Capitalism – Page 14

Why You Should Read Our Archives

November 2, 2011

"More money, more headaches." Go away.

Because most personal finance sites are garbage. One popular one is written by a 32-year old guy who admits to being 40 pounds overweight, yet gives diet and exercise advice.

Another of our favorites (damn, we wish we could link to these) is written by a guy who displays his negative net worth on his site. He lives in a rental house, is busy trying to have additional kids he can’t afford, and loves to tell people where they can cut corners in their own lives.

It’s like the blogs written by mothers who dispense advice on how to raise children, even though their own children are only 5 and 3 years old and the blogs themselves consist largely of pumpkin spice latte recipes and craft projects. (Okay, here’s a link.) If someone’s going to dispense “mom advice”, shouldn’t it be a mother who’s actually performed the fundamental task of motherhood: turning kids into productive and responsible adults?

These other sites have nothing to do with their ostensible topic of concern, be it personal finance or motherhood. They’re about sharing stories, baring souls, and finding love and acceptance among like-minded commenters who use exclamation points injudiciously. (Excellent post!! Great job short-selling your house!!!)

What makes Control Your Cash different is that we’re coming from a position of knowledge. Not necessarily intelligence, just knowledge. We know what works and what doesn’t, through plenty of real-world trial, error, and common sense, and we’re willing to share our findings with anyone who can read. We’ve lived hand-to-mouth, figured out that we didn’t like it, and learned how to build wealth instead. (Hint: it had nothing to do with reducing our energy consumption or renegotiating student loans that we shouldn’t have taken out in the first place.)

If you want to build wealth, buy assets and sell liabilities. Heck, our entire site could be reduced to those 4 words and you’d still learn more here than you would most other places.

If you don’t know what an asset is, it’s something that helps you build wealth. A liability, as we define it, does the opposite. That doesn’t mean to live under a bridge, eat at soup kitchens, and put every penny you earn into Apple stock. It means to live your life dynamically, acknowledging that certain expenditures can’t increase your wealth (although they might increase your non-monetary quality of life), while others can.

We live in a big, wonderful, abundant world, whose potential we as a species have barely tapped. Our planet consists of the same raw materials it had 4000 years ago, when we were living in mud huts, never traveling farther than we could walk, and having all our teeth fall out as a matter of course. Forced personal conservation is the very opposite of the mindset that got us to where we are today. You know, a place where we have exponentially more knowledge at our fingertips than even our parents did – essentially free of charge, no less. Where you can travel across the world for a few days’ wages. Where diarrhea is a mild inconvenience, rather than a childhood death sentence.

Sorry to go Anthony Robbins on you, but hear us out. Living for the express purpose of spending as little money as possible is barely living.

Stop preoccupying yourself with combining multiple errands into one trip and only shopping on double-coupon Wednesdays. Instead, examine what’s in your 401(k). Track its value over the course of a few months and figure out whether you can do better yourself. Take an hour to understand how the whole thing works. Read financial statements of publicly traded companies and buy undervalued stocks instead of complaining. Start your own business, and spend a few hundred now to save tens of thousands down the road. Implement 100% painless changes that will only positively impact your life, and save you real money in the process.

Instead of an emergency fund that isn’t intended to grow, take a calculated risk and put that money in an investment. Leverage it in real estate. Even the cheapest functionally sound home you can find can attract a tenant who’ll make your mortgage payments for you and let you enjoy tax benefits that non-landlords don’t even know about.

There are a million ways to reduce costs. Just ask the sages who think that it’s worth it to encourage you to waste time making your own detergent. Or inconveniencing yourself by turning off the air conditioning and fanning yourself instead. Or our favorite, improving your gas mileage via

pulling out (your) car’s seats (except the driver’s!), ash trays (sic), speakers, radio, sound deadening material, interior trim “and anything else not integral to the vehicle’s driving ability.”

(That can’t be true, right? That has to be a goof. Someone posited that, as ridiculous as it sounds, in the hopes that someone else would post it and a gullible tertiary party, we, would cite it.)

However, as many ways as there are to reduce costs, there are at least as many ways to increase revenue. To concern yourself with the left side of the ledger, rather than preoccupying yourself with the right side.

