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Brainstorming
I started brainstorming ideas for a passive income business. I actually tried out a few businesses without too much success. Here were some particularly bad ones:
 Candy vending machine. I’ve been a longtime fan of Brian’s blog over at geniustypes. In fact his argument for starting up a candy vending machine is so persuasive that I decided to try it myself. I didn’t immediately invest and buy machines; I started by calling around to about 10 local spots to see if I could negotiate a deal with the store-owners to place a vending machine on their property. Candy vending hot spots include: laundromats, shopping centers, restaurants…basically anyplace where people are standing around waiting for an extended period of time. But take a look at some of these locations and you’ll be amazed at the multiple candy vending machines already present. I was completely taken aback by how saturated the candy vending market is in Los Angeles. Plus, during my negotiation conversations, I was notified that several Sweet Factories were going to be opening up in hot spot areas. This pretty much burst my bubble and any aspirations I had to become the Willy Wonka.
- Electronic importing. There was a period of time when it seemed like everybody and and their mom were importing goods from overseas to distribute in America. This was right at the height of the market craze in 2007; people was flush with cash and I wanted to get in on a piece of the action. I decided to start small again and test the market. I contacted a friend who was studying in China, and he managed to locate a quality name brand memory card manufacturer. We partnered up to procure a small quantity ~20. He shipped them over and I started shopping around on ebay and various other retail outlets to see if people would be interested in buying them. The interest existed; however, we made several crucial mistakes.
- In order to maintain higher profit margins, we selected cheaper shipping methods, and basically cheap = slow. The memory cards took longer than 3 weeks to reach me.
- I learned that the dynamics of the electronics industry change incredibly fast. In retail, timing is just as important as price. During the three weeks I was waiting for delivery, other generic brands popped onto the market, chips with greater memory capacity were released, and this depressed the price I was able to sell at.
- The electronics market is unbelievably competitive. With sites like amazon and eBay, competition is cutthroat. In our case, since we were selling a relatively inexpensive item, competitors were willing to settle for razor thin profit margins. If you want to sell low cost items, you really need to buy and sell in large bulk quantities because the profit generated from a few pieces is simply not worth the effort. Needless to say, after several weeks of stress and frustration, we sold all of our stock and pocketed maybe only 20 dollars in profit. My partner and I discussed looking for high end luxury items to push on the retail front, but then the economy turned sour and we ended up parting ways.
- EBay. Ask anyone and eBay is usually the first step for the budding entrepreneur. EBay allows anyone to sell practically anything, and you’d be surprised that there exists a market for essentially everything you currently own. It’s quick, it’s easy, and provides a great way to make some extra cash. I started by gathering up all of my old unwanted items. This included: books, electronics, and even clothes. I basically tried to sell anything the that I either didn’t want anymore or hadn’t used in a long long time. And I actually made several hundred dollars selling things that I would have otherwise just thrown away. An good strategy for long term ebay selling is to just drive around and rummage through your local garage sale listings. There are a lot of hidden gems at these sales. With practice, you can develop an eye for value, and you actually get quite good at spotting deals that might be turned for a profit online. The main downside to that this business is that it’s hardly passive at all because you’re physically going out scouting for products. It involves a lot of work, and as the months progressed, I eventually just got too busy lazy.
 Look Within
The key to brainstorming good business ideas is really just to evaluate yourself. This process can be intensely personal, but I think you’ll find that it yields the most original and effective ideas. Ask yourself: What am I good at? What do I want? What niche markets am I interested in? What difficulties and “pains” have I recently encountered? More importantly, how did I overcome said obstacles and how can I help other do the same?
There are a lot of different techniques and tools that you can use to aid this process, such as: brain writing, brainstorming, mental mapping etc. Experiment with them all and use whatever tool you feel the most comfortable with. I actually favor traditional brainstorming because I’m a pretty simple minded person and I like things clean and easy. Just get a piece of paper and starting writing things down. Whether your ideas are related or not, thoughts may be a bit slow forthcoming at first, but ideas build on each other and soon you will have a fat list of prospective business ideas.
