One of the first things that you, I, or anyone else will likely worry about when contemplating quitting our jobs is the financial aspect of doing so.  We’ll worry about whether we’ll be able to make enough money, on our own, to pay our bills.  We’ll worry about whether that income, if it is enough, will be steady.  We’ll worry about how we’ll make that money, and whether the income streams that we have are going to be robust enough to scale to a point where we can securely quit our jobs and work for ourselves.  I know they were things that were foremost on my mind when I was deciding whether I should quit my job or not.  In the end, I decided that it was time to let go of some of my fears, and take the leap towards self employment.  Taking that leap was not an easy thing to do.  Here’s how I was able to do it, and how you can too.

Get your Finances in Order.

Sounds simple, doesn’t it.  It’s not.  If it were, there would be a lot of personal finance bloggers who would be blogging about something else today.  Myself included.  Despite what some people believe, personal finance isn’t a simple thing to master.  I know I haven’t done it.  I’m a little bit further along the curve than some, and further behind than others.  When I first started blogging about personal finance, it was during a very dark time in my personal finances.  My wife and I had been wondering if we were going to have to declare bankruptcy, and paying our bills each month was a juggling act with balls that were destined to fall.  Somewhere in that time period, I discovered other personal finance blogs, and through them, Dave Ramsey.  I ordered, and then read, Ramsey’s book, The Total Money Makeover.  It was the beginning of a financial turnaround for us.  Ramsey’s book gave us the financial know-how and direction to turn our finances around.  With the help of that book, and the amazing community of personal finance blogs, our finances became something that was far less of a worry for us.  That was over 5 years ago now. If we hadn’t had that turnaround, and hadn’t, as a result, gotten our finances in order, there is no way that I would have been able to do what I did.  We have been aggressively paying down our debt and refusing new debt whenever possible.

If you’re a regular reader here, you are familiar with the story leading up to the day I quit my job.  We had become a bit lax in our financial governance, were about to buy a new house, and were suffering from a severe case of lifestyle creep.  Our lifestyle had grown along with our incomes.  We still were attempting to pay down our debt, and we were still avoiding new debt in most places, but we could have been doing so much more than we were.  That’s our fault.  We got comfortable with our income, got comfortable with the luxuries that we had let creep into our lives, and we had lost sight of our end goals.  The day that I decided to quit my job, we took all that back, and started actively working towards our goals again.

In a way, my quitting has been a blessing.  It’s given us a renewed perspective on what we need, how much we need, and what we can do without.  If you think you are going to quit  your job or just want to quit your job, you can’t do it without having a firm grasp on your finances, and truly having them in order.

Cut Your Costs.

Part of getting your finances in order, and a large part of being able to make it without the once steady income that you made at your job, is cutting your costs to a level that is sustainable, given your new income level.  I went from a mid 5 figure a year salary with steady paychecks every two weeks to a part time job that I get 20 hours a week at and an inconsistent online income.  In the time since I quit, and now, we’ve cut our costs dramatically.  When I was still employed, we were spending nearly $6,000 a month.  That includes debt repayment, but is still a pretty large number.  Now, we’ve cut our costs by about $2,000.  If you had asked me in October of last year if we could do that, I would have told you that you were nuts.  But, we found a way to do it.  And, so can you.  It’s all a matter of motivation.  Do you have the motivation to cut costs so that you can give your dream the wings it needs?

Work Your Ass Off.

Have your finances in order.  Cut all the costs you can.  None of that will amount to a hill of beans unless you are ready and willing to work your ass off.  It’s something that I still struggle with.  Every job you’ve ever had has conditioned you to expect to have someone telling you what you had to do.  Everywhere you’ve ever worked, you’ve had a supervisor looking over your shoulder giving you the tasks that you were to work on, setting your yearly goals for you, and keeping you motivated to do them with the threat of unemployment.  Once you quit your job, and decide to work for yourself, that all ends.  It sounds freeing doesn’t it?  It is.  And, it isn’t.  You have to become your own supervisor.  Your only motivator is to make your choice valid, and make enough money to live off of.  You aren’t going to get fired for spending 4 hours a day on Facebook anymore; You’re going to go broke.  Scary, no?

