My biggest mistake?

Posted on May 31, 2008 by Adrian

A new tool to drive traffic to your page: if you haven’t seen Pinyo‘s new site, yet, click here now … I am predicting that it will become THE place to see what late breaking personal finance stories and blogs are hot right now!

I’m not really sure how it works, so I just submitted 3 or 4 of my posts to see what happens … I hope that you will visit PF Buzz, find them, and give each post the rating that it deserves 😉 It’s just an experiment … we’ll see how well it works … in the meantime, here’s today’s post …

I’m often asked what my biggest semi-financial mistakes were … and, I can point to some doozies:

1. I was offered the opportunity to head up a regional business unit promoting one of the first ever PC’s in the market … I said “no thanks … the future’s in mainframes!”

2. I sold 5 ounces of gold (losing money on the transaction) about a week before the 1980’s boom that took gold from $350 and oz. to over $1,800 an oz.!

3. I constantly choose to enter the markets just at the end of a major bull-run … because that’s when I happen to be cashed up.

But, my biggest financial mistake? That’s easy … not getting ‘religion’ early …

Explanation: we all know the benefit of SAVING early:

The following graph shows three investors, each of whom invests $1,000 a year until age 65. However, one begins at age 25, investing a total of $40,000; one at age 35, investing a total of $30,000; and one at age 45, investing a total of $20,000. Each earns 7 percent per year and, for purposes of this illustration, the effects of taxes and inflation are ignored.

The Power of Compounding

Source: Investment Company Institute

And, you already know my view on this: big deal … for each $1,000 invested the start-early guy saves $215k by the time he is 65 … or $2.15m if he can scrape up $10k each year from the age of 25.

That will provide the equivalent of about $30k a year (today) in retirement living (then) …. big deal.

No, I’m talking about the equivalent compounding power of starting to boost your income early … so that you can pump far more than $10k a year into your ‘retirement investments’ …

… imagine what you would get OUT if you could pump $100k a year IN?

The key is to get religion early … the ‘religion’ that I am talking about is the massive why that leads to the massive action that leads to massive amounts of money.

I can easily divide my financial life into two distinct parts:

1. Pre-Why: Until 1998 I plodded along with my little business slowly trying to grow it. I worked hard, but had no particular goal other than to try and eke out a living. My results were unspectacular, to say the least.

2. Post-Why: In 1998, I read the E-Myth Revisited by Michael Gerber; in it he recommended thinking about what I wanted my life to be like when I was ‘done’ and to think about how much money that would take (and by when).

I now had a massive ‘why’ and an ‘oh shit’ amount of money required to support it!

That’s what kicked off my $7 Million Dollar Journey.

So, what was my ‘big mistake’???

There was NOTHING that I did in that 7 years that I COULDN’T have done in the preceding 7 years, or in the 7 years before then!

If I had ‘got religion’ early, I may have reached my goal early … that little ‘financial mistake’ makes every other financial mistake that I could have made, did make, and probably will still make … pale into insignificance.

Which brings me to a comment made by Blogrdoc to a recent post, in which he says:

I seek business success primarily as a challenge and because I want more in life. Not more money, but more impact on others and being able to have fun.

When you’re a 9-5 corporate stiff like me, it’s so easy to just let life ‘happen’. For me, the motivation to get off my ass and try something different from my 9-5 is the tough part.

That was me, pre-1998 … but, 7 years post-1998, I went from there ($30k in debt) to $7 million cash in the bank … fully retired a couple of years later at the age of 49.

Mistake? Hell, yeah …

… I could have just as easily have retired in the same financial position at age 39 or 29!

At the very least, I would have had a helluva buffer against failure: Shoot for 29 … missed? Oh, well … shoot for 39 …

So, when you are still in your 20’s or even 30’s, I suggest that you try and ‘get religion’ early. Here’s how Blogrdoc might do it:

1. He could look for the real meaning in “I want more in life. Not more money, but more impact on others and being able to have fun”.

What would it mean to Blogrdoc … his FAMILY … hell, the WORLD ! … for him to have this?

What about your WHY?

Would it mean enough to you to really need it?

Would it mean enough to you that you would feel that your life was a failure if you didn’t have it? Would it be enough of a need to carry you through the 1st, 2nd, and 100th obstacle that will get in your way?

