Monthly Archives: November 2011

Developing your Own Side Hustle

Posted on by  at  5:00 am
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Laptop Man by Ed Yourdon on FlickrThis guest post is from the guys over at WeWearKhakis.com. Christian and Shane write mostly about personal finance, self improvement projects, and how to have a fulfilling life on a budget.  Check out their site and learn how you can be an awesome guy or gal in Khakis too!

Just a few weeks ago my side hustles became my full time job. Naturally, I was reawakened to just how important having a side hustle truly is. To me, working side gigs has always been second nature, and finding work to do in addition to my “regular” day to day job came naturally. I might hear a co-worker complain about doing some tedious yard work they had no interest in, or maybe a friend mention someone had a broken computer, or maybe see an opportunity to do some freelance graphic design work, and I always jumped at any opportunity. 

Over time, word of mouth got around that I had certain talents and was willing to trade them for cash and as a result – I had my own steady side hustle(s) going.

I know what you may be thinking: “What about those of us who do not fall so naturally into freelancing or doing your own little side business?”  Well, starting from scratch and juggling extra work with kids, a normal work week, and life in general can be tough.

Allow me to break down how it has all worked out for me, then maybe those of you interested in starting your own little side gig can follow my example and possibly do it better.

Discover What You’re Good At

I know it seems obvious, but figuring out what are you good at, or more to the point, what you are good enough at that you could sell it to someone is the first step. My wife got on a kick where she really liked to make jewelry and I had the great idea that she could consign or sell it to small retail shops around town. After showing off a few of her pieces to a couple friends, we abandoned the idea. 

On the other hand, say you do have a knack for making awesome jewelry and do so regularly as a hobby. You might have just found your side hustle!  Point being – people have to want what you are selling.

For me, I have always been a tinkerer and loved building web pages and designing graphics. I used to spend endless hours of my own time in high school doing so. So making the leap from doing these things for fun to for hire, came naturally.

Maybe you have a knack for engines, cutting grass, building fences, or selling stuff on craigslist.  Whatever it is, capitalize on you skill, and you have now found your side hustle.

Learn How to Grow and Market Your Talents

The next step is actually getting work. I am not much of a salesman. I have never cold called anyone or done a single sales pitch. Instead, I listen out for people needing help, network, and offer free advice. Then I offer to help – which eventually turns into a paycheck. This type of marketing strategy (or lack thereof) does not lead to explosive growth, but over the last five years or so I have seen my business continue to grow and grow. 

If you treat your customer right and make them happy, they will probably spread the word about your services for you. I am also quick to do volunteer work for causes or organizations I believe in and hope that they too will refer me to new customers. I have had mixed success with this, but if it is a cause you care about, why not pitch in?

Now that my freelancing is a full time gig for me, I have began thinking more about proactively pushing my services and how I will go about it. I think the number one move is to keep it simple and personal. I plan on making as much face to face contact with people who existing customers referred me to as possible.

In the end, I think success in business relies on building trust and letting your network do most of the work for you.  Almost all of my “best” customers have come via direct referral from other happy clients. 

Find a Good Work/Life/Work Balance

I have heard my wife complain many times that even when I am home, I am not really at home. Instead, I am nestled in my cozy work corner designing away.  Having your own side hustle in addition to your full-time day job has a nasty way of sucking up all your time, especially as you become more successful.

For me, I love working for myself. The sense of accomplishment I feel developing relationships with clients all on my own, doing a great job for them, then being paid for it all, is a major source of happiness in my life. At the same time, I have to remember my family.

I try to set side hustle work hours for myself. These hours shift a lot for me, depending on what is going on. For a while they were from 5am to 7am on Tuesdays, Wednesdays and Fridays. Before that my side hustle work day was basically all of Sunday morning. Now my side hustle hours are whenever I can squeeze them in between playing with my 3 year-old and changing my newborn baby’s diapers.  I love it!

I think the lesson to take away is that it is important to set rules for yourself and establish a structure. Otherwise you will find your work hours leaking into your family time.  Moms usually aren’t too happy about that.

Make it Legal

I have not had to deal with too many disgruntled customers, but after one close call, I decided I better make my side hustle official. This meant forming an LLC, getting a separate bank account, drafting service agreements to be signed before each project, and keeping solid accounting on the business.

