One Dollar Every Minute

Sorry for not posting. I am back at school, not making any money, SO I really have nothing to write about. Be back soon though. Working on a few projects.

- D.

If you have not seen the show Weeds on Showtime, you are missing out. Its about a suburban mom (Nancy Botwin) who starts selling weed to support her family. Its hilarious and thought provoking. I am not a drug dealer (nor do I do drugs), but I learned a few things about cash flow while watching.

Be the kingpin
In the first season Nancy’s first mentor describes building a drug business as a pyramid with you at the top. The point here is be the head of your business. Nancy is responsible if anything should happen within her organization, but all the reward also stops with her.

Be a deal maker
Very rarely do you ever see Nancy personally dealing drugs. Most of her business has to do with making deals with other people. Maybe she makes a deal with a grower, or someone who can provide protection. The point is, she works on making sure her business runs smoothly and leaves the actual dealing up to her employees.

Don’t bring your work home
Its important to have boundaries between home and work life. For Nancy, it provides that level of protection between her work and family. But for the rest of us, this mantra can be distilled into dedicating your best efforts while working, or while spending time with loved ones. In other words, when you are working, dedicate everything you have to that (mind, energy, etc) and when away from work, dedicate everything to your loved ones. It will help your relationships by establishing boundaries. Coincidentally, this is very difficult in a college environment. College students are constantly mixing work with leisure, yet I have found that I am most productive at both when I dedicate myself to one or the other.

Have a destination in mind
I imagine that most drug dealers do not go into the business with the intention of selling drugs for the rest of their lives. Many often work towards some end goal like living in the Caribbean in a nice house on the beach. This is an important mindset to have. When you work on your business, work with a destination goal in mind. The point of passive income is not having to work.

Take Risks
If dealing drugs was SO bad, why would anyone do it? Probably because the reward is big. Sometimes, if you really want to take what you have and make it grow, then you have to take a calculated risk (I am not saying go out and deal drugs) but what I am saying is that with a greater risk come a greater reward.

Drug dealing, while not the smartest occupation to take up sure has a lot to teach about passive income.

Yesterday, my brother and I got into a discussion about how we plan to achieve our dreams. Ironically enough, we both have very similar goals. First, to become financially secure, and then to manage companies. Yet we both have completely different views on what it means and how to achieve it.

Building from the ground up.
My mentality behind business, is that the real power and decision making lies with the owners of a company and not its employees (i.e. CEO’s, VP’s, etc). I feel that the best way to obtain a substantial share in a major company is by building it. And while this may not be the most practical approach, but it is also the most direct. But even if my ventures fail, I will still approach business from the equity viewpoint.

Networking to the top.
My brother on the other hand subscribes to a different school of thought. In his mind, there is nothing that can’t be achieved by proper networking. I completely agree that contacts are vital to success, but for my brother, it is better to work up in an established (and prestigious) organization than to try and build one.

The direct risk associated with my ideas are inherently more. But, the potential upside is also greater. I do not by any means underestimate the hard work, persistence, and intelligent decision making that it will take on my part, but I know I will accomplish anything I set my mind to.

My closing remark to this conversation was, ‘in fifty years, it will be interesting to see where we both end up.’ And I firmly believe that our lives will prove to be an experiment. Maybe I wont have founded a Fortune 500 company, and maybe my brother wont be the head of a big name stock brokerage, but even if we accomplish these things, it is a poor measure of success in the grand scheme. The last thing I want is to be competing with my brother for my whole life. Ultimately, if we both can look back on our lives and are content, then we are both successful. No sibling rivalry required.

The most important principle of personal finance (whether you want to get out of debt or make a billion dollars) is to invest in yourself first. Think about it, you wake up every day, go to work, come home, every two weeks you get paid and what do you do with all that money? Well it goes to pay this bill or that bill, into retirement savings, dinners out, or a new gadget. Before you know it, all of your hard earned money is gone and what do you have to show for it? An iphone? It is impossible to build wealth by spending all your money.

Invest in yourself first. Before you pay out to any other creditor or fulfill any desire, take a set portion of what you made and invest it in yourself (dedicated high interest online savings accounts are great places to keep your money until you have built up enough to invest in other ventures). One of my favorite books, The Richest Man in Babylon, suggests at least 1/10th of your income should be set aside. I feel as if this is a reasonable amount. After all, if you only made 90% of what you make right now, would your life style change that dramatically? The key to success here is being disciplined with your saving. Make sure that 10% of ANY income you receive goes into this savings account. You will find that soon your account will be grow substantially.

