; and, hiring administration staff to do the rest … there have been plenty of mega-consulting-businesses started in exactly this way (exploring my ability to fail to see the obvious will be a great subject for future post …).
… but, I think you get the point?