The Amateur Financier

To all my American readers, by the time this column goes up, you’ve probably had your fill of turkey, stuffing, assorted vegetables, cranberry sauce, and of course, pumpkin pie.  I hope everyone had a very happy Thanksgiving, filled with family, food and the other simple pleasures of life.  To celebrate this season of thanks giving, here is a list of a few things I’m thankful for:

I’m thankful that I am healthy, fit, and have the opportunity to keep myself well without having to struggle simply to survive.

I’m thankful for a loving, if sometimes exasperating, family who cares deeply for me and supports me in everything that I do.  Without them, I don’t know where I’d be right now, but I know I would be much worse off.  Speaking of family…

I’m thankful for my loving fiancée, who has been a major support and encouragement in everything I’ve tried to do, from getting a job to starting this blog and attempting to control my finances.  I love her so much, and she is such a huge boon in my life.

I’m even thankful for my fiancée’s family; from her mother who treats me like a son to her sisters that love me like a brother, it’s wonderful to have future in-laws I’m sure I can tolerate, or even like, rather than feeling like I’ve alienated everyone by taking their Sondra away.

I’m thankful for friends, both online and off, who have been there for me through both good times and bad.  Thanks to them (and you; many of my frequent commenters are among those I consider as friends), I’ve managed to make it through some less than ideal situations, and will continue to keep going.

That’s enough to be thankful for in one post, I think; now, it’s time for me to get going and help make up plenty of turkey.  Happy Thanksgiving, everyone!

Happy Turkey Day Too!

(To all my non-American friends and readers who don’t celebrate the American Thanksgiving, I hope you have a happy Thursday, and tomorrow I’ll be back with some no holiday related content.  Until then, stay happy and well!)

Well, it’s nearly here, the biggest shopping day of the year.  Once all the fun of eating turkey, spending time with the extended family, watching football/parades/Christmas movies on TV, and falling into a food coma is over, the shopping frenzy will begin.  It’s almost time for Black Friday to begin, with all the shopping, crazy-early store openings, incredible sales, and general consumer-related madness that occur.

You’ve probably heard the story that the term ‘Black Friday’ was derived from the fact that stores were finally able to turn a profit as a result of the increased spending during the holidays, which means they would switch from using red ink (deficits) in their ledgers over to black ink (profits).  (Although, Wikipedia’s entry on Black Friday seems to put that story down as false, claiming that the real reason is due to police being upset with the horrible traffic on that day; not to put too fine a point on it, but I can definitely believe that.)

A Mall. Not Shown: Horrible Black Friday Crowds

If you want to keep your own finances in the black during the holiday season, be sure to follow this advice:

1) Plan your shopping carefully – Create a list of what you want to buy for everyone during your holiday shopping, and stick to it.  If you have a list and don’t deviate from what’s included, you’ll limit how much you end up spending, and you’ll keep your spending in check.  Assuming, of course, that you have a reasonable and well-defined list that doesn’t splurge beyond what you can afford.

2) Compare the prices – It’s tempting to assume that because some of the things in a store are on sale, that everything is on sale.  But no store will knock down the cost of all its merchandise (definitely not to the point that everything is a good buy), so you’ll still have to be careful and do the proper comparison shopping in order to determine that you are getting the best possible price.  If it’s not on your holiday gift list or you aren’t sure it’s the best price for the item, just leave it; there will plenty of time to pick it up later (there are plenty of sales leading up to Christmas, and even more once the holiday is over).

3) Consider shopping online – In recent years, ‘Cyber Monday’, a huge internet shopping day on the Monday after Thanksgiving.  Shopping online can save you time, money, and having to fight your way through huge crowds in order to get the last Zhu Zhu Pet.  As with shopping in the real world, make sure to do adequate research in order to ensure that you are getting the best deal.

