By Kevin M

Quick—you want to start a new business—what’s your biggest fear?

If you said “failure” you’re close, but you’re confusing cause and effect. It’s the inability to make money—also known as the loss of a steady paycheck— that would be the cause of the failure that’s at the root of your deepest fears. Failure will merely be the result—or the effect—of the inability to make money.

But there’s a way to reduce this fear, by breaking the income process down into smaller steps. The point of breaking it down is so that we can approach the income hurdle that all small businesses face into a series of manageable blocks. What we want to do is to convert the self-employed income hurdle from an obstacle to a transition process.

You want to try to engineer the transition in four steps:

Step 1—Start with a Full-time job/Part-time business arrangement

It’s much easier to start and run a business when you aren’t relying on it to pay your bills. Having a full-time paycheck (and benefits never hurt) can take the risk and income insecurity out of starting a business. Most business ventures take months or even a couple of years to make a profit, so getting started while you’re on someone else’s payroll will take the uncertainty out of it as well as buy you time for making mistakes (you’ll need this!).

Once you’re seeing a steady cash flow—even if it’s small—it’s time to explore other options.

Step 2—Business income grows—reduce job to less than full time

When the business starts making money on a steady basis it’s time to start clearing your schedule a bit. If you’re working in a full time, permanent job, you’ll probably find that it will be very difficult to grow your business with very part time hours. Most businesses require more time in order to grow, but if you’re not in a position to quit your job and go full-time in your business, you’ll have to get creative.

Try some of these to help you carve out more time for your business:

• Approach your employer about working from home. It isn’t a perfect solution, but it will eliminate the time you spend commuting, and may enable you to be available to handle at least light functions with your business during regular working hours.
• Approach your employer about cutting your hours back. Given the weak state of the economy, some employers might welcome the opportunity to cut payroll expenses. A reduction in hours from 40 to 30, or even 35, could benefit both parties.
• If your employer won’t budge on the hours, try to find a position with a competitor who might entertain either arrangement. Economic reality if forcing many employers to do things they wouldn’t have considered a few years ago.
• Move into contract work. Many contract situations will provide greater flexibility than a full time, permanent job, primarily because you’re a fringe worker and not a regular. Because of the absence of both permanence and benefits, the pay is often better as well.

I chose the contract route at this stage of the game and I had several. I had one that was on an “as needed basis”, and it paid well enough that I didn’t need to do it on a steady basis. Another was temporary—it lasted three months, but again the pay level floated me for an equal amount of time after it was over. Then I also have a seasonal contract gig that I still keep. It’s also part-time so it blends well with my business schedule.

There are all kinds of contract arrangements out there, so try to find one that works best with your particular situation. You’ll need to be flexible and fully prepared to step outside your comfort zone with some, but it will be well worth it.

Step 3—Business income reaches the level of a “living wage”–almost

This is probably the first level at which you feel truly “self-employed”, but it can also be the most stressful. Your business is starting to make money, but you’re hardly home free. At this point, you’re probably making just enough money to survive, but not much extra and, just as important, you haven’t yet withstood the test of time. There will be a temptation to quit your regular job and go full tilt at the business, but you feel some hesitation—that’s probably good.

This is the make or break point, but you might still want to have at least a bit of a parachute, just in case. Or at least, just some extra money!

A part-time job would probably be ideal. Not only can you make the needed extra income, but because it’s only part time, you can phase it out as you need to simply by cutting back you hours.

Still another way to navigate this late stage is by doing contract work for your new competitors—as in people engaged in the same business you are. Nearly all businesses have functions that the owner doesn’t have time to handle, but they may also be so specific that hiring someone off the street isn’t workable. As a member of the same industry, you have the skills that others in the same field need.

So you’re not working for direct competitors, you can offer to do contract work for businesses who are in the same business, but in different niches. Sometimes you can do this by contracting for competitors who are in different geographic locations. Think of a newly self-employed attorney who may do legal research work for a larger firm to help with cash flow early on. Find something you can do in your own business along the same lines.

Step 4—You’re “there”!

You’re finally earning enough money from self-employment to support yourself or your family, and you’re feeling confident in your ability to keep it going. Since you no longer need a job—full-time, part-time, contract or otherwise—you can now devote 100% of your working hours to your business. This is the time to grow it, streamline it, make it better and make it more profitable.

This is also the time to kick back and enjoy life right? Not when you’re self-employed!

Not only do you need to constantly grow your business and stay abreast of new developments, but you also need to shore up your finances. Having your own business isn’t like a steady paycheck—you typically don’t have a stable income. Self-employment has an unstoppable feature of roller coaster income.

That means you’ll need to save money for the down times! A person on a salary never has to worry about his or her income level, but one of the challenges of the self-employed is to create something close to a steady cash flow. The best way is saving money during the good times to be ready for the lean ones. If you’ve never been a saver up until this point, you’ll need to become one.

One of the best ways to do this is to save money while you’re doing double duty—building your business and working outside jobs or contract arrangements. And once you cross over into full time self-employment, you’ll need to continue with the saving habits you developed while you were holding multiple occupations.

Is it worth it?

In a word—YES! It reads like a long process, but the purpose is to remove the uncertainty of a steady income while you’re building your business. It’s a tough economy out there, and you’ll have your hands full just building your business. Keeping a steady paycheck while you’re building it will not only remove the survival dilemma, but it will also give you the financial strength you’ll need to get through the upstart period successfully. And dealing from strength is ALWAYS the way to go!

Are you starting a business, or have you done it recently? What did you do to keep money coming along the way?

Finding the top dividend stocks isn’t easy. Dividend Stocks Online sorts dividend stocks by yield, growth and performance.

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”Retiring on Business Income

By Kevin M

We all know about the importance of investment diversification, especially it comes to retirement planning—today I’d like to focus another type of diversification, one that’s even broader in scope. It’s income diversification, and it could quite possibly be the most neglected part of retirement planning.

With investment diversification you’re looking to create a portfolio that has the right mix of mutually exclusive investments that will improve performance by lowering risk. Fair enough. Income diversification is the process of creating income streams from several sources which not only increases cash flow, but also lowers the reliance (risk) on any one of them.

With retirement, this can be done with investment earnings and Social Security, but if you want to create a third income source, you can do it through a retirement business.

