Josh Moore

Minimalism part three: Investment

(Photo by R.mohseni)


Getting your personal finances in order and setting up a micro business is the first (and generally harder part) of getting on the path to acting on your dreams. Having a minimalist approach to success in all aspects of life can greatly increase your time and results without the associated hassle, costs and stress normally required.

Investment is a subject that many personal finance bloggers seem to cover. Usually their advice is similar to the following:

  • Invest in your superannuation (or 401(k), Roth IRA, etc. depending on where you live).
  • Build an emergency fund.
  • Buy Indexed funds and diversify.
  • Reduce your expenses and live on bread and milk.

Doing all of these things can greatly help you, but they can only get you so far. Warren Buffett suggests that average investors buy index funds, diversify and invest for the long term. The question that many personal finance authors, bloggers and more fail to answer is this:

At what point does an individual become more knowledgeable than an average investor?

It is unlikely that Warren Buffett invests in index funds himself. He invests in his own business(primarily) and a few major stocks/shares that he knows will be around for the long term. He does not intend to sell his shares and does not divserify. He classes himself above the average investor (and his returns obviously demonstrate that fact).

Investing in your own businesses and areas that you have knowledge about can help you to build wealth.

Focusing also reduces stress and provides a sense of minimalism in investing. Minimalism is not designed to make you suffer. It is a choice to eliminate the unnecessary to focus on what is truly important in your life. If you want to be financially comfortable later in life but don't want to spend time educating yourself, then perhaps index funds are for you. However, you might find that you have more knowledge that you believe, which will put you above the ranks of the average investor.

Determining your goals

The first thing (as with all aspects of life) when planning to invest is to determine your goals. This can be done by asking the following questions:

  1. What am I trying to accomplish?
  2. Why am I investing?
  3. When do I want to realise my gains?

Without knowing what you are aiming to achieve, how will you ever know if you are on track? I see this with individuals and businesses all the time; they are making progress, but could be making a lot more if they knew what they were specifically trying to accomplish. Using S.M.A.R.T.E. goals to outline objectives can greatly improve output and progress, while also strengthening focus.

The information advantage

Are you qualified in a particular area? Do you know more than the general public about a specific topic or business task? If so, then chances are you have an information advantage over the average investor.

An information advantage allows you to make more reasonably calculated decisions based on your expertise that the general public would not normally be able to make. Let's use an example to illustrate...

Bob has been a carpenter for the last six years. In that time he has completed an apprenticeship and gained a lot of knowledge about building and renovating houses. Bob has no real knowledge surrounding the stock market, but understands housing and building at a level above the general public who have not had the same amount of experience in the industry as Bob.

Bob has an information advantage. Using what he knows, Bob can focus his strengths in three core areas in the building industry:

  1. Building a business: Bob (with a little bit of research) can begin to build a business that sees him not only go to self employment but to becoming a business owner with employees, multiple jobs and a diversity of clients. This can expand his wealth as he can find ways to increase cash flow from the company, while also building value through the shares he holds in his business.
  2. Investing in property: Bob can invest in properties. With a knowledge of carious costs and resale values, Bob could renovate, buy and hold (using positive cash flow investing, not negative gearing), develop land, subdivide blocks and much more. He could use his knowledge in building to do deals that will produce capital gains for him while also purchasing properties that can be rented out to provide for his retirement.
  3. Education: Rather than trying to learn about stocks, Bob can invest in improving his education in the area of his core strengths. Later (after he has reached a level of success) he could begin educating others (for a fee) on how to follow a similar path.
  4. Simplicity: Bob realises that fancy cars and owning a home with an expensive mortgage are not necessary, so he only buys what he needs. By having a smaller home than most of his clients, he has less debt and overheads causing him stress, and he is living within his means, providing him more capital to put into further investments, business development or savings.

The benefit for Bob here is that he is using the 80/20 principle to maximise his results while capitalising on his information advantage. Bob can sufficiently retire successfully without spending time researching mutual funds and living cheap, as his investments reflect his core knowledge and skill sets.