It was around this time that I stumbled upon Pat’s blog at Smart Passive Income. He offers a really inspiring story about how turned a chance layoff into a massively successful internet business.
My big idea is going to be revealed really soon, so keep checking back for updates!
 Yesterday I reviewed in detail some of the research I performed prior to starting up a business. I studied several business models from different industries and identified some favorable characteristics.
It was around this time that I read Tim Ferris’s The 4-Hour Workweek . This book was a source of huge inspiration, and I combined it with the business model research conducted in my previous post. I had already identified certain characteristics of different businesses that I really liked, so my next step was to come up with a list of criteria that my business absolutely had to incorporate.
Essential Business Criteria.
- Passive
- Scalable
- Something I enjoy and am knowledgeable about
- Low startup cost
Passive – I consider my time pretty valuable, and given the choice between work and play, I choose play every time. As a person that already works 40+ hours a week, I didn’t want this side “hobby” to consume significant portions of my time. In addition, I’ve always found systems of automation highly appealing. The 4-Hour Workweek really exposes that in today’s global economy, you don’t really have much reason not to outsource and automate as much as possible. So even if outsourcing certain aspects of the business means lower margins of profit, I am A-OK with that.
 Scalable – A big aspect of a passive side job is that my business is not based on a service model. Service industries such as consulting, tutoring, restaurant table waiting etc… are all paid at an hourly rate. While this model certainly works for some people – as you gain experience, you move up in pay as you bill at a higher hourly rate - the potential income from a service type business model is really limited by the number of hours you can work in a given day. The whole idea behind passive income is to make more by doing less – to give me the freedom to enjoy the things I actually enjoy doing – so any service based model was a big turn off. I wanted my business to be scalable, where one unit sold = X dollars of profit. If I sold 10 units in an hour, I could make 10X dollars/hour. If I sold 100 units in an hour, I would make 100X dollars/hour.
Enjoyable – I was watching a documentary on CNBC about Warren Buffet the other day, and one of his pearls of wisdom was that – if you’re passionate about what you’re doing, you’ll be successful no matter what it is you’re doing. I really believe this. I plan on spending majority of my time during the startup aspect of this project, so if I hated what I was doing, life would suck. I also believe that if you are truly passionate about your job, the quality of your work will stand out, and this in turn will make you more successful than your peers.
Low Startup Cost – A big turn off from getting started in real estate was the huge risk involved because it requires so much startup money. I’m currently saving a big chunk of my income to pay for graduate school in a few years, so I would hate to risk any of my hard-earned savings to startup a business, no matter how great the potential reward is. You may have already noticed, but I’m really risk adverse, so ideally I’d like to get started in a business that hardly costs any money to startup at all.
So this completes the list of essential factors that my new business absolutely has to incorporate. Tomorrow, I’ll be taking you through my brainstorming process as well as revealing out some of the incredible failures I suffered along the way.
Continuing where I left off last time…
While I had an intense burning desire to start up my own entrepreneurial venture, I literally had no idea where to begin or even what my business was going to be about.
However, I did have a general idea of how I wanted my business to operate. From reading Rich Dad, Poor Dad , I knew that the majority of wealthy Americans participate in some form of passive income generation. Whether this is real estate investment, stock market investment, or any other type of business, the key driver is to allow your money to grow and accumulate. The power of compound interest eventually takes over, to the point where your money is actually “working” for you and able to generate sufficient passive income for you to live off of.
I started off by doing a lot of research and learning. Let me show you a bit of my analysis:
 Real Estate Investing
Real estate investing accomplishes this by purchasing rental properties. The main idea behind real estate investing is to purchase a property below market value, make it habitable, then rent it out for a price that at a minimum will cover your mortgage payment + other miscellaneous expenses (ie. Property taxes, insurance etc…). Even if you rent your dwelling for only the minimum payments, rising property values, tax savings, and the fact that you will eventually pay off this mortgage in full means that this investment will able to generate a pretty high income over the course of its lifetime, which can run up to 20-30 years.
