12

Look Your Finances in the Eye

If you have always had a good handle on your personal finances, congratulations. This skill will serve you well in starting a business. I imagine that you already track your expenditures closely, know your net worth, and don’t bristle at the thought of balancing your checkbook each month. You may skim this chapter to make sure you haven’t forgotten anything, but most likely you can move on to the chapters on benefits, breaking the news you want to start a business to your spouse, or lining your ducks in a row.

If you are not naturally gifted when it comes to understanding and managing your finances, don’t despair. Everyone has different strengths and weaknesses. That said, although you do not need to do all the money-related tasks of your business, you do need to make sure they get done.

Nothing will cause you more pain than ignoring the financial side of your business. Not horrible sales calls, crashed laptops, surly employees, or even bad press. When the financial side of your business is not working, life is miserable.

I don’t speak in generalities. Right in the middle of writing this book, my husband’s heavy equipment construction business in Phoenix, Arizona, formerly thriving with great profit, was hit by one the biggest economic slowdowns since the Great Depression. Clients who had always paid on time went sixty or ninety days overdue. Projects that were guaranteed to last for six months suddenly evaporated with one day’s notice.

I had a tiny baby and toddler at home and was unable to do my full-time coaching and consulting work due to their pressing needs. (Try telling a tiny baby to hold off on eating or cuddling so Mommy can work!)

The market changed under our feet, and we were stuck paddling as fast as we could against gigantic waves of expenses with tide pools of income.

To say it was bone-chilling frightening is an understatement. I worried about paying the monthly expenses, and meeting the mortgage payment and providing a stable and happy home life for my kids. I would wake up at three a.m., sweating from anxiety. Meanwhile, I was writing a blog and book about quitting your job to start a business. Do you see the irony?

Thankfully, my husband weathered the storm, changed his market focus, formed a new joint venture with great partners, and is back on track.

I never want to live through a time like this again, and I don’t want you to either. As we learned in our situation, some things like a perfect storm of (1) overoptimistic planning and equipment investment, met with (2) economic disaster (the meltdown of 2008) in (3) the hardest-hit industry (construction) in (4) one of the hardest hit parts of the country (Phoenix, Arizona) are difficult to predict.

But you can do some concrete things to make sure that you have a crystal-clear idea of where you stand financially so that you have the best chance of success in your new business. And if things start to get wacky in the economy or your personal life, you can quickly implement your backup plan so you don’t put yourself or your family at too much risk.

Get a Clear Picture of Your Current Situation

Organizing your finances starts with getting a clear picture of where you stand today. Before you get too far with business planning, you want to identify if there are elements of your financial situation that you want to improve in order to start your business with your best foot forward. If it is not perfect, that is okay! The important thing is that you develop an understanding of where you are, where you want to be, and what you need to do to prepare to start your business.

Current Snapshot

Using a spreadsheet or personal finance software program (lots of examples to follow), capture the following information:

 

INCOME

• What are all your sources of current income?

• How many of these sources are predictable and recurring, like a paycheck or monthly payment on a rental property you own, rather than incidental like an occasional sale on eBay or a side consulting project?

• Have you loaned money to a friend or relative that you actually expect to get back?

EXPENSES

• What are your ongoing, fixed expenses, like mortgage, food, insurance, utilities?

• What is your average amount for discretionary spending like dining out, entertainment, gifts, clothes, etc.?

SAVINGS

• How much liquid cash do you have in traditional bank accounts or money market accounts?

INVESTMENTS

• How much do you have in investment accounts?

DEBT

• Total all of your outstanding debt including secured (mortgage, vehicles, etc.) and unsecured debt (student loans, credit cards, etc.). Include total debt and interest rates.

Define the Value of Your Employee Benefits

There are a lot of hidden perks from your employer, and you want to make sure to document all of the benefits you receive now that you would have to pay for out-of-pocket if you worked for yourself. Most human resource departments have a benefits adviser who can help you calculate your costs. One word of caution: if you are keeping your entrepreneurial plans really secret and don’t trust your internal HR department to keep confidence, you can possibly get information directly from the benefit providers.

Chapter 13 will give you lots of tools for shopping for benefits on your own, so you can adjust your numbers once you do more research on better-priced options. For now, in the case of health insurance, if you are in the United States, you can look up the COBRA payment number that you would pay if you carried your same health plan and paid for it yourself.