Hopefully you will never find yourself in any kind of legal problems due to your side hustle and freelance work, but should you, make sure it’s the business being sued and not YOU! 

Luckily in my state, setting up an LLC is as simple as going to the Secretary of State’s website, filling out some simple paperwork and sending them a check to cover some fees. There really is little reason to hire a lawyer in most cases either. I used simple internet searches and websites like legalzoom.com to guide me.

Never Mix Work with the Side Hustle!

I have been lucky enough to develop some tight relationships with my clients. Some lean on me closely to keep the IT side of their businesses running. Sometimes something might go wrong during the day and I might find a client calling me for support at 2 o’clock in the afternoon on a Tuesday! What is a guy to do?  Do I leave work to take care of a personal assignment?

I made the mistake one time of actually helping a client out while sitting in my cubicle at work. The conversation I had afterwards with my boss was neither pleasant nor fruitful.

While I don’t have to worry about that anymore, my suggestion is, if the side hustle does start finding its way into the normal business hours of the day, set boundaries. In fact, I have decided to never make the mistake of letting a boss know about my side work again. If I do ever get another mid day call for support, I will politely ask them if I can call them back and take a short break. This usually means my lunches and coffee breaks are shared with client work. 

But hey – when this starts happening too much, it’s starting to look like a good time to change that side gig to a full time job!

Get a Side Hustle!

Yes, if you develop a fruitful side hustle, you are going to be putting in a lot more hours, but if it is something you enjoy and you treat it almost as a hobby (that you get paid for) then why not?

For me, my side income has been invaluable. It started helping me make it through college, then grew into a tool to build my savings, and later went on to help me pay for grad school! Then a few weeks back I found myself laid off work and now it’s helping pay the mortgage.

In addition to that, it keeps me active in the community, meeting new people, networking, and developing new skill sets. I also look pretty impressive as a guy coming out of an MBA program and being able to show a proven history of building my own client base and effectively running my own business. For me, the benefits have been immeasurable.

Find something you are good at, enjoy, or are even passionate about and figure out a way to sell it. It is as easy as that. Start out small and keep working.

Have your own side gig or advice for those looking to start out?  Let us know in the comments!

Too Broke to Buy Christmas Presents

Posted on by  at  1:04 pm
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Christmas 1930 by dok1 on FlickrUnfortunately, I suspect many gift-givers may feel this way around this time of year. What was once a mad rush between Thanksgiving and Christmas has spread into a “rush” of pre-Black Friday sales during the entire month of November.

I suspect one day the entire second half of the year will be devoted to Christmas shopping, which is a sad commentary, on many levels, about our addiction to consuming and present buying.

Now that Scrooge has said his piece, let’s address specifically the issue of how to handle Christmas presents when you are not in a financial situation to buy anything for loved ones.

Setting Realistic Expectations

First, we must establish that we are all adults, and adults should, in my opinion, have very minimal expectations of receiving gifts from extended family members. Expectations should decline further given this is still a tough economy, and most people are more interested in saving their money than spending it.

Further still, a good many people are recovering from a layoff, or are still unemployed, so any reasonable person would expect that family not to buy gifts for other family members, and instead try to have a modest Christmas for their children, etc.

Having said all of that, I recognize that gift giving, and a lack of the ability participate, is the cause of much holiday anxiety. I can certainly understand that where children are concerned.

Gifts as an Expression of Love, Not a Holiday Obligation

As a parent, I want my children to enjoy a nice Christmas, and I want them to have a couple nice gifts from Mom and Dad (in addition to anything delivered by Santa). But sometimes you just have to be realistic.

If it comes down to paying the power bill or buying Christmas gifts for cousins, coworkers and friends, we’re paying for lights and heat. If it comes down to making a mortgage payment or buying electronics and toys for the kids, well, it would be silly not to pay the mortgage.

Seems so reasonable in writing, doesn’t it? But it is something people all over will struggle with this Christmas because reason doesn’t often play a big role in spending decisions, particularly around the holidays. And marketers know it. They prey on our emotional  ties to holiday gift giving and have convinced a good many of us that to forgo the purchase of presents is to show a lack of love for someone you care about. Baloney!

