Category Archives: business

January 6, 2010 · 11:29 am

How Much Money Is Enough?

I used to think so. Personally, I do not crave a lot of conspicuous consumption. My pickup goes just as many places as a Silver Phantom Rolls Royce would, and my bird dogs won’t fit in a Lamborghini. I want for nothing extraordinary, having a comfortable home and everything that goes with that. My profession, being a college professor, is fabulous—perfect for me in every way. All in all, I am a lucky man.

Nonetheless, I find myself unable to do some things, at least for now, that I would like to do. Travel, getting my kids into the best college I can, and maybe purchasing some art seem like good things to want. I also dream of some philanthropy—more than my current income will allow.

In other words, I could always use more money for some noble purpose. How about you? Have you been convinced over the years that always wanting more is bad or that rich people are greedy? Examine that thought thoroughly. Money is not good or bad, any more than electricity is good or bad. An electric current can save a life or take it. Money can buy medicine or crack cocaine. The more you make, the more potential you have to do both good and bad. The choice is yours.

Most of the people who were influential in my life as a child were hopelessly bound up by two conflicting notions. On the one hand, they knew they needed money to live and that more money generally meant better living conditions for them and their families. On the other, they heard every Sunday about it being harder for a camel to pass through the eye of a needle than for the rich to enter heaven, which they apparently took to mean that poverty is a virtue. The result was paralysis on the subject of wealth.

I have come to the conclusion that, like health, there is no such thing as too much wealth. As I shift my mindset toward that way of thinking, I realize that our culture’s ambivalence toward money is counter-productive. Making money is good as long as it supports and sustains our other values. And what we don’t spend on ourselves, we can spend on others.

So how much is enough? Answer: There is never enough. Setting our minds to grow in our capacity to create wealth for ourselves and others is constructive and healthy. And don’t worry about your being corrupted by filthy lucre. I find that most people have precisely the amount of wealth that they have the wisdom to keep. They may temporarily get more, but soon they revert to bad habits and counter-productive thinking. Likewise, if you grow in wisdom, you will soon find that your wealth grows to match your character.

—–

Terry spends most of his time thinking about stuff.  He hopes some of his thoughts make sense to you and help you in some way.  If they don’t, he hopes it’s not his fault.

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November 17, 2009 · 8:33 am

Why Do We Procrastinate?

I have been meaning to write this blog entry for a while now, but kept putting it off.  Funny how that works, isn’t it?  We know we need to do something.  In fact, we often want to do it.  Yet, “things” just seem to get in the way.

My research in motivation over the years has taught me that the core principles are simple.  Here are some of them:

1) Develop a system of values that makes sense for you.  Yeah, I know–you already know what you stand for.  But do you really?  If I were to ask you to explain in thirty seconds your most fundamental value, could you do it?  I can.  I help others be all they can be.  More like three seconds, huh?

2) Examine and re-examine your values periodically.  There is nothing wrong with changing your value system when it makes sense.  Marriage, having a child, getting a divorce, becoming self-employed–all these kinds of life changes force us to re-evaluate ourselves.  Even outside of these changes, we all (hopefully) become wiser.  I used to have a dream of dating the Go-Gos and the Bangles–all at once.  A few days ago, I realized that maybe there are loftier goals for me to pursue.  Besides, they never returned my calls.

3) Choose your daily activities in accordance with your values.  If learning is high on your list, four hours of TV and playing Facebook games at night won’t cut it.  And don’t lie about it.  You know perfectly well that deep down you realize the incongruity.  Face up to it and make your choices necessary to bring your actions in line with your values.  You don’t have to give up Mafia Wars–just read for a while first.

4) For the most important things, set goals.  The right kind of goal increases performance, period.  If you are not making the progress you want, it is probably because you have not really decided what you want.

See?  Easy stuff.  So why do we tend to procrastinate?  It all comes down to one simple thing–the choice to be aware.  This one no one else can help you with.  It is the gradual, steady, disciplined process of opening your eyes.  It is the refusal to allow yourself to fall asleep at the wheel.  It is acknowledging that you are important enough to make each day an adventure instead of a drudge.

