Remon Talks

The younger you are, the more important it is to realize the largest benefit of saving money; compound growth.

What is compound growth?

Compound growth, is growth over growth. When using a savings accounts, we talk about compound interest, which is interest over interest. Say you have $100 now, you get 5% interest making your total $105. The next year you get interest over the original $100 and over the $5 received interest. That is compound growth.

It doesn’t matter if you put your money in a savings account or start investing with it, as long as you make your money work for you. If you’re not putting away money for your retirement right now, you’re missing out, you’re missing out BIG.

I’m not sure but I believe the average internet savings account currently gives you a 5% interest rate, let’s see what happens with $100 saved now, and $100 saved in 2017. Both calculations end in 2040, which I guess is close to retirement age for the average reader of this blog. Interest is calculated 12 times a year.

$100 now, $500+ in 33 years

$100 saved right now, at 5% interest a year will grow to $518.92 in 33 years. Not too shabby.

$100 saved in 2017, at 5% interest a year will grow to $315.07 by 2040. Hmm…

That’s a $203.85 difference on every $100 you save right now. Let’s see what happens when you start putting away $250 a month right now for 30 years, and $250 a month for 20 years.

$250/mo at 5%

$250 a month, at 5% a year will grow to $208,931.59 in 30 years. Not bad considering you “only” put $90,000 in.

$250 a month, at 5% a year will grow to $103,186.58 in 20 years. That’s over $105k less then when you started saving 10 years earlier.

Are you seeing a pattern here? That’s the power of compound growth, and the above examples are only at a 5% yearly interest rate. Let me show you one more example, at 10% yearly growth, which you should be able to reach with mutual funds or stocks.

10% Mutual funds calculation

$250 a month, at 10% a year will grow to $569,831.33 in 30 years. Nice!

$250 a month, at 10% a year will grow to $191,424.23 in 20 years. Ouch!

As you can see from the example it’s time to start saving for retirement right now. Every year, every month you don’t save or invest for your retirement (or other goal) will cost you a lot of money in compound growth/interest.

Save as much as you can, every dollar counts. The more you save now, the more money you’ll have later. Too many people tell theirselves to start saving soon, but they don’t do it for years until it’s too late to really reap the profits from it.

Young people often don’t care much about saving for the future, there are many years before retirment so why should they care about it right now? Because you’re losing money that’s why! Compound growth is an amazing thing, and you should use it to the fullest. The younger you are, the more time your money has to grow. I could put up dozens more examples but I think my point is clear, save now, spend later.

As you may have read in the About page, I’m a snake keeper and breeder. I’ve been keeping and breeding snakes as a hobby for the last 14 years and I find myself specialising more and more in the high end morphs (the expensive color or pattern mutations).

Keeping snakes and everything related to it taught me a lot of things I can apply to finance and business as well.

1. Every price is negotiable
   This is especially true if you buy in quantities, but also when a seller needs money. Always try to negotiate, you have nothing to loose.
2. Production is where the big profits are
   You can buy a snake for a good discounted price and resell it to make a profit. However, when using that snake in a breeding program to make more of them, you definitely make a bigger profit. This is also true in business.
3. Do what you love and the money will follow
   We’ve all heard it, all I can say is that it’s true. It’s not easy getting snakes to reproduce, you need a love for what you do so you can spend (lots of) time for research and optimal care. The same applies to business.
4. Be prepared to take a loss
   I recently found a perfectly healthy gravid boa dead in her cage. It happens and there’s nothing you can do about it except calculating losses in your prices. There are some risks in business and finance as well, so be prepared to take a loss.
5. Always have inventory
   This one should be clear. You can’t make money if you have nothing in stock.
6. Reinvest in your business
   I could sell all the babies I produce and stick the money in my pockets. Instead, I buy new high end morphs so I can make more money later if I wanted to. If you can use your profits to grow your business, do it, it’s the best investment you’ll ever make.
7. Know the laws
   Laws for keeping snakes are always changing and this may also be true for your business field. Stay up-to-date about rules and regulations
8. Your best customers are returning customers
   I sell most of my babies to people who bought from me before and where happy with what I sold them. This is also true for some of my businesses.

