John was laid off last week. His severance package will last for another 6 weeks. Given the depressing state of current job market, he probably will need several months to search for a job. Will he have enough cash to support his family until he gets his next job?

Michael and Mary will have an addition to their family in a few months. They rents an apartment in San Jose, CA, but they would like to buy a house in a good school district in the Silicon Valley. Although they both have six-figure income, it’d still be a little bit of stretch financially for them to purchase a single family house in the expensive Palo Alto, CA. Can they really afford such a house given their current level of expenses?

To answer any of the three questions above, you need to know how much cash you’re burning each month.

You might argue that expense is different from cash burned. For example, you can borrow $1,000 on your credit card, but only pay off $50 in cash this month. The $1,000 plus interests are the actual expense, while the $50 is the cash payment for this month.

For the sack of this article, I’m focusing on the fifty dollars cash payment. It’s your obligation to have the cash to make the payment.

Cash is king. Ironically, I know very few people who know their monthly burn rate. Every month, they have their paycheck directly deposited to their bank account. But, they don’t really track how much are spent each month.

You should know your cash burn rate before you get burned financially. It’s really personal finance 101.

Here is how I track my cash burn rate.

I use a single checking account to pay off my bills. Every month, I’ll download a copy of the monthly statement from the bank web site. I’ll add all of the expense items, which gives me the cash burn rate for the month. Having a single bank account to pay off bills make this process simple and easy.

To drill down my expenses, I go to Mint.com, which automatically uploads all of my bills, and generates nice charts to show me the sources of my cash expenditures. It also lets me set and track budget goals.

It only takes a few minutes each month, but give me a lot of peace of mind.

Do you know your cash burn rate? If the answer is no, I suggest you to spend an hour to get a better understanding of your cash burn rate.

Know your cash burn rate before you get burned financially.

Recommended resources:

• The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
• Crash Proof 2.0: How to Profit From the Economic Collapse
• A Gift to My Children: A Father’s Lessons for Life and Investing
• TurboTax Deluxe Federal + State 2009 + efile

"I don’t think parents should pay the full amount of their kid’s education expenses. They can get scholarships and loans for their education, but we will not be able to get scholarships and loans for our retirement."

Looking around me, I know several different kinds of parents with regard to paying for their kids college education:

• Wealthy parents who provide everything to their kids. 
• Middle-class parents who could barely afford to pay for their kids’ education. But, they have to live a very frugal life, save, save, and save.
• Middle-class parents who could only afford part of their kids’ education expenses. They feel tremendously guilty about their inability to fully support their children.
• Low-income parents who simply cannot afford. To a large extent, they let their kids to figure out how to pay for their education.

I have two little ones. When they get a little bit older, I’ll tell them that I’ll help them, but not much. They will have to earn their way to finish college and beyond.

This has nothing to do with my own financial means or ability to pay. I guess you can call it "tough love". Let me explain from my own experience.

As I wrote in I grew up in the hood, I had a humble beginning. From early on, I knew that I had to figure out a way to pay for college education myself. During my senior year in high school, I spent a lot of weekends in the public libraries to research about scholarships, grants, and other forms of financial aids. I read every financial aid book the library had. I applied every single scholarship that I was eligible for. I submitted my financial aid application on the first day that I was allowed to submit.

The process of applying scholarship was like selling a product. The more cold calls/sales visits you make, the more sales you’re going to get. I applied hundreds of scholarships, and ended up with several thousand dollars of free money.

The summer before I started college, I calculated my budget on a spreadsheet. I went through a similar budgeting process before every semester. I tracked my expenses closely. I worked every summer during college.

The result? I was able to self-finance 100% of my college education. I never asked for a single cent from my parents. I never ran out of money. I didn’t have any financial worry during college, which allowed me to focus on my study.

This experience was extremely beneficial to me:

• I learned to be very resourceful since I had to rely on myself to get the funding for my education.
• I acquired personal financial literacy early on.
• I learned to be financially disciplined and responsible.
• I learned to save.

While I was in college, I was amazed by how little some of my classmates knew about money matters. When they ran out of money, they just called their parents. Some of them complained about how expensive college had become, but they never took any initiative to figure out how to work the system to get more free money for their education.

A few years ago, I had the opportunity to speak to a group of under privileged high school students in rural Montana. Most of them never thought about going to college. I told them:

"It’s true that college tuition keeps going up and it’s getting harder to pay for college education. But, this country still provides many resources to help students to make through college. Nobody in America should be prevented to go to college because of financial reasons."

