Monthly Archives: February 2013

The February Experiment

To the few who have actually been following this blog, you know that I started at the beginning of February. I used to have one on Blogger, but I have actually done more writing this month than I had the previous 3 years so it’s practically moot. Now that my month-long experiment is (nearly) complete I want to share some of the reasons that I took it on.

My number one reason for the endeavor is to improve my writing ability. The more I work on different projects, the more I realize how important conveying one’s thoughts through writing is extremely important. Honing my writing ability will create great dividends.

Not only stylistically, but also writing with a deadline in place. Knowing that I have a number of posts to complete in a given week has added a sense of urgency. This has some importance I my current job, along with other aspects in my life.

Keeping a schedule also forces me to come up with subjects and content on a regular basis, which even in this short time has trained me to always be looking for an angle. Then writing it down. I have had more than a few ideas in the car, but they’ve left me before I’ve written them down. I’m sure they’ll be back at some point.

This type of writing, for me, is quasi-therapeutic. You’ll notice that it’s not like a do a huge amount of research, nor am I applying any sort of method. For the most part, is just my thoughts and opinions that are coming out, and it’s better than having them all trapped in my head, distracting me.

Now, all of these things could have been accomplished by keeping a journal. Why publish it on a blog for the world to see? Do I think so highly of myself that people should hang on to my every word? Not quite.

In the age of the internet, it has never been faster to share information. Good and bad, it all gets out to the world with minimal effort. I want to be a part of the movement! Like it or not, the internet is here to stay and I want to do my tiny part in making it a place that is a little more friendly and helpful.

For better or worse, by putting my thoughts in the public domain I am making the contribution I can today, while working on some of the skills needed to succeed, when I have an opportunity to communicate to a larger audience.  Not only that, but any feedback I receive is valuable and can only serve to improve.

This last thing is that maybe, just maybe something I write will provoke some thought or action. When it all comes to an end I hope to be able to honestly say that I have contributed more than I have used. I don’t have any delusions of drastically changing any lives, online or otherwise, but if I can put something on this site that connects with even one person, it will all be worth it.

Start Saving When You’re Young

Working full time in the “real” world when you’re young is exciting. In addition to contributing, learning, getting your life on track, etc. it’s awesome to finally have some real spending money that you can start establishing your life with. While after living more-or-less your entire life on limited funds / someone else’s (your parents) dollar, it is good to be able o support yourself and do some of the things you want with that money.

While it’s great to have freedom, and it’s definitely important to experience life, the unfortunate reality is that it is also a good time to be saving for your retirement. I don’t mean other long term goals like buying a house or whatever, but your retirement. The fact of the matter is, even if you can’t save much, even if it seems forever away, and even if it’s the most boring thing you can do with your money, it is hugely to your advantage.

You can find endless articles and worksheets that show you how compounding is your friend and it really is. I’m not going to go into it, because it has been thoroughly explored better than I would be able to explain.  Even Einstein thought the principle of compounding was the most powerful force in the Universe.

While the percentage you can earn on your money because of the extended timeline is awesome, there is a more important reason to start young is because you most likely have far fewer obligations. Don’t get stuck in the trap of assuming you will start saving when you’re older, when you are making more, when retirement is closer. All of those things will happen, but at that time your lifestyle will likely be growing along with your paycheque.

Bigger mortgages, families, more refined tastes, along will many other factors will eat into your budget, and if you haven’t established a good base of saving, then it’s unlikely you’ll make up ground. It’s even better to save while you’re younger, stop for a few years in your 30s and start up again then it is to wait until you’re in your 30s.

Don’t fall into the trap of worrying about it tomorrow or thinking you don’t make enough. Everything starts somewhere and you can’t keep pushing it until tomorrow forever. You don’t want to be in a bad situation before you start saving.

Another important side point is that when you’re young you also have time to take a few risks and make some mistakes with your money. You have your whole life to make up for it. It’s far better to take some calculated risks for higher rewards when you know you can recover, rather than making a gamble when you’re older because you think you have to in order to retire.

A Week At Home

My first attempt at this style of project.

