A couple links on Crowdfunding

mirrorFrom time to time students will ask me for direction about doing personal fundraising or crowdsourcing. Here are a couple of resources if you are curious about the crowdsourcing landscape. As always, feel free to reach out with questions or to talk through what you are thinking.

https://donations.fb.com/

 

https://www.thebalancesmb.com/a-guide-what-is-crowdfunding-985100

 

https://www.paypal.com/us/webapps/mpp/givingfund/home

 

Two thoughts from Seth Godin on this topic:

https://seths.blog/2011/03/who-will-say-go/

https://seths.blog/2014/07/bobsourcing/

 

 

Extra Income in 2018

1000 extra in 2018Creating a little extra margin in our financial lives will radically change our relationship with money. Saving or earning an extra $1,000 would make a big difference in all of our lives. We can do it in 2018.

A spark of Hope let’s us Believe it’s possible. A little Belief starts our brains looking for Opportunities. An Opportunity seized creates an Action. Action leads to the physical changing of our circumstances.

Changing our physical conditions is “work” in all its forms. The work of creating order from chaos. “All hard work brings a profit, but mere talk leads only to poverty.

Here is an article link to get your brain working and create some hope. Hope in this case being the persistent belief that its possible to change our physical circumstances through “work”.

ARTICLE LINK: 101 Ways to Make $1,000

 

Finance Basics

Datapoints logoThe basics of personal finance are pretty straightforward, but it’s easy for us to think that because we’re in a specific season of life, like graduate school, they don’t all apply. Here is a basic list of finance fundamentals as discovered through extensive research for books like The Millionaire Next Door:

datapoints snap.png

Those are pretty basic fundamentals – the only one I would quibble with is following financial markets, which many experts say is a waste of time. The reality is that following the market is probably an indicator of overall financial diligence. It’s correlation not causation.

It is easy to think that while we’re in a very tight season of life, as grad school is, that basics like spending less then we earn and savings aren’t possible.

While I would be the first to agree that it is very difficult, I would set it as a practice to live on a budget (spend what you earn) and save, even if it is a very small (almost token) amount. The point is that these practices will carry over into our future when our financial picture changes.

I’m continually challenged that to be “faithful with the little things” isn’t primarily a promise of future blessing, it is a promise that I will be changed. I continually screw it up, but let’s try again today.

Little things make big things happen.” – John Wooden

REMINDER: INCOME VS EXPENSES

money tree

When I counsel people (including myself) on how to make their budgets work, I often find that they are much better at EITHER controlling spending OR earning money.

As a reminder, there are two sides to each budget/balance sheet:

INCOME

and

OUTGO (expenses)

The old cliché is that we tend to be ‘savers’ or ‘spenders’. While that is often true, it is very difficult to win with money if you a thrifty saver but don’t earn enough money. Likewise, no matter what my income is I can always find a way to outspend it.

To make a budget/balance sheet work, we need to earn enough AND spend it wisely. The majority of people that volunteer to come talk to me about their money (grad students), tend to be thrifty savers but are having a hard time making ends meet without going into debt – something they don’t want to do.

For them, they don’t have a saving/investing type problem. Instead, we have to put our heads together on how they can earn more money. That can be challenging with the time constraints of school and family. It also isn’t a quick fix – there isn’t one change to be made.

The good news is that there are lots of options. Earning more money is a skill that can be built. The reality is that someone that has earned more in the past is significantly more likely to earn more in the future. Why?

It may be that they are more apt to recognize financial opportunity, how to leverage their skills in the marketplace, how to ‘sell’ themselves as a bargain to potential employers, or how to provide and communicate their value.

More on that:

https://graduatefree.com/2015/01/20/part-time-jobs/

https://graduatefree.com/2016/11/17/how-to-get-paid/

https://graduatefree.com/2016/12/07/how-to-reset-your-life/

Step one to any change is making a decision. If we decide we need to make more money to make our budget work, we will begin to look for and see opportunities. Prayer is a powerful tool in this. God can open the eyes of our mind.

Alternative path to wealth

Dollar signLast week I teased that aside from hoping to strike it rich with a miracle investment, there was a better route to go. Here is my brilliant three-step plan:

One: Earn More

Dave Ramsey teaches that your most important wealth building tool is your income. To build wealth, you need to generate income. Saving money (income minus expenses) and investing (return on saved money) are impossible without generating income. Obviously more income increases your chances (but certainly doesn’t guarantee) of having a surplus. If we aren’t currently generating a surplus, we need to either (or both) cut expenses and/or generate more income. Here is some advice on generating more income.