Too many people equate love with a tree towering over a stack of paper-wrapped presents. Too many people stack those presents higher and higher in an effort to make up for some lack of emotion they failed to show loved ones all year around.

An absent mom or dad often buys lavish gifts to make up for not being there for baseball games, piano recitals and open house at the new school. Successful kids often send expensive gifts to mom and dad to make up for never calling or stopping by to visit.

The reason I selected the photo above to accompany this post was not because the people depicted appear broke (although it was taken circa 1930, and I suspect they didn’t have a lot of money), but because the grandmother and great-grandfather show a lot of love their grandchildren through the simple act of sitting in the floor and playing with them on Christmas morning.

The photographer even comments that the dump truck he and his brother received were enjoyed for many years to come, probably because they came from someone who loved them so – not because they were especially expensive toys with flashing lights and computerized voices, etc.

Gifts aren’t all bad. After all, a nice gift can be an expression of love, if it is thoughtful and from the heart, not just because it is expensive.

I challenge everyone this year to go into Christmas shopping with a new attitude. Don’t feel an obligation to buy for everyone on your Christmas list. Feel an obligation to find a thoughtful, inexpensive way to mark the holiday season by telling someone you love and appreciate them.

Think about that person as more than just a name on your shopping list. What motivates them? What are they passionate about? What have they expressed an interest in over the last year? A “gift” for them could come in a tiny box, or be a big experience, and neither have to cost a lot of money.

It may take just a little planning or creativity on your part, but if done right, it will be more memorable than anything you find in a store.

Please share your Christmas shopping strategy with us in the comments below, and also look for more discussion on the subject of Christmas shopping at our Facebook page and Twitter feed.

Getting into Financial Shape with the Decamillionaire Next Door

Posted on by  at  5:00 am
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The following guest post is by Roshawn Watson from Watson Inc. Learn more about Roshawn immediately following the post.

During a time of rampant pessimism and economic turmoil, a record number of Americans cannot even contemplate becoming a millionaire in the next 10 years. It may appear a little untimely to write about wealth; after all, many are just trying to stay afloat. However, I submit to you that there is no time like the present to get into financial shape. That’s because although the Great Recession exposed the vulnerabilities of many families, some families have also gained a heightened awareness of opportunities and resolve to strengthen their finances. One of the best ways to achieve this is to learn from people who have successfully managed their money.

Today, we’ll delve into key lessons from the Tiger 21, a club for decamillionaires. I recently read an account from one of their meetings suggesting that the typical American family can get into better financial shape by employing three simple steps.

1. Maintaining Adequate Liquidity

Liquidity is essential in today’s challenging economic times; more importantly, during your own personal economic crisis, whether it be a job layoff or a gigantic car repair bill, having liquidity can give you a peace that too few experience. At a minimum, consider maintaining an emergency fund of at least 8 months worth of expenses AFTER you are debt-free excluding the house. Admittedly, this IS risk-adverse, but it is also a NECESSARY precaution because: a) job security is an illusion, b) most real estate values have seen significantly better days, c) it’s hard to convince yourself to sell equities in an emergency (especially if the market happens to be down at the time of said emergency), and d) it may be hard to obtain loans from banks when you need them the most (instead banks may close your credit line if they aren’t certain they will be paid back or may demand the balance of your loans if you default).

Liquidity is not trivial. In terms of emergencies, Money magazine reported that 78 percent of families WILL have a major unexpected event within the next ten years. In other words, LIFE WILL HAPPEN, but whether or not you are prepared is up to you. Moreover, liquidity is not just for emergencies. According to the Millionaire Next Door, most millionaires can survive for more than 12 years without working. I’m not suggesting that all of that is in cash or near cash-equivalents, but the point is that having liquidity mitigates some risks. That’s the very reason businesses deleveraged back in 2008. Liquidity decreases our absolute dependency on our income.

Indeed, it may be your best defense after eliminating your consumer debts WHEN life happens.

2.Are You Insured?