4) Take your own food – If you’re planning to spend your day in the mall, you’re going to need to eat at some point.  While I’m as big a fan of mall food courts as anyone, it’s going to be cheaper and probably much more nutritious to pack your own food and drinks.  A simple sandwich or other meal you can leave in the car will enable you to take a break and then return to your shopping without having to pay for mall food.  That way, you can stay fueled up and return to shopping as soon as possible.

5) Be safe, and be courteous – Every year, there’s some story about someone being trampled to death or otherwise horribly injured when a crowd pushes into a store for some break of dawn ‘doorbuster’ sale.  Please, please, please, if you follow no other advice on this list, avoid the crazy crowds and horrible rushes during the early morning sales unless you are young, fit, and can handle plenty of jostling to get into the store.  (Even then, consider whether it’s really worth it to put yourself through that sort of thing.)  In the same vein, please help anyone you see who is having trouble when you go out shopping, on Black Friday or really, anytime.  Keeping little old ladies from trying to carry 80′ flat-screens by themselves is surely worth a few points with Santa or anyone else who might be keeping a cosmic score.

Above all else, just be careful out there, alright?

(Welcome to another addition of Small Business 101.  Today we’re going to talk about bootstrapping, one option you can take while starting a small business.  Let the funding talk begin!)

Q: Alright, just what is bootstrapping?

A: Bootstrapping is where a small business makes due with only a small amount of capital and spends it only as it comes in.  In essence, you treat the business the way you should treat your personal expenses, only spending the money you actually have, rather than relying on debt and borrowing to provide your working capital.

Q: That’s all it means?  Why the odd terminology?

A: The term bootstrapping apparently derives from The Surprising Adventures of Baron Munchausen, an adventure story first published in 1781, wherein the hero apparently pulled himself up out of the swamp by his bootstraps (or possibly his hair).  The idea being to rely on your own skills and attributes in order to make your business (or other venture, as there are several meaning of bootstrapping) a success.  As to why this particular phrase from this particular book became the reference point for this phrase, to that I don’t really have a good answer, other than it sounds pretty rugged and self-reliant.

Q: *Humph* Alright, why try to bootstrap?

A: The alternative to bootstrapping is to get money from an outside source, such a business loan or money from investors.  While these methods do their own advantages (which we’ll get to in a minute), they have the drawback of making your company beholden to outside influences.  You’ll have to ensure that you can meet repayment terms of the loan or the demands of investors on top of all the other requirements of your business endeavor.

When you bootstrap, on the other hand, you’ll only have to worry about satisfying your business’s needs.  There’s no worry that if your business fails, you’ll be left with a bank loan that needs to be repaid or angry investors who may attempt legal action against you.  You’ll also have to work within the limits of your business’s income, the same as with sticking to any other budget (which many people could use more experience doing, if recently history is any guide.)

Q: What are the downsides, then?

A: In a word, money.  Bootstrapping means that you’re going to be relying on your own money to provide all the initial capital you need, at least until you start producing an income from the business that can cover your expenses.  Depending on what type of business you want to start as well as your personal savings, you might be able to finance it with your own savings without a problem.  If you want to start an Internet based business, for example, you’ll likely be facing fairly low monetary barriers.  If you already have a computer, your only costs will likely be for hosting and a domain name, neither of which will cost much more than one hundred dollars a year, if that.

On the other hand, if you have your eye on a business that requires a physical location, you’re going to face much higher expenses.  The cost of the building, renovating it for your particular business, buying supplies, hiring workers (if you need them); all these expenses add to the cost of getting your business off the ground.  If you don’t have a rather large amount of money in your personal savings (enough to start your business while still leaving money for your personal expenses and a hefty emergency fund), you’ll likely need to get funds from an outside source, whether a bank, interested investors, or your family and friends.

Q: If I want to bootstrap my way into a small business, how should I do it?