Now, go do something important.

–Terry is not all that spiritual, but he figures out something important now and then.  For a happy life, he recommends a high-fiber diet, regular consumption of his blog, and a visit to entrescape.com.

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November 11, 2009 · 7:35 am

Diversify Your Knowledge, Not Just Your Stocks

Unemployment is its highest in 25 years.  Some say the picture is much worse and is being masked by changes in the way unemployment is measured.  No matter where each of us is on the political spectrum, or whom we blame, we have to agree that times are tough and getting tougher.

Financial advisors almost universally recommend a “diversified” portfolio of paper investments: stocks, bonds, and mutual funds.  Before I go on, let me remind the reader that I am neither a certified financial advisor nor do I play one on TV.  I encourage people to learn more so they can make up their own minds.  This traditional advice may have had some merits at one time.  A few people probably made it just fine with such a plan.  Times are different now, and there are a number of reason to expand your thinking.

First, paper assets such as stocks can bonk.  “Bonk” is a technical term for what happened last fall.  Stocks fell as much as 40%  People who thought they were diversified got clobbered as their entire portfolios dwindled to a fraction of their former worth.

Second, the “value” of the stock market and other similar investments is partly an illusion.  When we put our money into such instruments, we are usually planning to use the money later.  If that money only buys a fraction of what it did before, the fact that the market is “up” is true, but useless.

Third, and this may be the clinker, the market depends on levels of buying and selling.  Since people who are retiring usually get their spending money out of the market by selling their stocks, the value of those stocks can be depressed when the number of sellers increases.  We are about to face a massive amount of selling for that very reason.  Baby Boomers will soon be retiring in droves.

This leaves us with a problem.  How can each of us build a more stable kind of wealth–the kind that at least buffers the vagaries of the stock market?

Knowledge.

library

Learn all you can now about building supplementary income.  You will find that true diversification involves non-paper assets like real estate and precious metals.  You will learn why having a side business can help you build real, lasting value.  And, you will see that with some discipline and desire, you can survive the coming storm.

— Terry writes this blog because he loves you.  Well, maybe “love” is too strong a word, but he’s pretty sure he likes you.  At least he likes you well enough to encourage you to learn more about your finances.  Terry has not been on Oprah yet, but if he were, he would tell you to visit entrescape.com to learn out how to start your own business.

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September 26, 2009 · 11:18 am

What Are You Worth?

Are you paid what you are worth?  Most of us think not.  We also tend to look at other people who make more money than us and wonder if they are “worth” it.  Who hasn’t seen the news of a sports celebrity signing a multi-million dollar contract and thought, even if only for a moment, “that’s not fair?”

The rock-bottom truth is that when other people pay voluntarily for our services, we are paid exactly what we are worth.  Yes, the government does distort the market, subsidizing some who probably could not earn as much in the private sector.  It also imposes additional costs on some people/businesses, causing them to earn less than they would in a truly free market.  On the whole, though, our pay reflects our true worth.

This is a disturbing thought.  Once we accept the premise that we mostly get what we deserve, getting less than we think we should is an indictment of our own will and ability.  “Why doesn’t my boss pay me more?” becomes our mantra and a question without a good answer.  Yeah, why doesn’t he/she?

Know why?  Because you will work for that much.  Why should you be paid more?  Because you need it?  That is charity–certainly a nice thing to benefit from when you need it, but not the basis for an employment contract.  It is also not very convincing.  Here is another approach.

Ask for more.  I learned the power of this simple strategy years ago.  One time, I was recruited by a university.  They made an offer that I was ready to accept.  As a professional courtesy, I showed the offer to my present employer, never dreaming in a million years that they would match it.  Match it, they did, though, and I received a substantial raise.  Never again was I bashful about asking for what I was worth.  I knew I was worth it because someone else was willing to pay it.

Alas, though, even a substantial raise has its limits.  There is an upper bound to what I can ask for in my job.  Imagine me marching into the University President’s office and suggesting I should get what Eli Manning gets.  If I ever try that, it will be on April Fool’s Day.  That way, I can tell him it was all a big joke just before he has security remove me.

