Career and Work

The Economy Triggers a Rebirth of the Entrepreneurial Spirit

by Debbie on November 16, 2009

Over the next couple of weeks, six finalists will be auditioning for the opening of “staff writer” at Consumerism Commentary. Each will be providing two guest articles to share with readers. After the six writers have shared their guest articles, readers will have an opportunity to provide feedback before we select the staff writer.

This article is presented by Debbie Dragon, a full time freelance writer and co-owner of ReliableWriters.

When farming was a common way of life, more Americans were self-employed than not. With the growth of corporations in recent decades, many Americans decided to get on the corporate bandwagon in hopes of climbing the ladder to success. In recent years, due partly to the struggling economy, many people are turning to self-employment. When people are laid-off, many take their skills to the marketplace and become entrepreneurs.

Thanks to technology, many businesses can be started from home and with little capital. This is a good thing, since banks are hesitant to lend money to anyone, let alone a business start-up. For a few hundred or a couple thousand dollars, a business can be set up complete with a logo, website and business structure. While it’s true that a poor economy may mean less people have the money to buy whatever you sell — many successful businesses start during a recession and are then positioned perfectly when the market turns around.

According to the last U.S Census, more than 10 million Americans are self-employed. I would be willing to wager that the number has increased drastically in just the last five years, with more people starting freelance and home based businesses “on the side” to increase their income or as a replacement for a job lost to the economic conditions. Self-employed Americans do everything from construction to accounting to crafts, but the most commonly selected industry on self-employed income tax returns is “professional and business services.”

In previous decades, there was a tendency for self-employed Americans to be male and white. During the years between 1976 and 2003, a surge of women entrepreneurship blossomed, with an increase from 27% of self-employed workers being women to 39%. Many women start small businesses in an effort to both contribute to the family income and still have the flexibility to raise their families. You’ll also notice that self-employed people are over-represented at the top of the income curves for America, helping prove that greater rewards are given to those who take larger risks (in some cases). Entrepreneurship has always been valued in American culture, and a poor economy seems to nurture it rather than squash it.

For every depressing statistic and news story given about the economic condition it’s almost as if the entrepreneurial spirit is awakened in people who are determined not to sit by helplessly as jobs are lost. The economic conditions serves as motivation for some, whether that motivation is driven by plain fear — or hidden ambition.

This is a guest article by Debbie Dragon, one of six finalists interested in being Consumerism Commentary’s staff writer.

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Lifestyle Creep and the Self-Employed

by V.C. McGuire on November 12, 2009

This article is presented by VCMcGuire, a regular contributor to the New York Times and other publications.

I ran my freelance writing business out of my dining room until July, when my family moved to a bigger house. Now I run my business out of a dedicated room on the second floor — a room that we have to heat, cool, clean and furnish. Instead of sharing a 5-year-old inkjet printer with the rest of the household, I have an all-in-one printer, scanner and copier. And it’s time to stop scrawling my email address on a piece of scrap paper when I meet potential clients. I need to bite the bullet and order some business cards.

My business is going through what all personal finance junkies dread: Lifestyle creep.

Normally we think of lifestyle creep as something that happens to individuals or families. Investopedia defines lifestyle creep as “a situation where people’s lifestyle or standard of living improves as their discretionary income rises.” When this happens, people often commit to higher fixed expenses, such as bigger house payments, rather than using the extra income to reduce debt or build savings. Paying for an increasingly lavish lifestyle can make us too dependent too quickly on the new, larger salary. This makes it harder to change careers, retire, or weather a period of unemployment.

I’m learning the hard way that small businesses can get caught in the same trap. Moderate success can spur increased spending on the business itself, making it hard to return to the early days of running the business on a shoestring. As problems go, this is a good problem, especially in the middle of a recession. My business is becoming more established, less fly-by-night.

But I don’t want to get stuck in a cycle of spending long hours in my home office, working to pay for the home office. So I’ve been thinking of steps I can take to make sure my business expenses don’t eat up all my income.

1. Be smart about taxes. Now that I have a dedicated work space at home, I can take a home office deduction on my taxes. This means I can deduct a portion of our mortgage interest and utilities. I’ve also changed the way I save for retirement. Now that I’m paying self employment tax, I have a bigger incentive to contribute to my retirement accounts with pre-tax earnings. So I’ve stopped contributing to my Roth IRA, and instead I’m putting away money in a SEP-IRA.