The Trick Is to Track

While you can use a plain old notebook and pen for scratching out a few numbers and making calculations, your life will be much easier if you choose a tool to automate tracking of your personal finances. The key to your financial health is having a consistent, up-to-date picture of your finances at all times, and a clear plan and path for the future.

The exact tool you use is not important. What is important is to do the following things:

• Set up a basic system that has all your major financial categories defined: income, expenses, savings, investments, and debt. This way, you can plug in new numbers when you are working on your business plan.

• Sign up for online banking. You don’t want to have to worry about visiting a bank or staying on hold for twenty minutes every time you inquire into your accounts.

• Determine your strategy: if tracking your finances on a monthly basis yourself seems too overwhelming, hire someone to do it. The worst thing you can do is not do it at all.

• Automate as much as possible. You will have so many things to worry about when you start your business; spending four hours each month to manually enter your expenses line-by-line into a spreadsheet is not a good use of your time.

One of the most popular personal finance software programs is Quicken, made by Intuit, but there are a lot of other options available that you can see detailed at Read Write Web.¹

Clean House

Once you get a clear picture of your current situation, you want to do everything you can to create a strong financial base for your new business. There are three components to this:

1. Clean up your credit.

2. Reduce your expenses.

3. Build up cash reserves.

Five Ways to Clean Up Your Credit Score

For the financial advice in this chapter, I leaned heavily on Lynnette Khalfani, financial expert and author of many books including Zero Debt, The Money Coach’s Guide to Your First Million, and Perfect Credit. I respect Lynnette not just for her excellent advice, which she shares as a media expert on Oprah, CNN, FoxNews, and CNBC, but because she has personally recovered from $100,000 in credit card debt which she documented in her best-selling book Zero Debt.

She sees good credit as a huge boon for the small business owner, as it will allow you to easily set up accounts and get good rates on any necessary business financing. She says, “Whether or not you think it is fair, most financial professionals will judge your character and degree of responsibility by your credit score.” Here are her suggestions for the five best ways to increase your score into the “very good” range of 760 to 850 points:

1. Pay your bills on time. 35% of your credit score is based on how well you pay your bills.

2. Examine how much credit you are using of your allocated credit. A portion of your score is how much credit card debt you have vs. credit available. Try to pay off your balances each month, and if not, pay more than the minimum payment.

3. Do not cancel paid off credit cards. A portion of your credit score is based on the average age of your credit accounts. So a mistake many people make is to pay off a credit card and close the account. This will erase this portion of your credit history, and could adversely affect your rating.

4. Pay off credit card debt first. Not all debt is the same. Mortgage or installment credit, like a car loan, is not as bad as revolving credit. Credit card debt is the worst. Try to pay that down as fast as you can, and see your scores improve.

5. Watch your inquiries for new credit. If you jump at the chance to save 10% off of purchases at a local store by signing up for their credit card, realize that lots of credit inquiries reflect poorly on your credit report. Ideally, you should only have one inquiry every 18 months.²

Reduce Expenses

It is easy to get used to “the lifestyle to which you have become accustomed.” But when preparing for a big life change, you want to have a lean home operation. This is to reduce stress and give you more breathing room so that your business can really take root. There is nothing worse than having to make sales immediately in order to pay rent. This will make you frightened and desperate, not exactly qualities to help you win friends and influence people.

There are hundreds of ways you can cut expenses from your budget—be creative! And remember, you are not doing this to please some judgmental personal finance expert wagging her finger at you, you are doing it to get one step closer to building a business that makes you smile on Monday morning.

Build a Cash Reserve

Once you are clear where you stand and start cutting back expenses, it is time to build up a nice cash reserve. Experts recommend saving a range of three to six months of expenses, but if you are really motivated and risk-averse, you might want to save twelve months’ worth of expenses.

For some of you, this may seem an impossible task, especially if you are struggling just to pay your bills. But I bet that with a little close evaluation, you will be able to save a bit each month. Don’t consider this a make-or-break rule, just realize that if you don’t have as much of a cash reserve, you should have a proven business idea (i.e., you are already making money on the side of your day job) and a very solid backup plan (like a boss who is willing to take you back, a great relationship with a recruiter, a rich uncle, or a very marketable skill you can draw upon that won’t get you arrested).