If not, stop now!

You will never have the emotional strength to crash you through the invetiable HUGE obstacles that will get in the way of you and (say) $7 million: you won’t get rich and you will ‘die’ trying …

But, If so … great … you have the WHY!!!

2. The, you should think about HOW MUCH in today’s income (as if you did it today) you will need to live the life that gives you your WHY (think about costs like travel, housing, cars, donations, etc.); also, decide if you need to quit work entirely to do it … the difference is how much PASSIVE INCOME that you need.

Remember: even if you do decide that you can still work, you may need to rerun these numbers for when you stop work entirely as well … sort of a pre-quit and post-quit plan.

3. Think about WHEN you need this to all happen by (not want it to happen by, NEED it to happen by); DOUBLE the amount of income that you calculated in Step 2. for every 20 years until the WHEN (you can prorate, eg add 50% for 10 years and so on … it wll be close enough).

Multiply by 20, 25 or 40 depening on how conservative you are and how much of a buffer you need (remember, once you stop ‘earning’, what you have in savings and investments has to last your whole life, therefore, I use 40 .. perhaps, excessively conservative) … that’s your Number.

3. Oh shit?

Great!

Now, you have the WHY that leads to the WHEREFORE that leads to the MONEY …

… and, you just may get there 10 or 20 years before I did 🙂

Some financial advice for the blogging community …

Posted on April 30, 2008 by Adrian

Click Here

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OK, I am a relatively new blogger … I obviously don’t do it for the money [AJC: no advertising, affiliate links, or product sales here!], but many do … or aspire to.

And, as Alex recently commented on this post, there’s nothing wrong with blogging for money:

If people like Guy Kawasaki, Dilbert’s author, and other wealthy people all put ads on their site to make money, then there’s no reason why we should not. John Chow is making $30,000 month off his main blog so there is always an opportunity to make money through your blog.

It is these Mega-Bloggers who are paving the way to [apparent] riches for the rest of the blogging community …

… but, as far back as 2006 there were already 50,000,000 blogs [holy sh*t!], growing by a mere 17,500 new blogs a day!

So, how is Joe Average Blogger actually doing? Check out this chart:

Source: Problogger

Problogger does a regular survey of their readers to see what they earn; now, this isn’t a scientific survey by any means but it does seem to give a useful indication of Blogging Earning Potential.

For example, 28% of respondents don’t earn ANY money from their blogs with another 18% earning only a pittance!

Problogger says:

A quarter of those who earn something make less than 0.33 cents per day. If that’s not a reality check then I don’t know what is.

Of course, we will categorize these bloggers not as losers, but as new bloggers who are steadily winding their way up to the giddy heights of those who earn $100 – $499 per month … and, maybe even beyond 😉

Even so, this doesn’t mean that blogging is a futile exercise in self-indulgence … right?!

Of course not … it just means that you need to seriously assess exactly why you want to be in blogging:

1. Is it for strictly non-financial reasons?

ReadWriteWeb said in a recent post:

There are many different motivations for blogging and some do not involve money. Some people have a cause they are passionate about – they want to help change the world and a blog is a marvellous way to get attention for that cause. Others don’t even want to change the world or get noticed, they are just passionate about something and enjoy writing about it – attention is a by-product.

These bloggers may have Adsense ads and Amazon affiliate links. Who wants to turn away “no effort” money, however small? Just don’t judge them by their revenue, it is a by-product

2. Is it mainly for financial reasons?

I have some advice for those bloggers who do have at least some serious financial motivation:

Blogging – if pursued mainly for its potential monetary rewards – is a business, and a pretty competitive and limited one, from a strictly financial standpoint, at that.

Like any other business, it takes: commitment, planning, execution …. and, more than a little luck!

The very few guys who do make it Blogging Big (if you call $150k – $250k p.a. earned income ‘big’) probably started early in the game, and put serious effort into growing their business.