One can see from the above hypothetical example that success can be achieved using a simple five step process:

  1. Education: Developing core strengths rather than weaknesses provides a much more useful information advantage (aka specialisation in two-three major areas rather than generalisation in 25+ areas).
  2. Income: Setting up a small business (even part time initially) is a great way of improving income. Overheads can be kept to a minimum while starting out, and plans can be made for long term expansion of business development.
  3. Simplicity: Focusing on strengths, living on less and buying only necessities can provide a life of content while reducing stress.
  4. Savings: Living on less than you earn allows a buffer for savings to develop, which can then be used to invest.
  5. Investment: Focusing on core strengths and information advantages is key. Ideally, income generating assets are prioritised, with capital gains being focused on for long term wealth building.

Everyone has a unique situation. Investing is superannuation and emergency funds, etc. are definitely beneficial for everyone. However, there is potential to make more money by using the knowledge you have already acquired (and continue to build upon) to be successful.

Useful tools and resources:

  1. http://www.wealthtipsonline.com.au/ (for personal finance and business development basics).
  2. http://www.fourhourblog.com/ (see this article for investing and information advantage).
  3. The Cashflow Quadrant by Robert T Kiyosaki (Introduction to wealth creation basics).

Mindset 101: Don't wait for perfection... Take action now

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(photo by WTL Photos)

Do you want to accomplish the big goals and dreams you have for your life? It is impossible to achieve big goals without taking some form of action. Many of us fail to act because we expect things to be perfect before we start.

Small steps to success
Taking action is critical to success. However actions do not need to be huge in order to get started. As human we often tend to have a goal and see ourselves as being able to obtain that goal rather quickly so that we can move onto other goals and dreams. The reality is however, that the initial goal we have is usually one of the latter. In order to achieve our first goals, we need to break them down into bite sized tasks, and to begin taking action without over-analysing the situation.

Do you want to start a successful blog, or build a big company? Both start with just an idea and one customer. Coke began in an old kettle and a recipe for the mixture contained within, which was bought for $500. McDonalds began as a single store. Jonathon Mead from Illuminated Mind began as an employee (congrats on reaching self employment).

We all have to make a start in order to reach our goals. The key is to dream unrealistic and to begin with something that is realistic to achieve.

Take the example of becoming a millionaire. With the exception of an unexpected inheritance and winning the lottery, most millionaires begin by taking action on a realistic level. Even the lottery winner buys a ticket which they can reasonably afford.

The right attitude towards goals and actions
Making a start on dreams and desires begins with the right mindset. Realising that goals need to meet S.M.A.R.T.E. criteria, namely:

  • Specific (save more money vs save $10,000).
  • Measurable (success determined by $10,000 in my bank account).
  • Achievable (I can save $200 a week, therefore achievable).
  • Realistic (I can't save a $1,000,000 at this point in time, maybe in the future).
  • Time bound (save $10,000 in the next twelve months).
  • Emotionally charged (the reason why I want $10,000).

Getting from the starting point to the end result
This involves three steps:
  1. Realistic actions.
  2. Persistent achievements.
  3. Unrealistic results.
Realistic action begins with what you have. Don't have any money to start a business? No problem! Find something that you can do today to help you make money, or begin finding a way to build your business without capital. The actions you take will depend on your goals and current situation, but it really doesn't matter. Provided you continue to move forwards, any action that is realistically helping you is better than no action.

After establishing realistic actions they begin to develop into habits. By persisting on realistic actions, achievement naturally begins to occur over time.

For example: you might have a goal of having $100,000 in the bank in five years time. You realise you will be able to save $200 a week for the next five years, which will give you $52k at the end of five years (not including interest, which only really covers inflation at best).

By developing this one habit alone and persisting for the whole five years, you will be able to accomplish more than 50% of your goal! With a little more planning over that period, you might be able to start a business, get a promotion/raise, reduce expenses or find another way to make up the extra $48k. It is the little actions that are seen through with persistence that build success.

Once you begin to see achievement as the result of realistic actions, you begin to position yourself for unrealistic results. Unrealistic results can occur with a lot more ease than realistic goals, but require the realistic foundation to help drive them out of the abyss.

An example of an unrealistic result might be receiving an offer from Google or Microsoft to buy a share of your company. It might be getting the front page article on the newspaper of your choice. All of these results are usually based on momentum and action you developed.

Don't over analyse
Don't spend too much time planning what you what to accomplish. Take action and adjust course along the way. You can steer a sailing ship but if you spend all your time thinking about putting up the sails you will never move towards your destination. Take action and don't be afraid to make mistakes and learn along the way.