It’s even entirely possible that an income stream from a business may provide a more secure retirement than a large nest egg (more on that later). And the combination of a business and a nest egg and Social Security may provide the best retirement plan possible—especially if your retirement savings aren’t where they need to be. It’s something to plan for.

A Million Dollars is A LOT of money!

Let’s cut to the chase—in order to fully retire, and have enough income to pay your living expenses, and have enough money to cover contingencies, and have some left over to continue to grow your investments so they don’t get wiped out by inflation—you’d have to have at least a million dollars saved up at retirement. More probably two or three million, given inflation. I’m just being realistic here—it truly is a tall order.

Do you think you can do it? If not, you need to be making other plans.

Holes in traditional retirement planning

While it is possible to save up a million dollars (or even more) over 30-40 years, it won’t happen for most people—that’s a statistical fact. Investment models produce pretty results, but let’s face it, life doesn’t always cooperate with our plans!

Here are a few examples:

1. Assumed rate of return on investment (ROI) may not support projections
2. In the pursuit of an ROI that will support our retirement needs we may take on too much risk and get burned for the effort
3. A future stock market crash could nullify years of retirement savings especially if it happens near or during retirement
4. People DO make investment mistakes; so do financial advisors—we’re all human
5. Job instability may lead to erratic retirement funding
6. Long-term unemployment means retirement isn’t being funded
7. The unemployed are often forced to draw down retirement savings
8. Interest rates on fixed income investments are far too low to provide a viable alternative to equity investments in volatile or falling markets

In the financial world it’s an article of faith that we can invest to cover what ever needs we’ll have in retirement but little is said about the real life that takes place between now and then and often gets in the way of the best laid plans. In looking at the list above it’s unlikely we’ll be able to invest around any one of these, let alone a combination of two or more.

The ultimate reality is that life is not perfect and for that reason alone we need to have back up plans.

Creating income streams may be more important that retirement savings

That reads like an exaggeration, but here’s why I feel confident in saying it: it takes a lot of money to create income streams from investments. For example, the convention on the “safe rate of withdrawal” on retirement assets is 4%–you can withdraw 4% of your investment value each year and still maintain the value of your investments. I think that’s more of an assumption than it is a convention.

If you withdraw 4% for living expenses, and inflation is running at 4%, you’d have to earn 8% on your investments in any given year. With interest rates hovering around 1%, that pretty much means you’ll need to have most of your money in the stock market in order to accomplish that (see items #2 and #3 in the previous section). Can you really do that?

Sometimes…sometimes not.

To take it a step further, let’s say you project a need for $40,000 in investment income in retirement—how much money will it take to “buy” that income stream? One million dollars. Again, that’s a lot of money, and most people are unlikely to have it. And, thanks to inflation, the further you are from retirement, the bigger that number will be.

A “retirement business” to the rescue

A business is dynamic—the income from it will adjust to what ever future price levels will be. You can grow it through your own efforts. It doesn’t depend on the ebb and flow of interest rates or of the performance of the financial markets. And it won’t require a million dollar investment!

That last point is critical. You can create a $40,000 income from a business without putting more than a few hundred or a few thousand dollars up front. That’s truer in the Internet Age than ever. The growth will be driven by your time, effort and talent, not by your capital contributions. Best of all, when you’re finally ready to move from semi-retirement into full retirement, you can sell your business and have more money to add to your nest egg.

What kind of business?

This is really the foundational question. You probably don’t want it to be related to what you’re now doing for a living, but rather something you can enjoy. Think about a business you’ve always thought of having—maybe your dream business. Retirement should be a time to pursue dreams that weren’t possible earlier in life—seize the opportunity!

On a more practical level, here are some criteria to consider:

• The business shouldn’t be capital intensive—it should be skills-driven and thus easier to grow and to leverage
• It should be a business that you have the talent, desire and skills for—or the willingness to acquire them
• It should be a business that doesn’t have age restrictions
• It should be a field that has room for growth (avoid declining industries)
• It should be in an industry that affords a lot of flexibility and is driven by innovation (rigid industries are usually the ones that work purposefully to limit competition)
• If it’s the kind of business you’d like to have even if you didn’t make any money doing it, you’re probably looking in the right place!

Here’s my real life example…I always wanted to be a writer, but 20 years ago when I first gave it a try I found it impossible to get past the “gate keepers” who kept tight control over the industry. I spent most of the years since working in the mortgage business—and everyone knows what happened in that industry. I exited at the end of 2008.

But something was different in early 2009 then it was in the early 1990s—we now have the internet and writers are needed all over the place. Goodbye gatekeepers, hello opportunity! I’ve been running this blog and freelance blog writing for others, and while I’m not getting rich (yet!), I am making a living. And that’s in under three years (2.5 this month to be exact!)

You can do the same. It requires a certain relentlessness, but it IS doable.

What about my retirement—do I ever kick back and enjoy a life of blissful nothing?

Here’s something I learned both from having my own business and from knowing dozens of small business owners during my public accounting career: the self-employed seldom want to retire as much or in the same way that salaried people do. I’ve known many self-employeds who have worked into their 70s and even 80s.

Employed people sometimes “put in time”, which is especially true in the last years before retirement. Self-employed people don’t sense the imperative to retire at all. If you own the business, it’s a part of who you are and you aren’t so anxious to abandon it. You also have the option to ratchet things down a bit, to take it easy if you choose. I have a lot of self-employed friends and the topic of retirement seldom comes up. Maybe it’s because they see it as quitting on themselves. Taken that way, retirement can and does look a lot different.

If you start running your own business there’s an outstanding chance you’ll feel the same way.

How do you make it happen?

How do you create your own business? One step at a time is always best. If we’re talking about a business you’ll have in retirement, the process will be even easier. Since you probably have years before you retire, you can start a business now as a hobby business and grow it over the years just as you would a retirement portfolio.

Don’t put this off however, thinking that you can wait and do it a year or two before retirement. A business isn’t like a job that begins providing an income immediately; it could take years to reach that point. Also, your first effort could fail and you’ll need time to try again (and still again if necessary!).

Another important point: since you want any retirement business to be on the easy side, the sooner you begin, the more time you’ll have to fine tune the business and become “accomplished”. When you reach that level, businesses are often easy, or at least easy–er–and they blend a lot better with semi-retirement.

Have you considered starting a “retirement business”? Do you agree that this could be a viable option for people who have inadequate retirement savings?