When people start to get greedy they often start to fail as well. Let’s take investing for example. Say you have a portfolio of 5 different mutual funds and one is rising like a maniac. As you probably know you should never take investing decisions based on emotions. Greed is such an emotion and more then once people start buying more shares of the rising fund, or even worse, sell shares of the other 4 funds and then buy more shares of the rising fund.

While this may not always result in failure, the overal return on investment is almost always less then if you sticked to your investment strategy and didn’t buy additional shares or switched funds. Greed is also one of the top reasons why starting day traders fail, say they buy 1000 stocks at $20 each, the day trader wants to sell at +2% ($20,40) making him a gross profit of $400 for that one trade. When the stock start to rise and reaches $20,40, the emotions come into play and very often they hang on to their stocks to sell them for more then they planned.

You guessed it, the stock rises, $20,40, $20,42, $20,43, $20,43, $20,43 BOOM $18! Say bye bye profit and hello to loss! Although the above is hypothetical always remember to not take actions based on emotions when it comes to investing, actually, change that to never take financial, business or investing decisions based on emotions.

I’m not saying failing is bad, not at all! Failing is good! I’m just trying to help you guys (and girls ofcourse) increase your success rate.

Many people think that in order to be successful, one needs luck and/or great expertise on some subject. If you fail you can’t have success, it doesn’t fit in the picture of success. Well, the truth is different…

To become successfull you have to know what does not work, and what does work. If 9 out of 10 things you try fail and one works that means you failed nine times to reach success, a 10% success rate!

While 10% doesn’t sound too good, it actually is very good. Image you start or run a business (or blog for that matter), and in order to increase profits you’re trying 50 different things a year on average, small things like little website changes, or big things like exploring new markets. With a 10% success rate, you’ll have an average of 5 successes each year, that’s 5 things that will increase your income.

If you’re an entrepreneur, business owner or investor you’re responsible for your own actions. Failing is a part of entrepreneurship, business and investing. Every time you fail you learn something and you can use that knowledge to make better decisions in the future, thus further increasing your success rate.

Failing is nothing, and I mean NOTHING, to be ashamed off as long as you learn something from it. You’re basically turning the negative (failing) into something positive (learning). You can reach success when you learn from your mistakes, but I’ve never met a successfull person who hasn’t made mistakes in the past.

If you’re an entrepreneur or self-employed, and you’re not happy with your current situation, don’t be afraid to try new things and don’t be afraid to fail. You don’t have much to loose by trying new things, but you can definitely gain a lot from it.

Many people who become self-employed fail to reach their goals because they chose an oversaturated market to operate in. I’m guilty to this myself when I first started a business, I chose webhosting! While I still own the webhosting company to this day, I don’t ever see it grow out to be a big player in the webhosting market.

The reasons I chose webhosting was:

1. Low start-up costs
2. The thought that every website online needs webhosting
3. I dropped out of school, I had no money left so I had to do something to bring in some cash

Unfortunately, I forgot some other important point based on the reasons above:

1. Because of the low start-up costs, everyone and their grandmother started a webhosting company
2. Every website does need webhosting, but most website owners are happy with their webhosting provider so they don’t even think about switching to someone else

Because the money needed to start a webhosting company is so low, many new webhosting companies are setup each and every day. All these companies are fighting for the same clients. In Holland, but also in the USA, the webhosting market is definitely oversaturated.

Time investments in oversaturated markets

It’s one thing that getting clients is not as easy at it used to be, but because of the big competition prices start to drop. In the end, the only way to make a good profit is buy having many clients. But many clients have many questions, and answering those questions takes a lot of time, thus causing you to put less time in other business ventures.

There are methods to decrease the time needed, I’ve setup a large client area where most questions they have are already answered. Invoices are automatically created, domain names are automatically registered and account information is automatically send to the clients after signing up.

Fact of the matter is however, it’s still hard to get more clients. Sure, you’ll get some clients referred by happy clients, but with all the superduper low priced webhosting packages today it’s harder to get the quality client.

Client profiles

See, in webhosting, the less a clients wants to pay for his package, the worse kind of client it usually is. The clients with a higher priced package, the quality client, almost never have questions or problems. The “cheap client” emails you very often, and you better be sure to answer in a few minutes or you’ll see him leaving negative reviews on all the webhosting review sites!