As scary as that may sound, it is freeing.  You’ll have the freedom to make the choice to work your ass off.  It’s something that, even now, almost 3 months later, I still struggle with.  There have been days where I haven’t done a damn thing.  And, I’ve regretted each one of them.  Each day spend screwing off has cost me potential money.  If I don’t get anything written for this site, or any of my other sites, it’s one less article that you’ll enjoy reading (I hope), and one less well written article to attract new readers, and new advertisers.  Because of the long lasting ability of any article that I write, the repercussions of a missed article can be exponential.  What you choose to do, may not be writing content for websites, but you’ll likely see the same trend.  And you’ll likely struggle to keep yourself on task without a supervisor.  I’m learning, and you will too, that you have to provide that supervisory oversight for your new venture.  It’s no longer a matter of keeping your job, but of keeping your bills paid, you heat on, and the foreclosure agent from your front door.  Work your ass off.

Have a Little Hope (And Faith).

None of what I’ve said is the most important part of this.  Without hope, you are destined to fail.  You have to have hope that you will succeed.  You have to have hope that you’ll overcome any mistakes you make.  You have to have hope that you will prevail, and make your venture grow roots and blossom.  You have to have faith in yourself, that you can do the things you need to do to make your venture a success.  Without hope and faith, you will fail.  I can tell you, first hand, that there are going to be days when both your hope and your faith will falter.  There will be days that you feel like you’ve started on the trail to scale Mt. Everest.  The air is getting thin, and all you want to do is, stop, turn around, and head back to the comfy, warm, job you had before.  But, like anyone who has attempted to climb that mountain, you have to keep climbing.  The trail may change directions from time to time, but the goal is the same.  Find ways to renew your hope through community, family, and friends.  I’m lucky enough to have a very supportive family, friends, and the community of personal finance bloggers to help me keep that hope, and keep my faith.  You can find that too.

Get your finances in order, dramatically cut your costs, work your ass off, and keep your hope and faith alive.  Reach your summit.
photo credit: ilkerender

Beating Broke was included in the following carnivals last week:

Carnival of Financial Planning – Edition #221  hosted by The Amateur Financier

The Wealth Builder Carnival #64  hosted by My University Money

Yakezie Carnival hosted by The Amateur Financier

Carnival of Financial Camaraderie #18 hosted by My University Money

and

Carnival of Retirement #4 hosted by Retire by 40

Thanks to all the hosts for including my posts!

Did you know that there are other ways to connect with Beating Broke besides just reading the articles here on the site?  You can subscribe to the feed, and have it delivered directly to your email box, if you like.

You can find us in a few other fun places as well!

We’re always on twitter!  You can follow us at @beatingbroke!

We’re also on facebook!  You can follow, and “like” us at facebook.com/beatingbroke

We’re also on reddit!  You can follow us at reddit.com/user/beatingbroke

What about you?  Where can you be found?  What other social networks do you hang out at?
Leave your links in the comments if you want,  so that we and others can connect with you too!

You already know that I like Lending Club as an investment vehicle.  The returns are good (or great, depending on your default rate), and I like the idea that my money isn’t going to line the pockets of some corporation, but is being used to help someone who needs a loan get a better rate than they might get at a financial institution or through credit card usage.

Recently, Lending Club started offering IRA accounts to the lenders.  My first thought, was something along the lines of “that sounds kinda cool”.  But, then I got to thinking about it.  Many of us struggle to put money away for our retirements.  Do we really want what little money we have put away in an investment that carries as much risk as Lending Club notes carry?  I like risky investments, but even I don’t think I’d want all of my retirement money in these notes.

One use that could redeem it is using it as a supplemental IRA.  If you’ve already got a 401(k) and an IRA that you use to invest in more traditional, lower risk, investments, you could use a Lending Club IRA as a way to diversify further and add a little more risk to your portfolio.  That would also allow for keeping a higher percentage of your 401(k) and standard IRA in investments that are a little less risky.  Of course, that would also mean balancing your investment portfolio over several accounts.

I tried to figure out some of the finer details of the Lending Club IRA through their site, but either it isn’t all that clear, or I’m just a bit dense.    So, I emailed them to get a few questions answered.  Here’s what I found out.  The accounts are administered through a company called Self Directed IRAs.  I’m not all that familiar with what a self directed IRA is, but it basically looks like an IRA account that you can use to invest in just about anything.  They offer several different IRA “types”, so it will depend on which the LC IRA falls under to determine what other investments you can add to your account besides the LC notes.  It doesn’t seem out of the question to assume that you would be able to invest in stocks and such as well.  (I’ve replied to the email I got to try and determine this for sure)  Based on what I was seeing on the administrators website, it was looking like the account might be pretty heavy in fees.  The email from Lending Club managed to answer that question as well.