Related Posts:

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A Successful Online Business Requires Realistic Expectations

7 Ways to Improve the Success of Your New Business

7 Reasons to be Self-Employed

Preparing for SEMI-Retirement

By Clair Schwan

Okay folks, this is the home stretch for this four-part series on starting a consulting company on a shoestring budget. We’ve looked at startup considerations and how to handle them, expenses associated with running the business, and the many and varied hassles that really are more imaginary than real. In this last portion of the series, let’s look at income – the fun part. If you’ve done your planning well, and are mindful to minimize expenses, you ought to be able to make a decent return on investment.

Let’s take a look at what one might create for themselves, but let’s also be cautious and realistic.

Waiting for Income

If there’s one thing a frugal person is good at, it’s handling income and building wealth. Before we start rolling around and giggling amidst our big pile of cash, there are some realities that need to be faced.

First, the bad news. Unless you’ve cultivated your first few jobs, you’ll have to hold your financial breath until you land one. That could happen in a few weeks, or it could take a couple of months or more. Plan on at least a couple of months for the cycle of business development, focusing on prospects, writing proposals, getting a contract signed, and then getting the work scheduled to start.

Even then, you’ll work for 30 days, invoice a couple of weeks later, wait at least 30 days to be paid – probably more like 45 to 60 days – and that means your first dollar will come through the door about three months after you start your first job, and that might be six months after you start your business. Now, it’s clear to see why careful startup planning can be both wise and frugal.

To weather this portion of your career change, you’ll need a pile of money. That money will need to cover your personal and business expenses for about six months, and then you ought to have some working capital set aside in addition to that so you have a financial comfort zone. You don’t want to be distracted in your new business because you’re worrying about getting down to the bottom of the peanut butter jar.
Once you build a relatively steady stream of revenue, you’ll be able to relax a bit. After a year or so, the business development, customer work and billing cycle will become much more clear and you’ll be better able to predict revenue. You’ll also be able to project expenses with much more accuracy, and that will allow your return on investment to become clear. Only then should you start counting your money.

Enhanced Income

The good news is that all of the overhead built into your previous billing rate as an employee is now yours as gross revenue, much of which can be turned into profit. For example, let’s say your billing rate at your previous employer was $130 an hour. That means you probably were paid about $65 an hour for your time. That additional $65 per hour went to overhead expenses like management, administration, property rental, and unapplied time associated with business development. Now, you have an important choice to make – what to do with the additional $65 per hour that your customer is accustomed to paying for your services.

Here’s my suggestion. Lower your billing rate to $120 per hour and your customers will enjoy a break in the price of your services. At the same time, you’ll enjoy a $55 per hour increase in your income. That’s nearly double what you were making. So, you make a lot more, and your customer enjoys a price break. You’re “a deal” in the marketplace, but you didn’t have to take a financial hit to make it happen. Over the next couple of years, you can inch your rate back up to $130 per hour, and now you’ve doubled what you were making back at Acme High Management Overhead Inc, and you’ll still be offering a lower rate to your customers because the folks at Acme will have cranked up their prices as well.

If you do it right, what you’ll quickly find is your ability to accumulate wealth will take a giant leap forward. This means you’ll have plenty of cash to carefully invest in the business, because you’re frugal, and you’ll be able to engage the services of an investment advisor to help grow your nest egg. You can see it now, early retirement is on the horizon. You won’t need to remain part of the rat race until you reach “official” retirement age according to the government. Oh boy, this is going to be good.

Cash Attracts Others

Of course, there are others who have their eyes on those bushel baskets full of money you’re making. It’s our friends at the Internal Revenue Service. And, they’re out to provide you with a type of “service” by helping themselves to your enhanced revenue streams. I’m reminded of the song, This Isn’t What the Governmeant, by the 1970s group Bread. They sang, “The more you make, the more they take, you never seem to get ahead.” It’s true, so you’ll need to know how to minimize taxes on what you earn by investing wisely inside and outside of the business, and maximizing useful deductions.

Generally, anything that you regularly and exclusively use for your business is tax deductible. And, you’re in charge of the business, so you’ll decide what array of things are required for business success. Things like laptop and desktop computers, special software, still and video cameras, a GPS unit, a color laser printer, and other fancy gadgets might be necessary to do your work and win more billable work. You’ll also need to remember that paper, batteries and mileage are all deductible as business expenses when they’re put to work to earn you more income.

Wrapping it Up

So, the income earning potential of your own consulting business can be very attractive, but you need to be aware that it won’t come immediately, it doesn’t necessarily come regularly, and others want their share of your entrepreneurial efforts. Just because you have rid yourself of the corporate money leach doesn’t mean you’ll be successful at avoiding the long arm of the government. Take heart, you’re in good company among those who know how to create wealth. If only someone would start an enterprise that gets rid of those who simply consume wealth, now that’s a job I want to put in for.

Clair Schwan hosts Self-Reliance-Works.com where he encourages others to live a more self-directed and self-managed life focused on their own self-interests. It’s just the kind of spirit that makes for a good entrepreneur.

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By Kevin M

An excellent post appeared on Financial Highway dealing with the various considerations faced by a working couple when a child arrives in the family. In Which Spouse Should Stay Home? Miranda Marquit does a stellar job of presenting the variables involved in making the right decision. And that’s not at all surprising since Miranda is on the frontline of this issue herself as a work-at-home mom.

There was a time—only a generation or so ago—when it was considered the natural order that the wife worked until the first child came along and then promptly exited the workforce to assume the role of full-time mom. Today however, the situation is complicated by (at least!) two major factors:

1. Most households need two incomes, and
2. Instability in the job market has led to dual incomes as a necessary component of family income security.

Each reason is compelling by itself—but I think that the second one has become the more important of the two, at least in the past few years. It’s easier to lose a job than it has been in at least 60 years, and harder to replace one for all the same reasons.

Why does either parent need to be home at all?

Despite the clear need for two incomes—and the jobs that supply them—there are equally compelling reasons for one parent to be home with the child(ren).

Savings on daycare costs. Daycare costs can easily rival an average house payment and that by itself is a major reason for one parent to be home. My kids are teenagers now, but it cost over $1,000 a month for us to have both in daycare on a full time basis when they were pre-school age—and that was over ten years ago! No, we didn’t have them in any kind of premium facilities—that was the price for a run of the mill daycare, and we live in an area (Atlanta) that hardly qualifies as high cost. I can only imagine what it would cost to have two kids in daycare in places like San Francisco, New York or Washington, DC.