Typically, we hate insurance until we need it. Purchasing adequate insurance also reduces our financial risks.

a) Long-term disability insurance is important because it replaces your income in the event you become disabled. Still, it is one of the most underinsured areas. The Senate Finance Committee reported that 70% of people between the ages of 35 and 65 will become disabled for three months or longer, and 90% of these disabilities will occur “off the job”. Don’t think Social Security will necessarily pick up the slack either. Many people with legitimate claims are rejected on a daily basis. Fortunately, some employers offer long-term disability insurance, so check with your benefits coordinator to see if you are covered. Otherwise, purchase an individual policy. Although an individual policy is more expensive, the peace of mind is well worth it.

b) Adequate life insurance is also critical so that the death of a loved one does not financially ruin a family. It seems morbid to talk about death, but if one has dependents, life insurance is critical. Many who have life-insurance do not have an adequate amount of coverage. One should have between 10-12 times his annual wage in insurance. For example, if a household’s income is $50,000 annually, a $500,000 life-insurance policy should suffice. Let’s crunch the numbers. A 10% annualized return on $500,000 would generate $50,000 per year; thus, the income has just been replaced. Do not let an untimely death devastate your family financially as well as emotionally. Lastly, go with a good term-life policy. You can obtain these for pennies on the dollar, especially compared to whole life.

c) Health Care insurance is an obvious must. Medical bills consistently rank among the number one cause of bankruptcy. Even a major medical insurance plan with a high deductible would represent an adequate start, especially if your family is relatively healthy. Also, consider a Health Savings Account (HSA) or obtaining coverage through an association (sometimes you can get significant discounts) if your job doesn’t provide you insurance as a benefit or if you are self-employed.

3. The Person in The Mirror

Most of us can get wealthy if we learn how to control the person in the mirror. According to the Tiger 21 club, it’s not a matter of “what can I afford to spend” as much as “what do I need to spend?”

Did you know decamillionaire households are more likely to accurately an answer to the following: my grocery expenses are “X” and my clothing expenses are “Y” than the typical American family. Consider the implications of the following statements:

  1. More than two-thirds of grocery store shoppers in America today are impulse buyers.
  2. Two-thirds of millionaires surveyed (62.4 percent) know how much their family spends each year for food, clothing, and shelter.
  3. For every 100 millionaires who don’t budget, there are about 120 who do.
  4. Moreover, greater than half of the nonbudgeting millionaires invest first and then spend the balance of their income. In other words, before they purchase clothes, housing, food, etc., they pay themselves first a minimum of 15% of their annual income. Even without a budget, they are clearly controlling their income.

In short, those with more means are more likely to control their expenses(i.e., groceries, clothes, etc.) through budgeting than those with lesser means. If this is counterintuitive, remember that IT TAKES WORK TO BUILD WEALTH! Forget the media images of celebrities and Wall Street whiz-kids, most people who build considerable wealth may never get a substantially large pay check.

Frugality is the cornerstone of wealth-building. A good defense is critical to your wealth equation. Who better than decamillionaires to have internalized this lesson? If you consistently practice fiscal restraint and invest wisely, your money will eventually work harder than you.  Contemplate living off of just a small fraction of your wealth. The typical millionaire household lives on just 7% of its wealth.  That’s the kind of restraint I’m referring to.

The Income Myth and Parting Thoughts

Let me reiterate that it’s not about income as much as the media seems to represent. That’s because regardless of whether you make $50,000 or $500,000, you can still be broke! It is infinitely easier to earn a high income than it is to build substantial wealth.

  • Fewer than five thousand of the nearly 100 million US household will earn $5 million in a single year.
  • The majority of millionaires earn a small fraction of $5 million in a year.
  • Few could even become millionaires and support a high-consumption lifestyle simultaneously

Consequently, regardless of your income, I believe there is something to be gained from running an economically-productive household. By maintaining adequate liquidity, protecting your household with the appropriate levels of  insurance, and exercising fiscal restraint, you can build a financial house that is not easily destroyed by unexpected tragedy and lay the foundation to build extraordinary wealth. That’s financial peace that no flat screen, Gucci bag, or Lexus can even touch.

About the Author

Roshawn writes at Watson Inc. on eliminating debt,investing money, and building wealth. Get his free eBook Your Foundation to Wealth by signing up for his email updates (no spam I promise). Get his RSS feed and connect with him on Twitter @roshawnwatson too.

The Thorny Issue of Combining Finances

Posted on by  at  5:00 am
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Newlyweds by INDelight Photography

Life is full of sticky issues and none stickier than the issue of if, when, and how to combine finances with a romantic partner.

