Me, Inc.

As the class trickled in, I could hear the frustration….

“I can’t believe we’re being asked to do even more,” one exclaimed.  “There are so many people out and now we need to pick up the slack,” another retorted.

I was planning on covering Money and Relationships that day but, I could tell their minds were somewhere else.  So, I simply asked ‘What happened?”  The floodgates opened.  It was a true bitch session.  Each person built upon the other.  Too much work, not enough pay, limited recognition – that was gist of their frustration.  And, the consensus response was to either leave or do the bare minimum.  This was a group of self-motivated people being pulled to edge. meincimage

I listened patiently.  As a third party, I didn’t have a dog in the fight.  And, the group was more willing to open up.  I had seen this before.  After 20 minutes of venting, I asked a simple question, “How would your attitude change if the company was your client, not your employer?”  It’s called Me, Inc.

Me, Inc. is the notion that each person is his/her own enterprise.  In other words, you are the business.  Your skills are an asset.  Your employer is a client.  Your income is revenue.  Your expenses are costs.  And, you make decisions to maximize returns for Me, Inc.

A few key concepts of Me, Inc. include:

  • Building the Asset:  Companies want to increase the value of their assets.  Similarly, for Me, Inc., you want to build the value of your primary asset, your skills.  If a company asks you to do something new, it’s a great opportunity to build your skills.  Who cares if they pay you for it initially?  Your goal is to build the asset and increase future compensation.  It’s the same long term thinking companies take.
  • Testimonials:  Companies, and startups specifically, need testimonials.  They need references.  Your employer is a ‘client’ of Me, Inc. and you want their testimonial.  If they serve as a positive reference, you become more marketable.
  • Advisory Board:  Companies have formal or informal advisory Boards.  These people advise the business on a range of decisions.  Good advisory Boards include people with different skills – sales/marketing, technology, operations, etc.  Similarly, Me, Inc. needs an advisory Board.  These people are invested in the success of Me, Inc.  They are rarely your friends.  Instead, they are mentors, old professors, old bosses, etc. – people that believe in you and can give you sound advice along your journey.
  • Focus on Profitability:  Companies want to maximize long-term profitability.  They do this by driving sales, managing costs and making strategic investments.  For Me, Inc., maximizing profitability is equivalent to maximizing long term savings.  You do this by increasing income, managing your expenses and making investments in yourself.  For example, you can increase income by selling stuff online, you can manage your expenses with a budget and you can make investments in yourself through education.  Some of these decisions may make you unprofitable in the short term but pay off over time.
  • Culture:  A strong culture is a competitive advantage for any business.  Culture consists of the attitudes, values and beliefs of the organization.  It’s a living and breathing entity – you can feel it, especially when it’s broken.  For Me, Inc., you set the culture.  What are your values?  How do you handle adversity?  What’s the attitude in which you do business?  Write them down.  Live by them.  If it’s broken, fix it.  Only you can establish the culture for Me, Inc.

As we reached the end of class, I could see the wheels turning.  Me, Inc. was a paradigm shift.  It was a new way of thinking about themselves, their ‘job’ and how to work towards the future.  Unlike the changes at work, Me, Inc. was completely in their control.

As the class was leaving, one of the participants asked, “What happens if Me, Inc. goes out of business?”  The entrepreneur in me responded, “Lick your wounds and start another Me, Inc.”.

What else?  What other concepts are part of Me, Inc.?  What tools do you use to make Me, Inc. successful?

A Penny For Your Thoughts – Focus Groups

There are multiple ways to make more money.  You can read about them here.  One way that does not get enough attention is participating in market research, also known as focus groups.

Recently, one of my students sent me the following overview of focus groups in Atlanta.  She generally makes $500-700 extra per month focusgroupparticipating in these studies!  Getting to that point took her time, patience and persistence.  You won’t make $500 in the first month.  But, by getting started, you’ll learn how to find the best studies and pocket a little extra cash.