Having at least one parent home with the kids. Any time you hire someone to take care of your kids you’re engaging in a compromise. Yes, someone else can take care of your kids, but let’s be honest–no one will love our kids as much as we do or will take care of them as well as we’d like. There’s a definite peace of mind that comes from being home with your kids—all other complications of the arrangement aside.

Playing “deep safety”. When you have children you quickly learn that emergencies and near-emergencies are a routine part of the parenting job. Kids get sick, they get injured, they have problems at school—when both parents work outside the home either you’re forced to ignore a lot of situations where you probably should be there, or you show up for all of them and jeopardize your job. That’s a no win choice when the stakes are high for you as a parent. At a minimum, every parent wants to be there when emergencies come up.

The considerations

OK, so you decide that one parent needs to be home with the kids, but which one? This is where things get complicated. This is just my opinion, but since the family’s survival is at stake, the decision as to who stays home with the kids shouldn’t come down to something as vague as who wants to stay home more. Objective factors need to be considered, including…

Earning power. This is the traditional defining factor in the decision, and it makes abundant sense to minimize the financial fallout of one parent leaving a job. The higher earning parent continues to work, while the lower earning one comes home to be a full time parent.

Who has the stronger career prospects? In today’s employment scene that isn’t always the husband. While it may seem more “natural” for the wife to be home, many women have stronger career skills and prospects than their husbands. Even if one parent does earn more than the other, the family’s long term financial prospects may actually improve if the lower earning parent with strong prospects remains on the job.

Who has the better benefit package at work? Benefits are always important, but when you have kids, they’re that much more so. Kids mean frequent trips to the doctor or worse and you need to be prepared. A better benefit package by the lower earning parent may even offset the loss of the higher earner’s extra income.

Who has the greatest ability to create a work-at-home situation? The loss of the income from a full-time job can be at least partially offset if the stay at home parent has the ability to work from home through their job, or has the type of skills that can create a work-at-home business. A family that might struggle on a single income could thrive on one-and-a-half incomes.

How my wife and I handled the choice

For my wife and I the deciding factor was the last one—who has the greatest ability to create a work-at-home situation—and that was me. (A close second was benefits—my wife always seemed to have the better package.) My wife works in banking, and that isn’t a field that translates into work-at-home. My situation was and is different.

At the time I was working as a mortgage originator (mortgage sales) with a large mortgage company, a position that lent itself well to working from home. The company, however, tended to discourage working from home so I moved to an independent mortgage brokerage company where it wasn’t a problem. Once I got that up and running, the kids came home for good.

I readily confess that I would almost certainly have made more money working a job outside the house. Yes, you can make as much or more working from home as you could working in an office, but it’s infinitely harder when you’re also the primary care taker for your children. Much of the time I was working no more than 75% of the time, and it could be as low as 50% when the kids weren’t in school. Even so, half an income is better than no income and at least some of the loss was covered by not having to pay for daycare.

Was it a perfect arrangement? No, not at all. There will always be trade-offs when you try to balance work/income with child rearing, but here are some of the things we didn’t lose as a result of deciding that the work-at-home parent would also be the stay-at-home parent:

• One of us was home as the primary care giver for our kids—in their own home—and we didn’t have to wonder what was going on with our own kids when they were being cared for by others
• I was always there for the emergency/near-emergency situations, with no delay as often happens with daycare facilities
• We were able to keep two incomes coming in, even if mine was often inadequate
• We were never without health insurance and other important benefits that my wife’s job provided
• We were able to eliminate daycare and it’s attendant costs and complications

And this one is a bonus—work-at-home has a way of growing on it’s own, and even though our kids are teenagers, I’ve continued on the work-at-home path—which has included contract work and now professional blogging!

It’s interesting how things work out—if you choose the right path!

 
Have you and your spouse been faced with who stays home with the kids and who continues working outside the house? How did you resolve it, or how do you plan to resolve it?

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By Kevin M

You read that first word right—RISKS—as in something to lose! Historically risk is not a word normally associated with a college education, but this isn’t history—it’s the big, bad now and the rules have changed.

Not only is the cost of a college education much higher than it’s ever been (and rising relentlessly), but the ways people are paying for it are farther out there on the danger scale. And the jobs that once reliably awaited students upon graduation don’t seem to be there in either number or compensation. To paraphrase a well worn cliché, this ain’t your father’s college education.

The college game is changing. A number of factors have developed that have turned the one time ticket to the good life into a high risk proposition. I’ve identified five and you could probably cite a few others.

Risk #1: Financial Cost

No matter what it is we’re pursuing and how noble the cause, in a world of limited resources, we always need to consider the cost/benefit ratio. That ratio is way out of balance in many college norm careers. Back in the 1980s when I was in college it was possible to obtain a college degree for about the amount of a starting salary in a typical degree field. In that environment, going to college was a risk free proposition.

Today, larger amounts of money are being paid for college while the job prospects in many degree fields are weakening. It’s now possible, even typical, for a college education to cost several times the starting salary in a typical degree program. There is a real risk that the full value of the price paid for a college education may never be recovered.

Risk #2: Debt Hangover

It’s bad enough that college has such a high price tag today, but the problem of cost is magnified by the fact that debt is increasingly being used to pay for it. That debt carries well into the working years, and even though it may have preferential rates of interest, it’s still a drag on the graduate’s financial future.

Kelli Space wrote a post over at Budgets Are Sexy titled I Went to College and All I Got Was This $200,000 Bill—that was the amount of the student loan debt she had accumulated while earning her degree. That sounds like an incredible amount of debt and perhaps it is at the upper end of the range. But with college costs rising steadily and incomes and savings levels stuck in neutral, the debt numbers are getting higher all the time.

Whether it’s $200,000, $100,000 or “just” $50,000, we’re talking about a staggering amount of unsecured debt! Liabilities of this magnitude can be life altering—it sends the graduate into an increasingly uncertain job market with one, large strike against them.

Risk #3: Time Invested

The four years it takes to get a college degree is long enough that the job prospects in a chosen field of study can change significantly in that space of time. And many students are spending more than four years to get an undergraduate degree alone.

