Productivity501 » Money

Income Diversification

Mark Shead — Thu, 04 Mar 2010 18:00:21 +0000

Most people make money from their job working for someone else, and that is it. This is an extremely precarious situation, because if the job goes away, it takes away 100% of their income. The ideal situation is a number of different income sources that can all be ramped up, if necessary.

In this post, we are going to look at several different sources of income.

Job

This is where most people make their money. They work for an employer that pays them for their time. An advantage of this type of income is that the employee doesn’t have to know much about running other parts of the business. They can concentrate on their portion of their job. A janitor at Google doesn’t have to understand how search engines work, how to sell their Apps solution to large business, or how to run payroll.

Of course, the downside of this arrangement is that businesses will only pay you a portion of the total value you bring. So a highly motivated person can make a lot more money per hour working for themselves–if other people are willing to pay them directly for their skills.

Side Business

I know some people who start a side business to bring in some extra cash and give them something different to do when they are off work. I knew a materials management worker who had a side business washing windows. He could make a few hundred dollars with a couple hours worth of work and enjoyed the chance to do some work outside during the summers.

The problem with a side business is that there is a certain amount of overhead effort that is going to go into the business regardless of the size of the business. If your business requires a lot of effort just to be at the point that you can perform your business function it might scale down very well.

Side Jobs

Similar to a side business, a side job is something you can do without requiring a lot of business setup. The person who occasionally sets up computers for others is a good example of this. Other example is someone who does calligraphy or occasional proof-reading.

Side jobs can become full-fledged side businesses if you want to invest the time and resources in them, and many can become full-time jobs if they are successful.

Consulting

Consulting is an occupation in which you go into other companies and offer your expertise–usually for a limited period of time or to solve a particular issue. The company that is hiring you gets the advantage of very specific expertise without having to hire a high-level employee with that skill set.

The problem with trying to do consulting on the side is that your day job will likely interfere with the schedule on which potential clients would like to hire you. Still, consulting can be a great way to bring in additional cash when you start your own business. I have seen a lot of start-ups that pay the bills with consulting while they build a product that they want to use as their main income.

Services

Services can cover a wide range of things–many that would also fall under side businesses and side jobs. Here are some ideas of services that can bring in additional income:

Proofreading
Ghost writing
Creating resumes
Hosting websites
Dog walking
Lawn service
House cleaning
Website and Graphic Design
Virtual Assistant Service

A portion of my business focuses on hosting email for small- to medium-sized companies where reliable email access and high delivery rates are very important.

Online Sales

The Internet has opened up the market place so an individual can easily sell items all over the country or world. Ebay is probably one of the easiest examples of this. It provides value by connecting buyers and sellers. A big advantage of selling items online is that you can often do it on the side in the evenings and weekends without it interfering with your day job. There are sites that have grown up around selling specific types of items. Etsy focuses on a lot of handmade-type items. Amazon makes it easy to sell used books. E-Junkie offers a service that makes it easy to sell digital content (which is what we use for some of our products). Some companies like Amazon will even warehouse your product for you and take care of shipping it to your customers.

Investments

Making money from your money is the ultimate income diversification. Many people don’t learn much about investing because they don’t feel they have enough money to invest. This is unfortunate because you can make money with even modest amounts, and the effort required once you understand what you are doing can be minimal. Many employees have some type of retirement account through their job, and often employers will match a percentage of what you invest. Knowing how to best put that money to work will benefit you over your entire lifetime.

Conclusion

You don’t need to rush out and try to create a source of income from everything mentioned in this article. However, there is great value in being aware of different opportunities and looking for one or two ways you can protect yourself against the loss of your primary job. In particular, if you can find something you enjoy and turn it into a secondary source of income, you can give yourself a lot of flexibility in the future, regardless of what happens in the job market.

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Free Tax Preparation Sites

Anna — Thu, 04 Feb 2010 18:00:45 +0000

With April 15th rapidly approaching, many will start looking for fast, efficient ways to file taxes. The IRS has partnered with a number of sites to provide free online filings. This helps the IRS by decreasing the number of paper forms they have to process. In most states you are still going to have to file a state return. If you plan to use software, it may be easier to do the Federal and State together at the same time. Still, for states without an income tax, this is an easy way to do your taxes and get them submitted for free. Here are a few free sites that offer free filing services:

Originally published March 18, 2009.