The Number

Some people use this savings as a true reserve, and do not touch it. A good friend of mine is a longtime self-employed consultant and leads a very adventurous life. After doing some intense and large-scale projects, she builds up a cash cushion. Then she takes off chunks of time to scuba dive around the world and do volunteer work. When her savings hit $40,000, she goes back to work to fill up the pot. It is a nice model for her, because knowing that she will not totally deplete her savings, she actually enjoys her time off without guilt or fear.

Let Your Fears Guide You

Fears are not all bad! They can be a great way to ensure that your plan covers what it needs to. If you have a nagging fear about something that is not covered in your current plan, it is a good indication that you need to address it.

One of my blog readers shared some of his wife’s concerns with me when he told her he wanted to quit his job to start a business. Her fears are listed below with some of my suggestions following. Use your professional network and trusted advisers to get the answers you need to whatever money fears pop into your mind.

 

HOW WILL I PAY FOR A MEDICAL EMERGENCY?

• Set aside a fund to cover the deductible on your health insurance plan.

• Become very familiar with the specifics of your policy so you know what is covered and what is not.

HOW WILL I REPLACE PAID TIME OFF?

• Unless you want to work 365 days a year (not recommended), you need to factor time off into your business model. When calculating your hourly rate, build in days off, and time to do marketing and administration.

HOW MUCH AM I REALLY GOING TO PAY IN TAXES?

• Talk with your accountant about different tax scenarios and specific taxes that relate to the self-employed.

• Set aside a percentage of savings to pay taxes each time you get paid by your client.

WHAT IF MY CLIENTS DON’T PAY ON TIME?

• Secure a business line of credit to use in emergencies when a client does not pay on time.

WHAT IF I GET SUED BY A CLIENT OR COMPETITOR?

• Talk to a lawyer about the appropriate type of liability insurance to ensure that you mitigate your risk.

Five Reasons You Shouldn’t Have a Cushion Before You Quit Your Job

While most financial experts and advisers I spoke to encourage people to have a substantial amount of money set aside in case of emergencies, Naomi Dunford of Ittybiz offered this contrarian advice:

 

Once upon a time, I wrote a post about the monetary benefits of having a financial cushion. And I agree with myself. From a purely money standpoint, you’re an idiot if you don’t have at least something tucked away for when all your clients die of smallpox.

But that’s the money part of it. What about business-wise? As in, business growth-wise? From that angle, I don’t know if it’s the best idea. Here’s why.

1. Not having a cushion lights a fire under your ass. From E-myth to StomperNet and everyone in between advises against analysis paralysis—what’s the absolute BEST typeface to use on the logo? Should we go with blue or green? Does this job contribute to my future business goals?

When you have no cushion, there’s no time for that. That freelance gig you’re dilly-dallying about bidding on? That’s tomorrow night’s dinner.

2. You’re forced to get creative. If you want to market yourself—and since you don’t have a cushion, marketing yourself would be a very good idea indeed—you have to actually think. Any idiot can buy a bunch of ads to get people to buy their service or check out their blog or order their book. But that’s not where the good stuff comes from.

When you have no money, you have to hustle. Your sole source of advertising might be the shirts you just had printed for fifty bucks. You might have to wear your cousin’s bunny suit and stand outside the radio station holding a sign that pleads “Ask me what I do!” Hell, you might even have to get off your ass and talk to some real, live people and ask them for business.

3. You’re going to learn to focus. When you have a cushy start-up loan or a quadzillion months of savings in the bank, it’s awful easy to get distracted. I mean, look at all there is to do out there! Flickr alone could kill a week.

But when you need work or exposure or sales, you focus like a laser. (Yes, Mom. A laser. In air quotes. From Austin Powers.)

When you need a check in the mail sooner rather than later, checking a blog to see if anybody responded to your witty and insightful comment doesn’t exactly seem like the most efficient use of your time.

4. You don’t lose the fire. When you’re first starting out, you’re burning to succeed. All you want is to get your hands in there and do it. You want to print those goddamn t-shirts by hand if you have to. Hanging around in your cubicle for 19 months until you feel you have enough start-up capital is soul-sucking. Your fire goes.

If your fire goes, soon enough those hand printed t-shirts don’t seem like such a good idea anymore and you’re signing the line for your fifth one percent cost-of-living raise in a row.