This COULD be you … but, here is my suggestion, just in case the odds don’t favor you:

i) Blog because you want to – look at the monetary reward as a bonus

ii) Blog as a form of networking – use it to build an audience for a future product or venture (e.g. a book)

iii) Blog to build content – ‘package’ your posts into an e-book or information product that you can sell

iv) Blog to provide a little extra fuel for your investment strategy – even if you are earning just a few extra dollars a week, doing something that you enjoy, put at least 50% towards your investment strategy and compounding will take care of the rest.

v) Blog because you want to combine all of these strategies … that’s the best way to get benefit from such a usually low-dollar-per-hour-invested activity.

To me, blogging is probably a bad ‘business’ in strict return-on-time-invested terms – I would never pursue it as a business; so many other activities have the potential to return much more and scale much better … and, who the hell are you going to sell it to, anyway?

But, the ‘financial’ value of blogging (if that is the path that you are pursuing) is that you may be able you use it to eventually drive higher-dollar-per-hour outputs, elsewhere.

For the guys pursuing the blogging-to-earn-money angle, that makes blogging a great marketing tool, pure and simple!

A great example is Jason, who also left a comment on that same post:

I am using my blog to make money, but not in the way you may think. I am using it to establish the fact that I am an expert in specific areas….then when I talk to my investors I can show them the articles I wrote and how it all works. Basically to give credibility.

Next I also use the blog to sometimes promote my computer company. I have not received any sales. but it is a hope … the main thing I use it for is motivation, so that I keep going on my path to being wealthy.

So, what about me?

I may accept advertising on my blog one day … I may also write a book … but, like blogging, that is a relatively low-expected-value activity.

In the meantime, I will keep blogging simply because I enjoy sharing what I have learned in the Financial School of Hard Knocks … I have important information stored up inside me that is simply better out than in!

What about you?

My $7 Million Dollar Journey …

Posted on April 25, 2008 by Adrian

I am a little shy, which is one of the reasons why I write semi-anonymously. It’s also so that I can share specific (and, highly personal) financial information, so that you can travel a similar road, if you are so inclined …

But, some of you want to know where I came from? How is it that I could amass such a large amount ($7 million) in such a short time (7 years)?

Fair questions.

So it is for YOU that I humbly outline my $7million7year journey …

… I count my 7 years as starting in 1998:

By then I had resurrected a defunct family business as a sole proprietorship (I was $30k in debt and living off $50k a year) and started a new one that had real potential but was draining all the cash from the first business (and then some … combined the businesses were losing about $5k a month).

We owned our own home (well, the bank owned most of it) but had zero other investments.

I was what you would call “broke … with prospects”.

1998

Since I had no idea how to fix the situation, I did what any self-respecting person would do: I lucked upon a book!

The book was called The E-Myth Revisited by Michael Gerber and I bought it to help me get out of the hole that I was in …

… not, the financial hole – I had NO idea that the book (or any book!) could help me with that – rather the personal hole (more like hell) that I was going through working in my businesses rather than on them.

[AJC: This will be the subject for another post, but I was the classic control-freak entrepreneur (I sure as hell didn’t feel like an ‘entreprenuer’ … I was just a guy seemingly out of his depth) trying to do EVERYTHING myself … therefore, achieving NOTHING]

No, the epiphany came when I did the very first exercise in that book (and, that’s why I suggest that EVERYBODY reads it … just for that chapter) and learned the most important lesson of my financial life:

My life wasn’t about my business (or my money) … my business was there to support my life.

You have NO idea how important that was to read … and, how scary it was when the book then went on to show me how to cost that life.

You see, I realized that for the life that I wanted … actually, needed … I had to be ‘wealthy’ [AJC: damn, why couldn’t I just ‘need’ to live on a kibbutz?!].

The problem was, I had no idea how to calculate wealthy.

Fortunately, soon after I happened to go to my first ever financial seminar, and the presenter told me two things (that I simply took on face value at the time) that changed my whole life’s financial outlook:

1. To live ‘wealthy’ (nice house, cars, schools, lots of travel … no work) you need at least $250,000 a year (1998 dollars) in passive income, and

2. You need to multily that number by 20 to determine the size of your nest egg.

There you have it … $5 million … my new (first!) goal … oh sh*t!

First, the problems:

i) My businesses were small / niche businesses with limited growth potential; I calculated that I would need almost 100% penetration of the largest business prospects available in order to achieve my new goal

ii) I had just LOST my second largest client, so now I was losing $300k a year!

iii) Year 2000 was approaching and my software was no longer supported nor was it Y2K compliant.