The pace of change in the world seems to be quickening, and that includes the growth, maturation and decline phases in many companies and entire industries. There’s now a real risk that a student can spend years preparing for a career field he’ll never work in.

Risk #4: Lack of Entrepreneurial Training

With jobs in many fields degrading or disappearing the career path for graduates is increasingly pointed in the direction of some form of self employment. Sadly, college coursework preparing students for the entrepreneurial path is close to non-existent at the undergraduate level.

College curriculum is geared heavily in favor of the organizational universe of the corporate world, various levels of government and even non-profits, but not life running a small business. Part of the reason for this is that organizational training is readily teachable. Entrepreneurial training, by contrast, is so decentralized and diverse that it doesn’t lend itself to the type of comprehensive curricula that make up the vast majority of college programs.

There’s a real risk of preparing for declining organizational careers in a world where self-employment is fast becoming the new normal. College programs may eventually adjust to this change but there’s little evidence that any sort of shift is even on the horizon, let alone a work in progress.

Risk #5: Opportunity Cost

This risk starts with the question, “what else could I be doing to build a career that I might not be doing while attending college?” The job market is becoming increasingly selective—you won’t necessarily have a career by virtue of a degree.

Many college norm career fields are now in oversupply while jobs in the skilled trades and technical fields go begging. Such careers, as well as self-employment, often take an entirely different path than college norm jobs. Technical school training, apprenticeships and the good, old “school of hard knocks” are often the best (or only) way to enter these fields.

In many fields the four years that someone might spend in college would be sufficient to gain the training, experience and credentials that would enable earning a living wage with greater career security and job mobility than many college norm careers afford. In addition, many trades and technical fields are now paying salaries comparable to or even greater than college norm careers.

How can we respond to the college risk

Where ever there’s risk, we should be practicing risk mitigation; what can be done to do that in connection with a college education?

1. Don’t use college as a default when you don’t know what career to enter—the risks are too high to just “get a degree in something”. Some life experience might help more than spending time in college.

2. Set a limit for how much money you’re prepared to borrow to pay for your education—lenders and colleges aren’t putting any limits on how much a student can borrow so it’s up to the student and the student’s family. You can for example, set the upper limit on student loans to no more than the expected salary for the first year in the new career. Any metric is better than sky’s-the-limit.

3. Look for less expensive college options, such as spending the first two years at a community college or commuting to school rather than living away where room and board can more than double the cost of your education.

4. Consider the alternatives to a college education. Would you be better suited to be a plumber? If you think you’d like to be self-employed do you think college will help you get there? Or is there some other path the might be more effective?

What do you think about the cost of a college education relative to the employment opportunities that are available in today’s economy? How much money should a student be prepared to pay for a degree? Are there any other paths a would-be student might pursue that won’t leave him/her buried in debt after graduation?

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7 Reasons to be Self-Employed

By Kevin M

50% of the “secret” to a successful business is having a great idea, product, service or concept—one you can bring to the market profitably. That often takes time and staying power, and that’s where the other 50%—your finances–comes in.

You’ll need a certain amount of financial strength in order to weather the storms you’ll face in order to turn your business idea into a business success. Fortunately there are steps you can take in advance to get your finances ready for self-employment.

Managing the income transition

Self-employment is often viewed as a plunge—as in a deep dive into the unknown. Though there are certain benefits to giving 100% of your time and attention to your business, it isn’t usually necessary. If you can engineer the transition into smaller, more manageable steps (which we’ll cover in more detail in a future post) that will make the change less risky:

1. Start with a full-time job and run the business as a part-time venture for as long as you need to—this will reduce the need for start-up capital and buy time to make mistakes.

2. As your business income grows and you can clearly see how to expand it even more, reduce your job to less than full time. Even cutting from 40 hours to 32 could make a difference. A cost cutting employer might even welcome the suggestion—if not you might have to find one who will.

3. When you reach the point that your business income is substantial but not quite a “living wage” you’re about to turn the corner to where your business is your primary income and a job is only a secondary source. A part-time job or a contract arrangement may cover the income shortfall while freeing up your time to expand your business.

4. You’ve arrived. Your business has finally grown to the point that you’re making enough to pay your bills and there’s some left over for savings and some luxuries. You can say good-bye to jobs (full- and part-time) and contract assignments–but don’t burn your bridges behind you! You never know who you’re going to need and when!

Prepare your budget for self-employment

One of the reasons people stay on at jobs they don’t like is because of a steady paycheck. If you’re self-employed, you won’t have one! Self-employment income is business income and that tends to ebb and flow with the business cycles, the economy and even the seasons. Will you be ready for an income that looks more like a roller coater than a passenger train?

There are ways to prepare for the up and down nature of self-employment income:

• Cut your living expenses down to the bone before beginning your business venture—the less you spend the less you’ll need and the more you’ll have to expand your business.

• Get rid of any costly toys, expensive hobbies or memberships—you’ll have neither the time nor the money to carry them.

• Lower your major expenses—housing and cars—as much as you’re able. Trade down if need be, but do what you can here. It’ll take a lot of cuts in small expenses to equal the impact of lowering just one of these.

• Lower your lifestyle expectations for the job-to-self-employment transition period

Building a nest egg

If you don’t have an emergency fund, you’ll need to have one. A reserve equal to three months living expenses may be adequate while you still have a full time paycheck coming in. But six months will be the minimum for the day when you’ll say goodbye to your employer and go full throttle on your business.

How do you get a nest egg if you don’t already have one?

• Start funding it with cash from the sale of some of the toys you sell to cut your budget.

• If you start your business as a side venture, any money you earn from it (while you’re still working full time) should go into the emergency fund.

• Eliminate retirement plan contributions and redirect the additional income into savings—short term liquidity will be more important than a retirement plan while your business is in an upstart status.

• Even when you reach your emergency fund goal—or your business becomes self-sustaining—continue to save money! A fat bankroll is the best remedy to an up and down cash flow.

Getting control of your credit

One thing you absolutely don’t want to do is go into self-employment carrying a bunch of debt. It’ll be like burdening your new venture with old obligations. And while it may not be possible to wipe your credit slate completely clean, the more debt you can eliminate beforehand the better your chances of success as an entrepreneur.

• Stop using credit from this point forward. Pay cash or don’t buy.