One’s own business has no such limits.  You decide how much to grow.  You decide how much is enough.  You decide how much to pay yourself.  Of course, you have to become worth whatever it is you want to earn.  The big difference is that you don’t have to share it with anyone.  If you work for someone else, you essentially pay for the privilege of earning a paycheck.  Part of the value you create is skimmed off the top.

There is nothing wrong with this, morally or practically.  It would be kind of hard for an automobile assembly line worker to do what he/she does solo.  No one wants to pay for someone to screw on a lug nut–they want a car.  But for all its advantages, working for someone else limits our income.

Another disadvantage of working for someone else is the amount of taxes one pays.  Because it is easier for the government to collect from employees, those with jobs find a substantial portion of their income diverted to the government.  In fact, you never see that money–it is taken out of your paycheck.  The government knows that most people will not notice tax rates as much if they don’t have to write a check every month or every quarter.

Having one’s own business allows a significant proportion of expenses to be deducted.  The result is simple–you get to keep more of what you earn.  In a perverse way, government encourages us to have our own businesses, at least for now.

Growing a business can mean that you are no longer a prisoner of your “worth” as determined by your boss. Your worth is exactly what others are willing to pay for the value you provide.  It is something created by you and for you.  Enjoy making yourself worth your every dream.

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September 5, 2009 · 12:24 pm

The Long Road Home

When we start really thinking about life, it starts simple. Life is what it is. We act straightforwardly, without questioning ourselves constantly. Then we start to wonder what “it all means,” get all confused, and start believing that something is amiss. The dozens of points-of-view we read and hear about broaden our thinking to be sure, but they also instill in us a persistent doubt. What if we have been wrong? About most everything? A nervous sense of being out-of-sync pervades our lives.

What after that? I do not claim to have come full circle, but I have gotten that “around-the-corner” feeling, as if glass were about to shatter. When it does, what will the world look like?

In think that in the end, we return to that simplicity we started with, but without the limitations of a particular “perspective.” All the opinions and points-of-view we thought were so compelling seem like shadows. All the things that tug us off-center seem like benign amusements, their ability to strike fear or want in us gone.

If there is such a thing as enlightenment, I suspect it is a blinding flash of the obvious–everything we needed to know was right in front of us all along. We just could not see it through the veil of self-doubt we had wrapped around ourselves. When we thought something new, we shoved it aside, thinking someone else must have thought of it before. When we thought something different, we subtly talked ourselves out of it, fearing that others would not approve. When we thought something beautiful, or good, or just, we muted our joy, thinking it childish to feel that way.

When I work with people on starting a business, I find that the most fascinating part of it has little to do with business principles. Any reasonably intelligent person can start one. In fact, I find that intelligence has almost nothing to do with it. The sharpest people I have worked with are often the most blinded to their own abilities. They find dozens of convoluted reasons to busy themselves with trivialities, always convincing themselves that they are making progress. In truth, their trying is a clever way to keep from doing.

This used to frustrate and annoy me to no end. But then I realized that no one can pull aside the veil for another. I can help someone realize their dreams in many ways, but I cannot get them to trust that they have all the answers they really need right in front of them. I can give them information, but not insight.

You may not want to start a business. But I’ll bet there is something you want to do. What is it? Start a band? Write a book? Learn to paint? Immerse yourself in it. Dive in the middle of it and soak up all the different perspectives you can. Get confused. Muddy the waters. Just don’t stop there. Keep pushing forward and in the end come to realize that you had all you needed all along.

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August 26, 2009 · 12:29 pm

The Coming Storm

What do you do when a storm is coming? If you are tired of hiding in the nearest ditch as the winds howl overhead, you might think about building a shelter while the sun is shining.

The sun is shining right now, believe it or not. For all the turmoil in financial, housing, auto, and insurance markets, business is pretty much moving along as always. By turning on the cash spigot, the Federal Reserve has pushed back the clouds–for a time.

The storm that is brewing has not been tamed, however. This morning, we hear that the deficit reached a record $1.6 trillion for the year ending Sept. 30. Over the next ten years, our national debt will increase by $9 trillion. All this assumes that the health care program now under consideration will not add to the deficit. Mmmmmmm…yeah.