From an amazing student:

Dear Alok,

Here’s an overview of my experience on focus groups and where to find more information:

First, let me give a general overview of focus groups and some do’s/don’ts:

  • Most focus groups are in person-group sessions. You sit around a table and talk about what you like or don’t like about a product, idea, commercial, concept, etc. There is no right or wrong answers. They just want your opinion.
  • Groups cover a range of topics products/services travel/hotels, cars, makeup, toilets (yes toilets lol), napkins, shower gel, dishwashers, tuna fish, insurance, credit cards/banks you name it!
  • They have several times available to participate and I always go to the evening sessions.
  • I usually get paid form $75- 300 bucks per group cash or visa gift card.
  • NEVER sign up for a focus group that says they will pay you in an Amazon gift card or they will put you in a “drawing” for a gift card. These seem sketchy to me and I will not give my information to them.
  • Don’t do focus surveys that will give you “points” towards prizes or cash. I want my money now for my time.
  • Use a separate email account for the sole purpose of focus groups.
  • Never say you work for a marketing company or department or in the industry they are screening for. That would disqualify you instantly.
  • Sign up for groups as soon as they get listed.  The good ones go fast.

Over the past 6 months, here are some focus groups I’ve completed:

  • Showerheads — Answered a few questions online for 3 days (which took all of 15 min a day), uploaded a picture of my shower and had a check in the mail for $100 bucks!
  • Charity – Talked about it for 1 hour- walked out the door with $85 in my pocket.
  • Therapedic bed – tested for 30days and got paid $500 bucks at the end of the survey.
  • Ralph Lauren – they gave me a $75 gift card for Polo.

To find (and signup for focus groups) here are some great resources:

Overall, focus groups are a great way to supplement your income and give your input on products.  Just remember, none of these are ‘easy money’.  It may take months of doing free 5 minute online surveys before you get picked for a focus group.  But, be persistent and good things will happen.

Thanks,

Anonymous Student of SmartPath

What else?  What’s your experience with focus groups?

Bonus Time

It’s bonus time. You’re about to get PAID!  Well, not exactly.

Some of you have already spent your bonus. Remember that vacation you took and said, “let’s charge it and use the bonus to pay off the credit card.” Yep, it’s gone.  Now, just make sure you pay off the card.bonus

Others of you have already planned for the bonus. You’ve done plenty of window shopping.  You know exactly what you want to buy. You’ve shown all your friends pictures of it. You’re committed.  I want to talk you out of it, but it’s probably no good.  Just try to get a good deal and don’t finance anything!

Lastly, for the select few, you’re crafting your plan.  You want to make smart decisions with the money.  You have lots of options – payoff debt, save it for a rainy day, invest it, spend it, give it away.  It’s all in front of you.

So what do you do?  I suggest using the 10/20/70 rule.  Let’s assume your bonus is $5,000 for this example.  Here’s how it works:

  • 10% ($500) – Spend 10% of it.  Get what you want. Get it now. You’ve earned the bonus and it’s nice to see the rewards. Enjoy it.
  • 20% ($1,000) – Put it aside as a reward.  It’s a reward when you hit your next SmartGoal.  If your next SmartGoal is to pay off your bad debt, you’ll get $1,000 when you make it happen.  It’s a little extra motivation.
  • 70% ($3,500) – Put this towards your next SmartGoal using the SmartPath System.  Don’t split this money between debt, emergency fund, investing, etc.  That doesn’t work.  Instead, figure out where you are in the SmartPath system and put this towards your next SmartGoal.  If you don’t have a 1-month emergency fund, put it there.  If you have a 1-month fund but still have bad debt, pay it off.  If you’re past bad debt, use this to build your fund to 3-6 months.  And, if you’re past all of that, put it towards retirement.

Some of you are asking – what about a downpayment on a house?  What about investing in a business?  If you’re past SmartGoal #4, you should consider these options with your 70%.  If not, stick with the plan.  A few more bonuses and you’ll be in great shape.