Research

But we’re getting a bit offtopic. The point is, if you choose a market to operate in, research it, and research it well. Know all the ins and outs of a market before you take a dive into it. You don’t want to be competing with thousands and thousands of competitors. You can spend that same time on some niche market and become the king of that market with the right marketing, even on a low budget. If you want to be the king of a market like webhosting, you better bring a large budget with you.

Help! I already chose an oversaturated market?!

If you already chose an oversaturated market, there are still ways to increase your profits. Start targetting niches! Let’s stay with the webhosting example, instead of targetting “the world”, start looking for clients in upcoming countries like the Czech republic or Slovenia. The only, minor, problem is the language, have a translator translate your site in the right language and handle email support in english, or outsource email support to a local if you can afford it.

Instead of focussing on upcoming countries, you can also target different niches. Sell webhosting for schools, webhosting for start-up businesses, webhosting for blackhat SEO’s, webhosting for affiliates, webhosting for florists, you get the idea. If you choose niches like these, try to add some value to the sold packages such as usefull tools for that market.

Conclusion

Don’t make the same mistake I made. Although I still earn a nice sum of money from my webhosting biz, the market is now even more saturated then when I started. Don’t start a business because there’s no money coming in (like I did), instead find a regular job, save money, and start a business in your free time. Once business starts booming say goodbye to the dayjob and put your time in the business.

Research the market before you start! Read everything you can about it, visit forums, ask questions and try to get your hands on statistics, any statistics related to your market. A niche market is many times better then an oversaturated market. Don’t compete with thousands of competitors, it’s probably not worth your time.

At the end of the year many investors’ thoughts turn to how they can avoid paying tax. Note that avoiding tax is not the same as evading tax. Here are some tips for you!

Dividends

When you own mutual fund shares dividends are usually reinvested in the fund. Many investors make the mistake of paying capital gains tax on the difference of the buy price and the sell price. You can reduce your capital gain (or increase your capital loss) by deducting the dividends from the sale price as well.

Say you bought shares in some fund for $10,000, over the course of a few years the dividends were $1,000 and you decide to sell your stake in the fund for say $13,000. Many people would calculate their taxable gain as $13,000 - $10,000 = $3,000, however the correct calcultion would be $13,000 - $10,000 - $1,000 = $2,000. So instead of paying tax on $3,000 you pay tax on $2,000.

Write offs

Many investors forget to write off stuff they use for investing. Say you bought a laptop for $1,000, and 10% of the time you use the laptop it’s for investing purposes (checking, buying, selling, reading about investing etc.). You can now write off 10% of the laptop’s price, that’s another $100!

If you’re self employed and need to travel, you can also write off accommodations and meals, not to mention many other operating expenses. There may be a limit to writing of food or accommodations so check with your accountant to be sure.

Tax deferred accounts

The most well known tax deferred accounts are the individual retirement account (IRA) and the simplified employment pension (SEP). Making use of these accounts can save a lot of money in tax. You put money in these accounts without paying tax, and when you start to withdraw money from them, you are taxed at the rate of your income bracket.

If you wait to withdraw any money from the tax deferred accounts until you retire your income tax bracket will probably be lower then your current bracket, thus saving you money.

If you aren’t maxing out your IRA or SEP yet, start doing it already! It’s like free money!

Broker fees

When you buy or sell stocks or mutual funds, you pay a commission to the broker. When buying add the commission to the amount paid for a stock, and when selling substract the commission from the sale price of the stock. You can write off the broker fees, because they are expenses needed to help you grow your money.

I haven’t read many interesting posts the last week so this linklovefest is kinda short!

Internet:

The real secrets to e-commerce. A very good read about setting up an e-commerce shop. You may also be interested in my What is droppshipping? post.

Productive Strategies iPod giveaway. An extra plug never hurts, write a review and win!

Seven pitfalls that will ruin a blog sale. Interesting read.

The Web 2.0 - Feedburner. South african blog (in english), kind of an howto guide to feedburner.

Finance:

The key to paying of debt - By the fabulous single ma, she nailed it.

Lazyman’s alternative income streams. Currently at $237. Interesting to keep an eye on in the future!

After the dive of the global stock markets last week, things start to look positive again. Today, the 5 day downward trend was broken by the European stock markets in reply to the Asian market recovery.