My first attempt at this style of project.

I wanted to do a photography project with my house and was inspired after visiting the Plug In Gallery had the idea for this. The parameters I followed are:

  • I would take photos of one part of my house once per day, for seven days in a row
  • It would be a different time of team each day
  • I would not post edit the photos other than resizing

I actually really ended up liking this and think I’m going to get it printed for the wall.

Moonlighting

I realize that there are (and will continue to be) posts where I’m waving my finger, talking about how people should live within their means. While this may be true, I know I’m violating a rule that I try to always hold myself and others to, which is if you are making a criticism, at least make it constructive.

The obvious answer to living within your means is to keep a leash on your spending, which is all good and fine for some. If you’re anything like me, however, rather than conceding to giving up on doing things that would make you happy, I prefer to think of creative ways of working around the issue. One answer to this is moonlighting.

Before some of you start getting defensive. This doesn’t mean going to get a job in a mall, nor does it mean working the night shift at a factory (not that there’s anything wrong with either of these). There are almost endless ways to make some more scratch and it needs to fit into your life in a comfortable way. Don’t feel shame, though. People from all walks of life choose to do a little work on the side, from physical labour, to doctors, to tutors, to accountants. The list goes on and the only thing that these people have in common is the fact they want to make more money.

For some of us, moonlighting is likely something we’ve considered once or twice in the past, in some shape or form. It could be in the form of a part-time job, doing some contract work in your field, starting a business, or doing something even more creative. Whichever path is best for you really depends on multiple factors and the decision won’t be the same for everyone. There are a few things that should probably be considered.

  1. Will it work around / be allowed by your current employment? In terms of schedule, as well as your employer being OK with the type of work. I recommend being open and honest about it, because regardless of the upside, losing your full-time gig because of something on the side isn’t worth it. Also, violating your employment contract is rarely advisable.
  2. What impact will it have on you and your life? If you love going to the cabin every weekend, getting a job that keeps you in town may solve the money problem, but I’m guessing will leave you unhappy before long. Similarly, if you feel like something is “below you,” that mindset doesn’t usually vanish and you’ll continue to be miserable.
  3. Can you actually do the work and are people willing to pay you? Deciding one day to be a “management consultant” sounds very impressive, but do you have the experience and expertise to back it up? There is no point in marketing yourself as a high-level guru if you can’t walk the walk, because people will eventually realize you have no clue what you’re talking about. Better to not give them the chance and stick with what you know.

Besides giving your financial freedom, moonlighting may give you the opportunity to expand your skill set and learn something new. If you have an area of interest and can find something related to it, all the better. My tired example is that I wanted to have a small side business and started it up, which is now making me some money. I wanted to get better at writing, so I started this blog. I’m not making anything off of it (yet), but don’t know what the future has in store.

Taking it a step further, if you have a hobby that you are spending time on anyway, it may be interesting to see if anyone will pay you to do that. For example if you enjoy painting on the weekends, why not try and sell a few? You can set up a website, post them on Kijiji or go to a craft fair. This way your work doesn’t even feel like work. The obvious downside is you may not end up feeling great about your work if nothing sells, but if you are OK with that possibility there’s no harm!

All in all, I’m just here to say that there is no harm in looking into your options and this is a better choice than spending above your means. While it may not be the sexiest choice, doing it now while you’re young is still a much better option than being forced to do it at an older age. Really, when it comes down to it, who out of us honestly has no free time to spare?

Stop Playing Catchup With Debt

This is going to sound very “fuddy-duddy” of me, but I think at some point in the last half-century, western society became much to comfortable with going into debt. I heard from a young age, and it’s always stuck with me, how the only acceptable reason to go into debt is for your house. While I would add a few reasons on there (education and starting a business), it’s something that I have always tried to remember.

Though my early learning about money was to be very conservative, and I admit when I was out making my own I rebelled a little bit, that original lesson about debt stuck with me. When I would be getting short on funds and the temptation struck to just throw it on my credit card, the old lesson usually stopped me.