However, as you may have noticed, there are certain barriers to overcome in this model
Real Estate Barriers:
- Finding Good Investment Property. The first step to buying an income generating rental property is to find the right property. Property values fluctuate by region, demographic, and are heavily influenced by local economies. A lack of knowledge about the local real estate industry means there’s high risk involved for the newbie.
- High Cost of Entry. I know a lot of banks are willing to offer very favorable loan conditions to the first time home buyer, but call me old fashioned because I absolutely hate debt and want as little of it as possible. If I purchase a house, I want to put a minimum of 10% down, but would much rather put 20%. This will significantly lower your overall mortgage payments and also help you get more favorable interest rates.
- Think Very Long Term. Investments are all long term, but real estate is serious business. Under the current recession, home prices will probably not return to 2008 levels for at least 5-10 years. This means you may not see a return on your investment for a pretty long time. Be prepared for this. And most definitely do not invest money that you might need within a 1-5 year period. Real estate is not a very liquid investment – putting money in is easy, but taking it back out early can be difficult and costly.
- Rental Location. Just take a look through the rental ads, and you’ll see that most locations are not exactly in the best areas of the neighborhood. That’s just how the market works because most of the upper-middle class population will prefer to buy rather than rent. If you are purchasing a good income generating rental property, you will most likely be spending some time in unsavory parts of the city.
- Tenants, Repairs Etc. Depending on your rental location, you will have to deal with the entire gamut of tenants and “special” personalities. Some tenants will be great, pay rent on time every month, and never complain, but the majority will not. Depending on your location and tenant demographic, you may also have a high turnover ratio. Constant remodeling and repairs mean adding costs to your wallet and time.
Stock Market Investing
 My alternative was to invest in the stock market. Historically, stocks have provided a very steady return on people’s money. I know this hasn’t been the case for people this past year, but as a youngish person in his mid twenties, I honestly can’t ask for a better situation.
Stock Market Investing Pros/Cons:
- Stock prices are were at significantly depressed levels, and as a young person with 30+ years of investing life ahead of me, pretty much any stock will provide a reasonable appreciation over time.
- Low Entry Cost. With so many discount brokerages available, the entry cost is completely negligible.
- Money is Liquid. Having money in a stock account also means that you can liquidate it any time. If I need this money for some emergency, I can have access to it at any time.
- Extreme Volatility. While we’re technically not in a recession anymore, the stock market is still extremely volatile. It’s hard to gauge day to day where the market will fluctuate and there will be days where extreme dips will make you very sad.
- Not Very Passive. Returns will be the safest if you purchase an index ETF, but in the world of investing, safe = tiny returns. If you are seeking the big bucks, you’ll need to invest in individual stocks, and the learning process is not passive at all. You will spend significant amounts of time to keep up with news updates and this really defeats the purpose of passive income generation.
- Long Term. To take advantage of compound interest means you leave your money in stock for a long period of time. While the money is always going to be liquid and available, there’s a psychological aspect involved where you won’t want to take the money out if big gains are being made.
In the end I decided against real estate investing, and if you haven’t already noticed, I do partake in quite a bit of stock market investing. But when all is said and done, I learned that no matter how well thought out your passive income strategy is, there comes a point when you what you need is to increase your cashflow.
I’m going out lay out my big business idea in the next post, so make sure you check back tomorrow!
haha. This is definitely not representative of every company, but i’m sure all the little guys can relate!
 Deep down, I think everyone has the desire to make more money. Money can’t buy you happiness; it can’t buy you health, but it sure as hell can make life a lot more convenient.