Two: Get rid of Debt

Getting out of debt accomplishes two super important things. First, you take over control of your income. Debt is a lien against your future income. Take control of your future income – it will allow you to save which is step one in accumulate wealth. Second, if you are paying interest on debt, you can have a guaranteed return on an investment by keeping that interest for yourself. See this.

Three: Save cash

This seems counter intuitive, but having a large cash reserve is valuable for several reasons. First, you can negotiate significant discounts on things you are forced to buy. Second, you are prepared when assets that we know and understand become significantly discounted. Like when we get our next recession.  There is a lot more to be said about the advantages of liquidity, but I recommend trying it to see how it feels.

 

Concession from last week. While I’m steadfast that we should let go of the myth of being a great investor, it’s really important to understand that yielding a couple of extra percent yields a massive difference in returns over time. Over 20 years, the difference between earning 6% and 12% on an investment isn’t 2x the return, it’s 3x. This goes up even more over time and/or return.

How to get Paid

$2 bill logoSome students I counsel are skeptical when I advise them that they can and should be earning more money.

If you want to earn more money, it is helpful to understand how and why employers pay employees. Understanding this will dramatically improve your earning power. Here are three main ways employees are compensated:

1.) Hourly. This is the most common and first (and usually only) way most of my students think about being paid. When I tell them they can easily earn $25+ an hour they say “Nobody is paying that.” Correction: (Almost) Nobody pays that per hour. Hourly work is the lowest common denominator – we all have an hour. It’s not based on skill or productivity. There’s nothing wrong with being paid hourly, just understand that both your hours and the dollar per hour the employer can justify are limited.

2.) Piece Work. Many jobs pay by the job, not by the hour. For example, you may be paid $100 to clean a house that should take 5 hours. That’s $20 an hour work. If you can do it in 4 hours, you just received a 25% pay raise. If you’re looking for part time work, finding work that pays by the job instead of the hour is a great way to dramatically boost your income.

3.) Value Added. The highest paying jobs pay by the amount of value you can add. A simple version of this is someone who works on commission. If I sell 3 cars instead of 1 car on a Tuesday, my hourly income is 3x higher. The employer is happy to pay me because they are earning more money. I have ‘added more value’ then I cost my employer. More jobs than you think use this model. It’s “knowing where to hit”. This is why Zig taught “You will get all you want in life, if you help enough other people get what they want.

There are lots of other ways to make money (buying and selling stuff, investing, etc.), but those are three models employers use in determining what compensation structure to offer.

Here are some random thoughts on these compensation plans:

  • Pastors should insist on positioning themselves as ‘Piece Work’ and ‘Value Add’, never on hourly. Your Sunday sermon is ‘Piece Work’. It needs to be ready to go by Sunday at 8am. If you can train and discipline yourself to prepare it in 10 hours instead of 20, you should then go home to raise your kids, play golf, or spend time in spiritual renewal. The reality is that being able to prepare it in 10 hours instead of 20 is a unique value you bring, and you need to capture that value for yourself. If you raise a healthier family, the church will benefit from that so the value is mutually beneficial. This isn’t just true of sermon prep, it’s also true of staff meetings, budget committees, dealing with people who complain, etc.
  • When it comes to adding value, there is a huge mark up. Pastors that are educated, good leaders, and have excellent communication skills are going to command a significant premium. Rick Warren has sold over 25 million books, and while he has been blessed with lots of skills, gifts, and opportunities from his maker, he isn’t lucky. The same is true for a local electrician like my friend Tim. Tim is compensated far more than many others in his field because being honest and dependable has a huge premium in his field.
  • The great news is that the ways you can add value are truly limitless. Find the areas that have the highest return on your time. It might be recruiting new kids to the youth group. It might be solving problems without requiring direction. Studies show that food servers that use their name and smile can earn $2.00 more per tip.
  • Part time income is really well suited for piece work and value add. If you worked in retail you might make $10 an hour. 10 hours a week would be $100. But you could make several times that if you were a piano teacher or math tutor charging $40 an hour. It would require you to put together flyers and facebook posts to spread the word. The actual time you spend teaching piano is somewhat valuable, but the time you spend finding new clients is extremely valuable. Finding new clients will pay you $100-$200 an hour. No matter what job you have, figure out what part of that job is the most valuable and do it more.
  • To truly understand value, we need to understand the stories people tell themselves. Teaching little Suzy the piano probably isn’t the highest value you bring. As a parent I want to believe that I am opening up the world of music to my kids. Broadening their horizons and teaching them the arts. The REAL value you bring isn’t teaching the piano its confirming my story to myself that I’m a good parent.
  • You don’t need to be self-employed for this to work. If I cleaned houses, I might go to my boss and ask “What’s the value of a new customer?” If they hired our company once a month for an average of three years and the company made a profit of $100 each visit a new customer would be worth $3,600 to the company. Would the company pay me $500 to find them a new customer? Of course. Then I would put up flyers on the bulletin board at church, let friends know I was looking for new customers. I may have started as a house keeper, but now I have a side hustle.
  • Most people that don’t believe they can make a lot more money don’t understand where they can add true value. A piano teacher is somewhat valuable. But if the teacher asks for referrals every week at the end of the lesson, that 1-2 minutes is worth hundreds of dollars per hour.
  • If you have the capacity for 10 students and you have 15 willing to take lessons, you can raise your rate from $40 to $50 (or $20-$35 or $55-$65). You will lose a couple students, but still have 10 willing to pay the extra. You didn’t earn a 25% raise for being a great teacher (though you may and should be), you earned that by finding more clients. No matter what job or field, figure out where the value is added to the organization.
  • I’m not convinced driving for Uber or Lyft is a good job. It wears out my car (my factory), my income is limited by the hours I can work, and there are very few ways I can add additional value.
  • I watched “The Big Short” last night and was reminded that nobody understands “Value Add” like financial professionals. Hedge fund managers build it right into their agreements (2 and 20) so there isn’t any ambiguity when it comes time to get paid.
  • Perhaps the most important skill you can build is learning how to explain to the client what exactly is the value you add and why that is important and worth it to them.
  • The heart of all jobs is solving a problem. The highest paid people are able to communicate “I understand your problem” and “I can help you”. It’s really empathy. That will get you the job, following through and delivering on and above your promise will keep the job or keep the customer coming back.

Payment Calculator Link

payment-calcThe two most common financial questions students have are “How much will my income be once I graduate?” AND “What will the payments be on my student loans?“.

We’ve looked at different income questions before (here, here, here, here), and we’ve looked at some of the payment questions (like is Public Service Loan Forgiveness (PSLF) a good option?), but as a regular reminder you can go to this link and run your future payments for yourself:

STUDENT LOAN PAYMENT CALCULATOR

Income Inequality

Rio Opening CeremoniesMy wife loves the Olympics so we’ve been watching a lot of them this week. Yesterday I saw some stunning images like the one on the right accompanying several articles like these.

On a recent Malcolm Gladwell podcast he raised an interesting question about how to solve problems. Is a particular problem a ‘basketball problem’ where teams need to improve the best player or is it a ‘soccer problem’ where improvement comes by improving the worst player?

His point was that some problems have top down solutions and other problems have bottom up solutions.

The image above really provides a stunning portrait of income inequality. When it comes to Income Inequality, almost all the articles talk about it like a ‘basketball problem’. That is they focus on the top .01%. That’s understandable because broke people are always at zero. When the .01% get even more money the Inequality goes up. The reality is that the top 1% of income earners receiving 20% of the pre-tax income is a problem.

But assuming you are not in the 1%, I would suggest that the best use of your and my time is not trying to tear down the 1% but rather work on lifting up from the bottom. Specifically what do I need to do to lift myself and others up from the bottom?

I believe that creating opportunities and paths out of zero is the key. It’s a soccer solution. I can’t lift everyone up, but it’s a lot more impactful to move from destitution to the middle then to move from the middle up or from up to slightly less up.

In today’s world, there are a lot of opportunities, but the traditional paths are no longer clear. Instead, we need to really get creative on how to create and find opportunities to help myself and others into financial stability. I think it starts with a lot of questions:

 

How can I create a financially stable environment to raise my children?

How can I pull one friend out of instability and into financial peace?