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Getting More Out of Your Job

Mark Shead — Thu, 28 Jan 2010 18:00:16 +0000

Most people focus on their paycheck as the reward for their work. While it is true that this is a significant portion of what you get in exchange for your time and effort, there are often other benefits. Many jobs offer benefits like:

Health insurance
Life insurance
Retirement accounts
Financial planning services
Training opportunities
Tuition reimbursement
Contribution matching
Mentoring programs
Corporate discounts
Wellness & Fitness programs

Not every job offers every benefit mentioned above, but I’m consistently amazed at how many people have no idea what their company offers. The best way to find out what is available is to get a copy of your employee manual and re-read it every year or so. Some of these programs can add a significant amount to the value you receive for your work.

Here are a few examples from my career:

Early on at my first job, I took advantage of the retirement account and financial advice that were offered through my employer. This planning allowed me to save tens of thousands of dollars in taxes and heavily funded my retirement while I was still young and had a lot of time for it to grow.

The same company offered some training in project management and regulatory changes at their corporate headquarters that I was able to take advantage of and helped make me a much more valuable employee, which in turn allowed me to get some significant raises. Even after I moved on to another job, the training has still benefited me and I’m even using some of in my consulting practice over a decade later.

I once took a 40% cut in pay to go to a company that offered better tuition reimbursement benefits along with a very flexible work schedule for people pursuing additional education. This eventually led to my second master’s degree and the foundation for the skills that let me work as a consultant today.

One employer offered life insurance after two years of employment. I got signed up for it as soon as I could and took the policy with me when I left the company a few years later. I still have the policy today.

If you don’t know exactly what benefits your company offers, you may be allowing a significant amount of value to slip through your fingers.

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Odds of Success

Mark Shead — Thu, 21 Jan 2010 18:00:39 +0000

It has been years since I read Rich Dad Poor Dad, but one of the things I remember the most was the way Robert Kiyosaki said he approached starting his business. He knew that four out of five businesses fail, so he figured he should plan on starting 5 businesses in order to get one that succeeded.

This is valuable thinking. When you approach your success goals with the idea that you will need to learn from some failures along the way, you can be much more realistic about what you are trying to achieve. It is also much easier to handle failure when you see it as part of your path to success. Failure should be a springboard to help you do better on the next try. But if you start out with the idea that a failure is something that is totally bad, it is a lot easier to give up when things don’t go the way you like.

Do your best to succeed, but give yourself room to make mistakes and learn from them.

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10 Stages of Financial Freedom

Mark Shead — Wed, 02 Dec 2009 18:00:55 +0000

0. You Earn Less than you Spend

This is obviously a good place to avoid and represents the least amount of freedom. No one should be here, but I added it because I know many people (particularly in the US) operate regularly in this stage.

1. Your Job Covers Your Expenses

This is where a lot of people are. You spend everything you make. At this stage, losing your job is a terrifying prospect because you are only a week or two away from being back in stage 0. A few more weeks, (depending on how long you can string out your credit cards) and you’d be looking at bankruptcy. At this stage, changing jobs is very risky because, if it doesn’t work out, you have very little cushion to let you find another job.

2. Your Job Covers Your Expenses and Savings

Once your expenses are lower than what you are making, you can start setting money aside. Many people never make it to this stage because when their income goes up, so do their expenses. Keep in mind that you can get to this stage simply by spending less money. If you are in stage 1, you can often get here by cutting out (or reducing) entertainment expenses, eating out and other non-essential expenses.

3. Your Savings Allow You to Take Risks in Your Job

When you have bit of an emergency fund built up, you can take risks in your career that simply aren’t an option when you are living paycheck to paycheck. Sometimes this means switching to another job. Sometimes it means getting behind something that is risky, but will really make you look good if it is successful. Sometimes it means taking an ethical stand that might involve losing your job.

The point is that, until you have some savings built up that would allow you to go without a job for at least a few months, your decisions are all going to be driven by a fear of losing your job. Once you have this cushion, you can start making decisions that are best for your career and family instead of just your immediate cashflow needs.

4. Your Savings Allow You to Quit Your Job and Start Your Own Business

This is a big jump. It requires a shift from depending on someone else for your finances to being responsible for producing your income on your own. This isn’t something that is very easy to do unless you have some significant financial reserves built up. Obviously, this doesn’t necessarily happen all at once. Many people start their own business while still working for someone else. Still, the decision to stop working for another employer and take all of that responsibility on yourself is a big step.

