Simon’s Notes

Do you ever feel that you’re working your butt off, but you aren’t getting anywhere? Most people feel this way at some point in their lives, in fact, chances are that you’ll feel this way forever until you figure out the 80-20 rule. If you want to learn the 80-20 rule from Wikipedia you can go here, but I think you guys might want to stick with the short and friendly version from Simon’s Money Notes :)).

What is the 80-20 rule? Some wise Italian dude by the name of Vilfredo Pareto figured out that 80% of your results comes from 20% of your effort. The rule is much broader than that, for example, you wear 20% of your clothes 80% of the time, or you’ll get 80% of your business from 20% of your clients. Once you know and understand this, you can now go and figure out a way to cut 80% of your efforts and concentrate on whats bringing you results.

Most of the people I know (myself included sometimes), put a lot of focus and energy on things that are not getting them anywhere. What happens when you’re feeling a little tired or stressed, and you look at your to-do list in the morning? You’ll start by doing the little tasks because its the easiest. The secret is to prioritise your jobs, and only do the top priority ones. Ok, you all know that I love the point format, so here goes.

1. Make a list of all your current projects and spend some time figuring out the ones that are actually getting you somewhere.
2. Categorize your to-do list so that you have the most important jobs at the top. Label your top priority jobs with an A, your ‘if there’s time’ jobs with a B, and your ‘not necessary’ jobs with a C.
3. When you start your day, only do the A jobs. This might take a bit of discipline but it’s worth it. If you have absolutely zero A jobs on the list then go on to B, and chances are that you won’t even make it to C.

And that’s it, you’ll see your results improve dramatically, I know because it works for me.

Simon

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What is a pyramid scheme? I find a lot of people that are willing to throw this term around without actually understanding what it is they’re talking about. For a while, I found it quite confusing myself so I can understand if maybe you don’t really know what a pyramid scheme is. If you want all the jargon, you can check out wikipedia’s definition here. But if you find that a little confusing, stick around and I’ll try to explain it as best I can.

Why is it so important to understand what is a pyramid scheme? Because I don’t want you to miss out on the many available legitimate opportunities out there that you would normally brush off as scams. There is a wealth of opportunities that could earn some good legitimate income, but many people are simply turning the other way with the excuse that ‘it’s a pyramid scheme’. Of course I’m talking about things like MLM’s, affiliate programs, and network marketing. If done correctly, these can all be very good sources of passive income, and I don’t want you to be passing them up as options.

You know I like getting straight to the nitty gritty, so here it is. A pyramid scheme should contain some or all of the following characteristics:

1. No products. If the ‘business venture’ or ’scheme’ doesn’t have one or more concrete products that you can personally identify with, STAY CLEAR.
2. They have a product but it’s highly overpriced. If they are offering a product, make sure that the price is not over the normal retail price for a similar product.
3. You earn for referrals. A legitimate business should pay you according to the business volume that you are moving yourself or through your network, in other words you should only consider a business if they are paying you commission on the products that you are selling. If you get paid only for referring others, its most likely a scam.
4. You only benefit by signing others onto the scam. In a legitimate business you should benefit by signing up other distributors, but you should also benefit, by using whatever product they’re offering, as a customer.
5. Payment structure is iffy at best. In a pyramid scheme, most of the members will be left out in the cold with nothing but a bad experience. If, technically, the people at the bottom of the pyramid don’t get a chance to make any money then there is some serious problems. This will be the case with most schemes, they don’t offer products, and they pay you for referrals, so you have to go out and try to get other people to waste their money on thin air and if you can’t you’re left with nothing.
6. Huge joining fee. If you’re being asked to pay a large sum up front without seeing any concrete products, then don’t bother.
7. Sneaky products. They tell you that you’re making an investment, or that you’re all helping each other. Don’t be fooled, investments are not that hard to understand, so if you don’t really understand what it is, don’t bother.
8. What really happens in a pyramid scheme is that money is being shifted up the pyramid, so the guys at the top make all the money and the guys on the bottom do nothing but pay for it all.

