Tuesday, May 31, 2011

Investment - When Savings are Small

A reader writes:

I'm thinking of investing my money. After I pay my monthly bills and set aside an amount for entertainment and what not, I have enough to put a little more than 10% in my savings. Where do you think could I best invest my money? I'm still single so no family to support.

One of the best investments a person can make if there isn't a whole lot of cash to go around is finding ways to reduce monthly debts and obligations - especially if those debts involve accruing or capitalizing interest.

Look at your monthly obligations and break them into categories:

  • Debts that can be paid off [Car loans, student loans, mortgages]
In the debts that can be paid off, setting aside some extra money to pay off these debts actually can save you in the long run. The reason is that these financial obligations usually carry interest - which can make that debt more expensive as the interest compounds over the life of the loan.

Consider a $10,000 car loan at 8% APY. If you set up a plan to pay it off on five years, and make regular scheduled monthly payments, the total interest paid is $2165.84. Now, lets assume the same scenario, except that the loan is on a payment plan to be paid off in four years. The total interest paid is $1718.20. You save $447.55 by just paying it off one year earlier.

If you found this information useful, and would like to calculate your own loan, visit this link:

Loan Calculator

  • Debts that can not be paid off [Phone service, electric, heat/ hot water]
In the debts that can not be paid off, the best way to save money is to cut out things that are not being used. If you have a gym membership, but don't go to the gym, discontinue the membership. Depending on where you go, that is a savings of $150 to $800 a year.

Other ways are developing good habits about home appliance usage. This doesn't mean unplug your coffee machine or other little things. Consider larger, more obvious habits - such as leaving a computer or TV on all day. Some computers consume as much as 1kilowatt hour worth of power - if you look at your electric bill, and evaluate your kilowatt hour usage, you can get an idea how much effect this will have on your bottom line. Since I live in NJ, it costs about 9 cents per kilowatt hour. It would cost roughly $65/mo to keep a 1,000 watt computer running 24/7.

  • Recurring habits [Smoking, impulse buying, upgrading]
Anybody who smokes knows how much a single pack costs. If you find yourself short on cash, you might want consider kicking the habit.

Another recurring habit is impulse buying - do you find yourself leaving the store with more than what you had planned to buy? Does this happen often? This might be the reason why some of your money is disappearing.

The last and arguably most prominent habit is the need to *upgrade*. If you are someone who likes to stand in line for the latest release of X gadget, spending three times the market value that the item will be marked at a year later, but find yourself strapped for cash for other, more essential things, it might be time to start holding out.

Thursday, May 26, 2011

Starting a Business - Pricing and Getting Clients

A reader writes:
If i want to turn my hobby or skill into a business, is it wise to keep my amount on the low side to remain competitive? I wonder because a lot of companies outsource internationally and I don't know how to compete with their numbers but I also don't want to sacrifice my price just so i can get their business. What would be the best way to gain customer confidence and business without sacrificing my prices?

It depends on what you are offering. If you offer a commodity (such as things you would commonly see in a grocery store), then having competitive pricing can attract new customers quickly. However, if you are trying to sell a service (such as cutting hair), competitive pricing can backfire. Here is why:

With commodities, the more that is produced, the easier it is to lower the price to remain competitive. Service does not work this way. Successful service grows by selling expertise or talent. The more expertise or talent the service offers, the higher the price it can demand. A rookie hairstylist can charge maybe $15 for a standard haircut. A professional stylist that has bookings two months in advance can demand $100 for a standard haircut. The difference isn't the service, but what expertise and talent is involved with the service. People know that they will get an amazing haircut from the professional stylist (which can be validated by the large list of bookings). The clients actually expect and want to pay $100 for the service!

To simplify:

Commodities desire to make money through volume
Services desire to make money through reputation

With any pricing model, a good baseline must be established. This is found by doing extensive research in your industry of interest. If the industry exists and is established, the research is easy (you can probably turn it up on Google). If your business model is based on a non-existent or emerging industry, this can be a bit more difficult. If you are not sure, consider whether or not your industry is a commodity or service based industry, and go from there.

If this is something you would like more information on and you are in an emerging or non-existent industry, send me a message and I can point you to some resources that may be helpful.

Monday, May 16, 2011

Unemployed? Let's look at that resume...

Have you ever wished someone could grade your resume and offer some helpful advice about how to approach it? How about if the grading system were based on the opinions of HR directors, professional resume writers, and job searching gurus? If this interests you, today is the day to get your resume graded.

If having an algorithm take a swing at the hiring potential of your resume doesn't take your interest, then maybe some open ended advice from a hiring manager might be of interest to you.

Despite the many schools-of-thought that reside on the subject of what makes a good resume, there seems to be a common thread in terms of what not to do:

Chime in with your thoughts and let me know what you think!