5. Your Business Covers Your Expenses

At this stage, your business gives you a sustainable income. In many ways, this is like being back at stage one, but now you are responsible for everything instead of being dependent on someone else.

6. Your Business Covers Your Expenses and Savings

Similar to stage 2, this is where you are able to keep your expenses down, while earning enough to save.

7. Your Savings Allow You to Take Risks in Your Business

Once you have some savings built up for your business, you can take risks that simply aren’t practical at the lower stages. These risks might included expanding your services or products, experimenting with marketing, launching new businesses, or bringing on more employees to help scale up.

8. Your Savings Allow You to Sell Your Business

At this point, you have saved enough that you don’t have to keep running your business. Maybe you don’t sell the business, but instead hire someone to handle the day to day decisions for you. This is the stage where you really step out of working (in the traditional sense) on a daily basis.

9. Your Investments Cover Your Expenses

Investments may include stocks and bonds, but also may include businesses that don’t require you to work on them every day.

10. Your Investments Cover Your Expenses and Savings

At this stage, you make more than you spend without requiring day to day involvement in your investments.

(This article often is searched for as 10 Steps of Financial Independence & 10 Levels of Financial Independence)

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Email Receipts

Mark Shead — Wed, 25 Nov 2009 18:00:27 +0000

Some people are going to consider this an ugly hack, so I’ve been hesitant to share it. However, it works very well, so here it is. When I get an email receipt, I simply leave it in my inbox. (As I’ve said before, I don’t worry about trying to delete everything out of my inbox–I just keep everything I might need in there where I can easily search it.) So, all of my email receipts are in my inbox.

When I import my credit card statement into my financial software, I like to add a note on each item saying what it was for. I’ve found that the most efficient way to find the receipt is to do a search in my email program for the price. Most of the time this is a unique number, and I only get one email–the receipt I’m looking for. If there are more than one, I can easily narrow it down by the date.

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Working with Your Spouse Financially

Mark Shead — Mon, 02 Nov 2009 18:00:51 +0000

In the book The Millionaire Mind and The Millionaire Next Door, the authors point out that millionaires tend to marry people who support them financially. One of the easiest ways to wreck your financial plan is for there to be competition between a husband and wife, financially.

If you have ever heard a couple say things like, “well, you bought a new dvd player, so I can go buy a new dress” or “you spent $300 at the mall, so I decided to go buy a new television.” You know what I’m talking about. If the members of a marriage feel like they are in competition with each other for spending, they are off to a bad start. Here are some simple tips to avoid this type of competition.

Regularly discuss financial goals — If you are both headed toward the same goal, financially, it is much easier to work together. This can be saving for a vacation, saving for retirement or getting ready to start a business on your own.
Give each person a fun budget – Some couples find it is beneficial to give each person a budget for fun stuff each month. As long as each of them stay within their budget, neither feels like the other is getting an unfair use of their combined money.
Try to give instead of take – The ideal situation is when both parties are doing their best to help meet the needs and desires of the other. This works much better than when both parties are doing their best to give as much as possible. Of course this needs to come from both sides to work. If one person (often the woman) is giving all the time and the other person (often the man) is taking all the time, it can breed a lot of resentment.

The biggest key here is to have open communication about finances with your spouse. A good way to start is to set some small financial goals that you can meet together. Even setting a small goal of trying to save up a $2,000 emergency fund can be a great exercise in working together financially.

Do you have any suggestions or tips that have helped you work well, financially, with your spouse? Please share in the comments.
Originally published March 5, 2008.

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Starting a Business in a Down Economy

Mark Shead — Tue, 15 Sep 2009 16:11:56 +0000

A friend of mine is starting a business selling Cupcake Towers. When I first heard what she was doing I thought, “Why would you want to start a business right now?” After further consideration, I realized that if you have a good product or service, now might be the best possible time to start a business. Here is why:

There is less competition for workers right now so you can get good help for a reasonable cost.
If you have a business idea that you can run on the side, it makes sense to start before you quit your day job.
Technology has drastically reduced the cost of running a business. You can get a web store up for $20 to $40 per month (sometimes even less).
If you want to work from home, but can’t with your current job, starting a business that you can manage during the evenings may be a great first step.
A side business provides great insurance against job loss. (See Don’t Depend on Your Job.)