2000

I got over the last problem by rewriting my software, which gave me the opportunity to fully internet-enable it … this enabled me to totally change by business model, and we (accidentally) ended up with one of the world’s first complete eLogistics systems.

All of a sudden, the business that was losing money MADE money and we added new clients (thus getting over the second-last problem) and soon became profitable.

2001

However, as soon as we became profitable, I bought a building for over $1.25 million, on the advice of my accountant of all people … this was very scary because:

Business 1 + Business 2 + Building 1 = break-even again!

However, the businesses (now, both) started growing and soon became reasonably profitable … $10k – $20k a month by 2002 … I still only took $50k a year in salary.

Our Net Worth was now the equity we had built up in our home and office property, plus whatever residual value our businesses had; probably $1 mill. to $2 mill. In fact, an overseas listed company made us a $2 million offer for Business 2, but we rejected it (at that time) … so, our Net Worth could have been as high as $3 Million if we sold, or if somebody else would ever offer us the same.

When it comes to businesses, do you ever know your true Net Worth until you sell?

2003

We made it all the way to $7 million over the period of 2003 to 2005 simply by:

1. Repeating the process: generating profits in the business, and

2. Retaining as much of the businesses’ profits as required to maintain the businesses and grow, and

3. Ploughing as much as possible into real-estate, and

4. Keeping a lid on personal spending and maintaining zero-personal (i.e. consumer) debt other than the house [AJC: which, as I mentioned before, we eventually paid off … not that I would recommend this strategy any more … see an upcoming post for more on this].

But, we did pump as much as we could back into the business and bought a number of smaller, residential investment properties (one condo @ bought 2003 for $145k now worth about $300k, one quadruplex bought 2005 for $1 million now worth $1.75 million, and paid off our own home eventually sold for $800k, plus the office building recently sold for $2.5 million).

If you think about it, these are the EXACT SAME STEPS that every PF blogger writes about (debt free, save, reinvest) … I just multiplied the scale and was VERY CLEAR on my cashout $ and time.

But what about my opening comment:

I deliberately chose a provocative title for my blog … whilst partially true, I chose it … well … because it sounded good!

Why only “partially true”?

Well, I did make it to $7 million in the seven years between 1998 and 2005 – and, by then, my other assets probably had Net Equity of: Business # 1 ($2 million … $1.5 million in cash + whatever value the business could sell for); Home # 1 ($650k); Office ($1.25 million); Residential investments ($1 million).

So, that period sets the scene for our [more than] $7 million 7 year journey, made the good old fashioned way (grow an income stream or two, live frugally within reason, and invest, invest, invest) … and, provides many of the lessons that I had to learn the hard way, but you no longer need to.

But, ‘partially true’ because my journey has an unexpected (but, pleasantly surprising) postscript …

2006 – 2008

I had totally miscalculated the earning potential of my two existing businesses [AJC: actually, three, by then I had started a small training company with a partner, Business # 3]: post year-2000 reengineering, Business # 2 on its own was now capable of producing (and did) $1,000,000 a year net earnings (2006), almost all reinvested in some unexpected new ‘opportunities’:

You see, way back in 2002 I still didn’t know the potential of the new eLogistics-driven business model, yet I still had a $5 million bird to catch …

… so I had already put in train a parallel set of actions that saw me close a deal in 2004 to open two overseas offices (commencing in 2005) – both as ‘no money down’ joint ventures – unfortunately, there went my profits (yet again):

Business # 1 + Business # 2 + Business # 3 + Business # 4 + Business # 5 + Properties # 1 thru’ 4 = Break-Even again!

I was still only taking a $50k salary … my wife still had to work … don’t I EVER get to spend anything??!!

Finally, I sold something: Business # 2 in 2006 for more than 3 times what I was offered in 2002.

… and, the next 3 years sets the scene for an unbelieveable set of negotiations, opportunities, and manoueverings tied to Business # 4 and Business # 5 (which was the reason why we moved to the USA) selling both after only 2 years of operation, more than doubling our net worth again …

… and, funding properties # 4 ($2 mill … paid cash) and # 5 ($4mill. … churned #4 + paid cash) as well as now being able to fund my retirement at age 49.