Deconstructing debt into it’s most basic form, it’s paying for the opportunity to borrow money that isn’t yours. Doesn’t matter if it’s a bank, credit payday loan, credit card company or loan shark, it’s all the same. It essentially solves a short term problem, but has long term consequences that are usually not considered at the time. This is because we either can’t or won’t understand the decision process for borrowing money to purchase something.

To me, the biggest misconception about the majority of purchases that are done using debt is that they are analytical in nature. We rationalize to ourselves the reason we are going into debt makes the most sense out of our options and prove using logic that we are “able to handle it” because we know we will make enough to cover payments. While this is all good and fine, I would argue that in a large majority of times we choose to go into debt, it is an emotional decision.

It is this emotion that pushes us to take the short term satisfaction and ignores what it means in the longer term. We look at this one transaction and how it will make us feel, rather than how it will affect our lives for months or years to come. It is for this reason that once we start, being it debt becomes a pattern that is difficult to break.

How it works is that you borrow once to make a purchase. The happiness that this purchase gives you does not last as long as it takes to pay it off, therefore you are stuck in debt and no longer as happy. Then, before you are able to get out of debt and save money, you see another item which will make you temporarily happy, borrowing more to purchase it. All the while paying interest on the amount that you borrow, which reduces your overall spending power, i.e. how much stuff you can buy.

Ironically you are able to do and buy more if you stay out of debt and avoiding interest costs. It may be a sacrifice, but saving the money first, even if it’s small amount, not only allows you to be in control of your budget, but also gives you more of a sense of satisfaction when you are able to make the purchase. Knowing that you don’t have to worry about any consequences, along with the added sense of anticipation (which I believe is often better than the payoff) you are able to enjoy the decisions you make with your money more.

As a final thought, I know there are other extreme circumstances that there is no way to avoid debt. I know that if I were to get ill tomorrow with something that needed to be dealt with and my insurance wouldn’t cover it, I would not think twice about borrowing as much as I can to help myself. Just consider where I would be, however, if I had already borrowed all that I can to make unnecessary purchases. The peace of mind knowing that I can take care of myself is worth any purchase I can make now.

The Slippery Slope of Price

In marketing there are the classic “5 P’s” in the marketing mix of any product or service: price, promotion, placement, product and people. While all are necessary, I prefer to think of one of them as a liability that is working against your marketing, rather than something to be used in communications. That is (as I’m sure you guessed from the title) price.

Don’t get me wrong, price can be quite powerful. If you are willing to set a price low enough compared to your competition, a large portion of the population will likely be convinced enough to buy your product. That is until another provider decides to offer a lower price. Then, unless you have gathered a handful of faithful users, they will leave you.

This is because it is too easy to compare prices and if you are not the best price than you have failed for the segment of the population you are communicating to. Price sensitive consumers don’t have loyalty beyond price. They don’t mind if one brand is slightly superior in one aspect or another, as long as roughly the same outcome is accomplished, the particular brand is not of importance.

The better route to take is to focus on a differentiating factor that is more creative than price. Something that affects people on a deeper level and is therefore harder to replicate. This is where true brand loyalty comes from.

To use a tired example, look at the auto industry. There are brands that are constantly competing on price, while others do not. While the higher-end brands are superior vehicles in other ways, likely not to the tune of 5 times the price of those at the lower-end. At that point the emotional benefits of having one brand over another far outweigh any price difference, and the manufacturer is free to collect a higher margin.

Your brand and how you manage it over the long-run will ultimately cultivate loyalty among consumers. By avoiding the price trap, in order to reap short-term profit, you will be able to gain loyal customers and grow your business in a more organic way.

Keeping Your Mind Entrepreneurial

Before we get into this, I want to put a few things on the table. Number one being I don’t think I’m some amazingly accomplished entrepreneur. This isn’t a “I’m successful, here’s how you can be successful too,” type of thing, because I’m not successful. Yet.

The second thing is I don’t fully prescribe to the thought that things like entrepreneurship, leadership, sales, etc. are things that are inherently within us and can’t be taught. That’s just the talk of people who want to be special or those who are too lazy to learn about a subject having an excuse to give up. There are certain personality traits that are more suited for certain paths and if your personality lines up with your actions you will be happier in life, but that can be said about anything. In my opinion there is never anything stopping you from learning the same things that the “gifted” in a certain field know, the only thing holding you back from applying them is yourself.

