Kicking Financial Ass

by Paul Christopher Dumont

  •Fashion Consultant. If you are good at matching outfits, why not turn it into a side gig? Help others with their shopping, do a home wardrobe overhaul, and give advice on what colors work. In Vancouver, fashion consultants charge around $100 an hour for their services.51

  •Virtual Assistant. Are you organized and great at scheduling things and arranging travel? Today’s entrepreneurs need someone to help them with email, updating databases, creating spreadsheets, and booking travel. Look at sites like PeoplePerHour.com, Zirtual.com, or the other freelancing sites mentioned above.

  Pricing Services

  A common limitation with services is selling hours for money. The money you make is limited to the hours you put in, and only so many hours are in the day, especially if you have a full-time job. Fortunately, there is a better way to price services. It is called value-based pricing. Value-based pricing is charging a fixed fee that represents the value of the impact your service has on your client. The free online e-book Breaking the Time Barrier by Mike McDerment and Donald Cowper dives into this concept in detail. They explain that value is based on the impact you have on the client, which is how they value your services. If you are helping a client with their business needs, say creating a website, the value would be how much money your web design would have on their bottom line. If you estimate your service could provide them with an extra $100,000 of profit annually, then charge accordingly, say $10,000 to $20,000. Most people would invest that amount to make $100,000.

  You might be wondering what the logic behind those numbers is.? A client is not paying for a collection of hours. Rather, they are paying for the accumulation of skills and talents you have acquired over the years doing what you are doing. If you are first starting out, then charging per hour may make sense while you build up your expertise and credibility. But at a certain point, switch to value-based pricing. Again, the key is providing value. When discussing pricing with your potential clients, focus on the value you can bring to them. Thinking about it another way, an hourly rate is not in the best interest of the client because the freelancer’s incentive is to bill more hours. It is more beneficial to both parties if value-based pricing is used. You want to sell your value to your client. Since52 most sites provide online reviews of your work, focus on creating an outstanding customer experience to build a loyal client base and attract new clients.

  HOW TO RANK AND SELECT YOUR IDEA

  Forecast Your Profit

  Estimate your profit for each of your three ideas that you came up with earlier in this chapter. Research what similar existing services charge to get an idea of what you can charge. You are not trying to create a yearly budget with intricate details only a rough sense of if the idea is worth pursuing. Your profit is your estimated revenue minus your estimated expenses.

  Profit=

  Estimated revenue – estimated expenses

  Use Projections

  Create a range of projections using different revenue assumptions. I normally use a scale—pessimistic, realistic, optimistic— to see what I could potentially make. To keep expectations low, I usually base my goals on the pessimistic scenario. If the idea is still worth pursuing based on the pessimistic scenario, then it may have potential.

  How to Rank and Select Your Idea

  You learned about feasibility, profitability, and appealability for your ideas. We now add two more factors—scalability and motivation. Scalability is how much time you need to put in to earn a certain income, and motivation is how excited you are about the idea. Putting it in a table like this makes it easier to rank your ideas based on the different criteria:

  As an example, if you own a car and want to use Uber to make additional income but do not like the idea of working evenings and weekends, this is what it looks like:

  The feasibility of the idea is high. You have a car and want to use it to make a side income. Appealability is medium since you did your research and noticed that there are not a lot of Uber drivers in your area. Profitability and scalability are low because you are only making money while you are working. Your motivation is low because you do not want to work evenings and weekends when rates are highest.

  Compare the Uber idea to using Turo. Keeping everything else the same, it looks like pursuing Turo could be more worthwhile than being an Uber driver. You are paid without needing to physically be in your car, which increased the profitability and motivation factors from low to medium.

  What if you decided to write a manual on your Uber driving and Turo experience?

  Now, if you decided to write a guide on your experiences with Uber and Turo and sold it online, your initial work would be upfront. Your profitability, appealability, and scalability factors are all high. Appealability increased to high from medium because you are selling guides to anyone who wants them. Motivation remains at medium since writing takes a lot of time and research along with editing to make it useful, but the payoff in the end makes it worth it.

  Note that assessing this table matrix is dependent on which of the factors you place the most value on. If motivation and profitability are more important than the other three factors, then place more value on them. The idea that wins is not necessarily the one that has the most “high” ratings, if those categories do not match your priorities. A variation of this table is ranking your ideas from 1 to 10 using the same criteria. Although the more granular you get, the more subjective each rating becomes. I like to keep it high-level when distinguishing the good ideas from the bad.

  VALIDATE YOUR TOP 3 IDEAS

  Validating your top three ideas is a very important step to avoid wasting your time and money on an idea that nobody wants. Sometimes, we become convinced that we have a great idea before testing the market. Validation is absolutely essential for saving time and money. Once you have a list of your top three ideas: Validate, validate, validate.