If you didn’t buy stocks over the last few days I suggest you do so if you can.  The market downturn of the last few days is nothing to worry about. Trent at thesimpledollar.com wrote an article about why he bought more stocks.  I agree with most points he makes but he didn’t tell why the western world panicked.

I think the main problem was the low interest rate on borrowed yen’s. As a result investors borrowed money in Japan to buy stocks in western countries, making a profit on borrowed money. Many people do this. When the yen rose the investors had to sell their stocks to pay of the debt caused by the higher yen.

This alone should not be enough for a global panic reaction. China started talking about 10% tax on stock profits causing many people to sell. This in conjunction with the fact that people in europe and maybe even in the USA got scared that china would start to dump some US dollars caused the panic reaction. As you probably know, when China start dumping US dollars the USA will go bankrupt, most likely causing a global stock market crash and recession or even depression.

Anyway, the stock market seems to pick up again. I’m going to buy some stocks myself today so I can ride the upward trend later. See it as stocks on sale

I’m a big fan of mutual funds. You put some money in a fund, and other people manage it to make the most of it. For this service you pay a management fee. The average management fee of the mutual funds I invest in is 1.3%. While this may not seem like a lot, things really add up over several years.

To show you what I mean, let’s use an example. Say you have $10,000 to invest in mutual funds and your investment grows 8% a year. Let’s see what the numbers are after 10, 20 and 30 years with a management fee of 2%. Growth is calculated 6 times a year.

Wow, after 30 years your $10,000 investment has grown $98,497.37 to $108,497.37 but after paying a management fee of $2% a year you’re left with “only” $59,958.02. Let’s see what the numbers are for a 1% management fee (Fortis Obam for example (european)).

As you can see, that one percent difference in management fees is a difference of more then $20,000 over the period of 30 years. That’s basically over $20,000 of free money you made by choosing a good mutual funds.

Now I don’t want to say you should only buy mutual funds with a 1% management fee, but compare different mutual funds with eachother and pay attention to the management fees. I have seen funds with management fees as high as 4-5% and I’ve seen funds with fees as low as 0.25-0.50%. That will make a big difference over the years!

Also consider the possible returns of the funds. If you expect a 2% mutual fund to grow an average of 9% a year, and a 1% mutual fund to grow 7% a year, you should, ofcourse, choose the first one. Unfortunately funds or stock rates can never be predicted with certainity. To conclude this post I would like to tell you to choose your mutual funds wisely, and just remember this post when you look at their management fees.

As you may have found out the hard way, getting a mortgage when you’re self-employed is not always easy. Some mortgage brokers don’t even want to spend their time helping you because it takes less time for them to do a refinance mortgage. There are however some mortgage brokers willing to work with you. So what should you do to better your chances?

Lenders want insurance

You won’t get a mortgage if you can’t proof your income. People with a job can provide pay stubs, the lender contacts the employer to verify and they’re done. The self-employed however don’t have someone to verify the information. To help overcome this obstacle take your income tax returns with you and be prepared to authorize the mortgage broker or lender so they can obtain copies from the IRS. That way they know the W-2’s are authentic.

Lenders don’t want debts

The more debt you have, the less likely it is to obtain a mortgage. Here in Holland, and I bet it’s the same in the US and other western countries, a $1000 debt means a $5000 - $7000 lower mortgage. If you have a high debt you usually can’t get a mortgage at all.

Cancel your creditcard

If you have a high limit on your creditcard, even if you don’t use it, lenders will see it as debt. Cancel your creditcard temporarily, and get a new creditcard once you have a mortgage.

Provide your company information

Provide the lenders or mortgage brokers with balances, P&L report etc. of as many years as possible but a minimum of 3 years. If your P&L reports show profit growth over the last couple of years you are more likely to get a mortgage. If they show no growth you may get a mortgage depending on the profit, if you’re showing loss you probably can’t get a mortgage.

Overall, you need to be self employed for at least 2-3 years to provide all the wanted information to the mortgage broker or lender. If you still can’t get a mortgage with the above tips, you can try to change the type of your company to some form where the company is a legal entity and simply put yourself on the wage list. The question is if you want to do this, because there’s a reason you couldn’t get a mortgage.

The last option is top put a lot of  money down. A 30% downpayment gets you a better interest rate, and with a 40% downpayment you can usually get a mortgage no questions asked. Why? Because the other 60% will definitely be covered by selling your house should it come that far.