If you are looking at starting a business on the side, I’d recommend reading The Leap and Go It Alone. The Leap will come out mid September, but the review copy I was sent looks very good, and it really makes you question all of your preconceived notions about why you can’t start your own business. Go It Alone is a bit dated, but it offers some great suggestions about the mindset of starting a small business without trying to hire a bunch of employees. (You can also read it for free online.)

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Upper, Lower and Middle Class Tax Breaks

Mark Shead — Wed, 19 Aug 2009 18:00:06 +0000

Many people feel that rich people don’t pay enough taxes. The question of what type of tax structure is best for the economy isn’t something I want to address in this post. Instead, I’d like to talk about the idea that rich people pay less in taxes than the poor and middle class.

Part of this view is rooted in what people see as the purpose of taxes. I see the government as providing a very valuable service to me. They keep the infrastructure running and create the rules and environment that allow me to live happily and run a profitable business. I am happy to pay taxes to support the police and military to keep me safe, pave roads to drive on, help prevent the outbreak of horrible diseases, notify me if a tornado is on the way and make a reasonable attempt at creating productive economic citizens out of those who have made poor choices or undergone extreme hardship.

I do not feel that taxes should be used to redistribute money. Insuring that people do not starve while they look for a new job or try to learn a new skill is one thing. Mailing checks to people they can be used on everything from cable television to soda pop is something entirely different.

I know a lot of people are upset because they think that rich people have access to loopholes that aren’t available to the middle class. This is completely true. There are a number of things that the government wants to encourage that rich people can take advantage of. This includes things like starting businesses, creating jobs, using land for certain purposes, making capital investments, and a variety of other things that are generally good for the economy.

What is often overlooked is the fact that the middle and lower class have access to many tax breaks that are not available or useful to the upper class. For example, lets say Joe makes $40,000 per year and he puts $4,000 per year into an IRA. That $4,000 reduces his taxable income by 10% and that savings reduces the amount he has to pay at his highest tax rate. Now lets say John makes $1 million per year and puts $4,000 in an IRA. That would only reduce John’s taxable income by .4%. Hardly enough to make any type of tax savings. (I think there also may be some phase-out regulations that prevent rich people from using an IRA at all.) If you start looking at a Roth IRA for a young middle class citizen the effect is even more pronounced.

Here is another example. In 2009 and 2010, the government will give you a 30% tax credit on the first $6000 you spend on high efficiency upgrades for your home. This includes installing high efficiency heat pumps, high-efficiency windows, better insulation, efficient water heaters, roofs designed to reflect the heat of the sun, etc. Obviously these credits are designed to most benefit people in moderate sized houses. $6000 goes a long ways toward replacing old windows in a 1500 ft.² house. It does very little toward replacing windows in a 20,000 ft.² house.

Another example: If you are a first time homeowner in 2009, you can get up to $8,000 back from the government when you buy your home. (You get back 10% of what you spend up to $8,000). If you buy a $80,000 house, that lowers the price by 10%. If you are buying a $8,000,000 house, the tax break does practically nothing. (There may be some phaseouts for people in high income brackets.) Even then, the credit is designed to help people who have never owned a house–this probably doesn’t describe very many wealthy people. (Oh, and the credit is “refundable” which means you get it even if you didn’t pay $8,000 in taxes–the government will either lower your tax bill by $8,000 or just cut you a check.)

So why isn’t everyone clamoring about the middle class having too many tax breaks? Simple. The middle class doesn’t take advantage of the tax breaks that are available.

To take advantage of tax breaks, you have to live below your means. This means buying a much smaller house than what you can afford. It may mean driving an older vehicle. It may mean cutting out extra expenses like cable television. These aren’t the types of things that the middle class is particularly good at doing, but they are the things that give you the flexibility to take advantage of tax breaks just like a rich person.

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14 Must-Have Online Banking Features

Mark Shead — Tue, 11 Aug 2009 18:00:05 +0000

Our daughter just turned 3 months old. She has already visited 10 states and she’s spent 1/3rd of her life on the road with us. My point is, we travel a lot.

We need to be able to manage our finances from anywhere in the world. Rich online banking services are much more important than a physical location. Since I have been doing all of my banking online with quite a few different online banks as I looked for the best solution, I’ve had a chance to really experiment with what works and what doesn’t work for us.