When will all this come crashing down? And when it does, where does that leave you and me? No one can tell for sure whether our economic world will end in fire or ice. Death by fire, hyperinflation, seems the most likely to me. However, to to paraphrase Robert Frost, death by deflation will suffice.

Our economic world revolves around billions, perhaps trillions, of transactions that occur every minute around the globe. We have bread at the bakery only because our local baker can predict the near future. It makes no sense to buy dough to make bread if the price of bread can rise or fall radically in a matter of days. It is impossible to hire employees not knowing whether their wages will even buy a pair of socks next week.

The shelter we all need is between our ears. Those who learn to be entrepreneurs while there is time will survive, even prosper, as the economy melts or freezes. The rest will likely succumb to the elements. Whether we see an inflationary or a deflationary storm, a few basic things can determine which camp you fall into.

First, get interested in your finances. Many of us were raised soon enough after the 60’s to inherit a disdain for material things. We view with suspicion those who focus on wealth, thinking them shallow and self-centered. Horsefeathers. Money is one human value among many, but one without which the others soon dry and wither.

Second, pay off any unproductive debt. Unproductive debt is the kind that costs you money but does not make you any. For example, that car you bought during the Cash for Clunkers program is unproductive debt. And don’t try to tell me it will save you money over your old car. Run the numbers and see. Credit cards fall into this category as well, unless they were used to finance a business or other investment that makes more than you are paying in interest. By the way, read your statements closely. Banks are doubling and tripling interest rates, even on people with perfect credit. Productive debt can become unproductive debt overnight.

Third, expand your investment horizons. The lazy person’s retirement strategy–chuck money into a retirement account and forget about it–does not work any more. Learn which investments hold up better during hard economic times. Find out why holding only stocks, bonds, and mutual funds is extremely risky.

Fourth, make more money and keep more of what you make. I don’t look for the government to back off on spending. Instead, I expect them to raise taxes to unprecedented levels as they try in vain to save the economy. What are the easiest taxes to get? That’s right. Your salary and mine. Having an extra source of income from a business allows you to shield a larger portion of income from taxation.

When darkness covers the land, it is going to require every bit of wisdom and fortitude we can muster. No matter what happens, though, we human beings need each other. Smart people who learn now will be able to look around the rubble and see limitless opportunities. Others will wallow in self-pity wondering what happened. Which one do you want to be?

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August 14, 2009 · 12:56 pm

The New Retirement Strategy

I for one am not enthused about the idea of retiring. I have seen what happens to these folks. Going from being productive and needed to sedentary and ignored is not good for the soul or the body.

Of course, I love what I do. Not everyone does. If I were still driving for UPS, I would probably crave the peace and quiet of retirement to the mayhem of high-pressure package delivery. In that dismal scenario, I would be facing at least two or three decades of life without a job. What would I do?

What would YOU do?

Let’s assume you are confident that you have a good retirement plan, and then please allow me to screw that all up for you. You have worked a long time to build up enough wealth to live reasonably well without working. Love your job or hate it, you look forward to not having to show up.

As you start to pull money out of your retirement fund, a funny thing happens. Everyone else does too. In fact, at age seventy-and-one-half, all of us are required to start withdrawing. The government wants all those taxes you wisely avoided in earlier years. Somewhere around the year 2017, the numbers get screwy. We baby boomers (I am in my Year of the Bicycle–same as the number of playing cards in a deck) will be retiring in droves.

What does this portend? Nothing good, as far as I can tell. Our current woes will look like a fender-bender compared to the spin, crash, and burn of the not-so-distant future. Hang on, though. There is a solution.

First, let’s figure out what the real problem is. We work now to have money now and also to have money later. Having money later assumes that there is a place we can put it. Were we to put cash in a safe for thirty years, we would withdraw it to find it has much less purchasing power than when we put it in. In fact, at only 2% inflation, it would lose half of its purchasing power during that time.

If we were to put it in stocks, bonds, and mutual funds, the usual instruments of employment-based plans, we might beat inflation by a little. Then again, maybe not. Last year saw millions of people clobbered by the drop in the stock market. If millions of people start selling stocks in a few years, the price of stocks will go down–a lot.

