What do I mean? You probably have friends who have gone this route. They want to start a small consulting company and rent an office, buy expensive furniture, cars, hire people and pay a top designer for company logo.

Photo by fugm10 at Flickr

Spending big is not going to make you big

The only use of starting with so much expenses is to force yourself to work harder because you need to pay the bills and salaries every month. This is to some extend a positive thing but it’s not worth it. There are plenty of cheaper ways to motivate yourself. And the truth is people don’t do this because they are seeking for motivation.

They just believe that starting with an office and staff will automatically make their business big enough to cover the expenses and bring profits. In most cases it won’t happen. Having employees or shiny office is unlikely to help you get more business except maybe in some niches like advertising.

When starting a business this way you are turning yourself into a slave from the beginning. Running a business that started with expenses is not better than being a desperate employee who can’t refuse his boss’ orders because he has a family to feed. This is exactly what most people are running away from - being a slave for your bills. When you start big, you are forced to get more work so you can pay the bills - this decreases your ability to choose clients and in most cases you just take every order that comes to you. How is this different than having a boss?

Why don’t you try natural grow?

Instead of playing it big, why don’t you start like a teenager? Imagine you don’t have any money or just have few hundred bucks. Imagine you can’t get any loan. What are you going to do? Give up? Did all those guys in garages gave up or did they create Microsoft and Google?

When I was starting a software services business, I had no office (and I still don’t have one), no employees and not even a company. Even the provider’s fee for Guru.com was looking too high for me so I started with free account. This frugal start allowed me build a business slowly but freely with the time - without worrying about making more money than I needed to live. This freedom allowed me work on my own products and sites building income generators instead of being forced to work on customer projects all the time. This is exactly what was going to happen if I started big - I would have too much bills to pay and wouldn’t be able to trade current income for passive income in the future.

If you start your business small and follow the natural grow you will always have more freedom to choose its future directions.

Hire employers when you need them, instead of first hiring employees and then searching work for them with the hope to grow this way. Growth must come as a response to the need to execute more coming orders or realize new projects rather than to be a target by itself.

Rent office after you need it - not before that. There are conference rooms and virtual offices that can do the work before you reach the moment. How will know when you have reached it? When the bills to rent conference rooms exceed the fees you would pay for having an office, only then you really need to own one.

When do you need a dedicated server? When the costs to host your sites on a shared server are higher than the cost of owning a dedicated server.

When does your business need machines? When the monthly expenses to get your production outsourced or to rent machines start exceeding the expenses of owning the machines yourself.

Keep asking questions like this and you’ll figure out how to grow naturally. Sure, sometimes you may lose few bucks and some time due to the fact you didn’t started with the optimal infrastructure from the beginning, but that’s much better than turning to a slave of your business bills because you try to cover every possible need.

ShareThis

Actually I remember borrowing money just once when I was a student. And it wasn’t because I really needed it: I just wanted to see what is it to borrow money, because everyone else was doing it. So far I was only lending to friends.

Photo by [s e l v i n] at Flickr

I haven’t been a rich kid, neither I had any ideas of money management. I just never think about borrowing as an option. I know if I don’t have the money for something, I just can’t afford it and that’s all.

Now we may finally break this rule when the time to finish our new house come, but I’ll try to avoid it again. I just can’t see it as something natural. I think getting a consumer credit is just a wrong thing to do.

Every time when someone uses a consumer credit, someone is screwed.

It’s either the lender or the borrower. If you don’t pay your loan, it’s the lender who’s screwed. But since most loans are given by banks or other institutions who take very good care to receive their money mack, it’s usually the borrower who’s been screwed.

You may think it’s very cool to buy something and enjoy it even if you don’t have the money. But why don’t you look at the other side of it: an year or more later you are still paying money for something you no longer enjoy that much, something that is outdated or out of fashion. And you are paying more than its real price.

For example if you buy a laptop with a 1 year loan you will probably pay 110% - 115% of its price. But your loss is a lot more than these 10% - 15%. You get screwed twice because six months later you are still paying for this laptop, but its price is down 30%. Doesn’t that make you feel like an idiot?