Last thing is, the more that I work with different people the more I realize that the definition of entrepreneur is never anything that can be nailed down. Some think of successful billionaires, or a convenience store owner, or a lowly photo booth operator (sorry, I had to). A rough attempt at trying to convey my current definition (and it changes) is that an entrepreneur is “a person who is able to see an opportunity that most overlook and take the necessary action to capitalize on it.” I find it necessary to point out that my definition has nothing to do with owning a company, and firmly believe that most, if not all, organizations have entrepreneurship in them. And if an organization doesn’t, they should go out and get some.

All right, now that the preamble is done, on to the meat:

As I stated above, I believe that we can all learn to be, and benefit from being, a little more entrepreneurial. I don’t have all the answers, but this is something that I actively think about every day. I have come up with a few things that I try to do in order to keep my mind spinning in the right direction, so to speak. Playing sports all my life I know that practice makes you better, and that practice usually doesn’t mean being in a game situation. It’s working on individual skills that will serve you well when you get your big opportunity. Similarly with these exercises, I don’t have to rush out and actually take action or start a business. It’s just good to keep the mind sharp.

1. Is there a gap? Whenever I hear about some sort of change in the market or observe behaviour that is obviously frustrating, I try to think of the existing gaps that could be filled with a new product. I like doing this because it has me thinking of two opposite ends of spectrum. Thinking of how to ease change for people, or how to change their lives.

2. How can I monetize that? Hate to say it, but this is a big part in creation. I wish that I was an academic and was able to get huge grants for my ideas, but no such luck yet. Anything that I do has to make money and therefore I’m always trying to determine how money can be made. I find it very interesting because it’s really all about psychology more than anything.

3. How would someone else see it? I’m a consumer that represents a subset of one group (cheap mid-20s male) and therefore I’m not the ideal consumer for many successful products. Just because I’m not the ideal consumer for a particular product, it doesn’t mean I can’t invent / sell it. Putting yourself in someone else’s shoes is a tough one for me (because I’m so egotistical), so it’s the one I try to focus on the most.

4. Write things down. I have a little book that is usually around me and when I have an idea about anything I write it down, so I can look at it later. This is for a few reasons. First is that I have a one-track mind. If I start thinking about something that I find interesting, I’ll never get anything done. Having the peace of mind that it’s written down lets me get back to the task at hand. Second, once you stop thinking about something consciously your subconscious takes over and I find often when I revisit something I wrote I have a number of new thoughts relating to it, without trying! Oh, and when I say I write everything down, I mean everything, not just ideas for businesses. If it distracts me more than 5 minutes, it gets in the book.

5. Having a creative outlet. This is something I have been thinking about more and more. My thought process is that our thoughts are constrained to thinking a certain way for most of the time. Having some sort of creative outlet lets you express yourself, as well as gets you thinking in a different way than the norm.

6. Do mindless work. You can thank home renos for this one, but I have been loving doing mindless things. When your hands are doing something that doesn’t require much thought, then your mind is free to wander without guilt. Walking, running and other exercises fall into this category for me, too.

At the end of the day, half of what entrepreneurship is about is perception. If you keep your lens in focus and in good shape, then opportunities won’t pass you by!

 

The Real Valentine’s Day

As the most romantic time of the year is upon us, there is no shortage of suggestions of how we can celebrate it. We can buy expensive gifts, go out for expensive meals, buy overpriced chocolates, murder flowers and send them to our loved one. The possibilities are endless.

Why is it that we do it? If you were to read anything about St. Valentine you will find out that his story has little to do with romance. Actually, there are conflicting reports about who in history the official Saint Valentine actually is, and the day could be named after either of them. So, the question is why do we feel compelled to spend money on pink and red hearts when the middle of February draws near.