So, back to what you are going to do when you retire. How about running your own business? Having a business will do two things. First, it will keep you out of the bars and pool halls. Second, it may just be the answer to your financial security.

Be smart, though. If you wait until you retire to start thinking about your business, it will take way too long to realize a significant income. Start now. My online course on New Business Fundamentals (entrescape.com) takes you through all the steps you need to take to start a part-time or full-time business.

Remember, we all need something meaningful to do no matter how old we are. Having a business you love to do will not only bolster your standard of living in your retirement years–it may just make them golden instead of rusty.

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July 27, 2009 · 1:24 pm

Our Greatest Moments

I was twelve years old when Neil Armstrong said simply, “the Eagle has landed.”  Barely able to breathe, I had watched as fuel ran low and dust boiled up near the lunar surface.  I was as relieved as if it had been my father out there in space attempting the impossible.

Things did not always turn out well in these adventures.  I had listened  in horror two years earlier to the news that Grissom, White, and Chafee had died on the launchpad during training.  I knew even then that audacity, confidence, and ability were required to pull off such a magnificent achievement as landing on the moon.  What I did not know was that every time we slip the surly bonds of earth, a demon is loosed from hell to exact its price in terror.

My fascination with flight had started with the poem “High Flight.”  A short film of an F-104 Starfighter was played regularly on TV in those days as the poem was recited.  There were no words at the time to describe how watching that silver craft dance in the sky made me feel.  I just knew deep, deep down that something supremely significant, almost holy, was happening when a man could put on a helmet, get in a jet, and experience heights that his ancestors could not even dream of.

Now, in real time, I watched as Armstrong came down the ladder and stepped on the lunar surface.  I felt a little guilty for this, but for all the joy and admiration I felt, I also could not help but wonder what would happen if that lunar module failed to fire.  Surely the image of death by suffocation on that lonely sphere had entered these astronauts’ minds.  Why take that chance?  Why not be content with life on Earth?  Yet I knew that if there were a reason for our existence, this was it.

As I earned my private pilot license many years later, I experienced a pale reflection of what that terror must have been like.  More than once, I nearly soiled myself as I hit a weird air pocket on final approach or had some mechanical problem in flight.  There was no reason for me to fly.  It would never save me money in travel, nor would I ever be a commercial pilot.  I just wanted to experience, if even in a distant way, the feeling that Starfighter pilot had as he vaulted toward the heavens.

The demon of terror visits only those who invite him.  He does not bother with that mass of people who betray their human heritage by always playing it safe.  He knows that only the worthy rate his efforts.  For you see, he is the only one who can grant the gift of achievement.   A life worth living cannot be lived from the safety of a recliner.  No terror, no victory.

We do not have to be one of the dozen who have beheld another world firsthand to ask the demon his blessing.  We can do it as we confront our fears about life, love, wealth, and the scores of other things we live through each day.  Choosing to be a better spouse is scary.  Earning more money is scary.  Following our dreams is scary.  If we are not scared at least a little, we aren’t really living, and the demon waits for the next truly human soul to venture out and do something spectacular.

His gift?  Ask the ghosts of Grissom, White, and Chafee.  Ask the entrepreneur who has gone broke several times before succeeding.  Ask the author who has languished in anonymity for years before writing a best-seller.  They will tell you that the monstrous apparition that appeared as a demon left as an angel.  They also know each of us must confront him alone.  Will you?

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June 24, 2009 · 4:14 pm

The Time Value of Money

We often hear the phrase “the time value of money,” but what does that actually mean? Fundamentally, it means that money now is “worth more” than money later. For example, if I were to put $100 in a savings account at 1% interest, I would have $101 (not including compounding) at the end of a year. How can that be? How does money get more valuable?

It doesn’t. The money itself, when there is no inflation or deflation, retains its original value. In order for there to be any return to money invested, it must be put to work. The only way money can be put to work is by using it to help transform one thing into another thing that is more valuable.