I kept Business # 1 as well as Business # 5 (although, I soon plan to ‘gift’ my share in that one to my hard-working partner): they both run well and profitably in another country, with separate staff in separate locations, and without me … Michael Gerber taught me how – and why – to do that, too!

But, this period is not the subject of this blog:

Whilst entertaining – and, it might teach you a trick or two about negotiating (I sure as hell learned something!) and/or running a business ‘hands free’ – it hardly counts as Personal Finance, so I might just save the details of that story for ‘the one-day book’ 🙂

What is the best way to make more money? Payrise? Blogging? Consulting? Investing? Starting a business?

Posted on April 24, 2008 by Adrian

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?

What is the lowest cost, lowest risk way to start a business?

Posted on April 23, 2008 by Adrian

[AJC: Please do me a favor … I have added a Stumble Upon button to my right-hand tool bar …. if you click it, write a very short comment about my article – How much interest does one million dollars earn – and put it in the “Wealth” category, I would be VERY appreciative! Stumble Upon is one of the VERY BEST ways for me to increase my readership, which is good for all of us! Thanks.]

To make $7 million in 7 years (then keep it!) you need to master all the basic financial tools of multi-millionaires: businesses, stocks, real-estate … and many, many more.

So, let’s start by talking a little about ways to start your own business … having started and sold many ‘small’ businesses, I feel somewhat qualified to pontificate on this subject.

If you are looking to start the ideal small business, my suggestion is to start by looking for the business with the greatest UPSIDE rather than the one that protects your DOWNSIDE.

But, to delve a little into the question of risk:

In the old days, if we wanted to start our own business, you would find some stock, sign a lease on a storefront, hang out your shingle, advertise, and …. wait for customers.

IF the customers came, you made a small profit (competition was always sure to keep prices and profit margins low).

IF the customers failed to come, you went bankrupt (sorry!), because you: paid up front for the stock (you didn’t have a track record with the supplier yet, so COD was the best ‘deal’ they would give you); you put up personal guarantees on the storefront lease; you paid for advertising and salaries and wages; and so on.

But, that was then, and this is NOW:

Now, you can open an e-Bay store, find some leftover goods at local manufacturers and/or wholesalers and sell them … no staff, no leases, very few costs … and, grow from there.

Or, you can go right to the other extreme of Internet-based businesses and come up with the next Facebook.

And, there are a zillion opportunities to make money on the Internet, in between the e-Bay and Facebook ideas, and you can do most of them without even leaving your current job … here are the 10 dumbest ways that people made $1,000,000 on the Internet. If they can do it, so can you!

No matter how you look at it …

… the INTERNET, my friend, is the new Small Business Frontier.

Hook up the saddlebags and go West … Yeehah!

Don't like your boss? That's just plain, old too bad.

Posted on April 21, 2008 by Adrian

It seems inevitable that from time to time, life’s just gonna’ suck …

For example, are you suffering from ‘Mondayitis’? Now, imagine:

It’s already 5.45 pm but you’re still stuck in your little cubicle, stapling some dumb papers together that your annoying boss said that he had to have on his desk first thing in the morning or “It’s your ass!”

It’s just about then that you start thinking that maybe opening up your own business and throwing in this whole ‘work thing’ is what you should be doing, because then …

… you won’t have some stupid boss telling you what to do!

Right?

Having sucessfully started (and sold) many businesses across a number of countries, I can honestly say that going into business because you “don’t want a boss telling you what to do” is probably the dumbest reason that you can come up with to go into business for yourself.

[AJC: High up on that same list are: money, fame, freedom … but, that’s a whole series of posts, sitting right there!]

Having a boss can really suck … I know, because I’ve had ’em and I’ve been one – and, I would not want to work for me 😉

So what?!

If you really don’t want anybody telling you what to do:

1. Don’t get married

2. Don’t sign up for a loan

3. Don’t take on a contract

4. Don’t have any customers

Get it? But, don’t let that hold you back …

5. Do start a business because it is still the greatest opportunity to make money that you will ever see!

Just don’t do it because of your boss …

So, while you are still in the ‘planning stages’ for that new venture, just remember to treat the little time that you have left with your boss as a ‘training exercise’ to learn how to grovel to: spouses, customers, and bankers …

… oh, and the traffic cop who pulls you over because you’re driving the spoils of your business success a little too fast down that hill in The Valley 😉

AJC.