It’s even worse if you buy a car with 10 years loan or leasing. Nine years after the purchase your car looks like crap, it costs 60% less and is totally not cool, but you are still paying for it. Good boy, keep feeding your lenders.

The big mistake…

… when getting a consumer loan is that you think you are buying something that you deserve to have. Sorry to break your world, but if you don’t have the money for it, that simply means you can’t afford it. Whether you deserve it or not is irrelevant, because money has nothing to do with merits or fairness.

If you can’t afford some item now, you’d better look for other item that you can afford or see how you can make enough money to afford it (if owning that item is really that important for you). Let the morons feel important with their luxury cars, laptops and cell phones bought on leasing and buy only what you can afford.

Trying to use more wealth than you have now costs you more and more in the future.

The Business Loans

They are completely different matter. Getting a loan for business or investment is often a win-win situation, instead of win-lose or lose-win (sometimes even lose-lose) situation that you have with consumer credits. A business loan can help you grow in a way you could never grow without it. It helps both you and your lender make good return on money that could otherwise stay and do nothing.

Somehow most brainwashed people see consumer credits as something normal, but start shivering in their pants when they hear about business loans. Can you see how dumb that is? Using loan to buy cell phone, car, laptop or clothes can in no way be a long term gain - at best case you’ll happily use the stuff you bough and not feel bad for having to pay for it later. But even in this best case the money is completely gone. On the other hand, even the riskiest business or investment loan has some chance to succeed. If it succeed, you’ll probably have your money returned back many times. If it fails, the money will be gone.

So essentially a consumer loan is the same as a business loan used for a failed venture. How could you think the first was in some way better than the second? *grin*

P.S. I don’t entirely deny consumer credits - if you need a medical operation for example, that could be the only choice to stay alive or live normally. But to get a loan for buying the latest iMac? Uh!?

ShareThis

Ok, time for the most interesting personal finance posts from February:

wellheeled asks whether paying with credit card equals spending more money. My answer is yes, but see what others think.

Andy at Tight Fisted Miser plans to live on $10k a year. I can do it here (Bulgaria, East Europe), but what about you in your country?

Trent at The Simple Dollar shares interesting lessons he learned from his family tree.

The Silicon Valley Blogger shares ideas for dining under $10 and even under $1. We are just making dinner for 2 this evening costing $6, electricity included.

Worried about getting fired? The Rocket Finance can’t wait for this to happen.

Most financial problems are not related to real poverty. They come because people have supersized lifestyle. By David at Money Ning.

Madison at My Dollar Plan makes some money blogging and shares how.

Pinyo at Moolanomy explained in what is a reverse mortgage simple words.

Erik at Money Smart Life shows how to find freelance jobs. There are many more channels to be added to this.

Jeremy at Generation X Finance discusses what is it to be a part of the “gig economy”.

There’s a quick post on Free Money Finance giving some ideas to make money by growing stuff.

Jim at Blueprint for Financial Prosperity calculated that a penny saved is a penny and a third earned. Good, let’s go save some money.

ShareThis

Ok, it this case you can’t just quit your boring job today or tomorrow. Actually you can do it and try to make living by blogging. For this to happen you need to be remarkable, talented, very hard working, just lucky or plain unscrupulous. If you are not, don’t try to make living blogging.

Instead of that, you need take some slow and well thought steps to quit your boring job.

First you need to figure out what exactly is boring in your job. If you don’t know this how would you find the job or business that’s not going to bore you?

Photo by buttershug at Flickr

You have to calculate the minimum amount you need to make monthly at your new field. It should cover your basic expenses and some more. You don’t need to make as much money as at the boring job although that can be very nice.

Photo by jacobms at Flickr

Picking the right opportunity is hard. Do you prefer the false security of another job or would you try doing something on your own?

Photo by Steve Montgomery at Flickr

Your new job or business needs to satisfy at least two very important criteria: to make enough money to fit your basic expenses, and some more, and then to lack the boring features of your current job.

Photo by artemuestra at Flickr

Even if you plan everything there are risks involved. You may end up broke or at least making less money than the minimum you have planned. Or you may end up making good money but be bored by your new work again. Are you bored enough by your current job to take the risks?