The Past
Ever since I’ve become a personal finance junkie, I’ve tried to follow the advice of wiser people before me. I’ve:
- Created a monthly budget
- Mercilessly eliminated unnecessary costs
- Fully funded my 401K
- Created and fully funded a Roth IRA
- Streamlined and automated all of my bank accounts and credit cards
- Negotiated with service providers for better rates and deals on most of my bills
- Continuously updated my skills and knowledge about industry practices, within my field.
All of this has led to some pretty good success, and I am completely able to live within my means. I’m steadily moving up in my company with increasing responsibilities and pay. My savings continue to grow at a respectable pace, and I feel comfortable knowing that I’ll achieve at least a moderate level of financial security following this model.
The Present
But after sampling 2.5 years of the corporate world, I’ve come to the realization that I don’t exactly relish the idea of being chained to a desk for the next 30 years of my life.
Worse yet, I’ve come to the realization that 30+ years is pretty much how long it’ll take to achieve financial freedom if I continue to follow life in the corporate model.
A person’s twenties are arguably some of the best years of a person’s life. These years are spent without significant worry or responsibility. Yet it’s also a personal finance oxymoron because a person’s twenties are also the very best years to be working. The beauty of compound interest tells me that the earlier I start working and saving, the more time I allow my money to work for me. So logically speaking, if I wanted to follow the surest path to financial success, I should just put in crazy hours for the next 10 years, accumulate tons of wealth, and then just let it sit and compound for the next 20 years.
So I’ve been doing a bit of soul searching, contemplating that surely there has to be a way to find the perfect balance between time and wealth – a method that can afford me the flexibility in lifestyle to enjoy the most carefree years of my life – time to travel the world, time to spend with friends – without being broke and having to constantly worry about money.
 The Future
I’ve always been pretty envious of people that seem to have found this perfect balance. A few years ago, I read Rich Dad, Poor Dad, and that’s when I learned that this lifestyle was completely within the grasp or normal people – through something called a “passive income model.” By definition, “passive income” is income from trade or business activities in which you do not materially participate.
Back then my interpretation of passive income was investing in real estate, and this was a bit intimidating because I thought that I didn’t have the money or knowledge to get into real estate. But then I read The 4-Hour Workweek , and became really inspired in the adaptability of passive income models. Who knew that any business could be transformed into an automated passive income business?
So now I’ve decided to try my own hand at entrepreneurship! I’m planning on using this blog to record my own personal journey of successes and failures – to teach myself and others who might be interested in starting up their own passive income ventures.
Just to let you know. I have zero experience running or starting a business. I don’t have any special technical skills or knowledge. In fact, prior to starting this blog, I’ve never even had any experience making a website. I’m as n00b as you can possible get. But I assure you, what I lack in knowledge, I compensate for in zeal and enthusiasm! So get yourself ready because there are going to be some bomb-tastic posts in the coming future.
I decided last week to dedicate 100% of my extracurricular time and effort into a new project. I don’t want to reveal what my new project is…. yet….suffice to say its a type of investment that i’m hoping will help me bring in some extra cash.
Before I even started this process, I felt a whole lot of anxiety about whether or not I could even do this. Would it be successful? Would I get any return on my initial investment? Am I just wasting my time? So many questions and doubts are going through my head right now, to the point that I feel like they are completely stymieing my productivity.
What do I do?
 I shot out a few emails to people that had achieved success from similar investments, and the overwhelming response was to just go out and do it.
Nearly every piece of feedback I received more or less had this message - a person can sit around wondering “what ifs” forever; but he/she is never going to know 100% what’s going to happen unless he/she goes out and tries.
This may seem like good ol’ fashioned common sense to a lot of folks out there, but a common theme in all of my email correspondence was that self-doubt is something that nags most people before they start a new project or invest in a new idea.
But I know now that my greatest fear shouldn’t be the fear of failure, rather it should be the fear or never trying.
Thanks to everyone who responded to my incessant questions and ramblings. I guess I just needed a kick in the pants to get started.
Now I’ve decided to follow everybody’s sagely advice and just try it out and see how things go. I’ll keep everyone posted on my progress! Wish me luck!