What do you plan to do with your bonus?  What are some other options on how to use the extra money?

To-Do List > Vision

I’ve heard tons of business ideas. I have tons of business ideas.  It doesn’t matter.  When I first started on this entrepreneurial journey, I was told, “Businesses are 1% ideas, 99% execution”.  I think that’s generous.  Businesses are .1% ideas, 99.9% execution.  The same holds true for getting in shape, breaking an addition, getting out of debt, saving more money, and [insert anything you want to accomplish here].todolist

So what does execution mean?  How do you do it?  Seems like a ‘dumb’ question but it’s not.  Execution is hard.  It can slip away from you in a matter of moments.  It’s shifty.  You get a rhythm for a day and then it’s gone.  It’s unnatural.  We like to think, talk, and dream – these are all enemies of execution.  Execution is doing.  That’s it.  And, in my world, doing requires a ‘to-do list’.

Here are some execution tips that have helped me over the past few years.

  • Pick your ‘To-do’ Tool:  Pen and pad is fine.  That’s what I use.  If you like apps, try the free version of Evernote.  Our lead developer swears by it.  I’ve seen people use post-it notes.  Ultimately, it doesn’t matter what you use, as long as you build the list.
  • Split your Lists based on importance and time:  I have 3 lists.
    • ‘Long term’  – do it in the next few months
    • ‘Near term’ – do it in the next few weeks
    •  ‘Should have done this already’ – just do it

    If I think, hear or even imagine that I need to do something, it goes on one of the lists.  Buy a gift, write an email to someone, write this post, buy some socks – they’re all on a list.  Once it’s on a list, it’s out of my mind.  That helps with stress.

  • Each day, build a ‘Today List’, and do it today: Every night, I set aside 15 minute to write down what I need to do the next day.  I’m pulling from the three lists above.  I’m prioritizing.  I’m figuring out what I can get done that day.  If a task is large, I break it into smaller segments.  In the morning I review the list.  Then, I do it.  No excuses, no distractions.  I stay up late if needed.  I get more efficient.  I learn what I can accomplish in a day and adjust accordingly.  Nothing gets in the way of ‘today’s list’.  When new things come up during the day, I don’t do them.  I put them on one of the three lists and follow my process.  It’s working.
  • Set aside time to think/dream:  I dream on car rides.  That’s it.  If I’m not in the car, I’m executing.  If I need more time to dream, I put it on the list, “Drink Beer, Dream Big – 30 minutes”.   Then I enjoy it!
  • Find what works for you.  You don’t need to follow my method.  I’m a little eccentric.  Figure out what works for you.  Get better than you were yesterday.

   Here are a few blogs that may be helpful as you figure out what works for you.

  • Tim Ferriss (http://www.fourhourworkweek.com/blog/) :  He wrote the 4-Hour Workweek.  It’s about being smart and efficient with your time.  It has some good points.  You can also find a ton of content on his blog.
  • Seth Godin (http://www.sethgodin.com/sg/) : He’s coined as a marketing genius but I see more than that.  He helps you think critically about how your choices impact you.  Subscribe to the blog.  Read it.  Many of the posts will be helpful.
  • Ramit Sethi (http://www.iwillteachyoutoberich.com/home/):  He’s the next Suzy Orman (in the good way).  Great personal finance advice, specifically on how to make more money.  He’s direct and sometimes crass but helpful.
  • Mastermind Project (http://www.themastermindproject.com/):  Really like this blog.  It’s simply a group of guys who hold each other accountable.  Accountability is hard.  They’ve found a way to do it together.

It probably feels like I took all the fun out of the journey.  I know.  But, it’s working.  I’m making progress.  I enjoy the car rides where I can think and dream.  I’m sleeping better.  I’m less stressed.  I’m completely consumed by the 99.9% and know the .1% will soon be a reality.

What helps you execute better?  How do you get organized so you can do the 99.9%?  What are some roadblocks that get in the way and how do you overcome them?