Photo by karpov the wrecked train at Flickr

Before quitting announce your decision to friends and relatives. Not to listen to their advice, but to make sure that there is no way back. Many of them may discourage you, may say you are crazy or plain dumb. This is a good way to test your determination.

Photo by Xave Ignacio at Flickr

There will be hurdles on your new path. Accept them as a part of the game.

Photo by studiocurve at Flickr

If the things go wrong, you have less to worry. You will have quit a wrong job once and nothing will stop you to do it again.

ShareThis

But how exactly do you secure your money when buying a car? Sure, the car may improve your lifestyle, but it is not an asset. You don’t make money from it. Instead, it costs you extra money for support and fuel.

Photo by
liewcf at Flickr

Compared to that even the worst investment is less risky. Even if you lose all the money in a risky investment (unlikely to happen), you are still ahead from buying a car - because you don’t have further expenses.

But when investing, you don’t plan to lose money - your idea is to make more. Then why do people so easy borrow money to buy a car, but are afraid to do it for investing?

What’s The Point To Borrow For Investing?

All the books and blogs about investing teach you one thing: get out of debt!

Why the heck am I telling you to get into debt then? Isn’t this against all principles of financial success and personal wealth creating?

Yes and no.

There are bad loans which are putting you in the rat race. These are loans that you take to buy stuff which doesn’t put anything in your pocket. Bad loans are loans which you use to buy liabilities.There are good loans - the loans that you use to buy assets.

The answer when it’s worth it to get a loan for investing is simple - when the ROI of your investment is higher than the interest you pay on the loan.

It’s really that simple. It is how the business world works - most companies and even small businesses do not start with own money. They borrow - from friends, relatives and banks. Then why is it so strange to get a loan for investing? (Except that it may be illegal sometimes. Some countries have regulations which forbid using borrowed money for some kind of investments)

If you have found an investmend that yields 10% per year, you can get a loan with interest 6% per year and earn 4% from nothing. This is the way to leverage your money and actually win a lot more than 4% profit. See this example:

Sandra is an accountant in a middle sized company. She gets a good salary and owns a small home, but can hardly save more than $200 per month and has $10,000 in savings right now. If Sandra build a good stock and precisous metal portfolio which can yield 10% per year, she has some chances to be a millionaire soon.

With her current savings and salary, it would take her about 31 years to achieve that. Quite a long time.

Let’s think this way. Sandra’s home is worth $100,000 (it’s a small home ater all). She can get a $50,000 mortgage loan for it at 6% p/a for 30 years. The monthly payment goes exactly to $300, so she can afford it. Instead of investing her extra money each month, they will have to go for the mortgage payments.

But she will have $50,000 right now to invest in her balanced low risk portfolio yielding 10% annually. This way even without investing a penny monthly, she will be able to reduce her way to the million with 3 years and have it in 28 years. That’s 10% improvement by taking a loan.

If Sandra’s portfolion could yield 20% per year (dreams, dreams…), the difference becomes even bigger. She would need 18 years to achieve the million without loan and only 14 years with a loan.

Borrowing money can significantly improve your investment strategy it’s a must-do in your overal investing efforts.

Ways To Borrow Money For Investing

Depending on where you live not all of the options may be available, but there is always a way around. You can easy use a loan for something that you would normally pay with own money and then use your money for investing.

• Mortgage loan. If you own a property you are in best position (oh well, you are except at the time of crazy real estate crisis like now). The banks will happily give you loans at a very good rate.
• Other bank loans. Of course the banks and credit institutions will happily give you all kind of other secured or unsecured loans, because that’s their business. Of course you won’t be able to get as good rate as with the mortgage loans, but if you have a good investment opportunities this is the way to go.
• Borrow from friends and relatives. This is the best option (if you have such friends), because they will likely borrow you money they don’t need.
• Advanced payments, leasing etc. It’s usually not recommended to buy stuff on leasing because that puts you in the rat race. But if you anyway planned to buy that stuff why not use the leasing, considering the interest is lower than the ROI your investment brings?
• Borrow from “Angels”. This is a bigger concept that I am going to discuss separately. But in short, if you can find an angel to fund your business ideas, go ahead!

Loans are just one of the instruments to leverage your money. Adding several instruments one by one can lead to the huge impact that you are looking for.