If you get used to spotting the wrong thing when it comes along, then you’ll be a lot more confident when talking to that over eager dude spouting gibberish, and when something legit is presented you won’t automatically brush it aside in fear of the unknown.

Be safe and prosperous.

Simon

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In ‘Get Out of Debt - Part 1‘ I spoke about the importance of getting rid of any debt you might have before taking on any investments. That’s all very good and well but that still leaves the question of how do you go about getting out of the debt in the first place.

When you think about it, getting out of debt is not really that complicated. It basically boils down to having 2 things, a solid plan, and a solid commitment to that plan. If you don’t sit down for a few hours and work out exactly what your debt consolidation strategy will be, you will find it a lot harder than if you do. So pull out the notebook and pen and get ready to get down to some serious planning.

I can’t speak from personal experience since I’ve never really been in debt, but I can tell you what I might do if I ever found myself in a debt situation.

• Spend a good amount of time drawing up a complete debt consolidation plan. You might consider things such as who you owe (car, house, credit card, etc), you’ll want to know exactly how much you owe to each creditor, what’s the interest rate, how long you have left on each payment, etc.
• Make small goals first. If you’re paying off 2 credit cards, decide that you will put extra into one card till its completely debt free and then you’ll have more to pour into the second one. Or if you’re paying off a house, commit to putting in a little extra every month even if its only a few hundred dollars.
• Look for areas that you can cut back on. Are you still going to the movies? Are you a bit of an erratic spender when you’re out? Do you enjoy your expensive meals? Do you drive up and down from work every day? Why not look into carpooling, or taking the bus. Do you spoil your girlfriend/boyfriend too much? Do you have a weakness for chocolate? A friend of mine once suggested that I cut out a meal, which would help me in more ways than one :)). Take all that extra money and pour it into the debt.
• If you’re paying off a number of credit card’s, cut them up as you pay them. There isn’t really a reason why you should have more than 1 credit card.
• Plan your shopping, and stick to your plan. 40% of what we buy in the supermarket is impulse items, things like chocolate, candy, soda, magazines, things which are neither on our list or even healthy for us. Change your habits and cut out all this excess and pour it into your debt.
• What can you sell? What’s in your garage? Check it out and have a big garage sell. Do you have 2 cars when you only really need one? Get rid of whatever you don’t need, you might be pleasantly surprised to find out that you’ve paid your debt and have some to spare.
• Cancel any saving or investment plans you might have and use them to pay off the debt.

Of course once you get out of debt, make sure that things stay that way. Cut up all your credit cards except one, don’t spend money on impulses, use cash whenever possible, and most importantly, plan your finances well.

Simon

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There are a lot of people in the world that just want to be debt free. It can be very easy to get into debt and a lot of times we do it without realizing. Getting into debt can often start out as a slow process, you need a car so you go for the BMW that will only cost you 5000 dollars per month instead of paying that amount in cash for an older Ford, and of course you need a house, and wouldn’t it be nice to pay for your shopping on the credit card and let your bank sort it all out for you. Come the end of the month and the bank is debiting $5,000 for your car $10,000 for your house and before you know it, you’re in debt.

I cannot stress enough how important it is to clear any debt you might have before you consider any form of investment plan. Let me try to illustrate this with an example. Lets say that you have a credit card debt of $4,000 at an interest rate of 18% which you are paying $150 per month into. You will have paid off your card in 35 months and you will end up paying $5,250. Now lets say that around the same time you decide to start an investment portfolio. You commit to paying $150 per month into this investment and you’re managing to do 15% per anum (which is not the easiest but its doable). By the end of 35 months your investment portfolio will be at $6,500 with a total amount of $5,250 invested, unfortunately the $1,250 that you have managed to make will have all gone to pay the interest on your credit card loan, so you really would have made $0.00. That’s not so inspiring after 35 months of toil.