A quick question to the 3-4 readers out there that follow my blog…. have you ever faced intense self doubt when starting up a new project? How did you overcome this? Any practical solutions to resolve your concerns?
Why do you want to set-up a network printer?
Because I don’t want to buy a printer for every computer in my house. I have one really nice printer that can print, scan, fax, do everything and that’s the one I want to use for all my printing needs. Network printing is something that I’ve noticed big business do and I want to do it too!
Setting up a Network Printer at Home (using windows XP)
- Install the printer. Find a central location to put your printer and plug it into a computer. Install the printer like you would normally by attaching necessary chords and installing required device drivers.
- Share the printer. On the computer that the printer is connected to, go to control panel -> printers and faxes -> select the printer you just installed -> right click -> click sharing -> select the sharing tab -> select share this printer -> click ok!
- Connect to this printer! Using a different computer, go to control panel -> printer and faxes -> select add a printer -> browse the network for printer shared -> select add
And presto! You now have a networked printer. Productivity has tripled! (that’s how I felt when I finished) Test your printer by printing a test page or some sample documents.
Next steps – Sell your old junky printers on ebay. What you want to do with the extra monies is up to you. Donations to me are always welcome. but …charities are ok too I guess
Inline with my last post. I’ve decided to share my top 5 stock picks for short term growth.
I’m only planning on holding onto these stocks for 2-3 month and to capture some gains with their volatility. As usual, full disclosure in my trading strategy so readers can share my strategies, identify my weaknesses, and allow us all to learn and grow together.
All of my day trading strategies are implemented in my ROTH IRA account. I decided on this because:
1. That’s where the majority of my money is saved
2. No tax on capital gains/earnings. All that money is mine!
3. The IRA fund means I can’t withdraw any money until I’m 60; this long horizon sometimes makes it feel like this account only holds play money. Bonus aspect is that since I don’t really have access to this money now, it helps me keep the emotion out of the decision making process…at least so far…
Top 5 Picks for Short Term Investment (9/11/2009):
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The stock market has made some really remarkable gains over the last two months, but are these gains actually sustainable? And do they imply that a full recovery is underway?
In the short term, I would have to say yes. My reasoning is twofold.
#1 Inventory restocking. Most businesses operate on a cylindrical cycle, meaning they have fluctuations in both profit and sales. Over the past year economic data has been very poor. People in general have all shared a pessimistic outlook for the economy. In turn, this meant that many businesses were reluctant to purchase new inventory, putting off reordering for months because sales were forecast to be very slow. The past few months have shown companies finally starting to reorder new stock, providing a momentary increase in manufacturing and sales. However, its important to note that these companies are still nowhere near to ordering the same volumes as they were in previous years – this is simply due to the fact that customers still just aren’t buying as much. However, no matter short or long, I believe that for the next quarter or two, economic data should turn positive based on this inventory recovery.
#2 High Unemployment. Unemployment remains at the highest level in a decades. As many of you may have heard in the news, unemployment is traditionally a lagging economic indicator – meaning that unemployment follows stock market movement, albeit on a delayed path. However, Wall Street interprets high unemployment as good news and now you should too. The reasoning is because when economic data looks grim, many companies layoff many employees to cut back on costs, citing the grim and uncertain future. But fewer workers on the payroll results in lower costs. Since companies are still cutting payrolls, another 216,000 jobs in August to be exact…, while the economy is stabilizing, corporate profits will be higher than expected in the third quarter. And that means a higher percentage of revenues will reach the bottom line as profits. For the short term this again implies that company earnings will be announced ahead of analyst expectations, creating greater gains for the upcoming quarter.
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Do your shoelaces frequently come undone? Have you ever noticed that you shoelace knot doesn’t look like a bow and sit the way its supposed to like in pictures?
I’m retarded. I’ve been tying my shoes wrong my entire life and I never even knew it.
How to Tie your Shoelaces Like a Champ
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