A lot of people will disagree with my statement. But, I really believe that with the proper planning and resourcefulness, you’ll figure out a way to pay for your own education.

When my kids go to college, I want them to learn to be resourceful, and figure out how to pay for their own education. I’ll be there to provide support, but I don’t want them to be fed with a "silver spoon".

Let me tell you: there are a lot of similarities between the stroller world and the car market.

The low-end of stroller market is like Honda Civics: reliable, sturdy, and plain. (Disclaimer: I have nothing against Honda Civics. In fact, it’s one of my favorite cars.)

The high-end of stroller market is like Mercedes: good looking, powerful, and luxury. Just check out the $979 Bugaboo Cameleon Stroller.

Then, there is the SUV equivalent of the stroller world for active parents — Bob Ironman Sports Utility Stroller. I can tell you from experience that it’s a great stroller for both parents and kids. I have talked to quite a few parents about their Bob Strollers. Everyone loved it.

What’s really interesting about Bob Stroller is that almost everyone parent I talked to purchased additional add-ons/accessories to the stroller.

Here are some examples of the add-ons:

• Car Seat adopter that allows parents to attach car seats from other manufacturers to the Bob Stroller.
• Handlebar console that holds water bottles, keys, cell phones, etc.
• Weather shield that protects kids from the rains.
• Warm and Fuzzy fleece panel and padded quilting that keeps kids warm.

These add-ons are not cheap. And the list of add-ons are expanding.

One could argue that the add-ons is a rip-off. They should be included as part of the stroller.

But, the bare bone Bob Stroller is such as a high quality product that many happy customers are willing to make the extra purchase.

The Bob Stroller is the platform.  It’s also designed in such a way that manufacturers could add many new features on top of the platform.

I thought it’s a brilliant strategy.

We often talk about platform strategy in the software world (e.g. Microsoft Windows 7, Mac OS, Linux, etc.) But, it’s not a concept that is limited to the software industry.

Regardless of which industry you’re in, you should think about a platform strategy: build a high-quality core set of functionality that customers are willing to pay, but also has the flexibility to add bells and whistles to generate incremental sales.

Intuitively I thought it was a great business. Looking at the Best Buy shelf, it’s apparent that ZAGG dominated this particular market niche. How expensive could it be to produce a piece of plastic to protect screens? I guess it’s a very lucrative business with high margins.

When I got home, I did a little bit research on ZAGG.

The first invisibleSHIELD design came about early 2005. And in July 2007, ZAGG went public on the NASDAQ. It went from initial product design to IPO in two and half years.

ZAGG is no dot com. It had real, explosive growth because it has the right product at the right time at the right market:

• Right time: iPOD was having explosive growth during this time. invisibleSHIELD rode the iPOD wave.
• Right product: ZAGG’s invisible Shield was based on a clear, thin, and very durable military film originally made to protect US military helicopter blades from high-speed damage. Virtually invisible, indestructible, and thin — these are desired features from customer perspective. 
• Right market: consumers were hungary for an effective solution to protect their gadgets. They’re tired of the bulky protective cases.

ZAGG’s management team also secured the intellectual property for the technology behind invisibleSHIELD early on, which helped them build a defensible position.

In the high tech industry, I have seen my shares of vaporware and cash burning start-ups. I think ZAGG sets a great example for entrepreneurs — build the right product at the right time for the right market, and build a defensible position.

Do you know any ZAGG-like businesses? I’d love to hear from your.

What kind of intelligence can you infer from above information?

Let me tell you something. There is a high probability that Mary Anne is looking for a new job. She is improving her profile, networking like crazy, and trying to build positive word-of-mouth referrals.

People’s behaviors on LinkedIn can reveal a lot about what they’re thinking and doing. 

I’m not telling you to jump to conclusion about others’ plans and intentions based on their behaviors on LinkedIn. But, LinkedIn is definitely a channel for career and office intelligence.

The reverse is true as well — if you’re not careful on LinkedIn, others (which might include your boss and subordinate) might know a lot more about you than you want them to know.

Just a few days, someone I knew was pulled into a room by his manager. His manager had found out from social networking sites that my friend was actively contacting recruiters. The manager asked: "You’re looking around. Why? Are you committed to your job?"

Facebook could be even more problematic. A lot of people are connected to both their personal friends and co-workers on Facebook. You might be flirting with a former classmate on the Facebook Wall, but if you’re not careful, your action will be "broadcasted" to a lot more people than you would have preferred. Your colleagues might notice that you’ve been on Facebook a lot during working hours. That’s usually not a good thing in front of your coworkers.