Now lets say that you decide to pay off your debt first before taking on any investment. So instead of paying $150 into the credit card and $150 into your investment, you decide to put all $300 into your credit card until you have it all paid off. Your credit card will be paid off in 15 months and you will have paid a total of $4,500. Now you have 20 months left to invest, you decide to go for the same investment at 15% but now you are able to put in $300 since nothing is going towards the credit card. By the end of 20 months your investment has grown to $6,700 with an investment of $6,000. So in 35 months you will have spent $500 in interest to the bank but you will have made $700 dollars in interest from your investment, so in essence you end up with $200.

In both cases you spend the exact same amount of money, $300 per month over the period of 20 months. In the first scenario where you’re paying $150 into the card and $150 into the investment you end up with $0.00. But in the second scenario, by simply putting $300 into the debt first and then $300 into the investment after, you actually manage to come away with $200 profit from your investment.

So the important thing to remember from here is to pay any debt you might have first, before you think about any form of investment. In part 2 I’ll give some tips on how you can go about paying off your debt.

Simon

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I’m not sure what I did to deserve this but I must of done something because everyday I get a fresh batch of scam emails to contend with. When I say batch I don’t mean one a day I mean a whole batch, on average about 3 or 4 per day ranging from the 1,000,000 dollars lotto I won to the old lady that wants to will me her husbands fortunes.

Its pretty easy to spot a scam email, and for those of you that are wondering, here’s some things you should look out for. Never pay anything, if they ask for money, its a scam. Most emails will be from free email services such as yahoo, these types of emails are very unprofessional and are a clear indication of a scam. If the email asks for all sorts of personal details, don’t give them because its a scam. If the email is offering a large sum of money for no apparent reason, its a scam, don’t feel sorry for the old lady or the war veteran that’s writing it.

If you have any doubts towards the email you’re reading, do some research, a quick search in google will quickly unmask its true intentions.

I have been getting one email though that almost fooled me. It’s from ‘yahoo.com’, and it says that I won a 500 dollar reward for something or other. There’s a few reasons that made this one tempting, firstly its from yahoo so there’s no reason why the email shouldn’t come from yahoo. Also the prize is so low that it seems ridiculous that someone would try to entice people with that amount. But most convincingly when you click the URL it takes you to a genuine looking yahoo page.

Alarm Bells
Then it asks me for money. I can’t access my winnings unless I upgrade to a premium account, it only costs 8.something dollars to upgrade. Ok, I can easily do that, but hang on why are they asking me for money in the first place, don’t they know who is premium and only do the draw with them? So I decide to investigate.

Right away I start to notice a few inconsistencies. The real yahoo.com looks much better and newer than the site I’m directed to. Also they were accepting payments through e-gold, paypal, and stormpay which is very uncharacteristic of a site like yahoo. By now I was pretty suspicious, but then I check the bottom of the page and it says copyright 2005, the real yahoo says copyright 2007.

But perhaps the funniest thing and the thing that really put the last nail on the coffin for me was this headline about something to do with a Clark, an Abdul, and some explicit evidence to an affair. Upon doing a quick google search I find this article talking about the incident, and guess what? Its dated April 28, 2005.

Thank you yahoo, but I think this time, no thank you.

Simon

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Ok what is wealth? To me wealth is when you have a lot of time and a lot of money. Its no use having a great job, or being a doctor, or lawyer and making so much money if you have no time to enjoy it. Does that make sense? So how do you go about making money without spending any time? There’s no such thing, you have to give up time if you want to create wealth, but the good news is that you don’t have to give up as much time as you might think.

In the traditional world we are taught that to be successful you have to study hard, get a good job, and save up. This principal is not necessarily a bad one, except we are not taught in school anything about personal finance and how to create wealth, so while we can be perfectly safe with a good job, there is no way that we will be able to create wealth unless we learn to break out from the traditional mindset and learn to think out of the box.