Finally, Real Numbers on the Fiscal Cliff and You

I’ve read a dozen articles on the fiscal cliff.  They all say nothing.  No real numbers, no action items, no real understanding of what it means and how it will impact me.  It was frustrating until I read this post by David Hultstrom of Financial Architects.  David’s has an amazing financial mind.  I’ve shared some of his writings on this blog.  I love this one on the fiscal cliff.  Keep in mind, this is written from the perspective of a financial advisor and how the fiscal cliff will impact his decisions for his high net worth clients. Enjoy.

Attempting to predict what Congress will do seems foolhardy yet as financial planners and investment advisors we have to make the best decisions we can. We also need to keep in mind the uncertainty and fluidity of the situation. I am reminded of a quote from Voltaire:

Doubt is not a pleasant condition, but certainty is absurd.fiscal_cliff

In discussing this I will necessarily simplify some complex issues to make them easy to grasp, but I don’t believe I have lost any of the essence or the issues in doing so.

Spending.

In an attempt to encourage a budget deal, in 2011 a trigger was created that would gore the oxen of both parties beginning in 2013. A deal didn’t happen. Half of the cuts are from defense spending (to motivate the Republicans) and the other half from everything else (to motivate the Democrats). The cuts may be a good thing or they may not depending on your political viewpoint, but without Congressional action they are coming.

The cuts are $1.2 trillion but that is over ten years. If we divide by 10 it comes to $0.12 trillion each year. For perspective, federal spending last year was $3.56 trillion. Thus, it amounts to reducing spending by about 3.4%. Given that federal expenditures have increased over 20% (net of inflation) since five years ago (and, lest you think I am partisan, up over 50% since the beginning of W’s term) those cuts don’t seem draconian to me.

Another way to look at the cuts is in terms of the deficit. The federal deficit last year (the amount the government spent in excess of its income) was $1.13 trillion. So essentially Congress is alarmed that each year they will only be able to spend $1.01 trillion they don’t have, rather than $1.13 trillion they don’t have. (To give further context, with the cuts that is still about $9,000 of deficit spending per U.S. household.)

Estate Taxes.

There are two uncertainties here. The first is the amount excluded from taxation. 10 years ago it was $1 million and is scheduled to revert to that level again in January. In 2009 it was $3.5 million and is currently $5 million (plus inflation adjustments). The consensus seems to be that Congress will probably settle (eventually) on something in the $3.5 to $5 million range. The second issue is the estate tax rate. The top rate from 1984 until 2002 was 55% (that is the top rate, smaller estates pay a lower amount) and it is scheduled to revert to that level again in January as well. The current rate is 35%. The consensus seems to be that Congress will settle (again, eventually) on something between 35% and 45%.

We aren’t making any recommendations in regard to estate taxes at this point other than perhaps encouraging gifting to heirs a little more strongly for clients who are now at risk of having a taxable estate. The gift limit this year is $13,000 per person, so a married couple with a married child could gift them $52,000 total. The limit is scheduled to increase to $14,000 for 2013. In addition, unlimited gifts for medical or education expenses are permissible (though with some caveats, contact us or your tax professional for details).

Income Taxes.

I want to organize this section by discussing the big picture, then what is likely to happen, followed by what steps to take (i.e. what we are doing for our clients) in light of those expectations.

The Big Picture. As Daniel Patrick Moynihan observed many years ago, “Everyone is entitled to his own opinion, but not his own facts.” Here are some facts that will probably get folks on both sides of the political aisle annoyed with me.

First, and surprisingly, the tax system in the United States is more progressive than most European countries. In other words the rich here bear more of the relative burden. Despite this, we help the poor less because the overall tax burden is lighter. If we wanted to be more like Europe we would have to tax everyone – particularly the middle class – more and then spend more on social programs. (For a good explanation of this see this recent article from The New York Times.)