In the early days of a relationship, when everything is shiny and new, it might seem like the most logical thing in the world to combine finances with the girl or guy of your dreams. But keep in mind that the odds of the relationship panning out may not be in your favor. Divorce statistics are always hotly debated, but the CDC puts the marriage rate at 6.8 per 1,000 of total population, with the divorce rate at 3.4, based on 2009 data. You don’t have to be Zsa Zsa Gabor to realize that these are not terrific odds.

Considerations

There are many factors to weigh when deciding to combine finances, including the incomes, assets, debts, credit ratings, obligations, ages and general reliability of both parties. For example, an older couple with two stable incomes and established credit histories might benefit less from combining finances than a younger couple with one stay-at-home spouse. Likewise, couples with one spouse whose income varies greatly from month to month (such as real estate agents, freelancers, or contractors) might find that putting everything in one pot helps smooth out the financial peaks and valleys.

The decision to combine finances should never be taken lightly because the effects of such an arrangement can have long-lasting repercussions. Credit card bills racked up by a profligate spender can harpoon the financial health of a more prudent partner, sometimes long after the relationship has evaporated.

Life Stages

Recently, young friends of mine who both have stable jobs decided to purchase a house together. They were not married or engaged, and so my gut gave a little lurch when I heard the news. I was worried that if something derailed their relationship, they would be encumbered with a property they could not afford individually and the legal entanglement of a shared mortgage. Fast-forward a few months and they are now engaged and moving forward with their life plans. Was it hasty of them to commit to a house purchase before the relationship was on terra firma? Or was this simply a case of outmoded thinking on my part? Several older, non-married friends of mine share mortgages and I don’t bat an eyelash. So perhaps it was only the relative youth of this couple that caused my twinge of fear.

Another couple of my acquaintance married later in life when both had established careers and substantial assets. They worked out a pre-nuptial agreement and decided to opt for the yours-mine-and-ours financial model for expenses. Both retain their existing accounts but contribute on a monthly basis to a shared account used for joint expenses such as utilities, food bills, housing costs, vacations and the like. This arrangement is practical for many households with dual incomes. The contributions to the joint account don’t have to match dollar for dollar; each couple can arrive at a ratio that is workable depending on income and other obligations such as child support. In theory, the amount not contributed to the joint account would be used for each partner’s retirement fund, short-term savings and spending money.

Taking the Plunge

The process of combining finances can be a vexing issue and a very personal one. The most important factors are trust and openness. A frank discussion about financial goals and practices, accountability, and responsibility will help you determine the right time and manner to combine finances. If both partners share the same goals and outlook and are responsible enough to adhere to the program, then combining finances can be completely painless. If there are stark differences of opinion or bad habits to be overcome, a staged approach might be more prudent. For example, start small with a joint account that covers only the items that are truly shared such as housing, food, property taxes and insurance, and utilities. Over time, other assets can be combined once a pattern of compliance and trust is established.

For me, the process of combining finances happened organically over several years. In the beginning, I retained by own accounts and transferred chunks of money to my husband’s brokerage account periodically for our investment portfolio. I continued to max out my SEP-IRA annually. After our children were born and we moved to Costa Rica (where it was not legal for me to work due to our residency status), we simply combined all of our assets into one pot without fanfare. Luckily, my husband is a tight-wad and we share similar long-term financial goals, so I did so without hesitation.

When preparing to combine finances, start with a realistic look at your income and expenditures using an online budgeting tool like Kiplinger’s worksheet or a budget-planning app like Mint. This will help you discover areas where your actual expenditures are outpacing your projected expenditures and let you trim accordingly. Crunching the numbers will give you and your partner cold, hard facts to work with rather than vague suspicions like “he spends too much on eating out” or “she spends too much on shoes.” When you are armed with data, combining finances will be less a leap of faith and more an orderly process designed to help you achieve your financial goals as a team.

Combining finances with a loved one is an issue with no “right” answer, so if you have any insights gained from personal experience, please share them here.

Introducing the New and Improved Frugal Dad

Posted on by  at  7:42 am
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Just a quick note to let you know we’ve completed the Frugal Dad redesign. Again, our mission was to enchance your reading experience while providing increased ways for readers to save money. Please share your thoughts on the new site design in the comments below, and thanks for your continued support.