Here is a checklist of things to look for in an online bank. Some items you may be familiar with. Others might be new to you if it isn’t something your current bank offers.

Bill Pay Service - One of the biggest reasons for going with an online bank is to get really good bill payment services. Different banks handle bill payment different ways. Here are some things to think about:
1. How many bills are you allowed to pay per month?
2. What are the fees for going over the limit?
3. Can the bill payment send physical checks to merchants who aren’t set up to take electronic payments?
4. Do checks come from your account or from a third party service? For privacy reasons, it might be better to be able to pay someone without giving them your bank account number on the check. On the other hand, if the checks actually come from your account, the money doesn’t get taken out until the check is cashed.
5. Can you set up reoccurring payments?
Electronic Bill Notification – With electronic bills, your merchant (credit card company, gas company, electric company, etc.) sends an electronic bill to your bank. You can set it up to pay automatically or notify you for approval. This can be particularly good for people who are on the road because it reduces the amount of physical mail you have to somehow get read or forwarded to you.
Online Check Images – Most banks will show you an image of the check, which makes it really easy to balance your account if you can’t remember what a particular payment was for. (Ideally, you should minimize the number of physical checks you write to reduce fraud.)
Online Deposit Slip Images – Most banks just record the total with no image. It will let you see an image of each deposit slip. Having the images available can be very helpful if you ever have to prove something for tax purposes or need to remember where that $2581 deposit came from.
Ease of Opening New Accounts – Once you have an account at the bank, you should be able to open additional accounts entirely online and just transfer money into it. For example, I set up a traditional IRA last year and it took me about 3 minutes to set up, deposit my money from checking and invest it in an index fund.
Reporting Tools – Most banks offer basic reporting tools that will let you see how much you have spent in each category you’ve created. This may not be an issue if you use desktop money management software, but it still can be handy if you are traveling and want to see how much you’ve paid on your mortgage over the past 12 months.
Linked Accounts – Can you link your bank account with a brokerage account? Can you add your minor children as custodial accounts and manage them all centrally? If you and your spouse both set them up IRAs, is it easy to view them both along side the rest of your finances, or do you have to have a separate login for each IRA to keep them on separate SSNs? These are small things that many banks don’t support, but it starts getting really complicated when you have to manage a bunch of accounts instead of having a single place to manage all of your money.
Convenient Deposit Methods - Since you may not be anywhere near the physical location of your bank, make sure you understand how to deposit money. Payroll can be set up on direct deposit, but there will be times when you need to deposit checks. Does the bank provide postage paid envelopes and deposit slips? Some banks work with FedEx or UPS stores to allow you to send in a deposit overnight for free.
Low ATM Fees and Convenient Locations – If you need to get cash, will the bank refund the ATM fees? Are there only certain ATMs that are free, and if so, are they located near places you normally go? Are the ATMs available nation wide so you can use them on vacation? What are the fees for using the ATM internationally and how is the exchange rate handled?
Integration with Desktop Software – If you use Microsoft Money, Quicken or something similar, you’ll want to make sure your bank supports it. Make sure you understand if downloading transactions require you to login and manually download a file, or if your money management software can directly connect and download new transactions. If you are using Quicken on a Mac, make sure the bank is paying Quicken’s extortion fee so the files will work with Mac users.
Many Account Types – Some banks only offer basic checking and savings accounts. Ideally you want a bank that makes it easy to open money market accounts, IRAs, health savings accounts, etc. If you have to go to another institution to open a different type of account, it is more difficult to manage–especially if you are on the road. You want to be able to easily open a CD to take advantage of a higher interest rate, easily open an IRA to help reduce your tax liability, etc.
Free Money Transfers – Be sure to consider how easy it is to move money in and out of the account. You should be able to set up links with your accounts from other institutions to transfer money back and forth as necessary. Make sure you understand what type of fees are associated with these transfers. Good banks should allow a certain number of transfers per month with no fee.
Security Balanced with Convenience - Some banks spend so much effort trying to keep things secure that you’ll find yourself automatically logged out of their website while you try to balance your account. You want security but you don’t want it to get in the way of you doing your banking. Also check into what type of additional security features are available. For example, some banks will offer you an RSA keychain with a number that changes every 60 seconds. In addition to your password, you will need the number from that key in order to get access to your account.
Ease of Use – This is something that most banks seem to struggle with. Right now I have my personal account with one online bank and my business accounts with another. I dread using the business accounts and I absolutely love using my personal account. At first I thought I was just more familiar with the bank where my personal accounts are, but I finally realize that it comes down to the ease of use. One is ok and the other is superb, but it makes a big difference.