Second, for ordinary income (essentially wages and interest, not long-term capital gains) the “Bush tax cuts” made the tax burden more, not less, progressive and returning “back to the income tax rates we were paying under Bill Clinton” would hurt lower income taxpayers more than higher income taxpayers. But in fact that isn’t what President Obama is calling for. The full quote is, “I just believe anybody making over $250,000 a year should go back to the income tax rates we were paying under Bill Clinton.” That move would make the income tax system more progressive than it has been since the last fundamental rewrite of the tax code in 1986. (And the call ignores the 0.9% Medicare surcharge on earned income and 3.8% on unearned income added to fund “Obamacare” so we would not be going back to the old Clinton rates, but actually higher ones.)

Third, notwithstanding the previous point, many of the wealthy are much better off with the “Bush tax cuts” but it stems more from the reductions in the capital gains rates and dividend rates than the cuts in ordinary income rates. Under President Clinton the top long-term capital gains rate was lowered to 20% in 1997 and then was lowered further under President Bush to 15% in 2003. (Those rates are slightly lower than the actual rates experienced by some taxpayers due to phaseouts of various deductions.) The top rate is scheduled to revert to 20% in January. In addition, for higher income taxpayers there will be an additional 3.8% Medicare surcharge which was passed to help fund “Obamacare.” Thus the top rate is currently scheduled to increase to 23.8%. (Again it will actually be a little higher for some taxpayers due to the previously mentioned phaseouts.) Dividends under Bush were changed from being taxed at ordinary income rates to being taxed like capital gains (which I think is appropriate for reasons too lengthy to go into here) but are scheduled to revert to the previous treatment in 2013 as well.

Fourth, there has been a lot of discussion regarding limiting the benefits of itemized deductions and other items for higher income taxpayers. This has the effect of increasing the tax rate without it being highly visible. Ironically, removing the benefit of these tax breaks for higher income taxpayers may eventually lead to the breaks being eliminated altogether. Simplifying the code is problematic because all the loopholes and benefits (technically called “tax expenditures”) have proponents. Reducing the value to many people reduces the number of people lobbying for their continuation. Thus, in the long run, limiting these benefits for the higher income taxpayers could lead to a simpler tax code with a broader base, but lower rates (essentially moving in the direction of a flat tax). I, and most economists, believe this would be much better both in terms of raising necessary revenue efficiently and promoting economic growth.

What is likely to happen (Simply a prediction)

In my view it seems likely that capital gains rates will increase to 20% plus 3.8% for higher income taxpayers. Even for the lower income taxpayers they will probably increase from the current 0% (yes, you read that correctly) to 10%. (There are special 18% and 8% rates for longer holding periods though as well.)

It seems that ordinary income rates are very likely to increase somewhat at least for higher income taxpayers. It also seems likely that some tax deductions may be limited for those higher income taxpayers too.

In addition, it seems virtually certain that the temporary 2% reduction in FICA taxes will expire at year end. This is a 2% tax increase on wages for workers over what they paid this year and last.

What steps to take. (this is not advice but helps to understand the options)

As mentioned at the beginning of this newsletter, the situation is uncertain and is likely to remain so. Thus drastic moves aren’t warranted or recommended. Nonetheless, in light of the near certainty of an increase in capital gains rates it may be prudent to harvest (i.e. take) some capital gains prior to the end of the year. For example, suppose a higher income client is anticipating an expense in two years that will require selling an investment that currently has an unrealized capital gain. With a current tax rate of 15% and an anticipated one of 23.8%, the annualized rate of return from harvesting that gain now is approximately 26%.

In our client’s portfolios there are some specific positions that 1) generally have large gains (depending on when they became clients) and that 2) we want to replace with what I feel are better alternatives anyway. Thus, we will be selling those holdings and buying the replacement ones. In taxable accounts this will lead to additional taxes this year, but almost certainly much lower taxes in the future. In non-taxable (i.e. retirement) accounts there won’t be any tax implications, we are merely swapping one investment for what we believe to be a slightly better one. There is an occasional exception. For example, we have a client in her mid-90’s who has very large gains in her holdings in her taxable account. If held until her death, under current (and anticipated) tax rules, her heirs would pay no capital gains tax at all. Thus, needless to say, we won’t be harvesting gains in her account.