5. The sooner you start, the sooner you’ ll succeed. There’s a great saying I love: “The best time to plant a tree was forty years ago. The second best time is today.”

These are comforting words today because you don’t have a tree. Don’t cry over lost tree planting opportunities, I always say. (OK, no, I don’t.) But do you think it would have been good advice forty years ago? Would you have said, “Well, maybe now’s not the perfect time. I’ll do it when I retire”? Not if you wanted the tree, you wouldn’t have.

I have no doubt there are countless thriving businesses run by entrepreneurs who waited till the time is right, and I applaud them. I don’t know much about them, though. I don’t know much about them because they’re not making the front page of Fast Company. They don’t tend to launch on Tech Crunch.

The ones I know about, the ones with buzz and energy and excitement and soul, they’re the ones who took the plunge and sold their stereo to pay for a bunny suit.³

What to Do While Still Employed

There are a few specific things you should do while still employed at your corporation. They include securing:

• Supplemental life insurance. To be really safe, you should have an amount of coverage that is about ten times your annual salary, to protect your loved ones. Most people don’t invest in a high enough limit, and this puts your family at risk.

• Workers’ compensation insurance. You want to get workers’ compensation insurance before you quit your job.

• If you plan on making any changes to the deductibles on your health plan benefits, have all your family members take care of doctor appointments and procedures covered under your current plan.

• If you have money allocated in a health savings plan (HSP), make sure you spend it within the calendar year for which it is allocated. Check your specific plan to see how you can spend it—in many cases, it can be used for eyeglasses, prescriptions, and other items which can add up to quite a bit of out-of-pocket expenses.

Get Help

When weighing a big decision like quitting your job to start a business, you want to make sure you are as informed as possible about the financial implications of your decisions.

I recommend getting input and advice from the following professionals:

Financial Planner

A good financial planner will be able to help you look at the big picture of your finances and evaluate different options for meeting your goals. This person can help you:

• Define retirement goals

• Define education funding goals if you have children

• Evaluate options for types of self-employed retirement plans

• Define specific annual targets (e.g., you must fund your IRA with at least X dollars per year if you want to reach your goals)

Certified Public Accountant (CPA)

A CPA, together with a lawyer, can help you evaluate an appropriate business structure that gives you maximum protection and minimizes taxes. You can also get some good working numbers for how much you can expect to pay in taxes if you are self-employed for your working budget.

How to Find a Good Financial Planner

Small business expert and author of Small Business Cash Flow: Strategies for Making Your Business a Financial Success Denise O’Berry says there are two key areas you should focus on when selecting a financial adviser for your business: 1) your needs, and 2) fit for your business. She elaborates:

 

 

WHAT ARE YOU LOOKING FOR?

• Geographical proximity. Is it important that you work with someone who can meet you face-to-face, or are you comfortable with a virtual relationship?

• Service level. Are you schooled in all the different aspects of financial planning for your business and need only minimal direction, or do you require substantial advice and direction from an expert?

• Paper handling. Do you love poring over all the details of the financial papers of your business, or does the thought of doing so give you a headache?

• Business size. Are you more comfortable with a “big name” firm and their breadth of experience, or would you rather connect with a smaller, more personal firm?

• Service fees. Fees for service cover a broad range. Paying more does not equal better service. Consider your cash flow budget tolerance when making your selection.⁴

FINDING A FINANCIAL ADVISER WHO’S THE RIGHT FIT.

• Ask around. Tap into your network of entrepreneurial contacts to see who they use as a starting point.

• Interview carefully. Find out if the person specializes in businesses like yours. Each type of business has different requirements and needs. You’ll also want to find out what they’ve done for others. Make sure they describe business results that are comparable to the ones you seek.

• Does it feel right? You’ll want to make sure you connect with this person. Do they listen? Are they genuinely interested in you and your business? Can you envision having a long-term relationship with them?

Outsource vs. Abdicate

I am a big fan of outsourcing anything in your life that is not a core strength or a joy to do. As long as you focus your freed-up time to generate more revenue or opportunities, it is a good trade. Marcus Buckingham in the best-selling book Now, Discover Your Strengths says: “Whenever you interview people who are truly successful at their chosen profession—from teaching to telemarketing to acting to accounting—you discover that the secret to their success lies in their ability to discover their strengths and to organize their life so that these strengths can be applied.”⁵

When it comes to your finances, you need to be careful to make sure that you don’t outsource to abdicate responsibility for overseeing your money, but rather to focus on more high-energy and high-return activities. In my own case, I would rather give myself a root canal than spend hours hunched over a spreadsheet, but I do like knowing how my business is doing financially.