Originally published June 11, 2007.

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Saving Money on Cooling Your Home

Mark Shead — Mon, 03 Aug 2009 18:00:22 +0000

Dealing with the summer heat can be pretty expensive. The colder you need to keep your house, the more it costs. Here are some tips to help you stay cool at home more efficiently.

Dress light – Make sure you are wearing cool clothing in your home. Wearing long sleeves and warm pants is going to force you to keep the temperature colder to stay comfortable. If dressing in cooler clothes lets you turn the thermostat up even just a single degree, it can still result in significant savings.
Take off your shoes – This is related to dressing light, but if your feet are cool, it is much easier to feel cool all over. A cheap pair of sandals to wear inside can pay for themselves very quickly if they help you feel cooler.
Use fans - Most homes don’t distribute air particularly well. A few well-placed fans can put a big dent in how much your air conditioner has to run. Pay attention to how the air flows through your house. We use a cheap little fan with a built in thermostat so it turns itself off once it has moved enough air to bring the temperature in line with the rest of the house.
Cold water – Keeping cool drinks easily available can do a lot to keep you cool. We use a water purifier jug and keep it in the refrigerator. The water is already cold. If I start to feel hot, a trip to the refrigerator for a glass of cool water is usually more effective than adjusting the thermostat downward.
No leaks – Make sure you don’t have any gaping holes around your windows or under your doors that are leaking in heat. You can quickly fix any problems with foam, tape or other materials.
Garage oven – Depending on how your home is constructed, your garage may be acting as an oven. Leaving your garage door slightly open or even setting up a fan to help push out some of the heated air can make a big difference in the temperature in your home–especially if you have a room above the garage. Consider where the sun hits to keep things as cool as possible.
Plant a tree – obviously this is a very long term solution, but a well placed tree can do more for keeping your house cool than just about anything else. If you plan carefully, you can place it where it will keep the summer sun off your house, but still allow plenty of winter sun rays when you want the extra heat.
Green house glass - If your windows are made from standard glass, they may be acting as a green house. Anything you can do to help keep the heat outside will help your energy efficiency. This can be as simple as closing the curtains or as complicated as installing screens that help block the light. Tin foil to block out the windows is also effective, but might not look particularly nice.
Dryers, Ovens and Appliances – Your appliances can be a big source of heat in your home. If you really want to keep the heat out, consider hanging your clothes outside to dry. Even if you still use your dryer, consider starting it before you go to bed so it won’t be running during the heat of the day. The same thing goes for your dishwasher. Planning meals that require less cooking on extremely hot days can also help. Consider turning down your hot water heater a few degrees to help lower the amount of heat it is generating in your home.

Originally published August 16, 2007.

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Don’t Depend on Your Job

Mark Shead — Thu, 23 Jul 2009 20:00:16 +0000

I see a lot of people who become overly dependent upon their job. This isn’t surprising and it’s very easy to do–particularly with highly motivated performance oriented individuals. However, if your entire identity, self-worth and financial resources are tied up in your job, you are setting yourself up for catastrophe.

I’m not saying you shouldn’t be proud of your work or enjoy your job, but I am saying that you shouldn’t let yourself get blinded to all these economic realities. No matter how good you think you are, you can be replaced. This is true now more than ever. In fact, if you are an extremely high performer and are being paid commensurate with your capabilities, your salary may be viewed as a large expense and make you an even more likely candidate for downsizing.

Although it didn’t hurt them financially, Steve Jobs was once fired from Apple — a company he founded. If you ever start feeling like your position is secure, think about Steve.

Here are some suggestions for keeping your identity separate from your work:

Diversify your friends. Make sure you have close friends outside of work. You don’t want your entire social life to crumble if you get fired from your job. Also, having friends at other companies increases your chances of finding another job through an acquaintance.
Volunteer. Volunteering your services for good causes can help you develop relationships outside of work. It also gives other people a chance to experience working with you. These interactions can be very beneficial in a job search.
Social groups. Getting involved in community groups, church groups and even the local bowling league are great ways to expand your world beyond what you experience 9 to 5.
Keep in contact. Make sure you take the time to invest in relationships with people you’ve known from the past. Former coworkers and fellow students are good examples. Make a purposeful effort to keep your interactions from only converging on a small set of people centered around your job.