How can I create an emergency fund that will take the crisis out of my financial life?

How can I prepare my children for life so they won’t be financially burdened for decades into the future?

How can I help one impoverished person start a business?

How can I avoid and payoff debt?

Do I need to work more or at a different employer?

Are substance abuse issues causing me to stay in poverty?

How can I pay my house off and take back my income?

How would a small business I start create future financial freedom?

If I could earn an extra $500 a month as a freelance employee at night or on the weekends how would that change my life?

If I could cut my lifestyle expenses by $200 a month, what would I do with an extra million dollars in 40 years?

Would something as simple as access to clean water enable a poor person to start working and producing something of value they could sell?

How would personal financial margin create opportunities for myself and others?

What do I need to change to create a path to financial stability?

Do I have a plan?

In what ways to I put a higher value on luxury then on stability?

How do I evaluate needs versus wants?

 

If I am drowning, it’s really difficult to save another drowning person. It takes personal capacity;  savings and extra cash flow to be able to give and be generous. I believe lifting myself out of poverty is step one in helping others do the same and creating greater income equality.

Debt in Relation to Income

Dollar signMillions of dollars are being spent researching the issues around student loan debt – preventing unhealthy amounts of it and creating paths for students to graduate with less or no debt.

One thing that we hesitate to talk about is the following truth:

Debt only makes sense in relation to Income

Our income will dramatically affect our opinion of our debt. A friend of mine graduated from an Ivy League law school and his first job after passing the bar was with a white collar, downtown firm on a partnership track with a starting salary of $140,000. He lived well below his means (drove his old car for 5 more years) and he was able to pay off his student loans within a few years. His debt was manageable in relation to his income.

You might say ‘obviously’, but it isn’t obvious. Income simply isn’t talked about much in and around graduate school or in the many conversations about addressing student debt.

$500, $5,000, $50,000, or $500,000 of debt all may be disastrous or manageable BASED ON INCOME. If you are going to have a $250 student loan payment, you need to understand how much of your income that will consume. $250 is a percentage of your take home pay. Putting your debt in relation to your income is one reason we have tried to develop rules of thumb like this.

There is a reason we hesitate to talk about income – it can vary widely. Some variables are based on things we can control and some are not. Some of those variables that can drastically change your income potential are:

  1. Geographic

A friend of mine was offered a pastoral position in downtown San Francisco that had a starting salary of $100,000 a year. After doing some research and running his budget he discovered that even with that salary he couldn’t afford to live within 30 minutes of the church. A pastoral position in Lawrence, Kansas may pay significantly less, but cost of living is much different. Student loans aren’t geographic – they travel with you.

  1. Employee Personal Capacity

Employees have very different capacities – speaking specifically of things that are in our control.  Some people are just naturally better or have worked hard on areas of personal development such as likeability, work ethic, punctuality, working well with others, and creating positive results. 70% or more jobs are landed through personal networks, so a future employee needs to be able to build and maintain relationships. These skills will have a huge impact on future income opportunities and student’s personal networks and skills vary widely.

  1. Macro Economics

Our economy is still driven by supply and demand. If there are more attorneys’ then jobs, the cost of labor (salaries) goes down. If overall church attendance in your denomination is declining, then there are fewer dollars and jobs available. If the markets do well and overall charitable giving goes up across the country it will generally increase salaries. Furthermore, certain skills pay much better in the marketplace. In America today, a pastor who is a dynamic public speaker will earn more than a less dynamic shepherd that loves his flock just as much or more.

  1. Gender, Race, Height, Etc.

Unfortunately in the broken world in which we find ourselves, there are significant wage discrepancies for things that are well outside the control of the employee. It seems insane, but age, race, gender, and even height will play a significant impact on our ability to earn.

Some of these variables are hard to talk about. The reality is that it isn’t right or fair that some of these variables are out of the control of the employee.  It’s easier to avoid discussing injustice (or to rant against it) then to pragmatically address what to do in light of it.

For these reasons we have dropped the ball on having honest discussions with students about understanding their future income. Some of us can do different things to maximize our income potential. That may be learning a new skill or focusing on skills that pay more in the marketplace.

Others shouldn’t focus on maximizing at all. The world truly needs homemakers and small town pastors. For those called into those types of occupations, we need to talk about debt in light of their future income.