While it is a popular tale that Hallmark invented how we celebrate Valentine’s Day, but I can’t say for sure. Nor do I have any other specific origins answer. All I know is that as someone who admires good branding and marketing when they see it, there are people out there doing some great work to make sure we continued to get suckered into Vday.

Regardless of the details, I firmly believe that Valentine’s Day would not be the same as it is now if it wasn’t for some savoy marketeers who were trying to answer the question, “How do we get people to irrationally buy things in-between Christmas and spring? There must be some sort of celebration in February that can be exploited.” Thus Valentine’s Day as we know it was created.

While I’m being a little factious about the devious nature of marketing, there are some hard to deny fundamentals that have been paid attention to for the growth of February 14. Here they are as I see them:

  1. Make an emotional connection. Valentine’s Day has this is spades; it is the holiday of love! By taking the strongest emotion (love) and associating it with consumption is the perfect storm in a marketer’s eyes.
  2. Have strong branding. What do you think of when you hear Valentine’s Day? Red, pink and hearts. All simple, all common and all impossible to tarnish. Red also symbolizes anger, but that hasn’t slowed Valentine’s Day at all.
  3. Give a clear call to action. If you love, you must spend. More specifically spend on meals, flowers, stuffed animals, candy, and jewellery.
  4. Make the purchase public and comparable. Dinner out. Flowers sent to the office. Social media has been like a dream come true for Vday. People instantly post whatever they get, making the rest of us thrifty saps feel like fool.
  5. Piggy back on other marketing efforts. No one company has to bare the sole responsibility for marketing Valentine’s Day. Every single ad run helps out every other business involved. This is because as much as the product based ads we see try and sell something specific, the brand is being strengthened and that’s good for everyone.
  6. Get them while they’re young. The greeting card industry has especially done well with this. Children’s Valentine’s Day cards are big sellers, which starts cementing the importance of the day at a young age.

Rather than continue to go on, suffice it to say that the marketing for Valentine’s Day has been done right. Not only this, but us as consumers have allowed it to get to the point it has, and why shouldn’t we? There are obvious and underlying benefits that go along with the day that I don’t have to get into here, just use your imagination.

The one benefit that I will point out, because I think it is hilarious, is that people having a specific date that they can point at to be romantic and appreciate their significant others takes a lot of pressure off the rest of the year. If we didn’t have this one day to focus all our energy on and had to do it on a whim, I think even fewer relationships would work out. Just my opinion, though.

For all my joking, if you have someone you would like to celebrate Valentine’s Day with, that’s awesome. If not, who cares? At the end of the day, February 15 is going to come regardless and the marketers can prepare for next year.

RRSPs Still Strong For Young People

This time of year there is a lot a talk about RRSPs. If your parents were anything like mine, they wanted you to contribute as much as possible in order to save for retirement. It was introduced while they were still children, or not even born yet, and they have been the beneficiary of an entire lifetime of being told how powerful it is for retirement planning.

Recently, though, especially since the introduction of the TFSA, there has been some backlash about the RRSP as an investment for young people. The general premise is that if you are in a lower tax bracket now than you will be when you retire, the much-acclaimed tax deferral is not worth it. This is because you will end up paying more in taxes when you withdraw the money than you deferred when you deposited it. Not only that, but you are paying taxes on the income you make on the investment.

The popularity of the TFSA for young people is because any interest / investment income earned is withdrawn tax-free. This is traded for the fact your TFSA funds are contributed with after-tax dollars (i.e. no deferral). It does make sense for people in a lower tax bracket, and is a powerful savings tool. However, I don’t think the RRSP should be getting hit as hard as it has been.

There are a few advantages to the RRSP that help people save. I have a few quick ones to go over, then a longer one. First the quick:

  •  For some (at times me included) it is a little too easy to withdraw from your TFSA. An RRSP has you paying taxes on what you take out, which makes you think it over a bit more than a TFSA withdrawl which can be withdrawn online.
  • RRSP automation (with is available for TFSA’s as well) is a way to save without thinking about it. You can learn to live with a little less.
  • There’s the whole downpayment on your first house thing (Home Buyers’ Plan), but I’m not sold on that one fully.
  • You don’t pay taxes on gains in the year you receive them. You can then pull it around and plan what you end up paying.