So if having a good job isn’t going to make me rich, how can I do it? Any successful finance expert will tell you that in order to create wealth and retire in style you have to create assets that will put money in your pocket without much effort on your part. Its really not that hard.

Start by saving 10 percent of everything you earn, if you investigate a bit you should find a way to do this before you have to pay any taxes on it. Its really important to get in the habit of doing this because its human nature to live on all the money we have, so if you’re making 20,000 dollars a month odds are that you’ll find a way to spend it unless you’re getting it out of your reach as soon as possible.

If you have any debts, be sure to pay those off as soon as possible. All the money that you are now saving should be poured into your debts, its very important to do this and I’ll explain why in more detail in another post, but for now just trust me, put all your savings into your debt. By debt, I mean things like your credit card, and maybe committing to putting a little extra every month into your mortgage.

Once you have your life in order, you’ve got no more credit card debt and you’re paying a good amount into your mortgage, you can start spending that 10 percent on the accumulation of assets. How do you do that? There are lots of ways and methods to stock up on assets, and you need to tailor your methods to your own situations, but I’ll list a number of ways and suggestions that might give you some sort of idea on how to start.

• The first thing to know is that there are basically four different types of assets. Real estate, business, paper assets (stocks, mutual funds, etc), and Internet assets. I’ve got some paper assets in place, I’m building some business assets, and I’m learning how to create Internet assets, so I guess that’s a good example of diversification.
• One of the most common methods is to buy a second home, if done right this can be quite powerful. I’m not an expert but basically this is what I might do. Look around for some property that has quite a bit of potential, you want to look for something that won’t cost a lot of money to make it a lot more valuable, for example here in South Africa you could find a house where the garden was maybe a bit abandoned, then you could fix it up real nice and add something like a barbecue area or maybe a lapa and this would add considerable value. Then you want to apply for a loan against the equity in your first house and use it to buy your second house which you then rent out. Ok here’s an example. Lets say that I’m paying about 2000 dollars per month on my first house (this is still normal in SA), the first thing I want to do is add another $500 on top of that so that I can pay it off quicker. Then I’ll find a house that needs minimal work done on it and preferably something that has a small cottage attached to it, this won’t be easy but its doable. I want to get the best price for it so I negotiate as far down as possible, lets say that I find a 3 bedroom house with a 1 bedroom cottage attached, its all a little messed up and I bargain the price down to about $120,000 (doable in SA). I apply for a loan against my first house which has a built up equity of $50,000 and the bank loans me the rest, and I spend about $10,000 fixing up the place. So now I have a second house that I’m paying 1000 dollars mortgage per month on. I can rent the main house for 1000 dollars per month, and I get about 300 dollars for the cottage so now I have an asset that’s making me 300 dollars per month. This is a very general example but you get the picture.
• Its good to build up some paper assets as well. The real estate market can fluctuate just like anything else so its important to diversify. Its not hard to start building up a portfolio of paper assets. Don’t start by buying shares right away, go for something like mutual funds, build up a big enough portfolio of, varying levels of risk, mutual funds, and then start going for the riskier but more rewarding stock market.
• Starting your own company can also be a huge asset, but be careful not to get trapped in it to the point where it becomes a job, because that defeats the purpose. I’m starting 2 companies at the moment but my goal is to build them for a few years and then sell them. When I think about starting a company I don’t think about what I want to do, I try to pick a niche that will make money. Its more important to pick a successful niche than to go for turning your hobby into a business. I would suggest that you make your business your hobby and not the other way around. Be sure to keep an open mind and look at all available possibilities. Its very important to pick the right structure, the one with the least liability attached, I’ll leave that for a different post. Don’t look for ways that you can personally come up with the starting capital, instead look for others that are willing to, if you have a good business plan there will surely be an interested investor.
• Everyday I’m more and more fascinated by the possibilities of creating online assets. This is really not a topic that I can say anything about at the moment, but just let me say that you won’t regret looking into the possibilities. Start by creating a blog, the learning potential is enormous.