PS Oh, and while you are on your mid-morning coffee break, why don’t you trot over to the 149th Canival of Personal Finance being hosted over at Happy Rock to see what I and other PF bloggers have to say?

Business and real-estate: a marriage made in heaven

Posted on April 18, 2008 by Adrian

I was reading a review of Robert Kiyosaki’s new book, Increase Your Financial IQ, on Patrick’s blog.

The book holds no great interest for me … although, Robert Kiyosaki’s Financial IQ # 1 did:

It simply says: “Financial IQ #1 – Make More Money” …

… which is perhaps the only real ‘secret’ to getting rich – which is strange, since it seems so self-evident … but, that’s the subject for another post.

But, I was interested in Patrick’s summary of what he liked / didn’t like about the book:

Like.Kiyosaki is a contrarian, which at times is a good thing. He believes more people should work for themselves to create wealth and alternative income streams instead of relying on trading your time for a paycheck. This is contrary to what many people believe – go to school, get a good job, and save. Not everyone should run their own business, in my opinion, but everyone can do little things to increase their income.

Didn’t like.Kiyosaki is extremely harsh on the stock markets, which in itself is not a bad thing. But it is a bad thing when you make incorrect blanket statements about them. Case in point: “You can train a monkey to save money and invest in mutual funds. That is why the returns on those investment vehicles are historically low.

Now, I happen to agree with all of the above …

Rich people make their money in businesses and keep their money in real-estate … pure and simple.

It’s what Robert Kiyosaki did (his business was writing books and making/selling ‘Cashflow’ games; his wife looked after the real-estate investing side of the “Kiyosaki Family Business”) … and, it’s what I did …

… and, according to the new book about the wealthy – Get Rich, Stay Rich, Pass It On (think of it as The Millionaire Next Doorfor the new millennium) – it’s the way that the 5,000 rich families that they interviewed got – and keep – their money through the generations.

[AJC: Before you rush out an buy this book, wait to read my upcoming review … the stats are great … the conclusions that the authors draw from the stats are downright dangerous!]

I recently reminded my Grandmother (95 and still kicking) of a story that she told me when I was very young … one of those simple stories that can define you … it certainly defined the way I think about saving v spending.

She said that when she first emigrated from Europe, and she and my Grandfather had re-established themselves as poor but hard-working immigrants, they had a dilemma …

My Grandmother wanted to use their savings to buy a house so that they could have a stable environment in which to bring up my mother (an only child) in their adopted homeland.

My Grandfather wanted to use their savings to start a business.

He eventually ‘won’ the debate by saying something that I will never forget:

You can always buy a house from a business … but, you will never buy a business from a house

You can argue whether this is true – after all the 20% Rule encourages you to use your home equity to invest – but, would you have the intestinal fortitude to put yourself deeper in debt to buy or start a business?

Or, would it be better to delay buying that house and pay for it later using the profits of the business?

I for one like the business route: anybody can start a business, just try it part time and limit your financial risk … if it takes off, fine … if not, try again …

Businesses do one thing really well: produce free cash! But, free cash-flow is useless, except for three purposes:

1. Reinvesting in the business to make it grow even faster

2. Increased lifestyle for the owner

3. To fund property acquisitions (build up for a deposit) and/or running costs (cover paying mortgages if the rent doesn’t).

Since I borrowed so heavily from Patrick’s post, I thought that I should let him have the last word on this:

I will guess you like all three of them, but number 1 has the largest benefit while you are growing your business. Do that for a while until you reach the point when your ROI experiences diminishing returns, then use the money for 2 and 3. As long as you increase 2 at a lower rate than the rate your free cash increases, you should be OK.

Right on the money, Patrick … right on the money!

How your hobby can set you financially free!

Posted on April 7, 2008 by Adrian

The path to financial freedom usually comes from accelerating your investment plan – which usually starts by accelerating your INCOME.

Why?

Because, you usually can’t just save your way to your dream retirement.