Most of the social networking sites make it really easy to share and reveal information by default. I’m all for the benefit of social networking: connecting, sharing, and building a community. But, I also believe in the separation of professional life and personal life.

It’s dangerous to  mix them up.

So, I practice a bare bone, minimalist social networking strategy:

• I turned on most of the privacy settings on LinkedIn.
• I use LinkedIn to connect to former and present colleagues. I rarely update LinkedIn profile. Even if I update my profile, people won’t get the automatic notification since I’ve turned on my private settings. They have to specifically come to my profile page to see any changes I made.
• I have separate Facebook accounts for professional and personal purposes. I don’t connect to any co-workers on Facebook.

Call me paranoid and/or old fashioned. I just think we’re much better off by calling each other, grabbing a cup of coffee, and having lunch together to learn more about each other.

Related posts:

• How to overcome writer’s or blogger’s block
• Is your paycheck correct?
• Do Time Management techniques work?
• If you’re laid off and let go today, are you going to lose all of your personal data on your computer at work?

Recommended reading:

How to Be Invisible: The Essential Guide to Protecting Your Personal Privacy, Your Assets, and Your Life (Revised Edition)

Privacy Lost: How Technology Is Endangering Your Privacy

The Transparent Society: Will Technology Force Us to Choose Between Privacy and Freedom?

Database Nation : The Death of Privacy in the 21st Century

Brought you by GeekMBA Micropublishing:

• How to become a product manager
• How to get a job at amazon.com
• How I negotiated with auto insurance company to settle total loss and got $1,000 more back

I’m 32 year old. I’m currently first-year student at a top MBA program. I got a 750 on GMAT. I’ve founded a non-profit organization.  I was promoted twice at work before I went back to school. I’m currently the president of a student club.

But, I’m really depressed.

As  you know, it’s really competitive to get a summer internship now. My dream is to become a McKinsey management consultant. It’s simply the most prestigious job in the world. I have wanted to work for McKinsey since I was five years old.

But, McKinsey’s job application asked me for SAT and my undergraduate GPA in addition to my GMAT score and graduate GPA. It’s too late for me to do anything with my undergraduate GPA, but I was thinking about re-taking the SAT since I had a mediocre score when I was in high school. But, it would take quite a bit of time for me to prepare for SAT, probably signed up a Kaplan class. Would you recommend me to re-take the SAT? Please advise. "

Thanks in advance,

Jerry

Okay. Let me confess first. I made up this letter. But, I can guarantee you that the content of this letter was absolutely based on actual conversations I had with people.

I attended business school during the last recession. Internship recruiting in Fall, 2002 was incredibly difficult. People were looking for every edge they could possible have to improve their chance to get an internship offer from their dream employers.

Several people told me that they were really concerned about their qualifications because they had low SAT scores. They were thinking about re-taking it. They wanted to do everything in their control to improve their chance with employers such as McKinsey, Bain, Boston Consulting, etc.

When we had mock-up interview practices, we were told that we needed to demonstrate passion. People were taking the "passion advice" very seriously. The investment banking and equity research wannabes were starting saying to interviewers that they had a calling for stock market since they were five years old. Just like Warren Buffet, they started picking stocks when they were in elementary schools.

The consulting wannabes were talking about how much they loved problem solving, and how they conducted their thinking the McKinsey way. That’s how their minds were wired by mother nature. They were born to work for McKinsey.

My examples might be exaggerating a little bit, but not much. After talking to many investment banking and management consulting wannabes, I can tell you that most of them didn’t get into banking or consulting because they had a true passion for these two professions.

They got into these two lines of work because 1) they could potentially make a lot of money 2) they would have the flexibility to make lateral moves to other career paths down the road 3) they didn’t like what they did professionally before business school. They wanted to do something different.

I also don’t understand why employers such as McKinsey and Google cares so much about candidates historical academic record.

San Francisco Chronicle recently ran a very interesting article: Google Talent Search: Error 502? Google has come out to dispute some of the statements in the article, which was included in the "Update" section of the article. I encouraged you to read this article and form your own opinion.

This reminds of an excellent talk given by Tom Siebel at Kellogg School of Management. Here is my favorite quote from his talk:

"You graduate from one of the best business schools on the planet.

Once you get out of here, it wouldn’t make any difference at all.