The big one for me, though, is the fact that you get the tax refund now! Getting money today, rather than waiting for some unspecified time in the future when you will be making more, is the equalizer in my mind. The only thing is that it depends on how you use that money.

If you are smart and use it to either pay down debt or save for retirement, it is no longer some straight line comparison of “I’m getting a x% benefit, but will be paying y% in the future.” The money you get back will be compounded, either as an investment or a reduction in interest payments. The really smart thing to do is use that return to invest in your RRSP, compounding the tax benefits you receive. The one thing that all financial planners seem to agree on is that when you’re young, compounding is your best friend.

Now, the final disclaimer is that I have no clue if RRSPs are 100% the best plan for you. It depends on so many variables, many of which have to do with personal habits and even more of them unknowns. I can’t see into the future, so make the decision for yourself, use a financial planner, a parent or friend. There are some online calculators that you may find helpful, just Google it.

End note: If you want to try playing the game of getting the most refund from your RRSP, rather than stockpiling cash for years (and having the constant temptation to spend it) you can always contribute to your RRSP, then defer the deduction. This way you are still saving for retirement, but trying to get the full benefit of the refund you receive.

Best Buy Layoffs

If you are paying attention to the news recently you would have heard about the layoffs and store closures for Best Buy and Future Shop (sister companies). When something like this happens it is easy for us observers to make criticisms of management. How did they not see this coming? Why didn’t the make the changes they are talking about now before it’s too late? I could have done a better job.

While these things may be true, i have to believe that experienced executives with all the information would have wanted to act in the best way possible for the company. It’s not like it was something overnight that happened to make them have to close those stores. So why did they not act?

I don’t think this failure has anything to do with lack of information or intelligent people. Sure, competition was there, but it always is. The business landscape is always changing and countless companies manage to survive and thrive. Why is it, then, that some companies with more than enough resources can’t seem to make it work?

I believe that it is because of the corporate system that public companies operate in now. The corporate structure is failing our businesses, shareholders, managers, employees and markets. Most importantly, it is failing innovation.

Now to get something straight, I am a capitalist at heart. I think at it’s purist it is the system that best represents human nature and facilitates progress. I have nothing wrong with capitalism, or corporations for that matter. In fact, I’m part owner in an incorporated company. We’re small, though, and because of that aren’t confined to the same restrictions of larger corporations.

The restrictions that I’m referring to are not imposed by any government or regulating body. They are created by the corporation in order to attempt to run it “better,” but management and progress struggle in because of it. Here is what I mean:

  • Companies are run day to day by managers. They have the most information about what is happening and are there to ensure that everything is running smoothly in the day-to-day.
  • Overseeing the management team is a board, who is typically used for strategic direction. The managers of the company are accountable to the board.
  • The board is said to represent the shareholders, meaning that is who they are accountable to. The shareholders usually number in the tens of thousands or more.

You can see from the above simplification of the relationships that the accountability stops at a group of thousands of people who have next to no knowledge about the operations of the company, who also don’t know who one another are, let along communicate on a regular basis. This is a problem.

Shareholders are constantly changing and all have different goals. I may invest in a company hoping to make a quick buck, while you buy shares for the long haul. Since this is the case, the board and management can’t stick to showing “success” on one investment timeline. Therefore boards, and the managers who take direction from them, focus on producing short term results, so that shareholders stay happy.

While this may work in the short term, it is not a formula for longevity. Long term initiatives are sacrificed for short term gains. Or because they are too expensive and risky, which is worse because nothing gets invented this way. Some companies know this.

Google, a company I personally admire for their focus on innovation, has a buffer between their shareholders: The co-founders control the majority of voting shares. I have no doubt that at some point in their history they could have cut a project or reduced the amount of capital they invest in random projects or free services. This may have helped them achieve higher returns for that quarter, but I don’t think they would be where they are now.

As a whole I think investors need to stop focusing on the short term, along with companies. Let the managers, the people who live that company every day, make the major decisions.

If you disagree, make a comment!