• Start paying off your smallest debts, and payoff as many as you can.

• If your car has a large payment on it, pay it off as soon as you’re able, or consider trading down to a beater paid with cash. If you have a home based business you probably don’t need anything more than a car that will get you from Point A to Point B.

• We covered this under preparing your budget, but if your carrying an out-size house payment, trading down to less expensive quarters will open up a whole lot of options. A mortgage is, after all, the biggest debt payment most people have. I won’t beat this point to death since it’s a deeply personal decision for most people.

Health Insurance

If having a steady paycheck is the main reason people stay on at jobs they don’t like, having an employer sponsored health plan is probably not to far behind. Let’s face it, if you’re going to have your own business, you’re going to have to do something about health insurance coverage. It’ll be best to take steps to deal with it before going solo.

• Start taking care of your health now and make it part of who you are—good health is the first, best kind of health insurance.

• Look into catastrophic health insurance that will cover major expenses only. It can be substantially cheaper than full coverage, and if you’re healthy you probably don’t need more comprehensive coverage anyway.

• Get a part time job that offers health insurance coverage. Many common employers do, including Starbucks, Barnes & Noble and Wal-Mart, as well as many banks, department stores and various government agencies.

• If you plan on taking advantage of your employers COBRA coverage, it might be a good idea to lower the coverage level while you’re still employed, that way the cost of the plan will be lower when you leave. Generally speaking, COBRA will lock you into the level of coverage you select while you’re employed with the company.

Can you think of any other plans and preparations that might be needed to get ready to move from a job to self-employment?

If you’d like to start a business of your own, but don’t know which to go into, check out my post, The Freelance Blog Writer Side Hustle. Blog writing is a chance to start a business small and to grow it–risk free.

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And one college’s “Employment Pledge” to ease the transition

Guest Post by Philip Reed

Even at the best of times, mounting a job search can be intimidating and often, disheartening. With today’s unemployment numbers and still shaky economy, a job search can be downright terrifying.

It’s important that you don’t let the whole process of it overwhelm you by taking it one day, one resume, or one interview at a time. If you can remain focused on the individual tasks required you will present yourself to prospective employers in a far more confident and positive manner. The more confident that you appear; the higher your chances are for a successful interview and—ultimately—a job offer.

New college graduates

New graduates are facing a difficult road in getting that first job. If you’re just out of college, or will be in the next year or two, your major area of study will be a critical factor in both how quickly you land a job and how much you will earn.

If your undergraduate degree is in a field that isn’t in great demand, you may want to consider going for a masters degree in a field that is. Forbes offers a list of the best masters degrees to have in order to get a job. The top five on the list includes:

1. Physician’s assistant

2. Computer science

3. Civil engineering

4. Mathematics (statistician, actuary, high school teacher)

5. Physics

There are five others on the list, and all have mid-career earnings near the $100,000 range, and solid prospects for future employment growth. If the job prospects in the undergraduate degree you signed up for a few years ago are looking slim, a masters in any of the careers listed on the Forbes list may be advisable.

Speaking of colleges, something new is being rolled out to ease the transition from school to employment. Westwood College has a program called the “Employment Pledge”. I haven’t used the program myself, but if you were lucky enough to have obtained your training, degree, or certification at a university or college that offers it then you may have an advantage when you enter what has become a competitive and difficult job market.

An employment pledge claims that the educational institute is so confident in their training and teaching that they will pay you if you cannot find a job in your field within a predetermined amount of time. The payments aren’t enormous, but they will help you pay your bills at a critical time of your life (for up to six months) and that can take some of that job search pressure off of your shoulders. Westwood does offer degrees in some of the fields on the Forbes list.

Even without a degree in a top field—or an employment pledge—you can still conquer the job market frenzy by setting specific goals and tackling them one by one. The following list is an excellent place to start.

The resume

Make sure that yours highlights your qualifications while still giving an impression of your personality. There are many resume building tools available free online to help you structure it in the most flattering and effective way possible.

When writing a resume there’s always a temptation to overkill—don’t! No one will read a resume that’s much longer than one or two pages! Keep it as concise as possible being sure that your strongest skills and abilities are immediately obvious. An employer will sift through hundreds, perhaps thousands of resumes in an effort to fill a single job. Your resume must make the case that you are the one best suited for the job.

It will be time consuming, but it’s best to customize your resume for each job you are applying for. Highlight the skills you have that best match the job description given. If you’re skills don’t fit, it may be better to move onto the next prospect where you’ll be a better fit.

The cover letter

Separate from your resume, the cover letter should be directed to the specific person you are applying to and should outline all the additional skills, qualification or benefits that you can offer the company if hired.

The cover letter shouldn’t restate your resume so much as to highlight and supplement it. What you want to do is use the cover letter to create that “glove fit” between you and the job that’s being offered. Keep it personal, and spell out specifics on how you will be the answer to the employer’s problems.

When you approach employers, be sure to avoid the beaten path where all the heavy traffic is. Far better to make contact by unconventional means that are likely to make you stand out from the crowd.

Your personal appearance and attitude

It sounds so obvious and yet people mess it up all the time- dress appropriately for the position that you are seeking- even if you don’t have a scheduled appointment and are just dropping off a resume. If you are applying for a position in a professional office then showing up in flip flops and sweatpants is not going to get you the job.

Should you get an interview, make sure you speak clearly, make eye contact, and smile. It can be intimidating but employers want to know that you are confident in yourself and your skills because that will give them confidence in you.

No matter what job or career you are seeking, there is an employer out there that would be perfect for you. Your job now is to find them and to make sure they understand the value that you will bring to your new position.

What are you doing to find a job in this economy? Is there anything you’ve done that’s worked? Would you like to share your experience?

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All Jobs are Temporary! (And What You Can Do About It)

By Kevin M

Having a job is a good thing—the problem is complete reliance on it! That, unfortunately, is where most people are. The loss of a job can set a chain of financial catastrophes in motion, and even threaten the survival of a person or an entire household. Is there an answer to this dilemma? Is there a way to enjoy the benefits of a steady paycheck—preferably one with medical insurance—without being so totally dependent on your employer?

There is—the answer is skills, your skills. And not just any skills but two specific types that rise above all others: transferable skills and retail skills.

Everyone brings general skills to their work—management, administrative and organizational skills, typing, computer skills, “people skills”—we can think of them as the minimum requirements for employment.