There is no correlation between business success and grades, test scores, or the schools you graduated. None. "

Here is the entire video recording of Tom Siebel’s talk. (You can hear the aforementioned quotes at about 9 minute 30 seconds mark.)

Related posts:

• The good, the bad, and the ugly of management consulting
• Who was the bartender I met at Montana?
• How my friend Caleb became a legend among wall street junior analysts
• An in-depth look into MBA Admission Consulting

Excellent resources:

• How to get a job at amazon.com: A definitive Guide
• How To Become A Product Manager
• The 5 Patterns of Extraordinary Careers: The Guide for Achieving Success and Satisfaction
• The Leap: How 3 Simple Changes Can Propel Your Career from Good to Great
• Go It Alone!: The Secret to Building a Successful Business on Your Own

John has been working at a technology company for eight years. He absolutely hates his job now. In fact, he wanted to leave immediately. But, because of stock vesting schedule, he has to wait for a few months. This company’s stock has been performing well. But, it’s also known for being a sweat shop, treating employees very badly. Eight years is a long time. John couldn’t leave during the eight years because he was waiting for his green card application to go through. He finally got his green card recently. He has been planning for the next chapter of his career.

Given his skill set and experience, he could easily get a job at another company. But, he just couldn’t get excited about working for any company. He felt that he had tolerated enough office politics. He has no interest to climb the corporate ladder. He wants to start his own company.

But, John also has to face realities on the personal front. He is in his early 30s, married with kids, and a mortgage. He is also the sole bread earner in his family; his wife is a stay-home mom.

His plan is to

1. rent out his house
2. move the family to his native country in Southeast Asia
3. set up a outsourced software development shop to generate short term revenue while developing a product (he has been working on the idea for a while.)
4. return to the United States to run his business once the product is developed and his development shop is profitable.

The living expenses in this particular Southeast Asia country is pretty low. For example, his monthly rent would be about $200.

Most of his family and friends don’t understand why he wants to do this. They think he is crazy: he has a good job at a well known, high-growth company whose stock is doing great. He lives in the beautiful Pacific Northwest. He has a very nice house and a very nice family. Why take the risk to move the whole family back to a developing country and start a business?

In fact, I’m the ONLY person who told him to "go for it!".

Let me explain my rationale:

• John is only 32 years old. He is still young enough to take major risks. If he is in his forties or fifties, it’d be much harder and risky to take the risk he has in mind.
• John’s wife has told him that she would give him one year to try out his "start-up experiment". Assume they stay in the Southeast Asia country for one year, their totally living expenses is probably going to be less than $15,000. He would also need to spend some money to set up shop. But, he has already had two small outsource projects to work on.  I think the financial risk is manageable — let’s say everything fails. John will not be broke and he will not put his family in any financial danger.
• The opportunity cost will be one-year’s salary. But, the cost of living is also much higher in the United States. So, the opportunity cost of "one-year net income" will be pretty small for John.
• He has always wanted his kids to learn his native language. There is no better place to learn a language than the native country! I asked him about health care cost. Apparently, quality health care is much cheaper there than the United States. Getting quality health care for his family will not be a problem.

Most importantly, it’s John’s dream to start his own business. I’m a big believer that everyone deserves a chance to take a risk once during life time to pursue what he or she is really interested in. A lot of people don’t have the courage or the resource to give themselves a chance. John might lose some money, but he has the rest of his life to earn the money back and more. What’s more precious is the experience of doing something he really wants and cares.

I told John that he might fail, but I’m pretty sure he will not regret.

Do you agree with me? What would you do?

Related posts:

• Anatomy of a business start-up - ScooterGirls Inc.
• The Hot Dog Guy
• Is starting a company in Silicon Valley stupid?

Excellent resources:

• Own Your Own Corporation: Why the Rich Own Their Own Companies and Everyone Else Works for Them (Rich Dad’s Advisors)
• Small Time Business Operator, 10th Edition: How to Start Your Own Business, Keep Your Books, Pay Your Taxes & Stay Out of Trouble (Small Time Operator)
• Virtual Assistant, The Series: Become a Highly Successful, Sought After VA
• The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It

"I wish you enough sun to keep your attitude bright no matter how gray the day may appear.

I wish you enough rain to appreciate the sun even more.

I wish you enough happiness to keep your spirit alive and everlasting.

I wish you enough pain so that even the smallest of joys in life may appear bigger.

I wish you enough gain to satisfy your wanting.

I wish you enough loss to appreciate all that you possess.

I wish you enough hellos to get you through the final good- bye."