If you totally abdicate responsibility, you may open yourself to be taken advantage of by an unscrupulous person who will realize that you are insecure about and afraid of financial matters.

My dear Aunt Char, known to most of the world as Miss Beadle from the television show Little House on the Prairie, had such an unfortunate encounter when she was doing very well financially. She hired a business manager whom we will call “George” to look after all of her money and investments. At the time, she had a lovely home in Topanga Canyon in Los Angeles, a healthy check rolling in every month from the series, and plenty of money in the bank.

Because she wasn’t comfortable handling financial details, she handed everything over to George, including power of attorney.

At first everything was great. She felt wonderful that her finances were taken care of so that she could focus on her acting career.

Then George developed a bad cocaine habit. All of her hard-earned money, assets, and home went up George’s nose. It was surprising, devastating, and heartbreaking.

“He was a good friend who I trusted but I should have taken warning when I realized he was using ‘recreational drugs’ and that friends were trying to drop hints that all was not right. I could have avoided all this if I had done research on him and not just taken a friend’s recommendation.”

This case may seem a bit extreme, but believe me, variations on this theme happen every day.

You must oversee the work done by your financial advisers and managers. In particular, do the following things:

• Review your financial statements at the end of each month.

• Review money spent in each category in relation to monthly averages.

• Ask questions if you see charges you don’t understand.

• If you feel your adviser is getting defensive about your questions or glossing over them, involve a trusted third party.

• Do not give over power of attorney to anyone but your most trusted close family members.

• Even if you do not get involved in the details of managing your money, learn financial basics. Know how to read an income statement and balance sheet.

• Identify a trusted third party with a strong finance background who can review financials periodically.

The Mental Side of Money

If you think that working for yourself is going to solve your lifelong problems with money, I hate to break it to you, it won’t. Unless you address the underlying thoughts and beliefs that guide your financial behaviors, you are more likely to be in a worse financial situation if you work for yourself rather than as an employee.

If you make more money, you are likely to spend it. Think MC Hammer before he became a father of seven and a preacher. If you struggle with cash flow and getting clients, you are likely to panic and get further into debt. I was amazed to learn that Walt Disney went bankrupt.

So the biggest gift you can give yourself before starting your business is to understand your own thoughts, feelings, and beliefs about money so you can change any unhealthy behaviors that will get in the way of running an effective business.

Do You Define Yourself by Your Credit Score?

Some of the popular financial media figures have a lot of harsh words for those who have poor financial practices. They wag their fingers at “impulse shoppers” and use words like “irresponsible,” “undisciplined,” and “deadbeat.”

I don’t think people dig themselves into a financial hole because they do not want to be responsible. I think they do it because they feel insecure, overwhelmed, and afraid. It doesn’t feel good not to be able to pay your bills.

A couple of years ago I conducted a telephone seminar on how to take back the power in your career for a group of employees in a nonprofit organization that was undergoing rapid change. We had just walked through an exercise about creating a vision of their ideal work, without the constraints of silly things like reality. I asked if there were any questions and got one from a very bright employee named Patrick.

“This is a great exercise for some people, but I can’t even begin to define a vision of my perfect work.”

I asked Patrick why it was so hard.

“I have lots of student loan debt and some credit card debt. Who could I possibly get interested to fund my dreams? I don’t want to ask my parents to lend me money since they have done enough already.”

What was not said on the phone was more powerful than what was said. Patrick is a smart, capable, caring, and perceptive young man who is already doing great things with his life. But he had convinced himself that since he was in a tough financial situation, he didn’t have permission to even imagine what a perfect life would look like.

Since when did your credit score become the required pass to a better life?

The financial part of your life is one area where there is a public, accessible record of all your past behaviors and decisions, good and bad. Every move you make financially is carefully tracked and recorded. And as a society, we place a huge weight on this score, since to us it suggests a level of maturity, responsibility, and, I would argue, moral superiority. What if we tracked and scored a whole variety of other things in our lives?