There are no fees associated with a Lending Club IRA with a balance of at least $5,000 in the first year (you have all year to reach this), or $10,000 in the second year and beyond.

If you don’t meet those requirements, the account carries a $100 annual fee.  Pretty hefty if you don’t meet the requirements.  There’s two ways to look at that, however.  If you’re IRA is large enough, it shouldn’t be a problem to keep $10,000 in Lending Club notes and still keep your risk diversification.  If you’re IRA is smaller though, you’d be automatically raising the risk of the account my meeting the requirements.

Anyway you look at it, I don’t think it will be the most popular IRA account around.  But, it’s nice that they offer it for those of their customers who want a tax sheltered way to take advantage of peer-to-peer investing.  You can read more over on their site: Lending Club IRA.

What are your thoughts on the Lending Club IRA?  Too risky for retirement funds?  Good as a part of the retirement portfolio?

One question I’ve been asked over and over when talking about quitting my job is how I overcame the fear of not being able to find a new job, or not being able to pay my bills.  Obviously, both of those questions played a part in the decision.  My answer might surprise some.  I didn’t.  At least not to the point that they’ve completely left my mind.

At the moment, I’m not looking for another job.  I took on a part-time job, working for a local computer repair shop, and I’m not even looking for a new full-time job.  The part-time job doesn’t pay anything even close to what I was making at my full-time job.  And, the truth is, I don’t care.  So far, using the income from my wife’s full-time job, and the income from my part-time job, along with some of the income I make from this site and others, we’ve been able to pay the bills.  We haven’t been able to keep up with our debt repayments on the same aggressive schedule that we had been on before, but we can pay the bills.

Even so, making the decision to quit my job meant overcoming the fear of both of those things.  And, I did it.

Almost a year before I quit my job, I wrote a post on another site of mine, entitled Overcoming Fear.  In it, I wrote about facing fear with rationality.  Looking at fear with a rational eye, and truly, asking “What’s the worst that could happen?”  I knew, during the decision making process, that the part-time job was available, and that it would likely be mine for the asking.  The worst that could happen there was for that particular job to become unavailable.  But, there are other part time jobs available here, and I could take one of those.  The hours at another one of them might be worse, and the pay might even be worse, but jobs were available.  The worst that could happen was that I could end up having to take a different part-time job that I wouldn’t like as much.  The worst that could happen with our bills would be if we couldn’t make ends meet.  The absolute worst case scenario would be if we were pushed to a point, financially, where we would have to declare bankruptcy.   Even that is was a pretty remote possibility, because I could always take on a second part-time job to help bring more money in.

I found the worst case scenarios, understood what the ramifications would be for each, and took a leap.  And, in the end, I’m very happy that I did.  My stress levels have gone way down.  I enjoy what I’m doing again.  And, I’m in control of what happens with my life, now.

Overcoming fear can be about the best case scenario too.  With any decision, there is always something that is a positive.  For me, the positives of getting out of a situation that I was suffering in, regaining control of my life, and stopping the trade of my time for money, made it well worth my while.

Do you fear?  I encourage to read my post on Overcoming Fear, look at your fears with a rational eye, and ask yourself what the worst case scenario is.  Some fears aren’t worth fearing.

Share with us.  What are some fears that you’ve overcome?  What are some fears that you want to overcome?
photo credit: notsogoodphotography

If you would like to start 2012 on the right financial footing and want to do something that is attainable, consider taking a challenge.  Two of my favorite challenges are spending challenges and pantry challenges.  Take either or both of these challenges, and you will find extra money to do with what you please—to save for a new vehicle or home, to bulk up your emergency fund or to snowflake on your debt to get it paid off faster.

I have already spoken about the spending challenge, otherwise referred to as the No Spend Month as an excellent way to raise money for Christmas gifts, but it is also good to
do another time of the year.  Choose one month when you limit your spending for disposable items such as groceries, entertainment and gas by as much as 50% of what you typically spend.  You will find yourself being mindful of what you spend money on because there is very little money to spend.  If you normally spend $800 a month on groceries, entertainment and gas and you vow to slash that amount by half for one month, you now have an extra $400 available to meet your financial goals.  (I often have a no spend month in February.  The psychological boost of knowing it is the shortest month of the year makes it easier to stay the course.)