2. Don’t overspend on self promotion. I’ve been thinking it’s time I put together a website to showcase the projects I’ve done and attract new clients. That means buying a domain name and hiring a web designer, and maybe a photographer to take a head shot of me. I already mentioned the business cards. I love the way letterpress printing looks, don’t you?

Wait a second. All this, just to promote a business that I can do part time, at home in my pajamas? If I’m not careful, I could easily spend all my freelance income and then some. There’s got to be a less expensive way to promote my business.

I can think of a lot of successful freelance writers who don’t have websites. Some link to online writing samples in their LinkedIn profiles, some write query letters to editors, and some get work through good old fashioned word-of-mouth. I could put together a simple site on my own without hiring a web designer. I have talented friends–one of them could probably take a perfectly good head shot. And I can buy a box of basic business cards online for less than $20.

3. Stick to a budget. I’m frugal when it comes to household spending, but for some reason it’s easy for me to justify spending money if it’s work-related. If I go to Staples, I usually end up walking out of there with some goodies that weren’t on my list. But they’re for work, so it’s okay, right?

It’s just as important to be frugal when buying office supplies as it is to be frugal at the grocery store. The tax deduction helps take the sting out of business spending, but it’s always better not to spend the money in the first place. Here’s where self knowledge comes in. I’ve learned I’m less likely to impulse buy if I’m in a hurry. If I go to Staples and wander around the store with a cart for 45 minutes, of course I’ll put things in the cart. But if I stop by for printer paper 10 minutes before an appointment, I will probably walk out the door with only printer paper in my hand.

So what’s a reasonable budget? It’s time to look at my records to find out how much I spend, average, on things like office supplies, computer equipment, and phone calls. Then I’ll figure out which expenses are fairly regular, like subscriptions and toner, and which big irregular expenses that can be anticipated, like computer hardware. Once I have that information, I can look for places to cut back.

4. Don’t be afraid to spend money. Sometimes spending money pays off. I was spending several dollars every time I needed to fax something, not including drive time to Kinko’s. Since I spent $125 on a printer with a built-in scanner, I’ve been able to get away with faxing less, because most companies will accept an emailed PDF file rather than a fax. I’m expecting the new equipment to pay for itself within a year, between reduced costs and increased efficiency.

5. Don’t skimp on insurance. Insurance is the bogeyman of the self-employed. It’s expensive, but it’s not smart to go without. I’m more fortunate than many freelancers because I have a part-time day job that gives me access to affordable health insurance. These situations, while hard to find, do exist. Other insurance solutions for the self-employed include joining a professional organization that offers group insurance rates to its members, or buying a high-deductible plan with a Health Savings Account. (You can see other Consumerism Commentary posts about insurance here.)

Believe me, I’m thrilled that I’ve graduated from writing at the dining room table. But now that I’ve got the basic ingredients to run a modest but successful freelance writing business, I need to make sure to keep my costs down and avoid the temptation to ratchet up my business expenses year after year.

Has your small business experienced lifestyle creep? What are your strategies for keeping your overhead low?

This is a guest article by VCMcGuire, one of six finalists interested in being Consumerism Commentary’s staff writer.

Photo credit: Kaspars Butlers

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New Graduates Facing Unemployment May Never Reach Income Potential

by Flexo on October 19, 2009

The unemployment rate for young workers between the ages of 16 and 23 is 18%, and that is an increase of five points from a year ago. That age group includes high school drop-outs as well as college graduates, and for these people the future looks bleak. Adults are taking the minimum-wage jobs teenagers might be offered in other economic situations. Older workers, otherwise approaching retirement, are not leaving the workforce as quickly. The openings for younger workers aren’t there.

The bad news is starting your career in a recession is one of the worst things you can do for your long-term financial security. More bad news is that there is little any one person can do about the economy at large. Here are the numbers, from a study at Yale quoted in the cover story in today’s BusinessWeek:

For each percentage-point rise in the unemployment rate, those who graduated during the recession earned 6% to 7% less in their first year of employment than their more fortunate counterparts. Even 15 years out of school, the recession graduates earned 2.5% less than those who began working in more prosperous times.

Young adults might be destined to be a “lost generation.” Here are some suggestions for 16-to-23-year-olds who find themselves having a difficult time starting their career in this recession and want to mitigate its effects on long-term income.

1. Finish your education

It’s an issue of supply and demand. First, if you have not done so, completing your Bachelor’s degree will have two important effects. First, it will improve your marketability among entry-level employees when fewer open positions will create a competitiveness that ensures that the best qualified candidates will win. A Bachelor’s degree is a gateway to at least the middle class, and that’s going to be more important than ever.