ShareThis

Photo by Austin Kleon at Flickr

Saving may sound boring but most secure things do sound that. Saving is a straight, fool proof and efficient method to raise money for investing.

Usually the investors do not feel very attracted to saving, because of the following reasons:

• You can’t raise enough money by saving
• Saving can significantly change your lifestyle
• Saving makes you “little” and does not help you think big
• No one has made riches by saving
• Saving money equals losing money because of the inflation

I think most of these reasons are myths:

Myth 1: You can’t raise enough money by saving

People who say this have missed the math classes in the school. Save only $100 monthly, put them in safe mutual funds (if you can find any though) yielding just 10% yearly and you’ll have $42,000, in 15 years. $42,000 may not sound much, but with more aggressive investing they can turn into half million in another 10 years considering that you keep saving.

25 years may look like a lot to own a half million dollars, but this is achievable with just saving $100 per month and proper investing. If you can save more and/or achieve better ROI, your first million is going to come soone.

Myth 2: You should significantly change your lifestyle

$100 monthly to change your lifestyle? Depending on where you live, $100 could be still something, but not too much. Typically you can save $100 or much more per month without trouble if you try some of the following ideas:

• save electricy, gas and water
• use public transport
• use local and season foods - better for your pocket and for the ecology
• cut out expenses for alchochol, cigarettes, sweets and other not so useful habits
• don’t be in rush to buy the newest TV, car, washing machine or suite. Following these you can save a lot more than $100
• buy bigger quantities of food once in the week and cook at home

None of these is a significant sacrifice of your everyday life. If you don’t have $100 free right now, try some of the ideas and you’ll be able to save at least as much pretty soon.

Myth 3: Saving makes you a little guy and does not help you think big

Saving from everyday expenses if very different than beeing squeezed. You should not save from anything that could bring you better yield, that can improve your life, work or business.

Saving from daily expenses is not making you small-minded. On the contrary, working against your consumator’s habbits will free up your mind and make you happier. Discussing this is out of the topic of this site, but you can only win if you decide to follow less today’s consuming society.

Myth 4: No one has made riches by saving

One of the most popular investing books in the world - The Millionaire Next Door
- proves this to be false. It says that the average millonaire in USA has achieved their wealth by saving more than 20% of their yearly income. Straight and simple. You should read that book if you don’t believe.

Saving money equals losing money because of the inflation

It’s true if you put your money under the mattress. Sometimes it’s true also if you put them in bank, although banks usually can protect you against the inflation, at least partly.

The key is not to save and wait for your money to reach some amount to start investing. Save and invest at the same time. Mutual funds, stocks, bonds, forex, real business and other strategies allow you to add small amounts with the time. Don’t let your money sit down ever for a month.

Saving is a long but fool proof process and can make you rich alone. However we are here to explore methods which will help you improve several times what saving can do. The other ideas should be applied along with saving, not instead of it.

ShareThis

Jim at Blueprint For Financial Prosperity suggests that you should not worry for the stock market, but invest in family. And yourself, I would add.

Patrick at Cash Money Life gives one simple to follow and efficient advice - save money and the nature with reusable shopping bags. We usually do it.

Jeremy at Generation X Finance explores an interesting angle of the recession - more people learn how to cook.

In the beginning of the month The Lazy Man shared his ideas about how to be successful in the new year. Most of the suggestions look reasonable to me.

Him at Make Love, Not Debt has another interesting question - does recession equal romance? I personally would prefer romance without recession, but we can never be 100% happy, can we?

Being a DYI fan, I enjoyed Madison’s post at My Dollar Plan: 16 Ways To Do It Yourself.

David at My Two Dollars is not a consumer, but a person. How about you?

David at MoneyNing gives the secret of dealing with the financial crisis.

Here is one provocative post from Rocket Finance: he believes that Paris Hilton will create more jobs than Obama. Do you agree?

A guest blogger at The Digerati Life explains how trading stocks can make you poor. Unfortunately many already know that by own experience.

Trent at The Simple Dollar has a lot of great posts as usually. I had to pick just one, so it’s this one.

Jeremy Day at Insight Writer published an excellent post How To Create Outstanding Value.