Paradigm shift: Work for the man and yourself at the same time

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Photo by Laure Wayaffe

Do you want to work from home? Are you looking for a way to live the lifestyle of the self-employed? Do you want to be able to have the stability of a regular income and job security?

These days, it is becoming easier for a number of dedicated individuals to be able to have the benefits of working for the man and themselves. This makes an interesting situation where you have the strengths and security of a regular paycheck, while also being able to gradually build up entrepreneurial endeavours and work towards accomplishing dreams.

To have the best of both worlds, there are five stages to accomplish. These are as follows:

Stage one: Finding suitable and relevant employment
Stage one of this new business model begins by determining your goals. What is it exactly that you want to accomplish? Do you want to end up being self employed in five years time? Figuring out what you want from life will provide a list of skills that you will need to begin to acquire.

Ideally, you will focus on the skills from the list that harmonise with your current strengths (using the 80/20 Principle to focus on increasing strengths with less effort than reducing weaknesses). If you are good at marketing, then perhaps this means developing some online skills and the supporting admin and operations skills can help you improve your current strengths. If you are good at speaking to groups, perhaps this means developing skills in speaking in workshop environments, where you can get paid more for your time and knowledge.

Once you have determined the skills to acquire, the next big task is to determine the type of job that will get you there. If you want to learn new skills and are willing to be in an office during this time, then perhaps a corporate company or medium business is a good idea. If you want to focus on becoming location independent (for travel in the longer term) than perhaps an entrepreneurial small business is more suited to your ideals.

Determine the position and begin searching. Don't compromise on your main priorities (ie: location independence) but be prepared to be flexible (ie: Work from home only part of the time). You can always negotiate the details later on.

Stage two: Developing the base platform
Upon obtaining your ideal job for learning the skills you need, the next stage begins by working hard. Take on all you can, and learn as much as possible during this time. Make sacrifices and challenge yourself to take things to the new level.

Around this time, you also want to be focusing on shaping up your personal finances. Start budgeting, build an emergency fund, and begin setting up the necessary tools and equipment to suit your future planning. You might also begin to establish your networks and online presence (website, blogging, social networks) to ensure you begin to become a person of influence.

Stage three: Working for the man (and starting for yourself)
As you become more reliable and able to work efficiently with your team, you will want to start taking small steps towards your long term goals. If becoming location independent is your goal, then you might begin working on coming into the office less often, or suggest alternative ways of meeting to reduce team travel and overheads (ie: Skype, IM, etc.).

If you are working well in a small business, you should be able to become mostly independent of location provided your employers are happy for this. This will give you the opportunity to have time to develop your own businesses. Start developing your company online slowly with minimal funds and effort. You can scale up later, but for now just do the minimum to see if there will be any traction surrounding your concepts.

Stage four: Joining the man
As your businesses start to take off, you will find that you begin to rely less and less on your employer for learning (however maybe still for income as you may be reinvesting the revenues in your ventures). This is where you make a new goal for your employer: Focus on obtaining a sharehold in the company.

Obtaining a shareholding in the company provides a number of benefits:

  1. You become an owner (however small your sharehold) of the business for which you work (nb: you should be thinking like an owner already at this stage).
  2. You become harder to eliminate and replace. Having a sharehold helps your employers to keep you around, as they don't want to see a part of their business disappear to outside parties.
  3. You secure your income from a source outside of your business.
  4. You establish credibility for being associated with a current venture (experience, status, whatever it may be).
  5. You begin to build wealth by growing your sharehold.
Stage five: maxing out your ventures
By this stage you should now have all the benefits of working for yourself and the man, without and of the setbacks. You are able to work from home and have a sharehold in a business. You will also have a support team with experience and an income coming in (which is not the case for all business owners). Also, your personal finances should be in order and you will have hopefully developed an emergency fund of $5k-$10k to cover any shortfalls in your other businesses, and to be available for other opportunities. You will also have developed new skills to use to market yourself to new businesses you may want to start working as a director in.

By this stage, you will want to begin building up your projects outside of the initial company. This will help you to begin leveraging your time and resources, while minimising the risk of losing income from one single source. You will also be building yourself a nice sharehold portfolio of startup businesses that will begin to expand, and have the time and ability to work on multiple projects at once.

Setting this process up will take time (about 1-2 years for the first four stages) but in five years time you will be in a much more beneficial position to taking action upon your dreams.