Second, finishing college now will keep you out of the worst of the recession. This will allow you to stay out of the worst fight for jobs, but it has some drawbacks. Delaying the start of full-time income can also have detrimental effects on your long-term income — but if you wouldn’t be working anyway, this isn’t much of a disadvantage. Also, if you are relying on student loans, you will be amassing more debt that will require payoff down the road, perhaps shacking you to a job or career that is not best for you. New student loans have higher interest rates than they have in the past, adding to the pain of debt.

If you have your Bachelor’s degree, consider spending a few years to earn your Master’s or Doctorate degree. Are you worried about being overqualified? Don’t be. As we’re seeing in the recession where many workers are competing for few jobs, anything that helps you stand above the rest will be an advantage rather than a disadvantage. You might want to consider adapting your desired career to one better suited for an advanced degree, however.

2. Become an apprentice

In general, apprentices earn more throughout their careers than those who don’t hone their skills in a formal training program. Traditionally, apprenticeships are common for certain crafts and trades. Electricians, plumbers, and carpenters often get their starts through apprenticeship and there is significant income potential in these fields.

One creative answer is to become an apprentice for a career that does not traditionally fit this profile. For example, if you have musical talent and would normally consider performing or teaching in a better economy, consider composing music for films or television. You can contact a professional currently in the field and contact them about becoming an apprentice. One key to successfully finding an apprenticeship is the willingness and the ability to work for free.

3. Start your own business

I’m not talking about selling your possessions on eBay, but padding your savings account with cash rather than padding your home with useless objects is never a bad idea. Everyone has at least one marketable skill. It may require some time brainstorming to determine exactly how you can turn your skills into a service you can offer people or other businesses.

A recession is perfect timing to start a business, particularly if you can dedicate all your time to making it work (that is, you are otherwise unemployed). Many new businesses suffer because the owner needs to devote his or her time to the day job, a spouse, and perhaps even children. For young workers, the time will likely never be better for starting a business with the ability of giving it your full attention.

4. Save money

As a recent graduate or drop-out, you may have the option to move back in with your parents for a short time. After all, there is a recession and being able to save money on rent or a house payment is worth the temporary shame you might feel for going home with your tail between your legs. This is most likely the biggest opportunity for savings, but you don’t want to take advantage of the situation. Show your parents that you’re working hard to make the recession work for you, and they’re more likely to give you a break. And don’t forget to express gratitude.

Consider frugality as a way of life. In an economy where you have less control over your income thanks to fewer employment options, you can still control your expenses to a point. Take the extra time to determine what you are willing to cut back in order to help your money go farther. Occasionally, generic brands and store brands are good compromises.

Creativity leads to success

Surviving in a recession where it’s difficult to find a job relies on creative thinking. Use the opportunity to rethink your career path. If the acquisition of money has been your ultimate goal, realize that money by itself is not a goal. You may use the opportunity to break into a less popular field with a lower income potential but with a greater satisfaction potential.

Accept that the odds are against you if you want to compare yourself and your bank account against people who began their careers in the height of the economy, people who, on average, will out-earn those entering the workforce right now.

Photo credits: CarbonNYC, roland
The Lost Generation, Peter Coy, BusinessWeek, October 8, 2009

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Fulfilling a Dream for $8 an Hour

by Smithee on October 13, 2009

I just graduated a “Level One” (read: newbie) improv class. At first, I signed up for the class because I can think of few thing scarier than getting on stage with no script. I’m not known for thinking on my feet, I don’t “BS” well, and even when I know my lines, I get terrible stage fright.

So I made myself go to this class as soon as I knew I’d have eight free weekends in a row. It took about four years to get up the courage. I’d like to say that it also took some time to get the admission fee together, but of course the $200 went on a credit card (technically it came from the $800 that would otherwise have gone toward paying down the credit card, but the net effect is the same).

I didn’t have an extra $200 to take that class, but man, was it exciting. I had to deal with strangers, criticism, bad accents (most of them mine), and a basic requirement of acting in a scene where 1) you don’t know what you’re going to be saying, and 2) you also don’t know what the other people will be saying.

I didn’t think I could do it, but after eight weeks, we put on a show, and darn it if the audience didn’t laugh and cheer.

So, I figure, the class was 3 hours every weekend, for 8 weeks, for $200. That’s $8.33 an hour to have a creative outlet, learn to think on my feet, and re-learn to perform in front of strangers. I think that’s a reasonable price.