Wow, I don’t think I really remember where I started this. Important points, save 10 percent of your total income, pay off your debts first, and start accumulating as many assets as possible.

Simon

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Its a little hard to know where you’re going if you have no idea of where you’re at. Its not that difficult to figure out exactly what you’re worth. It might surprise you when you actually get this stuff down on paper, in a good way, or maybe for some in a bad way.

Getting a good picture of what you’re worth is pretty straightforward, you get all your assets down on one side and put all your liabilities on the other which you then deduct from your assets to get your total net worth. Its very easy to make a simple form in excel to speed the process along, or you could even do it on paper as long as you don’t lose it. The part that’s a little more complicated for some people is determining what is an asset or liability.

In simple terms, an asset puts money in your pocket and a liability takes money out of your pocket. But what about a house, which the bank normally classifies as an asset? Its easy to think that something like a house is obviously an asset, but lets examine this a bit. Is the house putting money in your pocket or is it taking money out. If you’re paying a mortgage on a house that you’re living in, then money is going out of your pocket. But if you own a second home that you’re renting out, that would be putting money in your pocket.

I could go on a whole other trail now, but I’ll leave that for another post, lets just say that you have to be careful when calculating your net worth, that you’re not paining a false picture, and creating a false sense of security. For the sake of simplicity forget about the house, consider the remaining loan as a liability, and consider the equity you’ve built up as an asset, in other words the amount of money that the bank is willing to loan you against the house would be considered an asset.

Another thing to be careful of is the true value of your asset. If you bought something at a certain price like a car, then you have to devalue it accordingly when checking your net worth. If you don’t do this you could easily end up with a figure that’s not true. There are lots of fancy ways to devalue things like cars and factory machines and so on, but I have a very simple trick, I just check the going price for the item. Look in your local newspaper for similar items and see what everybody is selling it for, and you’ll get a pretty good idea of the current value.

Why is it important to calculate your net worth? Well there’s many reasons, the most obvious being that you want to keep close records of your financial life if you want to become financially free, its hard to know what you want if you don’t know what you have. Another reason is that sometimes we accumulate a lot of unnecessary things, so when you write down exactly what you have you might find out that you have more than you thought. This becomes quite useful when you’re looking to buy that new sound system but you’re not sure where the money is going to come from, you’d be surprised.

Simon

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Today I finally opened up my mutual fund portfolio. I’ve been wanting to do this for quite some time now, but somehow something always comes up. Now that I’ve done it, I feel very happy and slightly relieved, my only regret was that I didn’t do it sooner.

Some of you might be thinking ‘who cares, whats a few extra months anyway?’ In an earlier post entitled ‘the 8th wonder of the world‘, I talk a bit about compound interest, and I give an example of how wasting a few extra dollars per month could end up costing you thousands of future dollars. A habit that’s so much harder to break than wasting a few extra dollars is the habit of wasting time, procrastination. Yes procrastination can eat more money than your credit card. I’ll use myself as an example.

I’ve been wanting to open my investment portfolio for about two years now, but something always seems to come up (bad excuse, big mistake). I’m being debited on a monthly basis into my investment account for the equivalent of about 70 dollars and I’m sure I can grow my investment at 20% per anum at least. If I wanted to withdraw my investment when I turn 40, that means I would’ve had 20 years to invest if I started 2 years ago, but since I’m only starting now that means I have 18 years left.

So what do we have so far, I’m investing 70 dollars per month at 20% per anum, and I would’ve had 20 years but since I started late I only have 18. If I had started when I should have, which was two years ago, my investment would be at about $220,000 with a total investment of only 16,800 by the time I turn 40. But since I’m only starting now, by the time I’m 40 my investment will have grown to about $145,000 with an investment of about $15,120.