“About 1 month after 100 were laid off in the Membership and Billing IT area, 90 were given their pink slips in the Claims IT area.   Blue Cross has decided to outsource the work to Cognizant and IBM who will offshore the work to India. The layoffs took place in the Twin City area.”

Hallmark Cards of Kansas City:

“There has been about 1,000 + layoffs in the past year at Hallmark cards.

They have always been very quiet about layoffs. Their business has been drastically affected by the economy and sales are plummeting.

To protect what little profits they have (for the big guys), they consistently go after the senior workers with bigger benefits/vacation time/bigger salaries.

But they do it so other workers don’t notice so much. About 4-5 yrs. ago, they radically changed all their HR policy: No more seniority, except in manufacturing type jobs. Now they will hire and fire based on ‘performance’, and qualities determined by whatever the current management deems desirable.

Also, you can’t sue them if you accept a severance agreement, or so they claim. Then, they did a bunch of layoffs about 2-3  years ago, mostly older people too.

They got a LOT of bad press locally, in the paper called the ‘Pitch’. So they have changed tactics now. Like, offering 2 weeks of pay per year of service, but eliminating your position.

Since the beginning of the year, they’ve moved slowly around the co. laying off small groups of individuals, 10-20-30 at a time.

What gets me is, they also changed their benefits to phase out their old "retirement" plan called "cash balance", which they matched & added a certain amount each year based on your salary. These were very modest accts., because, they said, your profit-sharing was really your main ‘retirement"

(even though profit sharing has been very puny the whole time I was there). And to me, it seems, the older folks, who had ‘cash balance" retirement accts., are the ones they are going after! Also, anyone who has had a lot of medical claims or time off.”

Related posts:

• Ten things you should do before layoff

• Seven things you should do immediately after layoff

• Are you laid off? — A 5-day Personal Boot camp

• An inspiring story of starting a business during financial crisis and finding a way to beat layoffs

• Cover letter for laid off worker

• A book I always turn to when I look for a job

• Beat recession advice #1: Form a network of headhunter friends

• Beat recession advice #2: Cut expense, save money, and converse cash

• Control your own destiny when losing your job

Amazon.com stock is trading at $130.15/share this afternoon. Its P/E ratio is 76.74. Google’s P/E ratio is 36.56. Apple’s P/E ratio is 32.28. Given Amazon’s thin margin, its current stock price is absurd. It’s the kind of number we saw during the last great Internet bubble.

The national unemployment rate is 10.2%. And the broader measure of unemployment rate stands at 17.5%. In the past 30 days, we have seen layoffs from Electronic Art (3,000), United Online (71+), Microsoft (800), RealNetworks (70), Sun (3,000), etc. I’m getting busy again to update GeekMBA360.com Great Depression 2.0 Layoff Tracker. Job creation is absolutely crucial for economic recovery. It’s not getting better at all.

Nouriel Roubini, an economist and NYU professor who correctly predicted the current economic crisis, warned that Mother of Carry Trades Faces an Inevitable Bust. Roubini recently said:

"Eventually there’s going to be an end to this carry trade. When that snapback of the dollar is going occur it’s not going to be 2 percent or 3 percent, it’s going to be more like 25 or 20 percent. And then everybody will have to close their shorts on the dollar, they’ll have to sell these risky assets across the world and you could have this huge asset bubble going into an asset bust." 

Golden Sachs is looking to buy millions of dollars of tax credits from government controlled mortgage giant Fannie Mae. Warren Buffet is joining Goldman in bid for Fannie Mae Tax Credits. So, the taxpayer bailed out the banks. Now, banks are trying to save more money by "bailing out" Fannie Mae, which is controlled by the government. Who is at short end of all of these? Taxpayers.

I don’t want to sound like a pessimist. But, I’m a realist. Our own employment, security, personal finance and family well-being have a lot to do with the overall economic environment.

I want to share with you my concerns. The economic crisis is far from over. It’s not time to relax. Save. Diversify your income. Hold onto your job even if you don’t like it. Prepare for a rainy day.

I wish I’m wrong. But, until then, I’m working my tail off.

Related posts:

• Who are making a lot of money from the economic downturn and where do they get their financial news and analysis?
• How much should I deduct for 401K, HSA, and FSA during recession?
• A great investment book that teaches you how to think
• GeekMBA360.com Publishes How To Become A Product Manager

Excellent resources:

• The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means
• Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Market
• The Dollar Crisis: Causes, Consequences, Cures , Revised and Updated