  Share Your Idea

  You might be afraid of others “stealing” your idea if you share it. But trust me, this is one of the best ways to see if the idea has legs. Whether the feedback is positive or negative, take it with a grain of salt. After all, you are the one doing the research and hopefully have a better idea if it will sell. Be conscious of ways you can improve your idea. Ideally, test your idea on complete strangers instead of family and friends, who might say they like your idea to be supportive. Do not be afraid of your idea being stolen. 99.9% of the time your idea will not be stolen since it will take a lot of work to implement. And, the execution of the idea is what matters in any event. The feedback will prove invaluable, so share your idea with as many people as you can.

  Find Ideas Like It That Already Exist53

  Most people think that if the idea already exists, then it is too late. In fact, if the idea already exists, it validates that there is a market out there for your idea! Keep in mind what you can do to make your idea a little different or better than the competition to stand out. Having competition is not a bad thing.

  Here are a few ideas on how to find ideas that already exist:

  •Review top sellers on Amazon. Does it look like there are customers for your product?

  •Think of all the things you do daily. Are there any products or services that you use that other people would also?

  •Be conscious of the products you use and frequently complain about. Are there any that come to mind?

  •Check completed listings on eBay. This gives you a sense of what is selling in the market versus looking at live auctions that may or may not sell. Is there anything that interests you?

  •Look for frequent requests on Craigslist. Is there anything that catches your eye?

  •Explore popular backed projects on Kickstarter. This is exactly the kind of validation you want to see. Can you create something similar or better?

  •See what people want on Reddit. Like reading requests on Craigslist, this gives you an idea of what common issues people have and are willing to pay for. Is there anything you would not mind doing?

  Find
One Million Potential Customers

  Now that you have an idea what people are willing to spend money on, it is time to assess whether you have enough prospective buyers. Use Google Trends, Google Keyword Planner, SEMrush, and Facebook to determine the potential size of your market. See how popular the relevant topic is. If your product is an online course like “Public Speaking 101,” then search those terms to see how many hits are showing. If the subject shows over one million hits, then this helps validate your idea.

  Drive Traffic to a Basic Sales Page

  Tim Ferriss promotes this technique in his book The 4-Hour Workweek. It is relatively painless, costs very little, and provides essential feedback to how interested prospective customers are in your idea. First, set up a sales page using Unbounce, Word-Press, or Squarespace. Create a few ads to run on Google and/ or Facebook, then analyze your conversion rate for ad-clicks and email list sign ups. The prospective customer is not actually buying your product yet. They are simply signing up to your email list to be informed when your product launches. This is how Mint. com launched.54

  Facebook ads are a similar concept. For $100, you can get about 100,000 people viewing your ad to determine the level of interest based on how many people sign up to your email list.

  Sell Before You Build

  Driving traffic to your sales page and collecting data is great, but if you are like me, you do not buy everything you say you might. Having a list of 1,000 people who are interested in your product or service is meaningless if none of them pay for it when it launches.

  Get around this by creating an optional method to pre-order your product on your landing page for a “champion” or a “VIP” price. If your idea is fully thought out and the only step left is to create it, then the landing page can be a full-on sales page. The more details, the better. These details give your audience more confidence that they will not be ripped off. Be honest that you are still working on the product, but they will be the first to get it once it ships. You can also incentivize a pre-order with part of the product or include a side bonus for people that purchase now.

  One last technique is to email 10 people you know to see if they are willing to send you payment. If a few of them buy your product, then you know it is something people are willing to pay for.

  SIDE HUSTLE CHECKLIST

  Chris Guillebeau recommends using the following checklist before you start selling your idea:

  1.Set up a bank account that is for your side hustle. The lower the fees, the better. It is important to keep your personal account separate from your side hustle for tax purposes.

  2.Get a separate debit or credit card for your side hustle. This will also help you keep track for tax purposes.

  3.Pay for everything you can up front. If your startup costs are higher than you can afford, think smaller to start.

  4.Set aside at least 25% of your side hustle income for taxes. The last thing you want is to be dinged at the end of the year and find that the money is already spent.

  5.Be fast with invoicing. The longer you wait, the longer it will take to get paid.

  6.Insist on a written agreement for service work. This makes your operation more legitimate and protects you in case of any disagreements.

  7.Think about your legal structure. For most people, operating a sole entrepreneurship is perfectly fine, but you may want to consider incorporating at a future date.

  8.Set up a simple accounting system. If you have an accounting system in place from the beginning, it will be less work to keep track of things.

  9.Create a side hustle routine. Set aside a particular day and time of the week to work on your side hustle to make it easier to be consistent.

  10.Once you are getting paid, set up a day of the month or year to transfer your hard-earned cash into your personal account. This is the most rewarding part— seeing hard-earned cash transferred into your personal account.