But transferable and retail skills are much deeper. They’re skills that are in demand, easily recognizable, portable and have application across different industries and business types. When you have them, your ability to earn a living is never in doubt—even if your current job is.

Transferable skills—the ticket to employment security

Transferable skills are valuable throughout your industry and even beyond. They’re the type of skills that can have a direct impact on a company’s bottom line, such as sales or web design, and can easily be verified by production numbers, a portfolio of your work or some other easily recognizable form. They’re even more valuable if you have them to a greater degree than most in the field–that means being better than average.

If you have transferable skills and you’re work is known outside your company, you probably enjoy a great deal of employment security—there’s always someone willing to hire you even if your current employer doesn’t need you any more. If you’re not at that level, you need to get there.

Most employees are content to master only the minimum skill levels needed to perform their jobs and remain with their employers. Others develop skills that are so specific to their current employer that they have little value anywhere else. There’s little thought to preparing for the next layoff, the next job or the next economic cycle. Retooling, if it comes, happens only after a long periods of unemployment and often involves a costly return to school for yet another degree.

How do you develop transferable skills before a job crisis forces your hand?

• Pick a function in your company that’s crucial to the operation of the business—or any business—and take steps to gravitate into it. All functions in a business might be important, but some are more valuable than others and that’s where you need to be.

• Take a course or two at a local college to learn the basics of a desirable new skill. That may not get you a job in the field, but it could open up some opportunities that will.

• Look for a part time job where you can “apprentice” into the new skill set.

• Develop the skill as a hobby or even as a side business and then grow into it.

• Become the resident expert at what ever you do in your job. For example, if you work in an administrative capacity, learn all you can about common software applications like Word, Excel and Power Point. With software applications, there are many practitioners but few experts. But those skills are highly transferable and if you become an expert with them, your future prospects will improve significantly.

”Retail” skills—the ticket to a future without limits

Retail skills are just what the term implies–it’s the ability to sell your product, service, or trade directly to the general public. They’re the kind of skills that are not only valuable to employers, but can readily be converted to self-employment. All options are open to you if you have them.

I had this explained to me many years ago by a plumber who came to fix my dishwasher hook-up. He pointed out the difference between plumbers who work in the building trades—where layoffs run with the boom/bust cycle in housing—and repair plumbers who work on existing systems and therefore have work (and plenty of it) on a continuous basis. Building trade plumbers don’t know repair plumbing—it’s a different function entirely—they need someone to hire them and become employer dependent. But a repair plumber can work for someone else or for himself—he’s never unemployed.

Not all jobs and careers lend themselves to retail skills, but many do. Some examples include:

• A corporate accountant who has his CPA license and also prepares income taxes seasonally.

• An IT worker in a large company who also does computer repair or web design work for private clients.

• A company salesman who develops a sideline selling a product direct to the public that’s unrelated to the one he sells for his employer. He’s good enough at selling that he can sell nearly anything so self-employment is always an option.

• A manager who has worked for several companies during her career, solving significant problems at each, and developing a substantial referral network, all of which providing the ability to develop an independent consulting business if ever she chooses to do so.

Any of these people could quickly convert to full time self-employment, selling their services direct to the general public in the event they lost their jobs or decided they no longer want one. No matter what happens, they’ll always have an income. This is the optimal situation to be in because it enables you to move back and forth between a job and your own business, or even to have both at the same time.

What if you don’t have either transferable skills or retail skills?

You can develop them–and you don’t have to wait until a job loss forces your hand.

We all have some spare time for something as important as insuring your income in the future. Identify the skills that will be a good fit for you, learn them, and then put them into practice. You can do it gradually if you have a job, or fast forward it of you don’t. If you’re unemployed, or under-employed—and many millions of people are right now—you owe it to yourself to do what you need to do to retool with the right skills.

I decided that had to develop a retail skill of my own and chose freelance blog writing. I’ve never done any kind of professional writing in my life but it’s working well for me. If you decide you need to develop retail skills, make sure that what ever it is will be something you’ll enjoy doing, comes naturally to you and is something you can sustain over the long haul.

Look at what others are doing and see if you can work that into your own skill set. It doesn’t even have to relate to your current job, but can be an adventure into something completely new. As long there’s a market for what you want to do and you have the skills to fill it, go for it.

If blog writing is a retail skill you’d like to learn check out my post, The Freelance Blog Writer Side Hustle. It’s a skill that you can work into gradually, in your spare time and from your home computer.

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7 Reasons to be Self-Employed

Kevin M

There’s probably never been a better time to have your own business. I know that sounds downright loony to some, but it’s the reality of our time. On the plus side, the internet has opened up opportunities for small business ventures because it provides incredible leverage and it can make the little guy look like a big guy. On the negative side, employment has never been less certain or less satisfying, at least not in the past several decades.

Not convinced? Consider the following reasons—you can probably come up with a few more.

A sense of control

When you’re on someone else’s payroll, you’re also beholden to them. Your employer can change your work assignments, your seating assignment, your title, your pay, or even eliminate your job. In any of these instances, you may have little or no say in the decision making process—especially if you’re about to be fired or laid off.

Being self-employed gives you a strong measure of control over all of that. Many people are willing to make less money working for themselves precisely because it provides a greater sense of control over their careers, and by extension, their lives.

Unlike a job, self-employment isn’t “either/or”

Jobs are very much either/or arrangements; either you have a job and all is well, or you have no job and desperation is a constant traveling companion. In most instances, self-employment doesn’t put you in that position, especially if you have income streams coming from different sources.

In the worst of times you’ll probably have an income, even if a reduced one. What’s more, self-employment can give you the flexibility to pursue other income sources as needed. With jobs, you often don’t have the time, and some jobs even restrict your ability to earn money apart from your job.

The self-employed mindset

Back when I was in the mortgage business, an attorney I did a lot of business with made an astute comment over lunch one day. We were complaining about how clients often asked us to perform extra services without additional compensation, and he said “People who are in salaried jobs don’t understand; they get paid no matter what. We only eat what we can kill.”

If you’re a salaried person that comment might sound harsh, but if you are or ever have been self-employed you know exactly what he meant. The last sentence is an obvious reference to predatory animals and while graphically extreme, it serves to highlight the vastly different mindsets between people on salaries and those who are either self-employed or on commission. When you’re self-employed, there’s nothing “automatic” about your income—you have to earn it everyday.