How to reduce the zap from your utility bills

(Photo by S2art)

Do you want to reduce your home electricity and gas bills? There are several tips out there, ranging from changing light globes, using surge protectors, turning off your T.V. and other appliances at the power. All of these are good and useful suggestions, but rarely add a huge level of savings to your bill.

A few years ago I had the privilege of undertaking a building course and a various number of building classes. I learned a lot of skills during this time and developed a lot of common sense (which in the industry is deemed as not being that 'common').

In one particular building class I attended, I was learning about some of the principles ensuring an energy efficiency rating of five stars on a house (minimum for all new homes built in Australia). Throughout the time in this class we also learned the three major expenses which cost you the most on an ordinary electricity and gas bills and how to reduce them. The three main consumers are:

  1. Heating/Cooling: Maintaining a comfortable temperature in your house.
  2. Heating Water: For showers, etc.
  3. The Fridge: The mighty food storage unit.
Some of you might be looking at these and thinking there are obvious ways to reduce these expenses, and you may be right. Some of these are 'common' sense and others are not so common.

1. Heating/Cooling:
You can reduce your heating and cooling costs by implementing some of the following:

  • Wear thermals: Wearing layers of clothes rather than heavy items is one of the best ways to keep warm as an individual. Wear thermals and turn the heater off when you are home alone.
  • Close all curtains: Hot air rises and attempts to improve the temperature of cold air (trying to create an overall 'balanced' temperature. Closing curtains to reduce the heat from escaping through windows can help.
  • Remove skylights above stairs: They look nice and let light in, but the heat tends to escape through skylights from downstairs rather than heating the whole house. (note: there are some measures you can implement to reduce this)
  • Install double glazed windows: Double glazed windows reduce heat from escaping as easily, and with closed curtains can increase heat big time.
  • Get in your roof: A lot of houses have a type of insulation that blows around (as opposed to sheets). Over time, this insulation moves around, reducing the ability for a house to retain heat. Getting into your roof (if you have this type of insulation... forgot the name of it, sorry) and moving the insulation around can help to retain heat and minimise expenses.
  • Turn the heater down: Implementing the above tips can allow you to turn the heater down a bit. By reducing the output you consume less gas/electricity which allows you to save more money.
  • Turn the heater off: Don't leave it on heating the house while you are out during the day.
  • buy/rent a house with multiple opening windows: On a warm day, a breeze through the house with the windows open of an evening can reduce the contained heat.
  • Consider alternatives: If you are planning to build, consider using mud-brick, old car tires (true), etc. as a house design. The insulation effect helps to keep a house warmer/cooler inside depending on the climate.
2: Heating water
The main ways to reduce the amount of water you heat are to:
  • Shower for shorter periods.
  • Turn the thermostat down.
  • Shower cold (who would want to do this one???)
3: Fridge
The fridge is one way to reduce your bill that a lot of people overlook. The trick is to prevent the Fridge from turning on and off as much to keep things cool (thermostat). Useful ways to do this are:
  • Dust the elements on the back of your fridge every fortnight: The dust build up increases the amount of work the fridge has to do, Keep it clean.
  • Turn the temperature up slightly: A mild change can make a huge difference.
  • Fill your fridge: Every time the fridge is opened cold air inside is replaced by hot air. Fill your fridge with bottles of water which will help to eliminate the amount of air that can fill the void space. Once the water has cooled it will help keep the thermostat from clicking on as often as the water temperature will keep the whole fridge cool. If the power drops out, this tip can save your food from spoiling, saving additional money. You can always drink the water too.

This in effect is similar to the Pareto Principle. These main uses of gas and electricity account for around 70% of household bills. Implementing these tips will save you a fair portion on your electricity bill, without investing a lot of time into the process.

How do you save money on your utility bills?

How to own social media

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(Photo: carrotcreative)

Social media is ever becoming a time consumer that we can spend lots of time on. Although there is a lot of useful content, ensuring we only receive the truly important is essential to our success.

If you are anything like me, chances are you are using a number of social media tools, including:

  • A blog (Blogger or Wordpress)
  • Micro-blogging (Twitter)
  • Socialising with friends (Facebook... or the dying Myspace)
  • Professional networking (LinkedIn)
  • News and reading (RSS or Email)
  • Communications (Email, websites and blogs)
Unfortunately it is not that often that the majority of these provide a benefit to our lifestyle. I caught up with an old school friend a few weeks ago who only has a work email, and doesn't use the Internet for anything at all. Better still, he has no computer or Internet expenses, and is currently living rent free. This allows him to live a lifestyle full of partying, socialising and having fun with friends, which he is more than happy with.