For example, if I take $100 to buy 100 plain wooden blocks and some paint, then invest my time painting the blocks for decorative purposes, I can sell them for, say, $120. The “extra” $20 is the result of my ingenuity and effort. I take cash, some raw materials, and my time and combine them to create value that did not exist before.

If I have an idea for creating such a product, but do not have enough cash on hand to purchase the plain blocks and paint, I cannot create value. A banker or someone else that lends money might recognize my idea as valuable and offer to lend me the money. Say I borrow $100 and agree to pay the lender $105 at the end of a year. I still make $15 on the enterprise. The bank also made money–$5.

This brings us back to our original example–the 1% return on a savings account. For nothing more than the trouble of depositing money in the bank, it pays me 1% It can do so only because it then takes my money and loans it out for 5% It can do that only because someone is willing and able to take that money and create more than 5% value with it.

Now, who makes the most money? We can figure this out by reasoning that a bank will never make money if it lends it out for less than it pays depositors. So the owner of the savings account necessarily makes less money than the bank. What about the business owner? If he/she makes less than the interest rate paid to the bank, that business is a losing proposition. In other words, the business has to make a 5% return just to break even.

This is of course a drastically simplified description of rates of return. The point is that the business owner has the greatest potential of making money. Note that I said potential. Business ownership entails risk, but it is essential for there to be a return on that $100 at all.

Whenever we invest our money, it provides us a return. Behind that return, there is a business, or multiple businesses, actually doing the work of creating value. If the investment is stable and strong, it can be a good strategy for providing for the future. It will never match the potential of a self-owned business, though, because too many other people take their cut first.

Wouldn’t you rather get the biggest cut on at least some of your income? I would, and I’ll bet you would too. Don’t wait, start learning now.

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February 19, 2009 · 1:46 am

What is an Asset?

Accountants, financial advisors, and the popular press talk constantly about “assets.” Most people have only a vague notion of what an asset really is. My favorite definition comes from the book Rich Dad Poor Dad. An asset puts money in your pocket. A liability takes money out of your pocket.

Let’s think about that a minute. What kinds of things take money out of your pocket? Well, that bass boat sure does. Unless you make a heck of a lot of money fishing, more money goes into the monthly payments and upkeep than comes out in the form of income. If you are like most of us, you don’t expect any money to come your way on account of that boat. That, friends, is a liability.

This is not being judgmental, by the way. If you enjoy fishing, buy that boat by all means. As long as you have the money, live it up. In the case of a pleasure boat, no one really expects to make money. But what about your house? Haven’t you always been told that it is an asset? The truth is, it takes money out of your pocket too. Even if you have paid it off, you are still spending money on upkeep, utilities, and insurance. That makes your house a liability. But don’t you make money when you sell? Try that about now. And even if you could sell it, where would you live?

The only thing that truly counts as an asset is something that puts money in your pocket. Assets are money machines. When you put some amount of money in an asset, you expect to receive more money than you put in at some point in the future. There are two ways to accomplish this. One is for the asset to throw out a stream of money like, say, a savings account. (I know. It’s not much of a return, but stay with me.) As long as you keep that money in the account, you earn money. Another example is a stock that pays a dividend.

The second way for an asset to make money for you is appreciation in value. Imagine buying a Silver Eagle coin for $15 and selling it six months later for $20. This type of asset makes you money, but you have to sell it to realize the gain. House flipping was a popular form of this type of investing until the housing market crashed.

A successful business is a tremendous asset. By building a business, you can realize both kinds of return. A business creates an income stream as long as you own it. If you build it the right way, you can also sell it at some point for much more money than you put into it. Another great thing about building a business is that you can put much more than just money into it. You can put your know-how, your time, your social network, and your creativity into it. The bank does not care what I know or how hard I am willing to work when I open a savings account. I park some cash and it works for me for the rate determined by the bank, end of story. A business gives me an opportunity to capitalize on things other than money.

It all comes back to value. All businesses operate on the principle of creating value that other people are willing to pay for. Many times, we vastly underestimate how valuable we are to others because we are stuck in the J-O-B trap. Chances are, you have much more potential value than you realize. Next week, we’ll take a look at some ways to tap that hidden value.

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