A: The first step is to make sure you do your research and learn just how much time, money, and other resources you’ll need to put into your business.  If it is something you can do part time, like wordpress.com/” target=”_blank”>starting a blog, making and selling crafts, or selling artwork, you can continue to work a regular job and build your business during the nights and weekends (a very popular method of expressing your entrepreneurial desires).  If your business plan involves more involvement, things get trickier; you could find yourself a partner (or more than one), split the duties with your wife or husband, or perhaps even rely on your spouse’s income if you leave your job to build up your business.  There are almost as many ways to pursue your dream as there are dreams out there, you just need to find the one that will work best for you.

That’s it for bootstrapping; good luck pulling yourself up by your bootstraps, everyone who’s looking to start their own business!

Additional Resources

Entrepreneur Magazine’s take on Bootstrapping

Ten More Tips from Entrepreneur

Ten Bootstrapping Lessons From VentureBeat

If you’re a typical student, there’s a lot you still have to learn about investing.  Actually, if you’re a typical high school or college student, there’s a lot you still have to learn about most things in life, but investing is a big one.  There’s very little formal education you will receive about investing (or any other money management skills, for that matter), and many things that need to be learned.

I’m not saying all this to discourage you, but rather to point out the task you face.  If you’ve stumbled across The Amateur Financier, chances are that you’ve at least begun to seek out personal finance information on your own, which is an excellent start.  To help you get a good start to your financial future, here are some tips straight from Roger:

1) Start Investing Now – Being a young whippersnapper does have its advantages every now and then.  If you’re young, there’s lots of time for your investments to grow.  I touched on this last week; the longer you invest, the more your money will grow, and less you need to invest in order to reach your goal.  Start while you are in college (or even better, during high school, although you might need to use a custodial account under your parent’s name to do so) and even small amounts can turn into a decent retirement fund.

2) Get Good Grades – Particularly for you high school students, getting good grades should be task #1.  Good grades open the doors to more impressive colleges, and make it easier to get scholarships or other aid packages once you get into school.  Even if you don’t want to go onto college (if you want to join the armed services or start your own business, for example), making sure you get everything you can out of your education will help you to get a leg up in life, if only by expanding your personal level of knowledge.

3) Expand Your Experiences – It’s easy to get locked into a particular way of thinking or doing things, particularly if it’s a way that’s always worked for you.  But when you’re young and have relatively few obligations to fulfill (such as a family or a job), that’s the perfect time to do things that you’ll be unable to do in the future.  Take some classes outside your major, try a few part-time jobs to learn what you like to do, even try starting a small business in your free time (blogging is pretty fun, for one); it’s an excellent time for you to explore your options.  Speaking of which…

4) Take Some Big, Foolish Risks… -Speaking of experiences, youth is the perfect time to do stupid things.  Not just things like drinking until you pass out at a college party, but also things like trading stocks, making highly speculative investments, or generally doing everything that most investment financial guides tell you to avoid.  As mentioned before, when you’re young, time is on your side; even if you end up penniless at thirty because of some bad investment decisions, you’ll still have decades to recover before you need to rely on your savings for your living expenses, plenty of time to recover.  (Actually, if you find yourself with a net worth of exactly $0 at age thirty, you’ll be doing better than many people who are loaded up with debt at that age; that’s an accomplishment itself.)

5) …But Don’t Be Too Stupid – There’s a difference between taking on risk, even incredibly high risk, and being stupid with your money.  Day-trading stocks is highly risky and potentially hazardous to your wealth, but giving your name and identifying information to someone offering you Nigerian prince money is just plain stupid.  Even while you are taking risks, including potentially big risks, be careful with your financial information and don’t do anything that could seriously impair your wealth in the future.

6) Always Read The Amateur Financier – Alright, alright, this one is a little tongue in cheek.  But continuing to read and build your knowledge about money management throughout your life is an important step to controlling your finances.  Thanks to the Internet, it’s as easy as turning on your computer and looking through all the resources you have available online.  Some worthwhile first stops include Morningstar, Investopedia, and Vanguard, all of which have excellent resources for investors who are just learning the ropes.

There you go, hypothetical high school or college student to whom I’m directing this post, several things you can do to get your finances off to a good start.  Enjoy the head start on financial wellness!