Reviewing all the sites and tools we use, it gradually begins to get to a stage where we spend more and more time on computers... rather than them being a useful tool on the side. Luckily, there are ways to reduce our habit addictions:

  1. Reduce your email: If you are an information worker, most of your work comes through your email account, which can become very stressful. Reduce the stress by having all your email accounts forward to a single Gmail account. Screen all email as they come in, and take action as required. Once a month you can use Outlook (or another equivalent) to download archived emails in the event you need them for future reference. These can be found by doing a search in Outlook later on, or deleted if not used at all. Have a second email address for all junk email to go to then never check it. I use my old hotmail account for this.
  2. Outline goals for social media: What is your goal for social media? Initially (a few years ago), I had no remote interest in social media and only saw it as another consumer of my time. Unfortunately it has managed to take up a fair portion of my time over the last year or two, which can be a problem (that time could be used to study or work, etc). Minimise the social media you use (depending on your purpose). Twitter and LinkedIn are much more beneficial from a business perspective for me, and they both take a lot less time to manage than other sites.
  3. Link remaining social media together: Using other sites like Facebook, Myspace, etc. that are not benefiting your goals? Link them with the other sites you do use! Set them up for one-way communication streams using ping.fm, then stop using them.
  4. Minimise input: I have reduced my RSS feed down to five feeds. My criteriafor feeds are that I have to receive personal value from the blog or site in relation to what I am doing. Also I need quality not quantity. One post a week that shows me how to save $70,000 in my lifetime is more useful that two posts a day on how to save $1-50 a year.
  5. Get out and network: I have just started writing posts for Anthill magazine's website. The conversation that made this possible was offline. Getting out and networking definitely can improve your results.
  6. Add value: Only say something online if you believe you have value to add to those with whom you are associated. If what you are doing is valuable, then it will be beneficial. If not, no one will care. Find your value proposition and put your energy behind it.
  7. Increase output: One of my mentors has minimal contact with me. I send him an email about once a month, and he replies. It is a simple relationship, but the results have been fantastic. Those few emails have helped me improve my goal setting, helped me save $5,000, provided me with insights into business deals I have since declined and accepted, and helped me get the best value for my time in both my work and my life. How much output can you produce from one email a month?
  8. Use your phone: A few months ago I received a text message from Ross Hill. He had seen a copy of my email auto-responder a friend receive and sent me a reply saying "Auto-response emails are rude. Why not ditch your phone and instead use email. It is more scalable". Unfortunately, the reverse is true for me. I want to get away from email as much as possible. For every email I respond to I get one "OK" or "Great. Thanks." Email back. 100 of these a day becomes useless and is not scalable. Same is true for sms. Ditch email and call somebody. Rule of thumb is that if it will take two or more messages (sms or email) to sort out then call to rectify. It costs less overall (time and money).
  9. Eliminate points of contact: With so many ways to be contacted now, it can become rather difficult to tell people where they can find you online. Select one place (Ideally your own website or blog) and refer them to that. Ensure that site contains a list of other points of contact via a Contact or About page. This can save you having to chase up potential leads all over the web. My point of contact is this site (www.moorethought.com)
  10. Receive value: The Internet costs money to use. If effect, we all should be making money from it to justify using it in the first place. This might not necessarily be in the form of dollars. It could be in potential leads, online research, and time managment, improving productivity, freedom from location (allowing you to work while traveling or even live on less overseas). Determine how you will get value from the Internet (exposure, connecting with individuals worldwide, tertiary study research, etc) and then use it with this purpose in mind.
Social media can be a useful tool for businesses and individuals. Use it, capitalise on it however it benefits you, but don't let it rule your life.

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Note:
In the fashion of increasing value for my readers, I have now included a 'gear' page in the menu navigation. Rather than writing several trivial reviews of books and products I have found useful, I have decided to put up an Amazon store where you can see (and purchase if you desire) the books I have found useful and the tools I currently use (you can alternate between the two in the sidebar on the page). I will keep this updated regularly, so you can be sure any new useful books or tools are included there.