There are many ways to increase your income (e.g. ask for a pay-rise, work longer hours, get a second job, send your spouse back to work, etc.) but the rewards are generally limited to the number of hours that you can put in … and simply working longer/harder can sap your emotional and physical energy.

There can be a better way!

For example, if you have a hobby – something that you willingly and happily spend time on anyway – why not look at ways to make some extra money from it?

Look at it this way: if you can earn at least some money from your hobby, rather than simply spending money on it, aren’t you already well ahead of the game?

Early Retirement Extreme writes on his blog about his hobby, which happens to be blogging!

It all started with the observation that all my expensive hobbies were a major drain on my finances …Let us consider personal finance blogging or maybe just personal finances in general. This is a valuable hobby (from the perspective of financial freedom). Even in its most passive form it does not cost much. In fact one may avoid a few mistakes.At slightly higher levels, one learns to do one’s own taxes and perhaps to invest for market returns without having to pay fund fees. (This is where I am).Getting slightly more active one can start a blog. Commit an hour a day to write a post and one can pick up an extra income within a month or two. This can be a very valuable hobby. Some bloggers have even replaced their day jobs e.g. Lazy Man and Money, Get Rich Slowly, The Simple Dollar.

Now, I’m not sure that blogging (except for the few … those who started early and treat it as a ‘serious business’) can earn all that much money for the average blogger, but I don’t advertise, so I can’t be certain.

But, the principle of earning money from your hobby is a wise one, indeed …

Here’s an example that I really like, courtesy of the Internet Marketing Center.

It’s about an ordinary guy who was able to turn his hobby of making wire-sculpture jewellery into a $600,000 a year online business!

Preston Reuther of Wire-Sculpture.com has overcome incredible odds to build and grow not just one profitable Internet business… but three of them!

Preston overcame his mental illness and went on to start his very own Internet business selling wire sculpture jewelry tools, growing it to an impressive $50,000 in on-line sales… per MONTH! (To save you from running for your calculator, that’s over $600,000 a year.)

I have a friend who has a similar hobby, she designs interesting jewellery that is very quick, easy, and relatively cheap to make. A bit like beading, but her designs are unique and quicker/easier to make.

She has turned her hobby into a very small business, selling jewellery that she makes to friends and even to one or two stores.

She also lists some on her own home page and on craft-oriented web-sites like etsy.com.

Now, I can’t let an opportunity like this go begging, so this is what I have suggested to her:

1. Buy a video camera and film herself making (and, explaining how to make) some of her designs. Package these videos as an ‘eCourse’ for download off her web-site for $49 each.

2. Buy wholesale lots of the tools and bits and pieces that she uses, to create a Jewellery Start Up Kit that she can package with her videos and sell the combined ‘advanced start-up package’ at $149 each from her web-site.

3. Create / photograph (and/or video) new designs and sell these (with the bits required to make them as kits on her web-site from $9.95 each to $29.95 each.

Now, she may do some, none, or all of these things … that’s the wonderful thing about hobby/businesses – you enjoy doing them anyway, so an improved financial outcome is a bonus!

For example, I’ve mentioned my 13 y.o. son’s hobby before: he has taken a liking to everything-eBay.

Now, he sells products on eBay, which he packages and ships himself (every day, there’s a parcel of two sitting on the front door-step for the mailman to collect and deliver) and makes a cool $30/week.

The moral: you don’t have to be big to benefit …

So, if you have a hobby, think about how you can use your creativity to move you closer to your financial dreams:

i) If you can EARN money from your hobby instead of just SPENDING it, you are twice as well off than you are today

ii) If you commit to saving at least 50% of the excess income that the hobby produces, then you can accelerate your Investment Plan

iii) If you are extremely lucky … and work very hard at it … the ‘hobby’ could eventually become a fully-fledged business, perhaps even allowing you to quit your day job.

Let me know how you plan on turning your hobby into cash?!

The most important question that you can ever ask about your own business …

Posted on March 28, 2008 by Adrian

A little while ago a wrote a post that asked “why are you in business“?

It sounds trivial, but as I mentioned in that post, it is THE most important question that you can ask in business.