Are you playing to win, or to avoid defeat?

**This article is featured in the Baby Boomers Blog Carnival One Hundred-seventeenth Edition**

**This article is featured in the Carnival of Financial Camaraderie #7**

Filed Under: Capitalism, Economics, Education, Entrepreneurship, Estate Planning, Finance Tagged With: build wealth, earn money, Frugality, passive income

Getting Fired Never Felt So Good, Part II

October 14, 2011

No one who refers to his place of employment as “the salt mines” looks like this.

If you missed it, go here for Part I of the story of John, an entrepreneurial field experiment. He’s a former wage slave who was lucky enough to get fired by a boss who wasn’t very good at assessing the value of his employees’ human capital. John got fired not over performance, but over money (among other things.)

(A note to bosses: do that, and you’re giving your employee a more accurate idea of his market value than working for you ever could.)

Sudden unemployment forced John to think entrepreneurially. He started a business, incorporated it, and started living for himself, his wife and his kid (drat, that just gave away the ending) rather than his boss’s yacht. John’s making far more than he did before, and can take days off at a stretch if he feels like it.

But there’s more, starting with the pride that accompanies ownership. That goes for what you drive, where you live, and especially where you work. There’s a reason why privately owned houses look nicer than Section 8 housing does. Any sane person will put more effort into maintaining something that’s his own, rather than something he has only a transitory interest in. (When was the last time you washed a rental car?)

Most salaried workers salivate at the idea of getting off work early, whether they choose to admit this or not. Your average successful entrepreneur just wants that day’s work to be completed, and doesn’t care if it takes 13 hours on that particular day, or 1.

In his new life as a business owner, John’s financial fate no longer rested in the hands of a single, capricious, inherently flawed human: a boss whose job description mandates paying John as little as possible.

Instead, all John had to do now was just please customers. The more he pleased (and continues to please) them, the richer it made him. The money is fine in and of itself, but every dollar Dog & Pony earns gains him greater self-determination. So why don’t more people do this?

Going it alone had crossed John’s mind before, but getting fired gave him the necessary impetus.

I had run my own company for a short time while in Detroit, but gave up on it too early. I did sound design for car commercials and used someone else’s studios. It turned a profit, but I just wasn’t prepared. And the paperwork overwhelmed me. When I received an offer to be a salaried employee at another studio I took it, and a year later Omega Center hired me.
Once they fired me, I had no choice, so this time I knuckled down and got it done.

To start a sound design business, you need a big initial outlay on equipment. With his savings hovering around 0, John buttressed them with an, ahem, credit card advance and an $18,000 second mortgage[1].

That took care of capital expenditures. Labor expenditures, at the start, were staring at him in the mirror every morning. Clients, he got through word-of-mouth and “some judicious cold calling.” That leaves the dull but critical process of getting things nice and legal.

I got the business up and licensed with the state and then went to the county to figure that part out. Given the choice between doing business as a limited liability company or an S Corporation, I went with the latter. It gives me tax advantages and better protection from libelous types.

That part can’t be underestimated. We show you how to set up an S corporation (or an LLC, which you shouldn’t immediately rule out) quickly and without fuss in our new ebook.

It took John 6 months to turn a profit. As to the magic formula for transitioning from tentative to successful, here’s it is:

You just have to keep plugging away. There’s no magic formula, just hard work and ignore the self-doubts.

The next MBA-level textbook that has that passage in it will be the first.

John started by creating a studio in his house, using the home equity line of credit to buy a laptop, a microphone and some odds and ends. The line of credit paid for more equipment as the business took off: he soundproofed one end of a hallway and created an isolation chamber to record voice talent in. John purchased an Integrated Services Digital Network line, enabling him to send and receive sound files in real time to and from anywhere. (By the way, he paid the initial advances off in 2 years.)

Eventually, with the business growing several-fold (and John’s family growing by 50%), it came time to move into real offices. Which sounds expensive to the untrained ear, but

I turned to my network and found a great banker who listened to my pitch and believed in my company.

Today, Dog & Pony has 3 full-time employees and grosses about $600,000 a year. The studios sit in the epicenter of Las Vegas, the city with the worst unemployment in the state with the worst unemployment in the country. Yet Dog & Pony’s revenues have increased in each of the last 4 years.