 

GENEROSITY SCORE

 

Adds to good score: Listened compassionately to someone in need. Donated time, money, or items to worthy cause. Demonstrated love, compassion, and forgiveness on a regular basis.

Subtracts from good score: Never volunteered for anything. Ate all the cookies before your siblings got home. Held grudges and never forgave anyone for making mistakes.

 

RELATIONSHIP SCORE

 

Adds to good score: Dated only happy, emotionally healthy people. Spoke openly and honestly about feelings. Respected your partner and cared about his well-being.

Subtracts from good score: Dated drug-addicted drummer in heavy metal band. Spent endless years in a relationship that went nowhere. Blamed all of your unfinished emotional crap on your ex-wife.

 

DIET SCORE

 

Adds to good score: Ate balanced diet of fruits, vegetables, and grains. Didn’t use excess sugar, salt, fat, alcohol, or unhealthy substances.

Subtracts from good score: Went on late-night Ben & Jerry’s binge. Ate fast food and double chocolate lava cake with ice cream on the side. Fancied chips and salsa for dinner.

 

What kind of scores would you have in these other areas? If you are like me, you may find that it is impossible to be perfect in most areas of your life. But because there are not three agencies tracking your diet or relationship history and sharing the score with anyone who wants access, we tend to give ourselves more of a break if we are not perfect in areas besides personal finance.

People who have money struggles often face one or more of the following situations:

• I have lots of debt and it is overwhelming. Many people have the erroneous impression that people with huge debt are credit card-wielding shopaholics who have an insatiable desire for the perfect Manolo Blahnik shoe. And perhaps some of them are. But I find that the majority of people slowly and almost imperceptibly slipped into overwhelming debt by receiving a poor financial education, and using their credit cards for purchases they can’t afford (including necessities like paying for college, room and board). This debt feels like a lead weight on your chest and creates a huge amount of fear.

• I have a bad credit score because of mistakes that I made in my younger years. Oh, the follies of youth. Some of us didn’t understand the principles of money management or the pitfalls of getting access to credit cards too soon. We didn’t realize that one late payment on a credit card could shoot interest rates through the roof, or that a lengthy delay on a payment would be reflected on our credit report for seven years. We also may have cosigned on a car or home loan for friends or relatives who were unable to pay and saw our credit scores plummet as a result.

• I have excellent credit, my bills are all paid, and I have money in the bank. But I still feel poor! Some people manifest their emotional relationship with money by never feeling fulfilled, no matter how much they make. They might have grown up without money and have an intense fear of poverty. Or they grew up wealthy and feel that if they don’t continually bring in huge piles of cash they have no worth. People who don’t have money or carry lots of debt can often be confused by this emotion since these people have what they are looking for: financial stability. But to those who struggle with this issue, it is as scary and painful as being deeply in debt.

• I feel uncomfortable asking for money for my services, whether it be negotiating my salary as an employee or setting an hourly rate as a free agent. Our comfort level with charging for our services is often directly related to how we feel about ourselves and how well we understand the value we bring to our customers.

Being financially responsible is not about living up to anyone’s standard of perfection. It is about respecting and valuing yourself, protecting your interests, and leaving many doors open for you to do whatever it is you want to do: travel, buy a home, provide for your children, or start a business. A good credit score is a great thing when you approach it from the right perspective.

Common Financial Patterns

Nearly every financial situation reflects one of three general patterns: seeing oneself as having less than enough, just enough, or more than enough money. The term “enough” is relative and highly individualized. For some people, having basic needs met is sufficient, engendering a sense of satisfaction and security; among others, no matter how much money they accumulate, the perception persists that they need more. This table illustrates these patterns and their main characteristics, as well as the accompanying thoughts, beliefs, emotions, behaviors, and relationship dynamics.

Source: From Build Your Money Muscles by Joan Sotkin

 

 

It might initially appear that people who view themselves as having less than enough money experience constant discomfort and those who see themselves as having more than enough live in joy and satisfaction. In reality, though, both financial patterns correlate with a wide range of emotional states. People who regard themselves as having less than enough money, although troubled financially, may enjoy the company of family and friends, participate in satisfying social activities, and experience success in nonfi- nancial areas of their life. At the same time, those who see themselves as having more than enough money might be dealing with family or work problems, feel unfulfilled creatively, suffer ongoing disappointments, or have relationship difficulties.