How much saving is enough? Well that is really up to you and opportunity. The challenge becomes finding good investments to keep your money growing. This is the essence of building passive income, making your money work for you (instead of working for your money).

Finally, invest in your financial education. Read this blog, and others like it to learn about investing and building up passive income. Read books to discover new ways of making your money grow. Investing in yourself is the first step to financial security and beyond.

The Three Basic Income Types

Earned Income
What you get from your basic run of the mill, get up and go to work job. At its most basic, earned income is a paycheck. Exchanging of time for money.

Portfolio Income
In a word, assets. Anything you own that has value that can be traded for money. This includes stocks, houses, paintings, and any other property. The basic theory concerning portfolio income is buy low and sell high. Profits and losses are realized when the property is sold. Having a solid portfolio is paramount in developing financial security.

Passive Income
“Income derived from real estate and business investments in which the individual is not actively involved” ( investorwords.com). To learn more read this post.

Combining Income Types

Passive-Portfolio Income
Stocks (with dividends) and rental properties fall into this category. In both cases, the assets have value if sold and also produce income while being held.

Earned-Portfolio Income
Day Trading. This type of income uses the theories inherent in portfolio income and applies them to the short term. Day traders “earn” their income only when they have an up day. And they often do not hold their investments long enough to earn any kind of dividend.

Building passive income is all about creativity. Its about figuring out a way to do a job once and then get paid for it again and again. Often times you can use the skills you already have, and then get creative in deciding how you want to get paid.

The Big Idea

Lets say you are a web professional helping to develop a logo/website/article for a start-up company that you feel has a lot of potential. Traditionally, you would charge your flat rate get paid and be done with the project. But if you felt comfortable, you could instead trade your product or service for revenue, developing passive income (i.e. for a set period of time you can collect on revenue generated from an ad space on the website).

Risk versus Reward

Its important to note the risk involved with this kind of deal. If the website flops, for instance, you would not have made any money. On the other hand, if the site took off, you would have a large repeat reward. The beauty is that cash-flow deals only require an investment of time and very little money (overhead) with large upside potential.

Do your homework!

This kind of deal is not for every transaction. You have to know the company you are dealing with. Is the company solid, will it make enough money to make the investment worthwhile, how long will you hold the ad space for, do you trust them to hold up to their end of the deal (always get it in writing).

Be Creative

The example above is just one where work can be exchanged for cash flow. There are infinate situations where similar deals would work. All you have to do is think creatively about how you want to get paid. Start by thinking about the investment your employer is making by hiring you. For example, if you are designing a logo, how does he plan to recoup his investment. How can you tap into it in a way that benefits you both?

Convincing the other person

This might be the most difficult step in the process. The best way to sell it is by explaining your risk in the deal. Explain that your logo will cost them no upfront money, and that you will only get paid if the website succeeds (make sure to mention that it means you will work harder to do an awesome job). This is the definition of a win-win situation. Make sure you come to an agreement BEFORE work is started though, dont decide halfway through to change payment details.

Its not for everyone

Work for cash-flow deals really only applies to freelance work (although stock options and other benefits in corporate compensation work in a similar way). That being said, everyone has specialized knowledge in some area that could produce passive income.

Do you have any other examples of work for cash-flow deals?

Note: One of my original goals for this blog was to use it as a way to keep track of my successes and setbacks as I try to build up my goal. I will be doing so with these periodic updates. I will try to provide an honest account of each and every noteworthy event.

Average Passive Income: $0.00/minute

I am on the verge of launching my first company. In an effort to keep business and personal life seperate, this company will act as the legal holder of all of my other business ventures. Whether it is investing in real estate, bonds, websites, etc, the company, and not me, will own all of these things. I honestly feel that this is an important step in my security. The company will have its own bank account, legal protection (see Pre-Paid Legal), and website (still under construction).

So at what stage are we at in launching this company? Well, the state filing paperwork has been sent in, the logo and website are almost complete, and all legal questions have been answered. We are within a month of launching it. Stay tuned for more updates.

So today I signed up for Pre-Paid Legals personal and business plans. Honestly, this insurance is as (if not more) important than health insurance. In todays sue happy society, I have the peace of mind knowing that my rights are protected in any situation.