I still don’t have an extra $200. In fact, I’m still about $6,000 in a credit card hole, but I signed up for Level Two, anyway.

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Earning What You Have: The Mindset I Hope I Never Lose

by Smithee on September 25, 2009

I think I come from a moderately humble background. My parents are both college graduates, which is a statistical leg up by itself, but my father had to work two jobs until I was 15, and I’m the youngest of my siblings. Mom also started working part-time when I was about 10, and then full-time later on. Suffice it to say we were not showered with gifts, though I only remember one particularly depressing Christmas, when I got a fancy pair of socks from Santa.

It was only later that I learned Mom had something of an addiction to JCPenney, and they were saddled with a pretty huge credit card debt until they were into their fifties. (It wasn’t all household shopping, of course. I’m sure that’s how they paid for part of our college tuition, too.) So, we weren’t spoiled, but we did pretty well. Lower middle-class, I guess you’d say. And I grew up into the belief that if you possess something, it’s because you earned it.

I knew kids poorer than me, and I knew kids richer than me. I remember listening to a conversation a “rich” kid friend of mine had with her mother, and her mother was lamenting the fact that when my friend was younger, she got everything she wanted. Her mother felt it gave her an unfortunate sense of entitlement. I don’t have that, and I hope I never get it, but as I get older, I can foresee some ways in which it might happen.

Ways I’ve already “cheated”

College

My college education was paid for by my parents. I had no student loans and no scholarships of any kind. I’m not sure I was even aware of the need to apply for such things, and though I took a part-time job working for the Dean’s office, anything I earned basically went toward feasts at Taco Bell and the occasional computer game.

I sort of feel like I cheated, in that respect. But if I know anything about parents, I know they’re happy to give their children opportunities to succeed. And I thank them for it all the time. I feel like I’m paying them back a little when I receive recognition in my field, or a raise.

Do credit cards count?

Okay, so credit cards are my enemy. If there is a little devil over my shoulder, he’s wearing Visa and Mastercard logos (and why are the little devils always men, huh?). Sometimes I want something, usually electronic, and I convince myself I’ve earned it, even when I can’t pay for it yet. I get it anyway. It’s cheating.

Except these things do eventually get paid for, and the interest payments seem like punishment enough. I know people who’ve reduced their credit card debt by more than half just by ignoring them for years. Their credit scores suffer, too, of course, but that’s the decision they make. It’s hard to tell in the long term which method costs more.

Being born into it

But there are people who don’t have modest backgrounds, and whose parents can’t help but give them everything they want. The brain is a funny thing, and so these kids grow up into adults who have an enormous sense of entitlement. Without any other educational influences (and thankfully, these are plentiful), such people will become impossible to deal with. A person like that could rationalize away never giving to charity, or hiding money in an offshore account, just because they can.

That’s not really cheating, but I think it’s really pathetic. I feel bad for a person who’s never felt the uncertainty of knowing where they’ll get the rent money.

Easy come, easy go

Instant celebrity (or anything similar to winning the lottery) can mess a person up. Parties and drugs aside, all too often they seem to make terrible decisions with their finances. If you go from $40,000 a year to more than a million a year, how do you not have the presence of mind to save most of it? And yet, the apparently overwhelming temptation is to buy lavish possessions, a mini-mansion, and then throw parties for your friends until the money runs out.

We know that record companies will do everything they can to steal from their latest money-maker, all the while making the artist feel like they’re financially secure. Hopefully this knowledge has filtered its way into every aspiring star’s consciousness, and they’ll be prepared with a reliable attorney.

Of course, it’s not just musicians who find sudden wealth. Sometimes you just have to be the random, somewhat-telegenic person in the right place at the right time. Monica Lewinsky, for example. All she had to do was tell her story, and she’s set for life. She didn’t earn that.

Ridiculous salaries

I get an itch every time I hear a phrase like, “Blah Blah, who earns $750,000 a year…” No, he doesn’t. Nobody “earns” that much. If the world were a reasonable place, the highest salaries would go to emergency workers, really great teachers, investigative journalists and people who find and stop wasteful spending in government offices (that’s not a complete list, just off the top of my head). But as it is, we reward athletes (who we often find were cheating with steroids), and executives who don’t actually do much, aside from make plans, smile at clients, and otherwise increase shareholder value.

But that’s capitalism for you. We give the money to people who make us money, not necessarily to the people who earn it. I don’t want to be the recipient of that kind of money. But if it were offered, would I refuse it?