John did go to college, but not for this. There are hundreds of schools that offer useless degrees in subjects like women’s studies and sociology, but only a handful that have begun teaching the practice and study of entrepreneurship. (They include the University of Nevada-Las Vegas, whose entrepreneurship program CYC’s own Betty Kincaid helped found.)

John’s personality and attention to detail made him popular among peers and clients while he worked for Omega Center, but that reputation only translated into so many dollars while he was an employee. Actually, it only translated into so many 7¢ amounts: see Wednesday’s post. When John became a business owner, his positive reputation turned from a desirable attribute into a force multiplier. The beneficiary of his hard work, commitment, and reputation was now him. Just as it should be.

John didn’t have a 5-year plan. No sales goals, no revenue goals. He had literally no expectations. Which doesn’t mean he thought he was going to fail, but rather it means he took success as it came. He doesn’t hire people on a schedule, but as they become necessary:

I couldn’t handle the phone calls, billing and studio work so I needed an assistant. When there was too much studio work for just me as a producer, I hired another. And so on…

As for the numerical drudgery of bookkeeping, taxes, and payroll, those are easy enough to handle that Dog & Pony does most of it internally.

It’s surprisingly easy to run QuickBooks if you just knuckle down and read the damn manual. Our office manager/zookeeper handles it, and a once a month we receive a visit from a professional bookkeeper. And we have a great accountant.

You can see John is full of regret, and dying for a chance to return to the unpredictability of a “steady” job.

What was the hardest part about deciding “OK, I’m going it alone?”

Just doing it. Sorry to sound like a Nike commercial, but the biggest impediment is always self-doubt. If you can get past that hurdle, and your skill or business is viable, then you’re on your way.

Controlling your destiny is what this whole personal finance game is ultimately about. We’ll say it again and again. You can do this. John proved as much. But the 2^nd, 3^rd, 4^th, 5^th and thousandth steps can’t happen until you take the 1^st.

[1] Do we recommend this? Under normal circumstances, of course not. But John wasn’t buying jetskis or installing an atrium. He was purchasing his destiny. To draw a parallel, under normal circumstances you shouldn’t stuff your face with Klondike bars and Jack Links. But if you’re emerging from a week on the Ross Ice Shelf without food, then eat whatever you can get your hands on. Worry about survival first, and only make decisions about quality once you have the luxury of doing so.

**This article is featured in the Carnival of Personal Finance #331-Global Stock Markets Edition**

Filed Under: Capitalism, Entrepreneurship, Healthy Living, Making Smart Choices, Role Model Tagged With: Dog and Pony Studios, entrepreneur, John McClain, Las Vegas, sound design

Getting Fired Never Felt So Good, Part I

October 12, 2011

It’s obscured, but his right middle finger is pointing directly at conventional employment.

You want a real-world example of someone who flipped the bird to the idea of being an employee and never looked back? Here’s Part I of a test case for (and testament to) the wisdom of sacrificing a “secure” paycheck for the riches that come with self-determination. The thrilling conclusion will come Friday.

You don’t know him. His name is John McClain, and he’s the youthful 46-year old founder/owner of Dog & Pony Studios in Las Vegas. They do sound design for movies, TV shows, commercials etc. But that’s secondary to what the business has been able to do for its owner. Not only does has it created gainful employment for multiple people, it’s allowed John a lifestyle that includes a second home and exotic vacations.

(Wait, that sounds overly grandiose. The vacation home is a modest cabin in small-town Utah, not a private Caribbean island. And Laos is cheaper to visit than you think.)

He didn’t start the business in his parents’ basement, recording his friends’ conversations on 8-track as a precocious preteen and growing the business over decades into what it is today. Far from it. Instead, he…well, let’s let him tell the story.

John worked for an East Coast production studio, which we’ll call “Omega Center”. In 1996, Omega looked to expand to the West Coast, and put John in charge of those operations. The job involved him managing the studio, producing commercials and other pieces, creating original music, hiring and training employees, et al. He’d signed a contract, and, as John put it,

I made the classic employee mistake of not having an attorney look over my “contract”. Because my employer would never do anything to screw me, right?