So lets see how much my procrastination has cost me. I would have made $75,000 more by the time I’m 40 if I had started 2 years ago, now minus the difference in how much I put in, it comes down to about $73,320. So in the last 2 years I’ve thrown away 73,320 dollars, thats 36,600 dollars a year, 3,050 dollars a month, or 100 dollars a day. If I decide to wait and take out when I’m 50, I will have thrown away 722 dollars a day for the past 2 years. And if I decide to wait even longer till I’m 60, my ‘throw away’ expense for the past 2 years will amount to 5,416 dollars every day, I just spent the last 2 years throwing away 3,900,000 future dollars. Now I’m sad.

Procrastination is expensive.

Simon

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Getting on the phone for business is never an easy task. Actually for some people it is, but for most its not, especially if you’re a newbie to the world of business. There are a lot of very stressed out and nasty people out there, and there are other people that are just plain annoying. But if you can get used to and follow a few simple habits and guidelines you might find that your phone experiences will improve.

I’ve put together a few pointers that I use when I’m on the phone. This is in no way an exhaustive list, but if it helps you a little, then I’m happy.

• Do unto others as you’d have them do unto you. Always be polite, you receive what you give, so don’t expect people to treat you with respect if you don’t treat others with respect. If you’re feeling frustrated, resist the urge to snap, it’ll only make things worse.
• Identify yourself immediately. I’ve sometimes answered the phone with a ‘hello, who’s this?’, this is the wrong way to go about it. The right way would be ‘Hello, this is Simon speaking, how can I help you?’
• Don’t drag out your phone calls. This is fine for personal calls, but in the business world we are all very busy, so be alert and only say what is necessary, leave all the details for an e-mail or fax.
• Always get people’s details such as name and number. I can’t tell you exactly why this is necessary but I can tell you that I have often regretted not doing it, so take that extra minute to get their name and number.
• Unless you have a very legitimate reason to apologize, don’t do it. I’ve seen some people on the phone that spend more time apologizing than doing business. They apologize for the call, the weather, the soccer score, and everything else short of being alive (although some apologize for this too). Apologizing is not cool, and it won’t make the other guy like you better.
• Try not to stutter and umm. If necessary, write out your call and practice it a little beforehand, eventually you will get better at making them.

If you don’t think you can start developing these habits, then please get a secretary, you might see your business results improve dramatically.

Simon

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There are lots of ways to advertise your new business or venture, but what is still, by far, the best method is plain old word of mouth. Everyone is leery of the big obnoxious billboard, or the constant racket on TV, but no one suspects the friendly neighbor next door, or old aunt Mildred. It is a critical aspect of any business to build up a loyal clientele of people that like what you have to offer and who are willing to pass on the word.

I always heard people saying this and I kept reading about this in books and magazines, but I could never understand how it all worked. How the hell do you ensure that your customers are telling others about you? One day it hit me like a giant beach ball, and the answer is actually very, very simple. But before I tell you what it is, let me just run through some critical aspects that must be in place.

• You must be providing a product or service that represents good value for money. In other words, people have to like what you’re offering, otherwise there is no chance that they will tell others about it.
• You have to do a bit of groundwork in the beginning. If you don’t first get some people to buy your product, you won’t have anybody to talk about it.
• You must put a system in place that will be able to handle the kind of business traffic you’re looking to get. There is no point getting more customers if you’re going to end up turning them down, or sending them away. If you don’t do this you might end up attracting the kind of ‘word of mouth’ that is very bad for business.
• Think about whether you’d like to have some sort of reward for referring new customers. It doesn’t have to be anything fancy, a bottle of wine or some chocolates would do nicely sometimes.

The final thing to do is just to ask. There’s nothing else to it, ask and ye shall receive. If you’ve just completed some good business with one of your clients, then simply finish off by saying something like “please take my card, if you know or come across anyone that might need my services, please don’t hesitate to refer me to them and I will do my best to treat them with the same courtesy, and professionalism that I have shown you”.

I think these methods apply more to an offline business, but I’m sure they can be incorporated online as well. If you come up with any variations or suggestions that you think might be good for an online business or blog, please tell us about it.

Simon

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