Here’s the comment to that first post that inspired this follow-up post:

I just read your post and to be honest I’ve never thought about this. There are several reasons why I am in business, but I have to admit I’ve never thought about the “end” result, let’s just say 15 years down the road. Hmmm….

So, why are you in business?

The answer, of course, is to sell it … tomorrow … eventually … or, not at all.

But, even if you choose NOT sell it, you should act as though … when the time is right … that you will sell it ….

… to yourself!

Why?

Because this kind of thinking forces you to do things with your business that you would otherwise not bother to do …

… things like setting out a clear chain of command (easy if you are flying solo … not so easy if it’s you, your brother, your aunt, and three cousins running the show!)

… things like setting out clear systems to run every aspect of the business (especially if it’s all just sitting ‘in your head’ and the ‘heads’ of those around you).

… things like pretending that you are creating a ‘franchise prototype’ and that one day there will be 1,000 more just like it …

… because, if you do, one day there just might be 1,000 more just like it!

The difference between Subway and your local sandwich shop … the difference between Burger King and your local hamburger shop …

Is ONE GUY who dared to imagine a larger business than the one that he had.

The difference between the McDonald brothers and Ray Kroc is the difference between two guys who had a great little business and the guy who made a multi-billion business from their little idea …

… by systematizing an already great (but, small) business!

Let me share a personal story …

In 1998, I had a little business built upon a great little idea but it had just trundled along for 5 years getting new clients here and there, growing slowly, but for one small problem …

The business was losing me $5,000 a month and I was struggling to take out $50,000 a year (my wife still had to work).

Then one day I had a vision of how my future life simply HAD to look:

1. No work (my vision required me to have LOTS of spare time on my hands)

2. $250,000 a year (to ‘fund’ my ideas … ideas that involved a lot of travel and creativity)

Now, earning $250,000 a year is one thing – but, I had to get it with no work!

That meant that I needed about $5,000,000 sitting in some passive investments … trouble is I had no investments …

… except my little money-losing business.

That, my friends, is what drove me to massive action … to make my business somehow ‘worth’ $5 million to somebody … in 5 to 10 years!

It was this ‘massive action’ that took me to expanding my business across three countries … at the same time, building up a multi-million dollar real-estate and investment portfolio … all the while, keeping my eyes and ears open to try and quickly learn all the rules of the ‘money game’ …

Now you know how this site came to be called $7 million in 7 years.

Do you see why your future business success starts with a question?

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Education – a curse or a cushion?

Posted on March 27, 2008 by Adrian

People often ask me what it takes to be an entrepreneur.

Probably the best book that I can refer you to is the E-Myth Revisited by Michael Gerber … it has changed many business owners’ lives (including my own).

In it, he shakes the myth of the entrepreneur being some sort of ‘knight on a white charger’ – you know the type, like Jack Taylor, the founder of Enterprise Rent-a-Car who was a navy pilot in WWII then went on to launch Enterprise in 1957, taking it to $78 million revenue before handing the reins to his son, Andy in 1980 (it’s now a $7 billion company!)

Here’s how Andy described his father:

My father was the true entrepreneurial risk taker. He was the guy flying airplanes off carriers. He did not see taking a $25,000 second mortgage to invest in a business as a huge risk, because he saw real risks being taken during World War II.

There’s no doubt that adversity makes for better entrepreneurs … adversity gives you a ‘nothing to lose’ attitude.

Contrast that with the educated middle-to-upper-middle class …

… once you finish college and put in a few years learning the corporate ‘ropes’ it’s very hard to let go of the comfortable $50k – $150k that you are earning (and that your lifestyle has magically jumped up to meet … you know: cars, toys, vacations, etc.) to jump into a business that all the odds point to going broke.

You see, that education that we strive for, to lift us out of the middle-class, actually serves to keep us there.

Now, I happen to have a college degree, and it has served me well …

… but, after 6 years in the post-college corporate world, I was bitten with the ‘entrepreneurial bug’ so badly that I was miserable every day that I was still at work after that little epiphany (I used to LOVE my job until then).

Yet, it still took me 4 years to leave …

If I was still working, no doubt I would be well on my way to saving $1 million or maybe even more by the time I retired at 65.

But, from where I now sit that is WAY too little WAY too late …

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7million7years

How to make 7 million in 7 years …

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