Facing and Fighting Financial Trolls

J . D. Roth has become one of the most respected “real life” financial bloggers who dispenses advice on his blog Get Rich Slowly. He offers advice for fighting “financial trolls”:

 

COPING WITH EXTERNAL TROLLS

 

When I started Get Rich Slowly, I wanted people to like and agree with everything I wrote. Any time I received a negative comment, I took time to exchange e-mail with the person who left it. Here’s an example of an actual criticism I once received: “I would love [this site] if only the privileged would acknowledge how lucky and privileged they are and how their ‘advice’ applies to only other privileged kids.” I tried to carry on a conversation with the commenter, but nothing I could say would satisfy him—in his mind I was a rich jerk and nothing could change that.

• I realized that 95% of these people aren’t interested in a rational exchange of ideas. They’re external financial trolls. They have chips on their shoulders, they’re clinging to preconceived notions, or they just want to argue. They’re not worth my time.

Defeating most external trolls is straightforward. Because they’re not internal, you can usually just remove yourself from the situation. Ignore the troll. Change the conversation. Leave the room. Hang up the phone. Do not argue . . . any time you argue with a troll, the troll wins. Do not engage the troll.

 

 

COPING WITH INTERNAL TROLLS

 

Internal trolls are more insidious than their external brethren. Because they are a part of you, eradicating them takes self-discipline. Examples of internal trolls include:

• Self-defeating thoughts and behaviors: “I can’t do this—it’s too difficult,” “I’m not smart enough,” “It’s too much work,” “I don’t deserve to have money.”

• Procrastination: “I’ll start next week,” “I’ll worry about this later,” “I can start saving next month—this month I’ll buy an Xbox.”

• Rationalization: “Buying just one pair of shoes won’t blow my budget,” “I’m out with my friends—I should join the fun,” “I should reward myself for how well I’ve been doing lately.”

• Barriers: “I don’t know how to open an IRA,” “It’s too much bother to set up automatic deposits,” “Sure I could call around for lower rates, but I don’t like talking on the phone.”

Conquering internal trolls can be non-intuitive. Most are a product of self-doubt, which is best combated through exercise, discipline, positive social interaction, and a healthy diet. Seriously. The following can also help:

• Talk back to yourself! It makes sense to avoid arguments with external trolls, but confronting internal trolls is an excellent tactic.

• Set financial goals. Review them regularly.

• Read success literature: personal finance books, self-development manuals, and biographies of successful people.

• Educate yourself. Learn about money. I resisted investing for a long time until I learned just how easy it was to open an IRA.

• Find a mentor, a coach, or an advisor. Learn from others.

I have much more trouble with internal trolls than I do with external trolls. They’re a constant threat.

 

 

KNOW WHEN TO SEEK HELP

 

Some trolls are difficult to defeat. What do you do about a spouse who insists on sabotaging your financial security? How do you deal with your own compulsive shopping? Problems like these may require the assistance of a trained professional: an accountant, a lawyer, or a psychologist. The important thing is to deal with them. Until you defeat them, they’ll only hold you back, preventing you from achieving success.⁶

In the End, Is It Really About the Money?

Money is a hugely important piece of your business puzzle. But it is not the only thing, and can be a distraction if you let it. Tim Ferriss says:

There is much to be said for the power of money as currency (I’m a fan myself), but adding more of it just isn’t the answer as often as we’d like to think. In part, it’s laziness. “If only I had more money” is the easiest way to postpone the intense self-examination and decision-making necessary to create a life of enjoyment—now and not later. By using money as the scapegoat and work as our all-consuming routine, we are able to conveniently disallow ourselves the time to do otherwise: “John, I’d love to talk about the gaping void I feel in my life, the hopelessness that hits me like a punch in the eye every time I start my computer in the morning, but I have so much work to do! I’ve got at least three hours of unimportant e-mail to reply to before calling the prospects who said ‘no’ yesterday. Gotta run!”

Busy yourself with the routine of the money wheel, pretend it’s the fix-all, and you artfully create a constant distraction that prevents you from seeing just how pointless it is. Deep down, you know it’s all an illusion, but with everyone participating in the same game of make-believe, it’s easy to forget.

The problem is more than money.⁷