Another challenge I try to take at least one month a year, but ideally two months a year, is a pantry challenge.  All of us have some extra items lurking in the cabinet.  I often buy ingredients for a certain recipe, but then if I don’t get a chance to make that recipe, I often still have the non-perishable items on the shelf a few months later.  With a pantry challenge, you try to use up what you have.  A common misconception is that you are not allowed to grocery shop at all.  That is not true.  Just like a spending challenge, you set a designated amount you want to spend.  Say you spend $600 a month to feed your family of five.  During a pantry challenge, you decide you will only spend $200 for the month.  That means you must try to make meals from ingredients you already have on hand.  This is a great way to not only save money but also to use up food that may be nearing its expiration date so it doesn’t go to waste.

If you would like a little extra money for your financial goals this year but you don’t have the time or inclination to work more hours, having a spending or pantry challenge may be the perfect solution to generating more money in a limited time frame.

Have you taken part in a challenge before?  Were you successful?

photo credit: 401K

Beating Broke was accepted to five carnivals last week:

Carnival of Financial Planning – Edition #220 at Credit Cards Canada

The Wealth Builder Carnival #63 at My Wealth Builder

Yakezie Carnival at Little House in the Valley

Festival of Frugality #320 at Squirrelers

and

Carnival of Financial Camaraderie #17 at Young Adult Finances

Many thanks to the hosts for including my posts.

One of the best ways to break out of the daily grind, and do something that you really enjoy, is to start a business.  You’ll likely work twice as hard, but because it’s something that you love, you’ll enjoy every minute of it.  When my wife quit her job, she could have used a lot of the advice that is contained in the guide I’m about to share with you.  There were lots of questions about the structure and methods that are necessary to starting a small business.  Luckily, if you’re starting a new business, you can read the guide and cut through some of the learning process.

The guide I’m talking about is one that has been put together by my friend, Eric, from Narrow Bridge Finance.  It’s free.  All you have to do is have an email and sign up for his newsletter.  He’s a stand-up guy, so your email is safe with him, and all you’ll get is some really great information about starting a business and personal finance.

So, go over and sign up for the newsletter and get your copy of the Starting a Small Business guide.

The guide is 16 pages long, and covers everything from developing your idea into a business to increasing revenue and income, to the proper ways to exit a company you’ve started if that’s what you want to do.  It’s not all-inclusive (that would take a couple hundred pages), but it is a great start on your way to starting a small business.

Show of hands.  How many of you actively participate in recycling endeavors in your community?  You schlep around your empty cans, jugs, and bottles.  You pile them up with your used papers, then sort them all into bins so some poor schmoe down at the recycling center doesn’t have to.  All so your city can save a few dimes on an already expensive endeavor.

Let’s think about this honestly for a minute.  Because, I think we’ve got our terms confused.  What, exactly, is recycling?  It’s the taking of something that’s already been used, and putting it back through the manufacturing cycle so that the material can be used again.  That extra cycle is where the term recycling comes from!  But, what is the cost of that extra cycle.  Let’s break it down a bit.  We’ll ignore the first cycle, since it’s going to get used for the first cycle regardless.

Let’s consider a plastic bottle.  It’s been created, and used.  It’s empty, so has no further use in it’s first cycle.  You collect it with similar bottles, then submit it to the local recycling center.  We’ll discount the energy that you use in collecting the bottle, as it really isn’t that much more work than you would use in throwing the bottle away.  But, what about the energy that will be used in picking up or dropping off the bottle.  You’ve got to either have someone pick up the bottle, or you have to drop it off at the recycling center.  Once the bottle has been taken to the recycling center, it then has to be shipped to a factory where it can be broken down in a way that makes it recyclable.  More energy wasted in transportation.  Once it’s there, at the factory, it then has to be broken down.  Depending on the process, that could involve melting the plastic under heat.  It could mean squishing, cutting, and making the plastic into threads.  Even more energy wasted.  Once it’s been broken down, the resulting product must be taken to yet another factory that can then turn it into the “recycled” product.

