To Start Your Own Business

So you want to venture down that road of self employment?  Well I've been on that highway my entire life and for me there is nothing better than controlling your own destiny  Here are a few tips that maybe you can use to save some time and also get through those growing pains.

 A) Start with a good business plan, make sure its feasible as most entrepreneurs have the mindset and great ideas but maybe not such a savvy business mind, remember passion doesn't pay the bills 

 B) Incorporate your business, it might seem like an added expense but well worth it as it will protect your personal assets, lower your tax rate, allow you to invest within your own company, pay yourself etc. 

C)  Have a good accountant as this is paramount in the business world. They are experts with the tax codes and corporate finances, certainly someone to have on "your" team to save you money. 

 D) Payroll; Set it up with your local bank to do it for you, as they handle all the deductions to the various government agencies. Also get them to do direct deposit for your employees, as the cost is minimal compared to the time saved.  

E) Be prepared to put in at least 5yrs of long days to get the business up and running, also you'll find that your staff will be your biggest headache; everything from poor work habits, not showing up for their shift, theft and so on

                                            My Solution

 Make some of your employees owners, as then they has a vested interest in the business to make it grow. So what you do is through your accountant get a value of your company, so for example we shall say XYZ Ltd. is worth $100,000 and your selling to three of your staff 10% each, so they individually need to come up with $10,000 to be part owner of the company. The best way is to take it out of their pay over 5yrs, so believe me they will watch the shop for you 😃 and you the owner never give up control because you still have over 51% + stake. After you do not have to be there all the time so you can concentrate on other things  The payoff for them is they become owners without any money down and in 5years the value has gone up for all the partners; so a win/win all around

                                      The Not So Fun Part

Self-Employment does offer freedom, but it also brings significant financial risk, administrative headaches and personal stress

A) Income Instability; your revenues fluctuate monthly, as i used to go weeks without any pay

B) No Paid Holidays; yep, not like your friends who are off on a Spring Break Vacation

C) Zero Employer Benefits; you are on an "island" when it comes to medical or dental plans, so need to pay this directly by yourself

D) Retirement; you lose any access to corporate matching programs that would of kicked in if you worked for another company

E) Complex Tax Filings; be diligent on tracking every expense as you can get audited at any time

F) Challenging Financing; banks want years of tax documentation to approve personal mortgages or vehicle loans and its not easy, as i speak from person experience 

G) Unpaid Administrative Labor; hours spent on invoicing, marketing and client wooing, all for zero pay

H) Management Stress; chasing late payments and being the HR Department dealing with difficult staff personalities that all falls onto the owner. You ask any business person and he/she will always say its the employees that is the biggest pain to deal with

                                    Not So Glamorous & Personal Rant

But its a lifestyle i would never change and now onto my gripe The word entrepreneur in my opinion gets "over used" on many business profiles, as they just throw onto their resume with thought or ever having been an owner

 But until you are willing to risk it all on a market opportunity by launching a new venture, please erase that off your social post as its a disservice to the rest of us who Toil in Obscurity

To be a Landlord

To be a landlord and for sure there are advantages; writing off the interest on the mortgage, insurance payments, repairs etc while your tenant pays down the cost of the house as (fingers crossed) the value goes up. This is what I've learned having a few home rentals on the go and you can decide if its for you or not. 

 A) Location (like your principle residence) is key, as you want the price of your rental to go up so make sure the area is desirable, also if you can afford it look for a duplex or triplex so if one renter leaves you still have income coming in. 

 B) Borrow as much as possible for the building, follow the Golden Rule (get wealthy by using someone else's money) so you then get the tax benefit of writing off the higher mortgage interest to offset the rent, as that's considered an income. Also this way your keeping

your own money to pay down your own cost of living and putting the extra into other investments. Most banks will ask for 15-20% down payment because they deem it a business, so what i did was lived in

the house for awhile which required a

lower minimum amount as it was considered my principle residence, then moved out and started being a landlord on that particular building 

C) Try to be handy with repairs or have friends who are, as paying a tradesmen for all your issues will make you not want to be in the business. Or i always looked for a tenant who was of that talent and i would reduce the rent for them which was a great situation for both of us, as they took pride in their work and they got paid for it. Then you had no worries with all the little things that would arise and trust me, everything does gets beat up a lot quicker than your own home. On that thought, at first i had to keep telling myself not to be in "love" with the property, as it was an investment and don't be disappointed if your folks didn't keep it just so. For example i went with commercial carpet or laminate hardwood floors, stuff that is durable but it wouldn't be what i would use in my own residence  