  SUMMARY

  If you make more money, then you can save more. Start a side hustle for extra income to reach your financial goals faster.

  •Look for ideas that are feasible, profitable, appealable, scalable, and motivating to filter the best ideas from the rest.

  •The easier the idea is to get started, the better, especially if you can use your current skills or resources.

  •Always rank your ideas to select the best ones.

  •Validate, validate, validate.

  •When pricing products, aim for an 8x to 10x markup.

  •For pricing services, start out hourly but convert to value-based pricing once you have enough experience and/ or a sufficient track record.

  •Use the side hustle checklist before you start your side hustle. Keeping your finances separate and having the appropriate legal structure setup will save you time and headaches in the future.

  The first part of this section talks about what stocks are, how to invest in them, what to invest in, what retirement accounts are, and how you can use them to your advantage. I teach you the magic of compound interest, the rule of 72, and dollar-cost averaging, and provide advice on financial advisors and alternative investments.

  Later, I break out the American and Canadian retirement accounts, so please read the section that pertains to you. If you live in a different country, apply similar advice to your specific country’s retirement accounts. Lastly, I go on to talk about the perils and benefits of real estate, whether owning or renting is better, and other mortgage considerations.

  This section is critical for learning how to use the savings you created from the tips in this book to investing in the stock market, where your money will grow indefinitely.

  CHAPTER TEN

  INVEST IN THE INDEX

  STOCKS

  I first became interested in finance and the stock market when I was 18 working summers with my uncle. He would tell me what stocks were, how to invest, and how much I could make over the years. Excited to make money and thinking the stock market was a gold mine waiting to be plundered, I rushed to the bank, opened a brokerage account, and started investing, not knowing entirely what I was doing. I remember one afternoon my uncle and I were talking about a company that made resin for pipelines. After reading more about the business and their potential for growth, I thought heck what is a few thousand dollars and bought the stock. Years later, the company went bankrupt. Fortunately, I sold at a small loss a few months after purchasing with no idea how much that loss would affect my saving potential later.

  “I’m afraid of losing money,” some of my friends say. I get that. I have lost money in the stock market, and it hurts. My biggest success came years later when being an Apple fanatic I bought the stock in 2005 and rode it up until 2016 but not without trading it a few times and losing money on a few of them. I ultimately made a lot of money, but those losses ate into my retirement fund. I learned the hard way—do not trade stocks.

  Warren Buffett’s golden rule of investing is, “Don’t lose money.” Why is that so important? This chapter talks about the Eighth Wonder of the World: Compound interest and how it is the key to retiring early. Losing money is not cool, but making money is. If your stocks drop 50%, then your money needs to go up by 100% to get back to break even. How can you avoid losing money while investing in the stock market? This chapter explains what stocks are, what you should invest in, and how you will most certainly make money over a long time period.

  What Is a Stock?

  Think of owning a stock, or a share, as owning a piece of a business. When you own a share, you have the right, but not obligation, to attend the shareholder’s meeting for that company, vote on important decisions, and have the right to a share of any future earnings that company makes (hence “share”). This share can be referred to as having equity and entitles you to receive future cash flows of the business, assuming it pays dividends, which is a distribution of a portion of a company’s earnings.

  Younger companies or companies in their growth phase typically reinvest their profits to help the comp
any grow faster. Startups or fast-growing companies do not offer dividends to the public because they are using the profits to grow their business. In theory, this means that in the future they will either pay out dividends or buy back shares, which reduces the number of shares outstanding, increasing the value per share.

  When people talk about the “market,” they are referring to indexes that track the market, usually the Dow Jones Industrial Average Index or the S&P 500 Index. The Dow Jones tracks 30 of some of the largest U.S. companies, and the S&P 500 includes 500 of the biggest companies traded in the U.S., although not necessarily the 500 largest.

  Why Are Stocks So Volatile?

  To pay dividends or buy back shares, a company first needs to make a profit and have positive cash flow. Thus, the worth of the dividend or share buyback is ultimately dependent on the profits the company makes over time. No one knows how much money the company will make in the future. Every quarter, analysts try to estimate what profit the company will report and are often wrong. People trying to profit from short-term trades are buying and selling the stock, which can send the stock either soaring or crashing down on a daily basis.

  If Stocks Are So Volatile, Why Should I Buy Them?

  Depending on your perspective, a company exists to make money for its shareholders or its stakeholders, i.e., employees, community, and shareholders. Successful businesses make more money today than they did yesterday, increasing the value of the stock. Over time, all that speculation and volatility will even out, and the company will likely either pay a dividend, increase a dividend they already pay, use their profits to further grow their business either organically or through acquisitions, or buy back their stock.