By the time it’s recycled, it’s been through a manufacturing process three times.  Does the extra cost in energy, pollutants, and work make it worth our while?  I’m not sure that it does.  Want to take a deeper look at some of this?  Take a look at this video.  Now, arguably, the show is called “Bullshit”, and anyone who uses that as the name of their show (or as a title for an article) is out to be a bit sensationalist.  And, certainly, I don’t know that Penn and Teller count as experts.  But, I do think they make some interesting points.  There’s three parts to it, so it’s a bit long, but worth watching, I think. When you’re done, we’ll continue on below. P.S. as you can imagine, a show whose title is “Bullshit” has some NSFW language in it.

I admit, I like sensationalism. And, I’ll make another admission. I’m not entirely against recycling. But, I tend to think that the first two parts of the motto “Reduce, Reuse, Recycle” are far more useful and important than the recycling. By reducing the amount of energy and products that we use, less needs to be made. By reusing the things that we can, we reduce the amount of products that will need to be recycled or thrown into a landfill.  Instead of expecting someone else to ease my conscious, and take away my trash to be converted into something usable, I’d rather reduce the amount of trash I make.  Less paper plates.  Less non-reusable water bottles.  Less stuff.

The one thing that I collect to send off to recycling is soda cans.  Mostly, because I can drop them off at the local Humane Society where they take them to a scrap metal yard and sell them for cash.  It’s an extra way to give to one of my favorite charities.  Here’s some more sensationalism for you.  The Humane Society is, essentially, a pet recycling center.  People take their unwanted and used pets there, so that they can be washed, fed, given their shots, and sent back out to a new family.

I’ve gone on about recycling long enough.  Now, it’s your turn.  Scroll down a few inches on the screen and leave a comment.  Do you agree that recycling might be bullshit?  Do you recycle religiously?  What steps do you take to reduce, reuse, and recycle?  Heck, you can let me have it in the comments too, if you like.  One small caveat in doing so, is that any excessive NSFW language will likely get edited out.

Consideration provided by Compare the Market

One of the reasons that I dislike payday loans so very much is because of the terribly high interest rates that the payday loan companies get away with charging.  Couple that with the high fees, and it doesn’t take a genius to see why most people who know anything about personal finance will agree with the “parasitic lending” tag that I throw at them.  By comparison, a personal loan isn’t much better.  Or is it?

Personal loans have some of the same high interest rates, after all.  Aren’t they just another way for the dastardly financial institutions to charge high rates, and rake in the high profits?  Well, yes and no.  Yes, they do charge high interest rates for personal loans, but there’s a very valid reason for that.  And, as a generality, the rates are not as high as those charged for the payday loans.  So, why do institutions charge higher rates for personal loans?  The answer is in the guarantee.

Guarantee?  What the heck am I talking about?  In a typical consumer loan, you’re buying something.  Instead of a personal loan, you get an auto loan, a mortgage, or a recreational vehicle loan.  In exchange for the loan money, the lender gets a claim on the title of the thing being bought.  If you default on the loan, the lender can repossess the car, house, or ATV that you bought with the money.  Because they have that collateral, the risk of losing money on the loan is decreased, and they can afford to give you a lower rate because of that decrease.

A personal loan, has no such collateral.  The only guarantee that you will pay the loan back is your signature.  Coincidentally, that’s why they will sometimes be called “signature loans”.  Because the lender cannot repossess your signature, the risk of default is raised.  And, because it is raised, they charge higher interest rates.

At this point, you’re probably asking yourself, “What’s the difference between a personal loan and a payday loan, then?”  Truthfully, there is very little different.  The one difference, and it’s one that makes a big difference, is that a personal loan is usually issued by a financial institution like a bank or credit union, whereas a payday loan is issued by that shady pawn shop across the street.  And, as a general rule, banks and credit unions are a bit more upstanding than the pawn shop.  In most cases, they have a good reason to treat you fairly.  They want your business.  Not just your next loan, but your savings too.  If they treat you poorly and charge outrageous rates, you’re likely to find somewhere else to put your money.  That pawn shop could care less.

Another difference, that bears mentioning, is that banks and credit unions will usually require that you have a good to excellent credit rating before giving you a personal loan.  For obvious reasons.  The risk is already higher without collateral, so they don’t want to risk their money lending it to people who have sub-average credit scores.  The pawn shop could care less.

Have you ever borrowed a personal loan from a bank or credit union?  From the pawn shop?

photo credit: nerdcoregirl