ShareThis

Photo by kevindooley at Flickr

That is so, because being good in your job or business is considered hard. But it is not. People believe it’s hard, because most people are not professionals in their job. You are seeing this every day - how much time did it take you to find a really good dentist, how many restaurants offered you food that sucked, how many fitters you had to change before you find yours?

If you agree that most people are not good in what they do, how do you expect them to say that being good is easy? Of course, they would claim that being good is very hard and they are doing their best.

But here lies the real opportunity: if so many people suck at their job or business, then all you need to do in order to be considered good, is to suck less. Sucking less doesn’t sound that hard, does it? And from sucking less to doing the things really good there is no big gap.

Being better than most people in your job or business is not hard - it takes just two components - passion and mind.

Passion

What does it mean to have passion at your job or business? It certainly doesn’t mean you should enjoy every minute of work and smile like an idiot all the time. It doesn’t even mean you should wake up every day full of energy and willing to start work. If there are days when you don’t want to go to work, moments when you are angry or bored, or just feel lazy, that’s OK. It doesn’t mean you are not passionate. You are not supposed to burn of energy every day and every minute.

To be passionate about your deals means to believe in the direction that you are going to. To feel that what you are doing has some real value to you and to the world. To be eager to learn new and better ways to do your business. If you are passionate at your work you will certainly have some moments of enjoyment - moments when you look at what you have done and say “good job!” to yourself. They don’t need to be there all the time, not every day or in every project, but you will have them. That’s it to be passionate.

If you feel that you are doing something wrong, if you wake up and go to work with resistance every day, if you count the hours to the end of the work day, or if all you care about is the money you’ll get paid (or will make through your business), then you are not passionate. In this position you can’t be happy and can’t achieve long term success. First, your daily round is pain. If you hate your work, this means you hate at least 50% of the time you are awake. How can this make you happy? Second, if you don’t have any passion at your work, you will never be able to be good. If you are not good, you are unlikely to achieve professional success and make good money long term. Maybe you get paid well now, but do you truly believe this can last forever? Maybe tomorrow, maybe next year a more passionate worker or company will come here to replace you. Working at a job you hate is a wrong choice no matter how well it pays.

In such case you should leave it as soon as possible and start doing something that makes you feel good. You’ll have an immediate profit - your daily round will no longer be pain, but pleasure. Even if you get paid less for it, it’s certainly better to be paid less for having fun that being paid more to suffer. And you are going to gain more long term, because working something that you love gives you much better chance to become good and get paid more in the future.

Alternatively you can try to develop passion at what you are doing. If you think it’s so important to keep running your current business or working at your current job, why don’t you try to make yourself like it? There are passionate people in every business so there is certainly something to like in yours. You can try to find it: read related information, meet passionate mates online, learn how it can be fun.

The first route is better but requires more courage. The second route is safer, but if you can’t develop your passion, you can lose few years not revealing your full potential and not living the life you want.

Mind

Most people prefer to follow someone’s advice instead of thinking on their own. I see this in the software business every day. People and companies follow mindless standards, use mindless tools and implement mindless practices because they are accepted as industry standards. When the first web 2.0 startups came few years ago and decided to get things done instead of following the industry standards the big companies made laugh on them. But the web 2.0 startups just blew out the competition - in the same way Google preferred to get things done instead of following industry standards and blew out Yahoo, Altavista and even Microsoft.

If you want to be good, you need to think. You need to question mindless guidelines and standards, you need to challenge what’s believed to be right. I don’t mean you shouldn’t follow anything, but you should question everything. Is it really good or some mindless suit said it is? Is the way your company work the right way or it is working like that because the others are doing it? Once you start questioning you will see that many things are wrong. It doesn’t require a genius to see that, it’s often just common sense. But most people simply don’t dare to question things, that’s why it’s easy to be better than them.

Mind goes together with passion. When you start to question common bias you’ll start finding better and smarter ways to do things. This will help you feel more passionate and having more fun when doing your work. As a result of that you’ll become better than most people in your work or business.