What is it? Pre-Paid Legal

Plans start at around $16 a month to protect individual rights. I currently pay about $50 a month. With it, I get legal protection for me and my family as well as my businesses. I get access to lawyers who can answer any legal question on any business matter. Just today, after I signed up, I spoke with a lawyer about the best way to legally protect this blog and other websites, we came to a solution over the phone, and I am taking action to protect myself.

What it is not…

Pre-Paid Legal is designed as pro-active legal defense. You can just go around suing everyone with your membership (although you will get a discount off of legal fees). It is a defense first and then a resource.

Sold? Want to sign up?

Now, here is my disclaimer, my older brother is an associate, and signed me up for this service. But he has been a member for over 7 years, and has had only good experiences with PPL (first time he used it was to get out of a traffic ticket). If you are interested, currently you can only register through an associate, please visit my brothers site or email me.

Want to cash in?

Pre-Paid Legal is a nyse traded company. You can also sell memberships, or sign up other associates (by doing so, you get a cut of every membership they sell, passive income anyone?).

Even though I have a pretty good idea of what I want this blog to be, I wanted to formally write it down and share it with you. First and foremost I want it to be a journal of everything I do and learn as I reach for my dreams. But more importantly I want to write something that can help others reach their dreams of financial security. I want it to be unique and innovative and somemthing more than tips on frugal living or personal finance. I want to shape peoples thoughts and provide for them a new way of thinking about money. I have a lot of random ideas for this blog, but haven’t until now formally brought them together and written them down. So here I will define my goals by using S.M.A.R.T. Goals; a useful goal setting tool. S.M.A.R.T. stands for Specific, Measurable, Attainable, Relevant, and Time bound. This acronym helps to form and define any goal giving you a clear understanding of what you are pursuing (To learn more about S.M.A.R.T. Goals visit topachievement.com and dummies.com). What follows are my own S.M.A.R.T. Goals for onedollareveryminute.com:

Specific: The who, what, why, when, where…
To maintain a blog at onedollareveryminute.com. With 3-5 weekly posts on building passive income and wealth, as well as my own business updates; to also use it as a marker of my goal of producing passive income.

Measurable: Quantify your goal…
One dollar every minute.

Attainable: Is this something you are willing to work to achieve?
Here I will break up my larger goal into smaller easier to swallow chunks as well as describe how I will achieve them. In order to insure 3-5 posts a week, I have set aside time every morning to work on my blog. Instead of focusing on getting one dollar every minute, my current short term goal will be 10 cents every minute.

Relevant: Does it fit in with your life goals and dreams?
One of my first big dreams is to become financially secure. I have seen first hand what money (or lack thereof) can do to people, and I never want something like that to happen to me or the people I love. Second, I want to help others achieve similar dreams. With this blog I can accomplish both.

Time bound: Set a deadline…
For the blog, I want to have 15-20 rss subscribed readers in 3 months. I want to reach my short term goal of 10 cents/minute in 3 months (March 30, 2008). I want to reach my long term goal of 1 dollar/minute in 2 years (end of 2009).

Final Step
Once you have written down (make sure you write them down) your S.M.A.R.T. goals file them away in a safe but accessable place. This is the tool you will use to measure your progress towards your goal.

Passive income is defined as “income derived from real estate and business investments in which the individual is not actively involved” ( investorwords.com). There are two parts to this definition:

Part 1 “Income derived from real estate and business investments…”
Passive income is not income derived from a weekly paycheck, sales commissions, blogs, or any other kind of work. Building passive income is an investment. You invest up front time and money in the hope that it will yield consistent, maintenance free, residual income forever.

Part 2 “…in which the individual is not actively involved.”
After the initial investment, income is only passive if it requires no extra effort on your part. Your investment may require maintenance or improvement, but as part of your up front investment you delegate these tasks and duties to others.

Bringing it all together
For example, lets say you have some extra cash and decide that you want to invest it in a rental property to produce passive income. First you go out and locate a property and purchase it; investing your time and money in the process. But the house needs cleaning and a fresh coat of paint before you can rent it, not to mention finding a good tenant. So instead of doing it yourself, you hire a property manager to take care of your property for a nominal fee. Your property manager is responsible for property upkeep, collecting rent checks, paying the mortgage, finding tenants, and depositing the profits in your bank account. Every month your balance increases with no extra effort.

Why its important
To begin with, time is valuable. If for example, your ultimate goal is make as much money as possible, then the time you saved in the rental example by outsourcing all upkeep could be spent looking for other rental properties. Building passive income is essentially building a system to automate all tasks assigned with your investment, so that you don’t have to be individually involved.