 D)  Look for smaller lots as its less to take care off and a deterrent for those big backyard bashes 

 

E) Be diligent in collecting the rent and trust me you will hear every story you could ever imagine why they are not able to make the deadline  

 F) On that note, if you find good tenants do everything possible to keep them by maybe reducing the rent, upgrade the washer/dryer, buy them a vacuum cleaner etc, as all landlords have horror stories, so well worth doing the little things to keep your sanity

  G) Finally my experience with management companies that collect rent/screen applicants hasn't been good, they charge 50% first months rent  then usually 10% for each month after. Some issues i had is they would never go out to check the property as they had the tenant mailed in the post dates, but this is what you want as a landlord is those 'eyes' to protect your investment by going to your building for a physical walkabout. Also when vetting out references they would call the names on the applications, as it turned out most times it was relatives who gave glowing reviews only to find out to my chagrin it was not so good, plus this process cost you hundreds of extra dollars  

                                                  My Conclusion

So there is my list of the dos and dont's and i have known some folks that have done very well in the landlord game but i had my taste of it, personally i rather have a piece of paper (stock/mutual fund) that doesn't call me on a weekend night saying the toilet is plugged or Aunt Mabel needs a kidney transplant (true story 😏) and thus the rent money is needed to be by her bedside

                                       Other Financial Disadvantages

A) Maintenance; landlords are responsible for big ticket items like a new roof or HVAC replacements

B) Vacancies; when the tenant moves out the mortgage and property tax is still due, plus turnover cleaning, minor renovations (hopefully) and marketing

C) High Asset; if needing emergency cash, you cannot liquidate a house as quickly as selling off stocks or bonds

D) Delinquent Tenants; even with a careful background checks your "people" can cause severe property damage, leave pest control issues and be owing months of past rent. I lived through all of the above, no fun as its hard to believe humans can be this way

Dollar Cost Averaging & Dividends

                                                    Dollar Cost Averaging

Its a savvy way to invest/reduce risk of the market swings, with the joint power of regular Dollar Cost Averaging and the Reinvesting Dividends strategy. The end result is your "real cost" (what you paid in) will be lowered over time with this consistent approach

                                                          The Numbers 

We start by buying a set amount of investment each month and thus provides insulation against changes in market price. Say we put in $100 per month and the unit cost $10 in January and so we get 10 shares, another $100 in February and the unit price drops to $5.00, so we pick up 20 shares. March, $100 goes in and the unit price has bounced back to $7.50 per unit and we get 13.34 shares. Now looking at this from afar, you say i started out at $10 per share it fell to $5 and rebounded to $7.50, I've lost money. But wait that is magic of this game plan, as you picked up more shares when the price was down during those months. So you ended up with 43.34 shares x $7.50 ( March Unit Price) = $325.00 and your "real cost" was $300.00  

                                                               Reinvest

Next we make sure that the bought units pays out a dividend, which is when a company earns a profit and it distributes up to 4x per year to its investors Say Company XYZ paid you a $50 dividend for its 1st Quarter in February, so then you would of received 10 shares ($5 Feb unit price into $50) again this will bring down your "real cost" as you have more total units.

                                                 Watching Your Bottom Line

 Now if investing larger amounts per month, the entry point into the market is key and this is where a good investment company comes into play if your nervous about doing it yourself. I so, then ask/watch about their management expense ratios (MERs) or sales commissions (front end loads and deferred sales charges) as these fees can put a huge dent into your profits. As in Canada we have some of the highest mutual fees in the world and most are hidden or never seen on your statements

Also another saving tip is to stick with your own countries markets, this is to eliminate the steep currency conversion costs

                                                              Other Options

Look for brokerages with zero fees on certain purchases and use the DRIPs which is a dividend reinvestment plan that allow you to automatically reinvest into shares for $0 commissions

Finally utilize any tax advantaged accounts that are available and this will protect your compounding growth from taxes

Fun Math
Nothing gives you more incentive than watching your investment grow, so to calculate when it will double your cash, use the Rule of 72
For example if you have $10,000 working for you @ 6% fixed annual rate, you divide 72 by 6 and in 12 years you will have duplicated your money

Great Perk
If your company runs this program, absolutely yes to sign up
They will offer a discount of 10 -15% off the market price, you choose what amount that comes out through the payroll deductions and the best part is a benefit called the "lookback provision" This means your company will review the stock price on two dates (the start of the offering period and the purchase date) and applies your discount to the lower of the two prices

Renting as an Investment

                                                            The Debate

Now with the money saved from the previous writings i am going to say that renting is an investment and no i am not trying to be funny, hear me out. 