On the surface, that sounds like an obstacle and I suppose it is. But once you grasp the concept that your paycheck is somewhere “out there”—in the community, on the web, on the phone or where ever the client base happens to be—and you learn that getting it is actually doable, then the whole process becomes liberating!

Once you learn how to make this happen, and that it can be repeated, you’ve crossed the line into self-employment. You begin to realize that anything is possible and you see opportunity all around you. There’s no security—but there are no limits either. That’s the self-employed mindset; you’re no longer looking for a job—you’re seeking opportunities. That’s a mindset that can be learned only by doing it, and once you have, it changes everything.

Retirement income

A lot of people fret over having enough money to retire comfortably, but here’s the reality for most people: you’ll never have enough money, so get over it! The rising cost of living will just about guarantee that the vast majority of people—outside the richest 5-10% of the population—will ever be able to enjoy a full retirement with no financial worries.

The best remedy to that problem is to have a business of your own, one you can work at for as long as you live, with no threat of being “put out to pasture”—as is the case with jobs. If it’s your business, you won’t ever need to retire from it and it can provide for you for many years past traditional retirement age.

Potential for unlimited income

Ever wonder why you reach an income ceiling on a job? It’s not your imagination—most jobs are “static” (I read that in a how-to-get-a-job book by an HR guy). An employer—any employer—will only pay so much for a given job, even if you’re doing the best work possible. Worse, once you reach the top earnings threshold, you’re trapped in the job because a move to another employer may mean a decrease in pay.

When you’re self-employed, you can earn as much as your time, talent, and effort will allow. In theory at least, there is no limit as long as you continue to grow and expand your business and your abilities.

You don’t have to quit your day job

One of the great aspects about starting your own business is that you don’t need to quit your job to do it—as we discussed above, self-employment isn’t either/or, and often involves the pursuit of multiple income streams.

You can start and build your business as a side venture until you’re ready to go full time. Maybe you never go full time, but you’ll have it as a second income and as a place to do the things you never could on your full time job. Sometimes having a side business makes your full time job more tolerable because it gives you what your job can’t.

One thing to keep in mind though; when filing taxes each year, working with a single employer and W2 forms, you can use a simple free IRS efile and do your own taxes online. Being self employed often opens up the possibility for significant deductions, and with multiple revenue streams, it may be in your best interest to consult a tax professional if you don’t feel comfortable doing it on your own.

Advance preparation for a job loss

This reason almost makes a necessity of being self-employed. This isn’t your grand-father’s economy—it isn’t even your father’s economy—the rules have changed and are still evolving. The past ten years have been very unstable and the future doesn’t look any better if “stable” is your definition of normal times.

Every one of us needs to have a plan (or better yet, plans) for a job that won’t be there in the future. Just because you kept your job through the last recession doesn’t mean you’ll have it until you retire. No job is safe any more, and the worst part is that if you do lose your job it will probably come at a time when thousands of people in the same line of work are losing theirs. That means there will be long lines of candidates applying for any job available.

In your own business, you can (and should) develop multiple income streams that will provide you with at least some income, plus the ability to find new ones. You can even take a part time job to help in a pinch.

There are businesses and industries that grow even in recessions. I’m doing freelance blog writing, and that business has actually grown substantially during the recession. There are opportunities for growth all around and having your own business can help you find them. If you’re doing it right—meaning you’re always searching out opportunity rather than a job—you have a good chance of surviving and even thriving, what ever happens in the economy.

If you’d like to start a business of your own, but don’t know which to go into, check out my post, The Freelance Blog Writer Side Hustle. Blog writing is a chance to start a business small and to grow it–risk free. Even if you’ve never written professionally in the past, this post can get you started.

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By Kevin M

The official unemployment rate has finally fallen below the 9% level (8.9% in February), but does that mean the job market is finally turning around?

Yahoo! News had a revealing—but disturbing—article on the state of the job market last week. In Jobs returning—but good ones not so much, Zachary Roth reports some of the deeper details behind the unemployment benchmark:

• 49% of the new jobs created over the past year are in low wage industries, such as retail and food processing
   

• Higher wage jobs represent only 14% of the new jobs, thought they accounted for 40% of the jobs lost during the recession
   

• 9.6% of the workforce are working part time but want full time jobs
   

• On the topic of wage levels, the article reported that “though productivity rose 5.2 percent from mid 2009 to the end of 2010, wages increased by just 0.3 percent. That means only 6 percent of productivity gains were shared with workers. In past recoveries, that figure has averaged 58 percent.”

The last point is, in my opinion, the most telling of the group because it tracks the money actually changing hands. If employers aren’t sharing productivity gains with workers, then earning a living will only be harder in the future. Flat wages are effective pay cuts in an environment of rising prices.

In taking a closer look at under-employment—a statistic that I believe is now more important than the basic unemployment rate—a Gallop poll conducted in mid-February (and linked in the post above) reported the under-employment rate–the combination of the unemployed plus under-employed workers—stands at 19.6%. That’s one out of every five workers in the economy!

Are statistics giving us a legitimate picture of reality?

OK, we can look at as many statistics as we like but the numbers often don’t reflect the reality that we’re experiencing or seeing around us. From what I’m seeing, there are two types of workers right now—those who kept their jobs through the recession and have been largely unaffected by it, and those who lost their jobs and have been unable to get much traction since.

While the first group tend to have a more optimistic view of the job market and of the economy in general, those in the second group go from job to job, often without benefits of any kind, and almost always without any permanence. Re-employment as it played out in past recessions seems to be something of a myth this time around.

The high level of under-employment, in combination with flat earnings and apparent job growth concentrated in low wage industries cries out for a personal plan of action, and I’ll give my thoughts on this in my next post. In the meantime,

What has your employment experience been, and what are you seeing in the people around you?

Did you lose your job during the recession?

If you’ve been re-employed since, are you working full time or part time? Contract/temporary or permanent? Do you have benefits (or at least health insurance coverage)?

If you’re working full time, how does your current income compare to what you had before you lost your job?

Have you started your own business? If so, did you do so because of a lack of opportunities in the job market?

We’re trying to get past statistics here in favor of real life experience, so all opinions are welcome.

Related Posts:

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Suviving Unemployment – One Woman’s Story

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