Here are some suggestions for keeping a bit of financial independence from your job:

Have 6 to 12 months of savings. If you get laid off, you want to know it won’t financially devastate you while you look for another job.
Max out your health accounts. If you have any type of tax deferred health savings accounts offered at your employer, try to max those out. That gives you some flexibility for healthcare if your work dries up.
Stay in demand. Volunteer for assignments that will give you experience with new technology or business methods. You don’t want to become stagnant where your skills are only relevant to your current employer. Keep up with what’s going on in your area of work even if it’s not happening at your company.
Live below your means. Don’t stretch yourself to your financial limit. Buy a house less expensive than what you can afford. If you need a new car, make sure you consider low mileage used options.
Educate yourself. Take full advantage of any educational programs for your company offers. Get a copy of the employee handbook and find out what type of educational reimbursement is available. Many companies have some type of educational reimbursement policy that isn’t common knowledge because so few people take advantage of it. Staying educated is a great way to make sure you have skills that are marketable. If your company pays for it, so much the better.

We are always going to be dependent on our employment to a certain extent, but a conscious effort today can help minimize the fallout from an unexpected job loss in the future.

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Cost of a New Computer

Mark Shead — Wed, 15 Jul 2009 18:00:42 +0000

It is very easy to underestimate the cost of a new computer. The cost of purchasing a computer is relatively straightforward. You pay the price that on the sticker. However, there are two other areas of cost that are often overlooked. Let’s briefly look at each of them.

Maintenance costs

Computers are like cars. They have a finite life and at some point it is very likely that they will both need repair. The older they are, the more likely it is they will need repair. When people buy computers, they often focus on the sticker price and not the total lifetime cost. The one year warranty that comes with a computer automatically may be a lot cheaper than the three-year coverage, but how long do you expect to have that computer? If you expect to have it for three years, it usually makes sense to buy the three year warranty up front.

I’m not suggesting that you just blindly purchase the longest warranty possible. Read the fine print. You need to know how long the warranty lasts, what it covers and how long it takes to get repaired. The best warranties I’ve had on laptops would send a repair man the next day with a replacement part and fix it on site. “On Site” meant everywhere from my hotel to my business to my kitchen table.

Even if the cost of the repairs doesn’t greatly exceed what you paid for the warranty, getting problems fixed quickly with a minimal amount of downtime can be invaluable. In fact, one of my biggest complaints about Apple computers is the amount of time it takes to get something repaired. They aren’t necessarily slow, but a three or four day turnaround time without your computer throws a significant wrench into your productivity compared with having someone show up at your door the next day.

Conversion costs

Another cost that most people overlook is the amount of time it takes to switch from one computer to the next. This has gotten significantly faster particularly with Macs, but most people (particularly those who are technology experts) still have to invest a significant amount of time in changing computer systems. You have to copy your data, reinstall software, reconfigure your e-mail accounts and tweak all your preferences. Even if you know what you’re doing, this can easily take 4 to 8 hours.

I generally take the approach that I want to switch computers systems as infrequently as possible. Eight hours spent setting up my computer is a lot of lost productive time. Because of this I usually buy a top-of-the-line computer with a plan to replace it in 3 1/2 to 4 years. Buying a mid-range computer and replacing every 2 to 3 years might be less expensive in terms of up front cost, but more expensive in terms of setup time.

Last time I tried the Macintosh migration assistant, I was pleasantly surprised. If it always works that well, I may need to rethink my strategy and possibly start purchasing less expensive computers more frequently. The point is that you need to pay attention to the parts of computer ownership that consume your time.

Obviously my plan may not be what’s best for you. Make sure you consider the hidden costs of a new computer and creating a plan to maximize your return on investment in technology.

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Productive Finances Checklist

Mark Shead — Tue, 07 Jul 2009 18:00:28 +0000

Here is a checklist for your financial productivity. Most of these things seem minor, but taken together, they really add up and can make a big difference in how efficiently you are using your time and money.