 

                                         Different Circumstances For Everyone

 There are various factors that come into play here for buying a place to reside and maybe some of these will work out for you; like the timing of the housing market, location, you doing some sweat equity and maybe its just because the family needs space or for a school location. But in my humble opinion renting in todays economic landscape has the most upswing for your investment purposes, i will explain

                                                          The Numbers

  For comparison, lets take an average mortgage of $600,000 over 20yrs @ 6.8% = $4,580.04 per month and that's if the rates stay at its historical lows, then add property taxes, heating, power, water, insurance etc, which is another $700 (a low estimate) for a total of $5280.04

 Then your rent say is for $2,200 everything included. With that extra three thousand dollars per month, which is $36,000 per year and invested into a 5% vehicle, it would give you around 1.25 million dollars after 20 years.

                                                      The Beginning Costs 

A) minimum house down payments required in Canada;

 $500,000 or less is 5%, 

$500,000 - $1,499,999 is 5% on the first half million and 10% for the above portion, 

$1.5 million or more is 20%

So at least $25,000 up front cash

 B) also you would have to spend for these closing costs; deed transfer tax, lawyers, home inspection, appraisal fee, title insurance, property adjustments paid back to the seller on prepaid utility bills, property taxes, this all adds up to $4,000+ 

                                                  Out of Pocket Expenses

Meanwhile (in time) your home is getting older if you bought new which will require upgrades and if you purchased an aged dwelling expect some repairs. Yes i know the equity has gone up, but factor in these additional costs based on the example of the building that was purchased at the above mentioned price of $600,000

Now some on this list you can take on yourself which saves some money, but most please leave it to the professionals as either you will cause more damage or end up hurting yourself 

A) Roof; a life span is 15-20 years for most new shingles and depending on the size, anywhere from $10,000 - $20,000 . Then add in additional repairs if they find rotting plywood decking, damaged trusses or the flashing needs to be upgraded. Also if the pitch is steep or has complex angles, all of this will add to the labor costs

 B) Heating; replacing an old furnace and that cost depends on which the type you get, but generally between $7,000 -$12,000 Then additional expenses of removing the old unit, ductwork modifications if needed, permits and inspections plus added labor depending on the systems complexity

 C) Septic System; replacing it is on average $8,000 with add-ons that include permits from local health and building departments, percolation test on the soil and yard restoration  

 D) Kitchen & Bathrooms Upgrades; a kitchen can run you from $20,000 -$100,000 depending how far you want to take it and bathrooms $5,000 - $30,000 with the size of the restroom plus its finishes. As with any renovations, factor in the "hidden surprises" especially with older homes, which will need  replacement of all the outdated wiring and plumbing which then brings it up to code

E) Appliances; depending on what needs to be replaced, but factor in $5,000  

F) Back Deck; between $8,000 - $25,000 for what size your replacing, with added fees for the demolition and removal of the old structure, footings plus piles, the railings and of course the building permit which goes by what the total construction value will be  

G) Windows; generally $600 - $2,000 per glass pane depending on which type you choose. An average home will have ten windows multiplied by $1,000 for a $10,000 total

H) Outside Painting or Siding; $4,000 - $8,000 depending on the home size and with siding, stucco or brick much higher

I) Landscaping; $5,000 - $15,000 per yard

                                                     Asset Accumulation

 So really what a mortgage does is forces you to save, but if you have the discipline to put that extra money in an annual investment you are ahead of the game

                                                         X Factor

 Research has shown the prefrontal cortex of your brain (the area responsible for decision making and logic) has stronger, more efficient neural pathways in highly disciplined individuals. So like a physical muscle these connections strengthen the more you practice self-control

So that being said, we are not all the same so if you cannot "hold" onto extra money, continue with your bank payments 

The Myth
Our parents grew up in a different financial era when they bought a home decades ago, as the price to income ratios were low which made sense to buy a property

My Closing Argument
House prices have climbed much faster than the regular wages over the last twenty years, so with the national benchmark prices hovering around $660,000 it requires a massive debt load
The hidden costs ( that i outlined earlier) eats profits which once subtracted gives you around a 4.5% net annual growth on real estate compared to stocks that historically have returned closer to 8% over the long term. The core summary on this subject, buying a home in Canada and treating it as a guaranteed financial windfall, is an outdated notion 

'A' List Savings & Tips

Our second lesson and the classroom filling up, nice. So we now know if we want to achieve goals in life we need to cut back on the "wants" list, but there also ways to trim the "needs" column so here we go.  