Similarly, if there are unrealized capital losses in the portfolio (i.e. you hold something that has gone down from where you bought it), it will frequently (but not always) make sense to wait until next year to recognize those losses.

Contributing to retirement plans is even more advantageous than it was previously and doing Roth conversions may be more compelling as well.  The End.

What do you think about David’s perspectives on the fiscal cliff?  What are you doing to prepare for the possibilities?  Should you do anything at all?

Rent Yours, Buy Another

I recently met with a friend who wants to rent her current house and buy a new one.  While interest rates are low and the market slowly recovers, I suspect more people will want to do this.

Here’s the note I sent her:

Preparing Your Current House:

  • Make sure you’re ready to buy another home.  I will write this again because it’s critical.  If you plan on renting the first house, make sure you have a large emergency fund to pay the mortgage when there’s no tenant.  Watch this video to see if you’re ready.
  • Call your current lender to check on refinancing your house.  Don’t worry if you’re upside down.  Just call and check on your options.
  • After refinancing (if you can), get a property manager.  They will generally charge first month’s rent and 10% of rent going forward.  Good managers make your life easier.  Bad managers suck…they make life much harder.
  • Start to market the house ASAP.  ‘Pre-selling’ will give you a great feel for the market.
  • When you (or your property manager) finds a tenant, make sure to add some renter’s deductible (e.g. first $50 of all repairs) in the contract and give discounts for multiple years.

Buying a New House:

  • First, see if you’re ready to buy a home.  This video will give you some guidelines.
  • Set your upper price limit at <3x your combined gross income.  If you can get to 2.5x, even better.  If you make $200K combined, you can afford $500K.
  • Focus on school districts.  Good schools means the value of your house is more stable.  You won’t find as many bargains but you also won’t get crushed.
  • Get a thorough inspection and price out the inspection.  See if you can pay your inspector a little more to ‘price out’ every item.  I had my contractor do it.
  • Make offers on multiple points – price, closing cost, allowances, closing date, etc.  This makes negotiating easier.  Here are some tips on negotiating.

Keep in mind, this can be a long process.  Be patient.  Take your time with each step.  A house is a major investment.  Two houses is even bigger.

What else?  What other tips do you have for renting a house?  What about buying a home?

Has Obama Done a Good Job with the Economy?

I can’t evaluate our economy over the past four years.  I can string together a series of smart words but it falls short of a real evaluation.  I can restate some interesting statistics but couldn’t defend them beyond a few rounds.  I can focus on the one-off comments (47%, binder of women, etc.) to avoid the real discussion.  I can voice my opinion louder than the next guy but that doesn’t make me right.

Let’s face it, I have no idea what I would have done as President in 2008.  I don’t think you do either.  It’s too complex.  Too many moving parts.  Lots of tradeoffs.  No guarantees.  And, impossible to compare to some theoretical alternative.

So, let’s make it easier. Let’s use a scenario that’s more manageable.  Assume it’s 2008.  How would you advise Teresa in the following situation?

Teresa Minard is an 18 year old high school graduate with the following:

  • Her parents passed and left her with $200,000 of debt with 18% interest (she can’t get rid of it)
  • She’s smart and has been accepted to a few different schools with financial aid (grants, loans and some scholarships)
  • Alternately, she could work full time and earn $12/hour with no benefits
  • She has three months before school starts and any financial aid is given – so she needs to cover that time period
  • She has a few credit cards with high limits
  • She has few other resources – no family/friends that can help out
  • She needs to figure out how to survive today and build for the future

What should Teresa do?  What tradeoffs will she need to make?  And, most importantly, where should she expect to be in 4 years based on your recommendation?

Feel free make assumptions or ask clarifying questions.