Remember, most people are plain average. Being good doesn’t require tons of hard work (being best does however because there are few, but enough people who want to be better than average) - all it takes is doing things better than the average people and companies. They don’t work with passion and do mindless things, so if you are not like them, you will be better. That’s all*.

* Being good/better than most doesn’t guarantee you financial, professional or personal success. But it’s a large part of it, maybe 50%.

ShareThis

ShareThis

Photo by
The BrassPotato at Flickr

The alternative income method I am going to present you now is one of the very few methods that can be used by just everyone. That’s true - even if freelancing, writing, making photos or drawing pictures is something you can’t do, there is at least one other thing that you can do well. Most people can do well more than one thing, but even one is enough, because there are always other people who want to do the same thing as well as you, but don’t have the knowledge, experience and skills for it. Here comes your chance to earn money by tutoring such people (and why not even turn it into a small business).

There is no limit to what you can teach others do, neither to how old your audience can be. If you are a carpenter, there are many people who want to learn woodworking. If you know how to tell good jokes, be sure, there are many other people who want to know the same. Even if you are a professor in a very boring subject, there are at least the students who want to learn more about it (because they have to prepare for their exam). Don’t say that what you can do is useless unless it’s eating hamburgers (some will argue that even eating burgers is an useful skill to have).

Private One To One Tutoring

The most conventional and easy way to start making money is to do private one-to-one tutoring. You can find your customers by posting an ad in your local newspaper, Craiglist, some local web portal, or just pinch a sheet of paper on the classifieds wall in your local supermarket.

Eventually, you’ll need to test your tutoring skills on some friend for free. Sometimes people who are very good in their job are not at all good in teaching others to do it. It’s OK, teaching is a skill that you’ll learn along the way. If you know your subject, you should be able to transfer your knowledge to others.

Private one-on-one tutoring is easy because you can work from home and there is no investment required. The income potential however is limited, because there are only so many hours in the day that you can tutor. Even if your customers (yours students) are very happy and you have enough request, you just can’t work more than 6 - 12 hours per day.

Group Tutoring

One way to scale your tutoring business is to start teaching several people at the same time. Sometimes this will not be appropriate - for example if you teach how to date women (no kidding, that’s one of the most profitable niches), your students may feel uncomfortable to show themselves in front of the others. But for most professional subjects people will be even happier to meet others who learn the same and discuss the subject together.

Teaching a group of people instead of a single person lets you scale your business - whether you will teach one of five at the same time, you spend almost the same time and effort.

The main issue with group tutoring is that you will need a room for it. Inviting 2-3 persons at home may work fine, but if you want to teach 10 - 20 people together, you’ll probably need to rent a conference room at a comfortable place.

Usually group tutoring needs you to be incorporated and licensed. So chances are you’ll need some investment to earn alternative income by this method.

Online Tutoring

One way to avoid the room problem is to start tutoring online. Now it’s not that hard to set up online audio and video conferences through Skype, NetMeeting and other similar softwares. All you need is a good internet connection, and of course your students need to have it too.

Of course, many people still prefer face-to-face tutoring, but there are enough who will appreciate the lower price and the saved time and money they’ll have because they don’t need to travel.

You have good chances to succeed in areas that are not yet explored by the professional webmasters and the typical customers. Web designers for example will not be surprised if you offer online tutoring of web design, because there are many individuals and companies who already offer that. But if you offer to teach gardening online, many of your potential customers will find your proposal innovative and exciting.

Turn Your Tutoring Into Product

The main problem with tutoring is that it’s a service and is hard to scale. Of course you can teach 10 or 20 people at the same time (online), but hardly more. The best way to scale your tutoring service (and almost any service by the way) is to turn it into product. How?

First, and most popular option, is to write a book, e-book, audio book or record instructional videos. You can self-publish the book and sell it as many times as you wish (that’s even easier if it’s an e-book or audio/video distributed online). The downside is that you’ll usually work on your stuff in isolation only guessing whether it will be bought or not.

A more flexible option is to package your stuff as a membership site - online teaching program where people pay for access (recurring) rather than for a finished product. The second advantage (in addition to recurring payments) is that you can develop your tutoring program on the fly along with receiving customer’s feedback.

In both cases your teaching can turn into automated income generator which is far better than getting paid per hour.

ShareThis