 A) Mortgage or Rent; taking in roommates you can either apply your sub rent directly to the mortgage (it will come straight off the principle saving you thousands of dollars over the term in interest) or if renting you can invest monthly your borders money making you wealthy in time.

 B) Groceries; we all need to eat but it doesn't have to cost as much by buying in the bulk sections so saving on volume and not paying for the packing. Also what is with society eating all this prefab meals anyway, ever wonder how it keeps its shelf-life so long?  So never mind talking about the health issues with the "convenient" way to eat, save big dollars by doing the cooking yourself by picking a day and prep your meals for the week with say a roast beef, turkey etc and be inventive to keep it tasty.

 C) Clothing; there is such a mark up on apparel even when it is 50% off your still paying too much, so look for those stores that mark down the designer brands and save the big $$$  and looking is half the fun is it not? Also learning to mix and match outfits which will reduce the need for more threads hanging in the closet (if you do not have an eye for it just ask a friend who does) and for under-garments and kids outfits any discount box store will do. Also ever notice how some people are styling no matter what they are wearing, its because they are in shape so in other words spending a lot of money on a suit/shoes etc. is not going to change your look, take care of the body first

 D) Transportation; everyone has different circumstances here, without saying using the car less saves you coin and if living near work/school the use of public transport or a car pool plus walking is great. But if buying a car look for the lease buybacks, why? it will have low mileage and warranty as the new car dealers take on the fleets from the rental car agencies to keep rotating their new products to them  Or go to any established used car dealer which offers the same and save big money, i know buying new seems glamorous but there is such a depreciation loss once you drive it of the lot, so
just get some nice air freshener and and think of all the dollars you just saved 

E) Furniture; another mark up king, used pieces or mark downs due to scratches/nicks are just as good. Personally i rummage through old antique stores and find some unique pieces at a great value. So as you see its all how you look at things, as my best friend says; "look beyond the bumpers"

The Beginnings

Before we can start to save for that dream property,
vacation, car, etc. we need to get our financial "house" in order. To begin; make a list of what comes in for income and what goes out for expenses (dates for both). Much like writing down what we would eat to make changes in our waistline, this we will call a financial diet and trim the fat from our expenses to fill that wallet of yours. Here is an example list; A) Rent/Mortgage B) Groceries C) Credit Cards D) Car/Transportation E) Clothing F) Personal Taxes G) Health Care H) Life Insurance I) Furniture  J) Eating Out K) Entertainment ( movies/bars etc) L) Recreation. 

Like any responsible business you need to have enough income coming in to cover the bills going out, so not running into the red. If you do not think this is how it works then you are delusional and should be running for political office 😅, as that is why most governments have a deficit  Also living on credit does not work either as the interest will kill you and you are just working for free, not much incentive to get up Monday morning is it?  Us humans are a funny breed, what we consider a must as part of our wants and needs (in most cases) has to change. 

There is an "A" list of bills;
having a place to live, to eat, clothing and transportation. 

               Wasteful Debt

Its the dining out at expensive restaurants or food deliveries, needing that $7 latte, meeting the boys downtown (every weekend, really), extra pair of shoes to go with the 100 you  already have, spa treatments, a gym membership that comes out each month that never gets used; you get what i am talking about. As North Americans we have grown used to living off borrowed money, well if you want more out of life you need to change that mindset. 

                                                           Outlook Reset

So with just a few small changes in lifestyle you can achieve whatever your dream is by paying yourself first, say 10% of your monthly salary (set it up either with work or your bank for automatic withdraw and you will not miss it) and put that on the "A" list and then start reducing some of those off your wants column . So if your goal is to buy a condo for example, a down payment/closing costs is $20,000 or that holiday in the South Pacific at the same price, then by paying yourself $600 per month for 33 months you achieved it, then get ready to turn that ownership key or book that flight to Australia. Just give up a few extra nights at the bar, maybe brown bag it to work three times per week, making your fav coffee at home for pennies a cup, whatever it is the above list will tell you what to cut back on. I am not saying to give up on everything as its a matter of perspective on what you really want in life, so look in the mirror and you decide.