Of course, John didn’t know this (or even think of it) at the time. Most employees wouldn’t. I get paid every 2 weeks, the checks don’t bounce, why would I worry about my contract? Besides, those things are boilerplate, aren’t they?

When Omega offered me the job, I also had a great offer on the table in Detroit, where I was living at the time. I figured I’d throw caution to the wind and asked for $100,000 a year. They looked at me like I was from Mars but I kept a straight face and offered some story about moving my wife, leaving home, etc. They offered $45,000 + 7% of gross earnings.

Stop. John insisted on a percentage of gross rather than of net. He knew that gross revenue is easy to trace, and that’d he be the one largely responsible for maximizing it. Dollars in are straightforward. Not so for net revenue, which Omega’s accountants could easily lower to a level they found palatable. (“You bought lunch for the clients? Sorry, that counts as a cost of goods sold. We’re deducting it.”)

All I had to do was get the studio’s earnings up around $725,000 and I’d be earning about what I’d asked for. Before I started, West Coast operations grossed $150,000 and were performed via phone and FedEx. With a physical presence, in 5 years I’d raised gross revenues to $1.2 million and hired 2 producers (in addition to myself.)
Did my salary change? Yes. Did it go up? No. The owner never thought I’d do so well, and was angry that he had to pay me 7% of $1.2 million. Never mind that he was earning 93% of an amount he never thought he’d earn. He cut my salary and I began preparing an exit strategy.

Still, John was in a place that most employees would envy. He was “management”, he had 4 people under him (including an office manager), and the people he had to report to were 2500 miles away. It was his to succeed or fail with. Sounds liberating, right?

It should have been, but Omega suffered from myopia; you can’t do it that way, because we’ve never done it that way before. They micromanaged my office and told me I was doing it all wrong. By the way, the home office was retaining only 28% of its clients from one year to the next. Here on the West Coast, we were holding onto 68%.

It’s awesome that he’s petty and/or detailed enough to remember that years later. John was putting in 50 hours a week, and one day reached the point of no return that so many employees do.

I started telling myself the job wasn’t that bad.

Everyone who’s ever done that, raise your hand. Yup, you in the back, too. Higher, where we can see it.

John came to work one morning in 2003, and was greeted by the owner sitting at his (John’s) desk. Owners don’t fly across the country without a reason. And in this case, a severance check.

Omega paid John what the contract stipulated, but reminded him that the contract forbade him from plying his trade. John hired a lawyer to look it over, but

The owner had written it himself. My lawyer literally laughed out loud when she read it.

John had (or had had) a boss who knew nothing about contract law, but other firees aren’t so lucky. If you do insist on working for someone else, never accept a contract that includes terms that can affect you even after they fire you. Better to go hungry until you find an employer who won’t force you to stay unemployed months or years down the road.

So here’s John. Late 30s, wife, mortgage, cats, dogs, pink slip. Being rational, he took his new employment status in stride:

I freaked. Then I let all my friends and clients know what had happened. Then those same friends and clients started calling me directly to book me for their jobs.

He had enough work to see him through in the short term, and fortunately his wife was continuing to make good money. But as John (and not many other people) is frank enough to admit,

She and I were always spenders, not savers. One salary wouldn’t cut it at the time. We were super tight for dollars and had no savings to speak of.

Sometimes you wonder if the boss who’s holding the scimitar over your head knows that you haven’t saved anything. Every person who dispenses financial counsel loves to advocate creating an “emergency fund”, but hardly anyone actually does it.

The standard move at this point is, of course, to apply for jobs at other companies in the industry. That’s just what you do. But like a dog who’s been abused, John was wary. It’s hard to put 100% into your search while thinking, “The same thing might happen again. I need to go it alone.”

I received an offer from each of my prior competitors but I didn’t want to go back to another j-o-b. My former employer had taught me how to not run a business, and I was determined to put those lessons to the test.

You already know how the story turns out, especially if you clicked on John’s company’s link, but it didn’t go down the way you think. Come back Friday for Part II.

**This article is featured in the Baby Boomers Carnival: One Hundred Fourteenth Edition**