Conclusion

I struggle with the concept of “taking advantage of the system,” because it’s impossible to know if I’m benefitting at someone else’s expense. And for me, that’s a deal-breaker: wealth should never come through a method that deprives someone else who is just as deserving as me.

I have an entirely new group of decisions to make, since my wife and I are incorporating a business, and we’ll have to weigh the consequences, for example, of “do we take a tax deduction on the part of the mortgage we’re using for business?” I don’t want to be a cheater, and I hope I never lose that attitude.

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People Will Judge You Based on Your Name

by Flexo on September 17, 2009

Humans are by nature judgmental, and there are good reasons for this. Even though it is often premature, judging quickly helps people make critical decisions with limited information. That limited information, when combined with prejudices or generalizations, can result in poor decisions.

An interesting article from CNN Money asks if your name can prevent you from getting a job. Absolutely. If you have the “wrong” name — wrong in the eyes or ears of the reviewer — you are less likely to be called for an interview after sending a résumé identical to someone with the “right” name.

The National Bureau of Economic Research conducted a study a few years ago in which the authors responded to 1,300 employment ads, sending out 5,000 résumés. In addition to keeping recruiters and hiring managers busy, they measured that résumés featuring names like Emily Walsh and Greg Baker would receive responses 50% more often than those featuring names like Lakisha Washington or Jamal Jones. When comparing résumés featuring good qualifications with those featuring superb qualifications, the superb applicant has a 30% higher chance of being called if the name on the résumé sounds “white,” whereas superb applicants with a “non-white” name do not see an increased probability.

While this doesn’t measure the likelihood of getting a job after an interview, it does point out the initial judgment due to nothing more than a name. If you feel your name could be an initial detriment to your job search, there are several options, but none of them are very good.

1. Legally change your name. Your name is a symbol of your identity. Decades ago, it was common for immigrants to the Untied States to Americanize their names, and it wasn’t such a bad idea for those looking for a new life in the country. This practice is less common now, whether it is due to pride or the shrinking world. I believe for many people, changing a name to fit in with a prejudicial world is too much of a compromise to make.

2. Take on an Americanized nickname. Interestingly, it is apparently common for people born in China to take an English name but prefer to use their Chinese given name when living in the United States. Taking the opposite approach may help you fight the initial prejudice in the United States. If you feel your name is holding you back when searching for a job, keeping your last name but offering an American nick name might help you get your foot in the door.

3. Use only your first initial on your résumé. It would be interesting to see a study that measures the results of this tactic. It may only provide an advantage if the applicant’s last name doesn’t inspire a judgment.

I agree with the author of the CNN article: focus on the aspects of your image that you can control without sacrificing your identity. But this is only from my perspective as someone with a name that doesn’t sound very foreign. With the unemployment rate in the United States still high, perhaps more people are willing to compromise more for an advantage — or to level the playing field.

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Small Business Administration’s Top 10 Tips

by Smithee on September 11, 2009

My wife and I recently started a business. Technically, I think we’re planning a business, since the incorporation papers are still winging their way through the mail, but it feels like it’s been started. We’ve got a P.O. Box, a domain name, and ~~my wife~~ the President of the company has been devouring books with titles like “Working for Yourself” and “Start, Run and Grow Your Own Business”.

For the moment, we’re focusing on finding work for her, since I rather like my day job (and subsequent health benefits… wouldn’t it be great to find affordable health insurance when you start your own business?), but I wouldn’t mind picking up some extra freelance work on the side. I’m starting to think that the only way I will ever pay off my credit cards is by increasing revenue to a level far above what I need to get by.

Our first outing as a company was a couple of days ago to a local Chamber of Commerce networking event. I had a couple glasses of wine so that I could pretend I’m not painfully shy, and though it was still awkward, I was rewarded to see people’s faces light up as I described the kind of work we’re planning. I saw some expressions on faces that seemed to say, “hey, we could use that kind of work at our business!”

But there’s still plenty for us to learn. Since the President seems to have the book-learnin’ angle covered (or could it be because my eyes get tired looking at words on paper?), I’ve been looking online for advice, and found that the Small Business Administration has a YouTube channel. The video production values are about what you’d expect from a bureaucratic agency, but I figured the content might still be worthy. As an example, here’s their video going over the “top 10 tips for small business owners”:

I noticed that “networking” isn’t in the Top 10, or perhaps everybody accepts it as a given. Either way, I hope this video series is useful to the rest of our readers who also have entrepreneurial tendencies. If you’re one of them, what other advice can you offer us newbies?

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Hip New Funding Site: Kickstarter.com

by Smithee on September 8, 2009