Are you using direct deposit for your paychecks? — If you are still manually carrying a check to the bank or putting it in the mail, stop! Direct deposit will get your money to the bank faster so you start earning interest as soon as possible. Even if it only saves you 5 minutes every two weeks, that is an extra 2 hours each year you can spend on something more important.
Is your money in the bank earning at least 4% interest? — If not, look for a different account. There are many banks out there with savings accounts earning at least 4%. (Note: Interest rates have dropped considerably since this was originally written. The point is that you should check your interest rate and make sure you can’t get something significantly better with a different account.)
Does your checking account earn interest? — If not, consider if you should switch to a different type of account. Sometimes combining your checking and savings into a single account will get you over certain minimums and allow you to earn more interest than either account could earn separately.
Are you paying any unnecessary fees to your bank? – Watch out for fees. Your bank should be paying you for the privilege of keeping your money, not the other way around.
Have you maxed out your employer contribution to retirement? — Many employers offer some type of matched retirement savings plans. If you put in 3% of your income, they will match it. (The best retirement plan I had matched 7%.) If your work offers this and you aren’t taking advantage of it, you are basically throwing money away. Sometimes companies don’t publicize this information very well, so be sure to check the employee handbook and any information on retirement benefits.
Do you have any old credit cards that should be canceled? — You might be surprised how many credit cards you have–especially if you tend to sign up for those promotions where you get 25% off your purchase if you sign up for a credit card at Target or JCPennys. If you have cards you aren’t using, you should cancel them so they don’t show up on your credit report and to reduce your chances of having to deal with fraud.
Are you using bill payment? – This is a time saving feature just like direct deposits. In my opinion, if your bank doesn’t offer this, you should switch banks to one that does. Many places offer free bill payment services. If they can directly wire money to the vendor, they will. If not, they will manually cut a check and send it. Bill payment saves you postage and makes it easier to manage your bills directly on your bank’s website.
Is your banking password secure? — If you read the fine print, most banks aren’t liable if someone breaks into your account because you didn’t have a secure password or had some type of spyware on your computer. Make sure your bank password is something secure. If they offer one of those security keychains with the changing number, consider getting one of those.
If you were to die, could your spouse easily find a list of all your accounts? — This is preparing for the worst case scenario, but if you handle most of the finances and you were to die, a very small amount of planning now will make things easier on your spouse. A list of bank accounts and insurance policies could make things much easier when you are gone.
Are you taking advantage of FLEX and HSA plans? — Some employers and insurance plans offer these types of accounts as a way of setting aside pretax money to use for health care. The rules are fairly liberal and you can use these accounts for a variety of things including contact solution and aspirin. If you know you will have some medical expenses, these can be good ways to plan ahead to lower your tax burden.
Are you taking advantage of preventative healthcare? — Insurance companies realize that it is much cheaper to treat problems when they are small. Many plans include routine checkups and office visits to encourage you to have things checked out early on. Some offer other wellness plans to encourage you to take care of yourself. Taking advantage of these plans can help keep you healthy and let you fully utilize the services that have already been paid for as part of your insurance policy.

Can you think of some key items that should be on this checklist? If so please contribute them to the comments.

Originally published March 12, 2008.

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Why You Need Personal Capital

Mark Shead — Tue, 30 Jun 2009 18:00:17 +0000

I’ve been exploring several business opportunities recently, so I’ve been thinking a lot about capital. If we want to do X it will take $1500 of capital. If we want to do Y it will take $4000 of capital. Our options in business greatly depend on the amount of capital we control. Capital represents the ability to do something. Better yet, it creates an option for you to choose a particular path. Without enough capital, that particular path is not available to you.

When it comes to our personal performance, capital is an important concept. True, we don’t usually call it capital, but if you think in terms of that which gives you options, it functions in the same way. You have to build up a reserve of capital in order to accomplish anything significant. As individuals, our capital may be skill, intelligence, our network of contacts, education, or relationships.

The options from which we can choose are very much dependent on the amount of capital we have acquired. For example, I do not have enough skill capital to sail around the world. I do have enough to sail across a small lake with the wind at my back.

Your personal capital is something you have to intentionally develop. You can increase your skill and intelligence by reading, studying, taking courses, etc. You can increase your relationships by investing time in them. You can increase your network of contacts by reaching out to people and staying in contact with past acquaintances.

All of these activities are things that will increase the capital you have available to yourself. The more capital you have available the more opportunities you will have to choose from.

Originally published February 18, 2007.

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